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CDW Reports Second Quarter 2013 Results

Stocks in this article: CDW

Non-GAAP Financial Information

Non-GAAP Net income, EBITDA and Adjusted EBITDA, are non-GAAP financial measures. We believe these measures provide helpful information with respect to the company’s operating performance and cash flows including CDW’s ability to meet our future debt service, capital expenditures, dividend payments and working capital requirements. Adjusted EBITDA also provides helpful information as it is the primary measure used in certain financial covenants contained in the company’s credit agreements.

The financial statement tables that accompany this press release include a reconciliation of non-GAAP financial measures to the applicable most comparable U.S. GAAP financial measures. Non-GAAP measures used by the company may differ from similar measures used by other companies, even when similar terms are used to identify such measures.

About CDW

CDW is a leading provider of technology solutions to business, government, education and healthcare. Ranked No. 267 on the FORTUNE 500, CDW was founded in 1984 and employs more than 6,800 coworkers. For the trailing twelve months ended June 30, 2013, the company generated net sales of more than $10.4 billion. For more information, visit www.CDW.com.

Webcast

CDW will hold a conference call today, Friday, August 2 at 7:30 a.m. CST/8:30 a.m. ET to discuss its second quarter 2013 financial results. The conference call, which will be broadcast live via the Internet, and a copy of this press release along with supplemental slides used during the call, can be accessed on CDW’s website at http://investor.cdw.com/. For those unable to participate in the live call, a replay of the webcast will be available at www.investor.cdw.com approximately 90 minutes after the completion of the call and will be accessible on the site for approximately one year.

CDWPR-FI

 
CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in millions)

(unaudited)

 
 
    Three Months Ended June 30,     Six Months Ended June 30,
2013     2012     % Change (1) 2013     2012     % Change (2)
 
Net sales $ 2,779.3 $ 2,584.7 7.5 % $ 5,191.0 $ 4,903.9 5.9 %
Cost of sales   2,327.7     2,157.8   7.9     4,337.4     4,092.4   6.0  
 
Gross profit 451.6 426.9 5.8 853.6 811.5 5.2
 
Selling and administrative expenses 266.4 259.5 2.7 517.9 511.1 1.3
Advertising expense   31.6     31.0   2.2     62.0     60.4   2.6  
 
Income from operations 153.6 136.4 12.6 273.7 240.0 14.0
 
Interest expense, net (70.3 ) (76.9 ) (8.6 ) (142.4 ) (155.8 ) (8.5 )

Net loss on extinguishments of long-term debt

(10.3 ) -

nm

*

(14.2 ) (9.4 ) 50.6
Other income, net   0.2     0.2  

nm

*

  0.6     -  

nm

*

 
Income before income taxes 73.2 59.7 22.5 117.7 74.8 57.2
 
Income tax expense   (26.5 )   (22.9 ) 15.7     (42.7 )   (27.1 ) 57.4  
 
Net income $ 46.7   $ 36.8   26.7 % $ 75.0   $ 47.7   57.1 %
 
   
* Not meaningful
 
(1) There were 64 selling days for both the three months ended June 30, 2013 and 2012.
(2) There were 127 selling days for the six months ended June 30, 2013, compared to 128 selling days for the same period of 2012. On an average daily basis, net sales increased 6.7%.
 

 

CDW CORPORATION AND SUBSIDIARIES

NON-GAAP NET INCOME, EBITDA AND ADJUSTED EBITDA

(dollars in millions)

(unaudited)
 
 
We have included reconciliations of Non-GAAP net income, EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2013 and 2012 below. Non-GAAP net income excludes, among other things, charges related to the amortization of acquisition-related intangibles, non-cash equity-based compensation and gains and losses from the early extinguishment of debt. EBITDA is defined as consolidated net income before interest expense, income tax expense, depreciation and amortization. Adjusted EBITDA, which is a measure defined in our credit agreements, means EBITDA adjusted for certain items which are described in the table below. Non-GAAP net income, EBITDA and Adjusted EBITDA are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP measures used by the Company may differ from similar measures used by other companies, even when similar terms are used to identify such measures. We believe that Non-GAAP net income, EBITDA and Adjusted EBITDA provide helpful information with respect to our operating performance and cash flows including our ability to meet our future debt service, capital expenditures, and working capital requirements. Adjusted EBITDA also provides helpful information as it is the primary measure used in certain financial covenants contained in our credit agreements.
 
       
Three Months Ended June 30, Six Months Ended June 30,
2013     2012     % Change 2013     2012     % Change
 
Net income $ 46.7 $ 36.8 $ 75.0 $ 47.7
Amortization of intangibles (i) 40.1 41.1 80.5 82.2
Non-cash equity-based compensation 2.1 5.8 4.0 11.5
Net loss on extinguishments of long-term debt 10.3 - 14.2 9.4
Interest expense adjustment related to extinguishments of long-term debt (ii) - - (0.8 ) (1.7 )
IPO related expenses (iii) 0.2 - 0.2 -
Aggregate adjustment for income taxes (iv)   (20.2 )   (16.5 )     (37.6 )   (36.0 )  
Non-GAAP net income $ 79.2   $ 67.2   17.8 % $ 135.5   $ 113.1   19.8 %
 
 
(i) Includes amortization expense for acquisition-related intangible assets, primarily customer relationships and trade names.
(ii)

Reflects adjustments to interest expense resulting from debt extinguishments. Represents the difference between interest expense previously recognized under the effective interest method and actual interest paid.

(iii) Represents certain fees and costs expensed related to the initial public offering of the Company’s shares.
(iv) Based on a normalized effective tax rate of 39.0%.
 
       
Three Months Ended June 30, Six Months Ended June 30,
2013     2012     % Change 2013     2012     % Change
 
Net income $ 46.7 $ 36.8 $ 75.0 $ 47.7
Depreciation and amortization 52.3 53.2 104.3 105.7
Income tax expense 26.5 22.9 42.7 27.1
Interest expense, net   70.3   76.9   142.4   155.8
EBITDA   195.8   189.8   364.4   336.3
Adjustments:
Non-cash equity-based compensation 2.1 5.8 4.0 11.5
Sponsor fee 1.3 1.2 2.5 2.5
Consulting and debt-related professional fees 0.3 0.4 0.4 0.5
Net loss on extinguishments of long-term debt 10.3 - 14.2 9.4
Other adjustments (a)   2.8   3.4     5.7   6.8  
Adjusted EBITDA $ 212.6 $ 200.6 6.0 % $ 391.2 $ 367.0 6.6 %
 
 
(a) Other adjustments primarily include certain retention costs and equity investment income.
 

 
CDW CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in millions)

(unaudited)

 
 
    June 30,     December 31,     June 30,
2013 2012 2012
Assets
 
Current assets:
Cash and cash equivalents $ 179.3 $ 37.9 $ 158.7

Accounts receivable, net of allowance for doubtful accounts of $5.4, $5.4 and $5.4, respectively

1,390.5 1,285.0 1,253.5
Merchandise inventory 378.5 314.6 321.6
Miscellaneous receivables 165.1 148.5 160.7
Deferred income taxes 12.1 14.1 21.5
Prepaid expenses and other   108.2   34.6   63.5
Total current assets 2,233.7 1,834.7 1,979.5
 
Property and equipment, net 132.7 142.7 142.3
Goodwill 2,207.4 2,209.3 2,208.5
Other intangible assets, net 1,403.7 1,478.5 1,557.7
Deferred financing costs, net 41.4 53.2 60.7
Other assets   1.6   1.6   2.0
Total assets $ 6,020.5 $ 5,720.0 $ 5,950.7
 
Liabilities and Shareholders’ Equity
 
Current liabilities:
Accounts payable – trade $ 771.0 $ 518.6 $ 688.3
Accounts payable – inventory financing 282.5 249.2 253.2
Current maturities of long-term debt 13.5 40.0 -
Accrued expenses and other liabilities   378.2   360.4   371.2
Total current liabilities 1,445.2 1,168.2 1,312.7
 
Long-term liabilities:
Debt 3,710.9 3,731.0 3,871.4
Deferred income taxes 598.3 624.3 656.7
Other liabilities   57.1   60.0   58.8
Total long-term liabilities 4,366.3 4,415.3 4,586.9
 
Total shareholders’ equity   209.0   136.5   51.1
Total liabilities and shareholders’ equity $ 6,020.5 $ 5,720.0 $ 5,950.7
 

 
CDW CORPORATION AND SUBSIDIARIES
NET SALES DETAIL

(dollars in millions)

(unaudited)

 
 
    Three Months Ended June 30,
2013     2012     % Change    

Average Daily

% Change (1)

Corporate:
Medium / Large $ 1,271.4 $ 1,124.7 13.0 % 13.0 %
Small Business   266.0   269.7 (1.4 ) (1.4 )
Total Corporate $ 1,537.4 $ 1,394.4 10.3 % 10.3 %
 
Public:
Government $ 295.7 $ 318.0 (7.0 )% (7.0 )%
Education 420.6 349.5 20.4 20.4
Healthcare   366.3   372.9 (1.8 ) (1.8 )
Total Public $ 1,082.6 $ 1,040.4 4.1 % 4.1 %
 
Other $ 159.3 $ 149.9 6.2 % 6.2 %
 
Total Net Sales $ 2,779.3 $ 2,584.7 7.5 % 7.5 %
 

(1) There were 64 selling days for both the three months ended June 30, 2013 and 2012.

 
 
Six Months Ended June 30,
2013 2012 % Change

Average Daily

% Change (2)

Corporate:
Medium / Large $ 2,417.6 $ 2,214.3 9.2 % 10.0 %
Small Business   523.7   542.9 (3.5 ) (2.8 )
Total Corporate $ 2,941.3 $ 2,757.2 6.7 % 7.5 %
 
Public:
Government $ 548.0 $ 580.6 (5.6 )% (4.9 )%
Education 652.9 571.2 14.3 15.2
Healthcare   728.5   706.2 3.2   4.0  
Total Public $ 1,929.4 $ 1,858.0 3.8 % 4.7 %
 
Other $ 320.3 $ 288.7 10.9 % 11.8 %
 
Total Net Sales $ 5,191.0 $ 4,903.9 5.9 % 6.7 %
 
(2)   There were 127 selling days for the six months ended June 30, 2013, compared to 128 selling days for the same period of 2012.
 

 
CDW CORPORATION AND SUBSIDIARIES
DEBT AND WORKING CAPITAL INFORMATION

(dollars in millions)

(unaudited)

 
 
    June 30,     December 31,     June 30,
2013 2012 2012
 
Debt and ABL Revolver Availability
Cash and cash equivalents $ 179.3 $ 37.9 $ 158.7
Total debt $ 3,724.4 $ 3,771.0 $ 3,871.4
Senior secured debt $ 1,843.3 $ 1,839.5 $ 1,839.5
Outstanding borrowings under ABL Revolver $ - $ - $ -
Borrowing base under ABL Revolver (1) $ 1,098.8 $ 1,018.2 $ 991.5
ABL Revolver availability $ 631.4 $ 622.4 $ 651.7
Cash plus ABL Revolver availability $ 810.7 $ 660.3 $ 810.4
Total net leverage ratio (2) 4.5 4.9 5.0
 
Working Capital

Days of sales outstanding (DSO) (3)

41 42 40
Days of supply in inventory (DIO) (3) 15 14 14
Days of purchases outstanding (DPO) (3)   (35 )   (32 )   (33 )
Cash conversion cycle (3)   21     24     21  
 
 
(1) Amount in effect at quarter end.
(2) Defined as the ratio of total debt excluding any unamortized discount and/or premium, less cash and cash equivalents, to TTM Adjusted EBITDA. Prior periods have been revised to conform to the current definition.
(3) Based on a rolling three month average.
 

       
CDW CORPORATION AND SUBSIDIARIES
CASH FLOW INFORMATION

(dollars in millions)

(unaudited)

 
 
Six Months Ended June 30,
2013 2012
 
Cash flows from operating activities $ 207.1 $ 304.7
 
Cash flows from investing activities (20.0 ) (15.7 )
 
Net change in accounts payable – inventory financing 33.3 (25.5 )
Other cash flows from financing activities   (77.6 )   (204.6 )
Cash flows from financing activities (44.3 ) (230.1 )
 
Effect of exchange rate changes on cash and cash equivalents   (1.4 )   (0.1 )
Net increase in cash and cash equivalents 141.4 58.8
Cash and cash equivalents – beginning of period   37.9     99.9  
Cash and cash equivalents – end of period $ 179.3   $ 158.7  
 
Supplementary disclosure of cash flow information:

Interest paid

$ (142.7 ) $ (151.4 )
Taxes paid, net $ (50.9 ) $ (38.4 )
 




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