Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements



	Page
Report of Independent Registered Public Accounting Firm	53
Consolidated Balance Sheets as of December 31, 2018 and 2017	54
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016	55
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016	56
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016	57
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016	58
Notes to Consolidated Financial Statements	59

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of CDW Corporation and subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of CDW Corporation and subsidiaries (the Company) as of December 31, 2018, and 2017, the related statements of consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (2) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with US generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



/s/ Ernst & Young LLP
We have served as the Company's auditor since 2011.
Chicago, Illinois
February 27, 2019

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in millions, except per-share amounts)

	December 31,
	2018			2017
Assets				(as adjusted)
Current assets:
Cash and cash equivalents	$	205.8		$	144.2
Accounts receivable, net of allowance for doubtful accounts of $7.0 and $6.2, respectively	2,671.2			2,329.3
Merchandise inventory	454.3			411.5
Miscellaneous receivables	316.4			343.0
Prepaid expenses and other	149.1			168.3
Total current assets	3,796.8			3,396.3
Property and equipment, net	156.1			161.1
Goodwill	2,462.8			2,479.6
Other intangible assets, net	712.2			897.0
Other assets	39.8			32.7
Total Assets	$	7,167.7		$	6,966.7
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable-trade	$	1,577.1		$	1,317.7
Accounts payable-inventory financing	429.3			498.0
Current maturities of long-term debt	25.3			25.5
Contract liabilities	178.3			158.8
Accrued expenses and other current liabilities:
Compensation	186.4			129.5
Advertising	119.2			89.2
Sales and income taxes	55.5			60.0
Other	232.0			243.4
Total current liabilities	2,803.1			2,522.1
Long-term liabilities:
Debt	3,183.3			3,210.0
Deferred income taxes	141.9			196.3
Other liabilities	64.2			52.7
Total long-term liabilities	3,389.4			3,459.0

Stockholders' equity:
Preferred stock, $0.01 par value, 100.0 shares authorized; no shares issued or outstanding for both periods	—			—
Common stock, $0.01 par value, 1,000.0 shares authorized; 147.7 and 153.1 shares issued, respectively	1.5			1.5
Less: treasury stock, $0.01 par value, 0.0 and 0.1 shares held, respectively	—			—
Outstanding common stock, $0.01 par value, 147.7 and 153.0 shares outstanding, respectively	1.5			1.5
Paid-in capital	2,996.9			2,911.6
Accumulated deficit	(1,892.6		)	(1,831.6		)
Accumulated other comprehensive loss	(130.6		)	(95.9		)
Total stockholders' equity	975.2			985.6
Total Liabilities and Stockholders' Equity	$	7,167.7		$	6,966.7

The accompanying notes are an integral part of the Consolidated Financial Statements.

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per-share amounts)

	Year Ended December 31,
	2018			2017			2016
				(as adjusted)			(as adjusted)
Net sales	$	16,240.5		$	14,832.9		$	13,672.7
Cost of sales	13,533.6			12,382.7			11,344.4
Gross profit	2,706.9			2,450.2			2,328.3
Selling and administrative expenses	1,537.1			1,410.0			1,345.4
Advertising expense	182.5			173.7			162.9
Operating income	987.3			866.5			820.0
Interest expense, net	(148.6		)	(150.5		)	(146.5		)
Net loss on extinguishments of long-term debt	—			(57.4		)	(2.1		)
Other income, net	1.8			2.1			1.8
Income before income taxes	840.5			660.7			673.2
Income tax expense	(197.5		)	(137.6		)	(248.1		)
Net income	$	643.0		$	523.1		$	425.1

Net income per common share:
Basic	$	4.26		$	3.37		$	2.60
Diluted	$	4.19		$	3.31		$	2.56

Weighted-average common shares outstanding:
Basic	150.9			155.4			163.6
Diluted	153.6			158.2			166.0

Cash dividends declared per common share	$	0.9250		$	0.6900		$	0.4825

The accompanying notes are an integral part of the Consolidated Financial Statements.

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions)

	Year Ended December 31,
	2018			2017			2016
				(as adjusted)			(as adjusted)
Net income	$	643.0		$	523.1		$	425.1
Other comprehensive (loss) income:
Unrealized loss from hedge accounting, net of tax	(5.9		)	(0.1		)	—
Reclassification of hedge accounting gain to net income, net of tax	3.9			0.3			—
Foreign currency translation, net of tax	(32.7		)	43.7			(78.7		)
Other comprehensive (loss) income:	(34.7		)	43.9			(78.7		)
Comprehensive income	$	608.3		$	567.0		$	346.4

The accompanying notes are an integral part of the Consolidated Financial Statements.

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in millions)

	Preferred Stock			Common Stock					Treasury Stock
	Shares	Amount		Shares		Amount			Shares		Amount		Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance as of December 31, 2015 (as reported)	—	$	—	168.2		$	1.7		—		$	—	$	2,806.9		$	(1,651.6	)	$	(61.1	)	$	1,095.9
Adjustment upon adoption of ASC 606	—	—		—		—			—		—		—			1.9			—			1.9
Balance as of December 31, 2015 (as adjusted)	—	—		168.2		1.7			—		—		2,806.9			(1,649.7		)	(61.1		)	1,097.8
Net income	—	—		—		—			—		—		—			425.1			—			425.1
Common stock issued for equity-based compensation	—	—		0.2		—			—		—		—			—			—			—
Equity-based compensation expense	—	—		—		—			—		—		33.2			—			—			33.2
Stock option exercises	—	—		0.4		—			—		—		7.4			—			—			7.4
Coworker Stock Purchase Plan	—	—		0.2		—			—		—		9.3			—			—			9.3
Repurchases of common stock	—	—		(8.7	)	(0.1		)	—		—		—			(367.4		)	—			(367.5		)
Dividends paid	—	—		—		—			—		—		0.5			(79.2		)	—			(78.7		)
Foreign currency translation	—	—		—		—			—		—		—			—			(78.7		)	(78.7		)
Balance as of December 31, 2016 (as adjusted)	—	$	—	160.3		$	1.6		—		$	—	$	2,857.3		$	(1,671.2	)	$	(139.8	)	$	1,047.9
Net income	—	—		—		—			—		—		—			523.1			—			523.1
Equity-based compensation expense	—	—		—		—			—		—		37.9			—			—			37.9
Stock option exercises	—	—		1.5		—			—		—		13.0			—			—			13.0
Coworker Stock Purchase Plan	—	—		0.2		—			—		—		10.3			—			—			10.3
Repurchases of common stock	—	—		(8.9	)	(0.1		)	—		—		—			(533.9		)	—			(534.0		)
Dividends paid	—	—		—		—			—		—		0.7			(107.6		)	—			(106.9		)
Incentive compensation plan stock withheld for taxes	—	—		—		—			0.1		—		(7.6		)	(42.0		)	—			(49.6		)
Foreign currency translation	—	—		—		—			—		—		—			—			43.7			43.7
Unrealized gain from hedge accounting	—	—		—		—			—		—		—			—			0.2			0.2
Balance as of December 31, 2017 (as adjusted)	—	$	—	153.1		$	1.5		0.1		$	—	$	2,911.6		$	(1,831.6	)	$	(95.9	)	$	985.6
Net income	—	—		—		—			—		—		—			643.0			—			643.0
Equity-based compensation expense	—	—		—		—			—		—		36.5			—			—			36.5
Stock option exercises	—	—		0.8		—			—		—		28.6			—			—			28.6
Coworker Stock Purchase Plan	—	—		0.1		—			—		—		11.8			—			—			11.8
Repurchases of common stock	—	—		(6.3	)	—			—		—		—			(522.3		)	—			(522.3		)
Dividends paid	—	—		—		—			—		—		0.8			(140.2		)	—			(139.4		)
Incentive compensation plan stock withheld for taxes	—	—		—		—			(0.1	)	—		7.6			(41.5		)	—			(33.9		)
Foreign currency translation	—	—		—		—			—		—		—			—			(32.7		)	(32.7		)
Unrealized loss from hedge accounting	—	—		—		—			—		—		—			—			(2.0		)	(2.0		)
Balance as of December 31, 2018	—	$	—	147.7		$	1.5		—		$	—	$	2,996.9		$	(1,892.6	)	$	(130.6	)	$	975.2

The accompanying notes are an integral part of the Consolidated Financial Statements.

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions)

	Years Ended December 31,
	2018			2017			2016
Cash flows from operating activities:				(as adjusted)			(as adjusted)
Net income	$	643.0		$	523.1		$	425.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	265.6			260.9			254.5
Equity-based compensation expense	40.7			43.7			39.2
Deferred income taxes	(56.1		)	(172.7		)	(97.2		)
Net loss on extinguishments of long-term debt	—			57.4			2.1
Other	10.9			5.0			4.3
Changes in assets and liabilities:
Accounts receivable	(365.1		)	(136.8		)	(178.9		)
Merchandise inventory	(46.8		)	16.9			(68.0		)
Other assets	25.2			(117.8		)	(51.8		)
Accounts payable-trade	271.2			231.5			225.1
Other liabilities	117.3			66.5			49.6
Net cash provided by operating activities	905.9			777.7			604.0
Cash flows used in investing activities:
Capital expenditures	(86.1		)	(81.1		)	(63.5		)
Premium payments on interest rate cap agreements	—			—			(2.4		)
Net cash used in investing activities	(86.1		)	(81.1		)	(65.9		)
Cash flows used in financing activities:
Proceeds from borrowings under revolving credit facility	686.7			1,560.7			338.8
Repayments of borrowings under revolving credit facility	(686.7		)	(1,560.7		)	(338.8		)
Repayments of long-term debt	(21.6		)	(14.9		)	(20.6		)
Proceeds from issuance of long-term debt	—			2,083.0			1,483.0
Payments to extinguish long-term debt	—			(2,121.3		)	(1,490.4		)
Net change in accounts payable-inventory financing	(67.4		)	(84.0		)	143.6
Repurchases of common stock	(522.3		)	(534.0		)	(367.4		)
Payment of incentive compensation plan withholding taxes	(33.9		)	(49.6		)	—
Dividends	(139.4		)	(106.9		)	(78.7		)
Other	29.8			9.0			25.9
Net cash used in financing activities	(754.8		)	(818.7		)	(304.6		)
Effect of exchange rate changes on cash and cash equivalents	(3.4		)	2.6			(7.4		)
Net increase (decrease) in cash and cash equivalents	61.6			(119.5		)	226.1
Cash and cash equivalents – beginning of period	144.2			263.7			37.6
Cash and cash equivalents – end of period	$	205.8		$	144.2		$	263.7
Supplementary disclosure of cash flow information:
Interest paid	$	(148.8	)	$	(148.5	)	$	(144.3	)
Taxes paid, net	$	(261.2	)	$	(275.7	)	$	(329.2	)

The accompanying notes are an integral part of the Consolidated Financial Statements.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Description of Business and Summary of Significant Accounting Policies

Description of Business

CDW Corporation ("Parent") is a Fortune 500 company with multi-national capabilities and a leading provider of integrated information technology ("IT") solutions to small, medium and large business, government, education and healthcare customers in the United States ("US"), the United Kingdom ("UK") and Canada. The Company's offerings range from discrete hardware and software products to integrated IT solutions such as mobility, security, data center optimization, cloud computing, virtualization and collaboration.

Throughout this report, the terms "the Company" and "CDW" refer to Parent and its 100% owned subsidiaries.

Parent has two 100% owned subsidiaries, CDW LLC and CDW Finance Corporation. CDW LLC is an Illinois limited liability company that, together with its 100% owned subsidiaries, holds all material assets and conducts all business activities and operations of the Company. CDW Finance Corporation is a Delaware corporation formed for the sole purpose of acting as co-issuer of certain debt obligations as described in Note 17 (Supplemental Guarantor Information) and does not hold any material assets or engage in any business activities or operations.

Basis of Presentation

The Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the US Securities and Exchange Commission ("SEC").

Effective January 1, 2018, the Company adopted the requirements of ASU 2014-09, Revenue from Contracts with Customers, as amended ("Topic 606") utilizing the full retrospective method. Prior period amounts have been adjusted accordingly.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of Parent and its 100% owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation.

Use of Estimates

The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make use of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Business Combinations

The Company accounts for all business combinations using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company may utilize third-party valuation specialists to assist the Company in the allocation. Initial purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.

Cash and Cash Equivalents

Cash and cash equivalents include all deposits in banks and short-term (original maturities of three months or less at the time of purchase), highly liquid investments that are readily convertible to known amounts of cash and are so near maturity that there is insignificant risk of changes in value due to interest rate changes.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and typically do not bear interest. The Company provides allowances for doubtful accounts related to accounts receivable for estimated losses resulting from the inability of its customers to make required payments. The Company takes into consideration the overall quality of the receivable portfolio along with specifically-identified customer risks in establishing the allowance.

Merchandise Inventory

Inventory is valued at the lower of cost and net realizable value. Cost is determined using a weighted-average cost method. Price protection is recorded when earned as a reduction to the cost of inventory. The Company decreases the value of inventory for estimated obsolescence equal to the difference between the cost of inventory and the net realizable value, based upon an aging analysis of the inventory on hand, specifically known inventory-related risks and assumptions about future demand and market conditions.

Miscellaneous Receivables

Miscellaneous receivables primarily consist of amounts due from vendors. The Company receives incentives from vendors related to cooperative advertising, volume rebates, bid programs, price protection and other programs. These incentives generally relate to written vendor agreements with specified performance requirements and are recorded as adjustments to Cost of sales or Merchandise inventory, depending on the nature of the incentive.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. The Company calculates depreciation expense using the straight-line method over the estimated useful lives of the assets. Property and equipment are reviewed annually to determine whether there is any impairment. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset's carrying amount over its fair value. Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining lease term. Expenditures for major renewals and improvements that extend the useful life of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. The estimated useful lives of property and equipment are as follows:



Classification	Estimated Useful Lives
Machinery and equipment	5 to 10 years
Building and leasehold improvements	5 to 25 years
Computer and data processing equipment	3 to 5 years
Computer software	3 to 5 years
Furniture and fixtures	5 to 10 years

Goodwill

The Company performs an evaluation of goodwill, utilizing either a qualitative or quantitative impairment test. A qualitative assessment is performed at least on an annual basis to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. The Company performs a quantitative impairment test for each reporting unit every three years, or more frequently if circumstances indicate a potential impairment. The annual test for impairment is conducted as of December 1. The Company's reporting units included in the assessment of potential goodwill impairment are the same as its operating segments. Goodwill is not amortized but is subject to periodic testing for impairment at the reporting unit level.

Under a qualitative assessment, the most recent quantitative assessment is used to determine if it is more- likely-than-not that the reporting unit's goodwill is impaired. As part of this qualitative assessment, the Company assesses relevant events and circumstances including macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in share price and entity-specific events to determine if there is an indication of impairment.

Under a quantitative assessment, goodwill impairment is identified by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired and an impairment charge is recognized in an amount equal to that excess, not to exceed the carrying amount

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of goodwill. Fair value of a reporting unit is determined by using a weighted combination of an income approach (75%) and a market approach (25%), as this combination is considered the most indicative of the Company's fair value in an orderly transaction between market participants.

Under the income approach, the Company determines fair value based on estimated future cash flows of a reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn. The estimated future cash flows of each reporting unit are based on internally generated forecasts for the remainder of the respective reporting period and the next five years.

Under the market approach, the Company utilizes valuation multiples derived from publicly available information for guideline companies to provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company. The valuation multiples are applied to the reporting units.

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including Net sales growth rates, gross profit margins, operating margins, discount rates and future market conditions, among others. Any changes in the judgments, estimates or assumptions used could produce significantly different results.

Intangible Assets

Intangible assets with determinable lives are amortized on a straight-line basis over their respective estimated useful lives. The cost of computer software developed or obtained for internal use is capitalized and amortized on a straight-line basis over the estimated useful life of the software. Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset's carrying amount over its fair value. In addition, each quarter, the Company evaluates whether events and circumstances warrant a revision to the remaining estimated useful life of each of these intangible assets. If the Company were to determine that a change to the remaining estimated useful life of an intangible asset was necessary, then the remaining carrying amount of the intangible asset would be amortized prospectively over that revised remaining useful life.

The following table shows estimated useful lives of definite-lived intangible assets:



Classification	Estimated Useful Lives
Customer relationships and contracts	3 to 14 years
Trade name	generally 20 years
Internally developed software	3 to 5 years
Other	1 to 10 years

Deferred Financing Costs

Deferred financing costs, such as underwriting, financial advisory, professional fees and other similar fees are capitalized and recognized in Interest expense, net over the estimated life of the related debt instrument using the effective interest method or straight-line method, as applicable. The Company classifies deferred financing costs as a direct deduction from the carrying value of the Long-term debt liability on the Consolidated Balance Sheets, except for deferred financing costs associated with revolving credit facilities which are presented as an asset, within Other assets on the Consolidated Balance Sheets.

Derivative Instruments

The Company has interest rate cap agreements for the purpose of hedging its exposure to fluctuations in interest rates. The interest rate cap agreements are designated as cash flow hedges of interest rate risk and recorded at fair value in Other assets on the Consolidated Balance Sheets. Changes in fair value of the derivative instruments, along with the change in the fair value of the hedged item, are reported as a component of Accumulated other comprehensive loss until reclassified to Interest expense in the same period the hedge transaction affects earnings.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements

Fair value is defined under GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established for valuation inputs to prioritize the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level 1 – observable inputs such as quoted prices for identical instruments traded in active markets.

Level 2 – inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – inputs are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.

Revenue Recognition

The Company is a primary distribution channel for a large group of vendors and suppliers, including original equipment manufacturers ("OEMs"), software publishers and wholesale distributors.

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial substance and collectability of consideration is probable. The Company evaluates the following indicators amongst others when determining whether it is acting as a principal in the transaction and recording revenue on a gross basis: (i) the Company is primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) the Company has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified good or service. If the terms of a transaction do not indicate the Company is acting as a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.

The Company recognizes revenue once control has passed to the customer. The following indicators are evaluated in determining when control has passed to the customer: (i) the Company has a right to payment for the product or service, (ii) the customer has legal title to the product, (iii) the Company has transferred physical possession of the product to the customer, (iv) the customer has the significant risk and rewards of ownership of the product and (v) the customer has accepted the product. The Company's products can be delivered to customers in a variety of ways, including (i) as physical product shipped from the Company's warehouse, (ii) via drop-shipment by the vendor or supplier or (iii) via electronic delivery of keys for software licenses. The Company's shipping terms typically allow for the Company to recognize revenue when the product reaches the customer's location.

The Company leverages drop-shipment arrangements with many of its vendors and suppliers to deliver products to its customers without having to physically hold the inventory at its warehouses. The Company is the principal in the transaction and recognizes revenue for drop-shipment arrangements on a gross basis.

Revenue Recognition for Hardware

Revenues from sales of hardware products are recognized on a gross basis as the Company is acting as a principal in these transactions, with the selling price to the customer recorded as Net sales and the acquisition cost of the product recorded as Cost of sales. The Company recognizes revenue from these transactions when control has passed to the customer, which is usually upon delivery of the product to the customer.

In some instances, the customer agrees to buy the product from the Company but requests delivery at a later date, commonly known as bill-and-hold arrangements. For these transactions, the Company deems that control passes to the customer when the product is ready for delivery. The Company views products ready for delivery when the customer has a signed agreement, significant risk and rewards for the products, the ability to direct the assets, the products have been set aside specifically for the customer, cannot be redirected to another customer and for customer orders that include configuration services, when such services have been completed.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's vendor partners warrant most of the products the Company sells. These manufacturer warranties are assurance-type warranties and are not considered separate performance obligations. The warranties are not sold separately and only provide assurance that products will conform with the manufacturer's specifications. In some transactions, a third-party will provide the customer with an extended warranty. These extended warranties are sold separately and provide the customer with a service in addition to assurance that the product will function as expected. The Company considers these warranties to be separate performance obligations from the underlying product. For warranties, the Company is arranging for those services to be provided by the third-party and therefore is acting as an agent in the transaction and records revenue on a net basis at the point of sale.

The Company sells cloud computing solutions which include Infrastructure as a Service ("IaaS"). IaaS solutions utilize third-party partners to enable customers to access data center functionality in a cloud-based solution, including storage, computing and networking. The Company recognizes revenue for cloud computing solutions for arrangements with one-time invoicing to the customer at the time of invoice on a net basis as the Company is acting as an agent in the transaction. For monthly subscription-based arrangements, the Company is acting as an agent in the transaction and recognizes revenue as it invoices the customer for its monthly usage on a net basis.

Revenue Recognition for Software

Revenues from most software license sales are recognized as a single performance obligation on a gross basis as the Company is acting as a principal in these transactions at the point the software license is delivered to the customer. Generally, software licenses are sold with accompanying third-party delivered software assurance, which is a product that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during the period that the software assurance is in effect. The Company evaluates whether the software assurance is a separate performance obligation by assessing if the third-party delivered software assurance is critical or essential to the core functionality of the software itself. This involves considering if the software provides its original intended functionality to the customer without the updates, if the customer would ascribe a higher value to the upgrades versus the up-front deliverable, if the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality), and if the customer chooses to not delay or always install upgrades. If the Company determines that the accompanying third-party delivered software assurance is critical or essential to the core functionality of the software license, the software license and the accompanying third-party delivered software assurance are recognized as a single performance obligation. The value of the product is primarily the accompanying support delivered by a third-party and therefore the Company is acting as an agent in these transactions and recognizes them on a net basis at the point the associated software license is delivered to the customer. For software licenses where the accompanying third-party delivered software assurance is not critical or essential to the core functionality, the software assurance is recognized as a separate performance obligation, with the associated revenue recognized on a net basis at the point the related software license is delivered to the customer. For additional details regarding the accounting for bundled arrangements, see "Revenue Recognition for Bundled Arrangements" below.

The Company sells cloud computing solutions which include Software as a Service ("SaaS"). SaaS solutions utilize third-party partners to offer the Company's customers access to software in the cloud that enhances office productivity, provides security or assists in collaboration. The Company recognizes revenue for cloud computing solutions for arrangements with one-time invoicing to the customer at the time of invoice on a net basis as the Company is acting as an agent in the transaction. For monthly subscription-based arrangements, the Company is acting as an agent in the transaction and recognizes revenue as it invoices the customer for its monthly usage on a net basis.

The Company's customers are offered the opportunity by certain of its vendors to purchase software licenses and software assurance under enterprise agreements ("EAs"). For most EA transactions, the Company's obligation to the customer is that of a distributor or sales agent of the services, where all obligations for providing the services to customers are passed to the Company's vendors. The Company's performance obligations are satisfied at the time of the sale. In other EA transactions, the Company is responsible for fulfilling the promised services to the customer and providing remedy or refund for work if the customer is not satisfied with the delivered services, has inventory risk in the arrangement and has full control to set the price for the customer. With most EAs, the Company's vendors will transfer the license and invoice the customer directly, paying resellers an agency fee or commission on these sales. The Company records these fees as a component of Net sales as earned and there is no corresponding Cost of sales amount.

Revenue Recognition for Services

The Company provides professional services, which include project managers and consultants recommending, designing and implementing IT solutions. Revenue from professional services is recognized either on a time and materials basis or

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

proportionally as costs are incurred for fixed fee project work. Revenue is recognized on a gross basis each month as work is performed and the Company transfers those services.

Revenues from the sale of data center services, such as managed and remote managed services, server co-location, internet connectivity and data backup and storage provided by the Company, are recognized over the period the service is provided. Most hosting and managed service obligations are based on the quantity and pricing parameters established in the agreement. As the customer receives the benefit of the service each month, the Company recognizes the respective revenue on a gross basis as the Company is acting as a principal in the transaction. Additionally, the Company's managed services team provides project support to customers that are billed on a fixed fee basis. The Company is acting as the principal in the transaction and recognizes revenue on a gross basis based on the total number of hours incurred for the period over the total expected hours for the project. Total expected hours to complete the project is updated for each period and best represents the transfer of control of the service to the customer.

Revenue Recognition for Bundled Arrangements

The Company also sells some of its products and services as part of bundled contract arrangements containing multiple deliverables, which may include a combination of products and services. For each deliverable that represents a distinct performance obligation, total arrangement consideration is allocated based upon the standalone selling prices of each performance obligation. The Company excludes amounts collected on behalf of third-parties, such as sales taxes, when determining the transaction price. For certain performance obligations, the Company will use a combination of methods to estimate the standalone selling price. When evidence from recent transactions is not available to confirm that the prices are representative of the standalone selling price, an expected cost plus a margin approach is used.

Sales In-Transit

The Company performs an analysis of the estimated number of days of sales in-transit to customers at the end of each reporting period based on a weighted-average analysis of commercial delivery terms that include drop-shipment arrangements. This analysis is the basis upon which the Company estimates the amount of Net sales in-transit at the end of the period and adjusts revenue and the related costs to reflect only what has been delivered to the customer. Changes in delivery patterns may result in a different number of business days estimated to make this adjustment.

Freight Costs

The Company records freight billed to its customers as Net sales and the related freight costs as Cost of sales when the underlying product revenue is recognized. For freight not billed to its customers, the Company records the freight costs as Cost of sales. The Company's typical shipping terms result in shipping being performed before the customer obtains control of the product. The Company considers shipping to be a fulfillment activity and not a separate performance obligation.

Other

The nature of the Company's contracts give rise to variable consideration in the form of sales returns and allowances. The Company estimates variable consideration at the most likely amount to which it is expected to be entitled. This estimated amount is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of the Company's anticipated performance and all information that is reasonably available. At the time of sale, the Company records an estimate for sales returns and allowances and an associated right of return asset based on historical experience.

When a contract results in revenue being recognized in excess of the amount the Company has the right to invoice to the customer, a contract asset is recorded on the balance sheet. Contract assets are comprised primarily of professional services with fixed fee arrangements.

Contract liabilities consist of payments received from customers, or such consideration that is contractually due, in advance of providing the product or performing services. Contract liabilities are comprised primarily of professional services with fixed fee arrangements, bill-and-hold transactions where control has not passed to the customer and certain governmental contracts.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Trade accounts receivable are recorded at the point of sale (or in accordance with the Statement of Work for services) for the total amount payable by the customer to the Company for sale of goods. Taxes to be collected from the customer as part of the sale are included in Accounts receivable.

Any incremental direct costs of obtaining a contract, primarily sales commissions, are deferred on the Consolidated Balance Sheets and amortized over the period of contract performance.

The Company typically does not enter into long-term contracts. The Company has elected to use the practical expedient for its performance obligations table to show only those contracts that are longer than 12 months at the time of contract inception and those contracts that are non-cancelable. Additionally, for certain governmental contracts where there are annual renewals, the Company has excluded these contracts since there is only a one-year legal obligation. Typically, the only contracts that are longer than 12 months in duration are related to the Company's managed services business.

The Company requests payments for its products and services at the point of sale. The Company generally does not enter into any long-term financing arrangements or payment plans with customers or contracts with customers that have non-cash consideration.

Sales Taxes

Sales tax amounts collected from customers for remittance to governmental authorities are presented on a net basis in the Consolidated Statements of Operations.

Advertising

Advertising costs are generally charged to expense in the period incurred. Cooperative reimbursements from vendors are recorded in the period the related advertising expenditure is incurred. The Company classifies vendor consideration as a reduction to Cost of sales.

Equity-Based Compensation

The Company measures all equity-based payments using a fair-value-based method and records compensation expense over the requisite service period using the straight-line method in its Consolidated Financial Statements. The expense calculation includes estimated forfeiture rates which have been developed based upon historical experience.

Interest Expense

Interest expense is recognized in the period incurred at the applicable interest rate in effect.

Foreign Currency Translation

The Company's functional currency is the US dollar. The functional currency of the Company's international operating subsidiaries is generally the same as the corresponding local currency. Assets and liabilities of the international operating subsidiaries are translated at the spot rate in effect at the applicable reporting date. Revenues and expenses of the international operating subsidiaries are translated at the average exchange rates in effect during the applicable period. The resulting foreign currency translation adjustment is recorded as Accumulated other comprehensive loss, which is reflected as a separate component of Stockholders' equity.

Income Taxes

Deferred income taxes are provided to reflect the differences between the tax bases of assets and liabilities and their reported amounts in the Consolidated Financial Statements using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company performs an evaluation of the realizability of deferred tax assets on a quarterly basis. This evaluation requires management to make use of estimates and assumptions and considers all positive and negative evidence and factors, such as the scheduled reversal of temporary differences, the mix of earnings in the jurisdictions in which the Company operates, and prudent and feasible tax planning strategies.

The Company accounts for unrecognized tax benefits based upon its assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company reports a liability for unrecognized tax benefits resulting from unrecognized tax benefits taken or expected to be taken in a tax return and recognizes interest and penalties, if any, related to its unrecognized tax benefits in income tax expense.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Tax Cuts and Jobs Act contains a provision which subjects a US parent of a foreign subsidiary to current US tax on its global intangible low-tax income (“GILTI”). The GILTI income is eligible for a deduction, which lowers the effective tax rate to 10.5% for taxable years 2018 through 2025 and 13.125% after 2025. The Company will report the tax impact of GILTI as a period cost when incurred. Accordingly, the Company is not providing deferred taxes for basis differences expected to reverse as GILTI.


2.	Recent Accounting Pronouncements

Accounting for Hedging Activities

In August 2017, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2017-12, Derivatives and Hedging (Topic 815), intending to improve the transparency of information included in the financial statements by aligning cash flow and fair value hedge accounting with its risk management activities. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness for cash flow hedges and net investment hedges, and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The ASU also simplifies certain documentation and assessment requirements and will incorporate new disclosure requirements and amendments to existing disclosures. The Company elected to early adopt this standard during the fourth quarter of 2018. The adoption of this ASU did not have an impact on the Company's Consolidated Financial Statements.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the assumptions, models and methods for estimating expected credit losses. This ASU is effective for the Company beginning in the first quarter of 2020 and allows for early adoption beginning in the first quarter of 2019. The Company is currently evaluating the impact the ASU will have on its Consolidated Financial Statements.

Accounting for Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which, together with amendments issued during 2018, requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. This ASU is effective for the Company beginning in the first quarter of 2019 and allows for early adoption. Entities are required to use the modified retrospective approach, with the option of applying the requirements of the standard either (1) retrospectively to each prior comparative reporting period presented or (2) retrospectively at the beginning of the period of adoption.

The Company established a cross-functional implementation team to analyze the effect of the ASU. The Company utilized a combination of a bottom-up and top-down approach to identify and analyze its lease portfolio. The analysis included reviewing all forms of leases, performing a completeness assessment over the lease population, assessing the policy elections offered by the standard and evaluating its business processes and internal controls to meet the ASU's accounting, reporting and disclosure requirements. The Company adopted the standard on January 1, 2019 and applied it at the beginning of the period of adoption. Therefore, upon adoption, financial information and disclosures are not updated for comparative reporting periods under the new standard. Additionally, the Company has elected the transition package of practical expedients upon adoption which, among other things, allows an entity to not reassess the historical lease classification.

The adoption of the standard impacts the Company's Consolidated Balance Sheet. The adoption of the standard results in the recognition of right-of-use assets and additional lease liabilities of approximately $81 million as of January 1, 2019, mainly related to operating leases for the Company's real estate portfolio. Along with the recognition of right-of-use assets and lease liabilities, the Company will be providing new disclosures for its leasing activities. The Company does not expect the adoption of the standard to impact the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows. In addition, the standard will not have an impact on the Company's liquidity or debt covenant compliance under its current agreements.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

On January 1, 2018, the Company adopted Topic 606 and utilized the full retrospective method.

The adoption of Topic 606 impacted the Company's results as follows:



	December 31, 2017(1)									December 31, 2016(1)
(in millions) (except per share amounts)	As Reported			New Revenue Standard Adjustment			As Adjusted			As Reported			New Revenue Standard Adjustment			As Adjusted
Net sales	$	15,191.5		$	(358.6	)	$	14,832.9		$	13,981.9		$	(309.2	)	$	13,672.7
Gross profit	2,449.9			0.3			$	2,450.2		2,327.2			1.1			$	2,328.3
Gross margin	16.1		%	40 bps			16.5		%	16.6		%	40 bps			17.0		%

Income from operations	866.1			0.4			866.5			819.2			0.8			820.0
Income tax expense	(137.3		)	(0.3		)	(137.6		)	(248.0		)	(0.1		)	(248.1		)
Net income	$	523.0		$	0.1		$	523.1		$	424.4		$	0.7		$	425.1

Net income per common share
Basic	$	3.37		$	—		$	3.37		$	2.59		$	0.01		$	2.60
Diluted	$	3.31		$	—		$	3.31		$	2.56		$	—		$	2.56


(1)	Amounts may not foot or cross-foot due to rounding.

The adoption of Topic 606 impacted the Company's Consolidated Balance Sheet as follows:



	December 31, 2017(1)							December 31, 2016(1)
(in millions)	As Reported		New Revenue Standard Adjustment			As Adjusted		As Reported		New Revenue Standard Adjustment			As Adjusted
Accounts receivable	$	2,320.5	$	8.8		$	2,329.3	$	2,168.6	$	0.3		$	2,168.9
Merchandise inventory	449.5		(38.0		)	411.5		452.0		(28.1		)	423.9
Miscellaneous receivables	336.5		6.5			343.0		234.9		2.6			237.5
Prepaid expenses and other	127.4		40.9			168.3		118.9		35.3			154.2
Total current assets	3,378.1		18.2			3,396.3		3,238.1		10.1			3,248.2

Other assets	40.8		(8.1		)	32.7		36.0		(0.1		)	35.9
Total assets	6,956.6		10.1			6,966.7		6,948.4		10.0			6,958.4

Deferred revenue	194.0		(35.2		)	158.8		172.6		(29.1		)	143.5
Other accrued expenses	180.2		41.6			221.8		147.2		36.0			183.2
Income tax payable	15.1		1.1			16.2		2.6		0.7			3.3
Total current liabilities	2,514.6		7.5			2,522.1		2,280.7		7.6			2,288.3

Total liabilities	5,973.7		7.5			5,981.1		5,902.9		7.6			5,910.5
Total stockholders' equity	$	982.9	$	2.7		$	985.6	$	1,045.5	$	2.4		$	1,047.9


(1)	Amounts may not foot or cross-foot due to rounding.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Property and Equipment

Property and equipment consists of the following:



	December 31,
(in millions)	2018			2017
Building and leasehold improvements	$	129.1		$	123.0
Computer and data processing equipment	105.4			116.4
Machinery and equipment	44.1			45.6
Land	27.7			27.7
Construction in progress	24.5			17.9
Computer software	22.2			9.6
Furniture and fixtures	18.9			22.7
Property and equipment, gross	371.9			362.9
Less: accumulated depreciation	(215.8		)	(201.8		)
Property and equipment, net	$	156.1		$	161.1

During 2018, 2017 and 2016, the Company recorded disposals of $25 million, $23 million and $50 million, respectively, to remove from Property and equipment, gross assets that were no longer in use.

Depreciation expense for the years ended December 31, 2018, 2017, and 2016 was $42 million, $40 million and $38 million, respectively.

4. Goodwill and Other Intangible Assets

Goodwill

The changes in goodwill by reportable segment are as follows:



(in millions)	Corporate		Small Business		Public		Other(1)			Consolidated
Balance at December 31, 2016(2)	1,074.1		185.9		929.6		265.4			2,455.0
Foreign currency translation	—		—		—		24.6			24.6
Balances as of December 31, 2017(2)	1,074.1		185.9		929.6		290.0			2,479.6
Foreign currency translation	—		—		—		(16.8		)	(16.8		)
Balances as of December 31, 2018(2)	$	1,074.1	$	185.9	$	929.6	$	273.2		$	2,462.8


(1)	Other is comprised of CDW UK and Canada reporting units.


(2)	Goodwill is net of accumulated impairment losses of $1,571 million, $354 million and $28 million related to the Corporate, Public and Other segments, respectively.

December 1, 2018 Impairment Analysis

The Company completed its annual impairment analysis as of December 1, 2018. For all reporting units, the Company performed a qualitative analysis. The Company determined that it was more-likely-than-not that the individual fair values of all reporting units exceeded the respective carrying values. As a result of this determination, the quantitative impairment analysis was not performed. There continues to be substantial uncertainty regarding the economic impact of the Referendum on the UK's Membership of the European Union ("EU") advising for the exit of the UK from the EU and the subsequent notice delivered by the UK to the EU of the UK's withdrawal (referred to as "Brexit"). Negotiations to determine the terms of the withdrawal, including the terms of trade between the UK and EU, are ongoing. The Company evaluated these facts when considering its qualitative analysis of the UK reporting unit and concluded it was more-likely-than-not that the fair value of the UK reporting unit exceeds its carrying value.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2017 Impairment Analysis

The Company completed its annual impairment analysis as of December 1, 2017. For the Corporate, Small Business and UK reporting units, the Company performed a qualitative analysis. The Company determined that it was more-likely-than-not that the individual fair values of the Corporate, Small Business and UK reporting units exceeded the respective carrying values and therefore a quantitative impairment analysis was deemed unnecessary. The Company performed a quantitative analysis of the Public and Canada reporting units. Based on the results of the quantitative analysis, the Company determined that the fair value of the Public and Canada reporting units exceeded their carrying values by 179% and 153%, respectively, and no impairment existed.

Other Intangible Assets

A summary of intangible assets is as follows:



(in millions)
December 31, 2018	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships and contracts	$	2,071.0	$	(1,625.5	)	$	445.5
Trade name	422.1		(237.3		)	184.8
Internally developed software	205.8		(125.4		)	80.4
Other	3.7		(2.2		)	1.5
Total	$	2,702.6	$	(1,990.4	)	$	712.2


December 31, 2017
Customer relationships and contracts	$	2,106.8	$	(1,490.8	)	$	616.0
Trade name	422.2		(216.3		)	205.9
Internally developed software	162.6		(89.6		)	73.0
Other	2.9		(0.8		)	2.1
Total	$	2,694.5	$	(1,797.5	)	$	897.0

During the years ended December 31, 2018, 2017 and 2016, the Company recorded disposals of $26 million, $24 million and $29 million, respectively, to remove fully amortized intangible assets that were no longer in use.

Amortization expense related to intangible assets for the years ended December 31, 2018, 2017 and 2016 was $223 million, $221 million and $216 million, respectively.

Estimated future amortization expense related to intangible assets is as follows:



(in millions)
Years ending December 31,	Estimated Future Amortization Expense
2019	$	215.9
2020	182.2
2021	85.1
2022	37.4
2023	37.4
Thereafter	154.2
Total future amortization expense	$	712.2

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Inventory Financing Agreements

The Company has entered into agreements with certain financial intermediaries to facilitate the purchase of inventory from various suppliers under certain terms and conditions, as described below. These amounts are classified separately as Accounts payable-inventory financing on the Consolidated Balance Sheets. The Company does not incur any interest expense associated with these agreements as balances are paid when they are due.

Amounts included in accounts payable-inventory financing are as follows:



	December 31,
(in millions)	2018		2017
Revolving Loan inventory financing agreement(1)	$	406.3	$	480.9
Other inventory financing agreements	23.0		17.1
Accounts payable-inventory financing	$	429.3	$	498.0


(1)	The Senior Secured Asset-Based Revolving Credit Facility includes an inventory floorplan sub-facility that enables the Company to maintain an inventory financing agreement with a financial intermediary to facilitate the purchase of inventory from certain vendors on more favorable terms than offered directly by the vendors.

6. Contract Liabilities and Remaining Performance Obligations

The Company's contract liabilities consist of payments received from customers, or such consideration that is contractually due, in advance of providing the product or performing services. The Company's contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. As of December 31, 2018 and December 31, 2017, the contract liability balance was $178 million and $159 million, respectively. For the year ended December 31, 2018 and 2017, the Company recognized revenue of $123 million and $113 million, respectively, related to its contract liabilities.

A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For more information regarding the Company's performance obligations, see Note 1 (Description of Business and Summary of Significant Accounting Policies). The following table represents the total transaction price for the remaining performance obligations as of December 31, 2018 related to non-cancelable contracts longer than 12 months in duration that is expected to be recognized over future periods.



(in millions)	Within 1 Year		Years 1-2		Years 2-3		Thereafter
Remaining performance obligations	$	37.8	$	23.7	$	5.4	$	0.4

7. Lease Commitments

The Company is obligated under various non-cancelable operating lease agreements for office facilities that generally provide for minimum rent payments and a proportionate share of operating expenses and property taxes and include certain renewal and expansion options. For the years ended December 31, 2018, 2017 and 2016, rent expense under these lease arrangements was $30 million, $29 million and $27 million, respectively.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future minimum lease payments under non-cancelable operating leases as of December 31, 2018 are as follows:



(in millions)
Years ending December 31,	Future Minimum Lease Payments
2019	$	29.7
2020	27.0
2021	22.7
2022	19.5
2023	17.2
Thereafter	148.6
Total future minimum lease payments	$	264.7

8. Financial Instruments

The Company's indebtedness creates interest rate risk on its variable-rate debt. The Company uses derivative financial instruments to manage its exposure to interest rate risk. The Company does not hold or issue derivative financial instruments for trading or speculative purposes.

The Company has interest rate cap agreements that entitle it to payments from the counterparty of the amount, if any, by which three-month LIBOR exceeds the strike rates of the caps during the agreement period in exchange for an upfront premium. During 2018, the Company entered into interest rate cap agreements with a combined notional value of $1.6 billion resulting in premiums paid to the counterparties of $15 million. As of December 31, 2018 and December 31, 2017, the Company had the following interest rate cap agreements for which the fair values are classified within Other assets on the Consolidated Balance Sheets:



				December 31, 2018		December 31, 2017
Notional Value (in millions)		Effective Date	Maturity Date	Fair Value (in millions)		Fair Value (in millions)
$	1,400.0	January 17, 2017	December 31, 2018	$	—	$	5.4
1,400.0		December 31, 2018	December 31, 2020	10.6		—
200.0		December 31, 2020	December 31, 2022	1.5		—
				$	12.1	$	5.4

The fair value of the Company's interest rate cap agreements is classified as Level 2 in the fair value hierarchy. The valuation of the interest rate cap agreements is derived by using a discounted cash flow analysis on the expected cash receipts that would occur if variable interest rates rise above the strike rates of the caps. This analysis reflects the contractual terms of the interest rate cap agreements, including the period to maturity, and uses observable market-based inputs, including LIBOR curves and implied volatilities. The Company also incorporates insignificant credit valuation adjustments to appropriately reflect the respective counterparty's nonperformance risk in the fair value measurements. The counterparty credit spreads are based on publicly available credit information obtained from a third-party credit data provider. For additional details, see Note 9 (Long-Term Debt).

The interest rate cap agreements are designated as cash flow hedges. The changes in the fair value of derivatives that qualify as cash flow hedges are recorded in Accumulated other comprehensive loss and are subsequently reclassified into Interest expense in the period when the hedged forecasted transaction affects earnings. The Company recorded a $2 million loss and an insignificant gain, net of tax, into Accumulated other comprehensive loss for the years ended December 31, 2018 and 2017, respectively. During 2018 and 2017, the Company reclassified $5 million and an insignificant amount, respectively, from Accumulated other comprehensive loss to earnings within Interest expense, net on the Consolidated Statement of Operations. The Company expects to reclassify $4 million from Accumulated other comprehensive loss into Interest expense, net during the next 12 months.

Prior to the election of hedge accounting treatment during the first quarter of 2017, the Company recognized less than $1 million of Interest income in the Company's Consolidated Statement of Operations related to the changes in the fair value of the interest rate cap agreements.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Long-Term Debt



		As of December 31, 2018					As of December 31, 2017
(dollars in millions)	Maturities	Interest Rate		Amount			Interest Rate		Amount
Credit Facilities
CDW UK revolving credit facility(1)	July 2021	—	%	$	—		—	%	$	—
Senior secured asset-based revolving credit facility	March 2022	—	%	—			—	%	—
Total credit facilities				—					—

Term Loans
CDW UK term loan(1)	August 2021	2.3	%	65.0			1.9	%	75.7
Senior secured term loan facility	August 2023	4.1	%	1,453.2			3.7	%	1,468.0
Total term loans				1,518.2					1,543.7

Unsecured Senior Notes
Senior notes due 2023	September 2023	5.0	%	525.0			5.0	%	525.0
Senior notes due 2024	December 2024	5.5	%	575.0			5.5	%	575.0
Senior notes due 2025	September 2025	5.0	%	600.0			5.0	%	600.0
Total unsecured senior notes				1,700.0					1,700.0

Other long-term obligations				8.3					12.2
Unamortized deferred financing fees				(17.9		)			(20.4		)
Current maturities of long-term debt				(25.3		)			(25.5		)
Total long-term debt				$	3,183.3				$	3,210.0


(1)	British pound-denominated debt facilities.

As of December 31, 2018, the Company is in compliance with the covenants under the various credit agreements and indentures.

Credit Facilities

The Company has a variable rate CDW UK revolving credit facility that is denominated in British pounds. As of December 31, 2018, the Company could have borrowed up to an additional £50 million ($64 million at December 31, 2018) under the CDW UK revolving credit facility.

The Company also has a variable rate senior secured asset-based revolving credit facility (the "Revolving Loan") that is denominated in US dollars. The Revolving Loan is used by the Company for borrowings, issuances of letters of credit and floorplan financing. The Revolving Loan has less than $1 million of undrawn letters of credit, $393 million reserved for the floorplan sub-facility and a borrowing base of $1.8 billion which is based on the amount of eligible inventory and accounts receivable balances as of November 30, 2018. As of December 31, 2018, the Company could have borrowed up to an additional $1.1 billion under the Revolving Loan.

The Revolving Loan is collateralized by a first priority interest in inventory (excluding inventory to the extent collateralized under the inventory financing arrangements as described in Note 5 (Inventory Financing Agreements)), deposits, and accounts receivable, and a second priority interest in substantially all US assets.

Term Loans

The CDW UK term loan agreement has a variable interest rate. The Company is required to make annual principal installments of £5 million ($6 million at December 31, 2018), with the remaining principal amount due at the maturity date.

The CDW UK term loan agreement imposes restrictions on CDW UK's ability to transfer funds to the Company through the payment of dividends, repayment of intercompany loans, advances or subordinated debt that require, among other

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

things, the maintenance of a minimum net leverage ratio. As of December 31, 2018, the amount of restricted payment capacity under the CDW UK term loan was £128 million ($163 million at December 31, 2018).

The senior secured term loan facility (the "Term Loan") has a variable interest rate, which has effectively been capped through the use of interest rate caps (see Note 8 (Financial Instruments)). The interest rate disclosed in the table above represents the variable interest rates in effect for 2018 and 2017, respectively. The Company is required to pay quarterly principal installments of $4 million with the remaining principal amount due at the maturity date. As of December 31, 2018, the amount of CDW's restricted payment capacity under the Term Loan was $1.5 billion.

The Term Loan is collateralized by a second priority interest in substantially all inventory (excluding inventory to the extent collateralized under the inventory financing arrangements as described in Note 5 (Inventory Financing Agreements)), deposits and accounts receivable, and by a first priority interest in substantially all other US assets.

Senior Notes

The senior notes have a fixed interest rate, which is paid semi-annually.

Debt Issuances and Extinguishments

On April 3, 2018, the Company amended the Term Loan, reducing interest margins by 25 basis points. Borrowings under the Term Loan continue to bear interest at a variable rate.

During 2017, the Company amended, extended and increased its prior revolving loan (the "Prior Revolving Loan") and recorded a loss on extinguishment of long-term debt of $1 million in the Consolidated Statement of Operations, representing a write-off of a portion of unamortized deferred financing costs. Fees of $4 million related to the Prior Revolving Loan were capitalized as deferred financing fees and are being amortized over the five-year term of the facility on a straight-line basis. These deferred financing fees are recorded in the Other assets line on the Consolidated Balance Sheets.

During 2017, the Company amended its prior $1.5 billion senior secured term loan facility (the "Prior Term Loan Facility") and recorded a loss on extinguishment of long-term debt of $14 million in the Consolidated Statement of Operations. This loss represented the write-off of a portion of the unamortized deferred financing fees of $5 million and unamortized discount related to the Prior Term Loan Facility of $9 million. In connection with the issuance of the Term Loan, the Company incurred and recorded $2 million in deferred financing fees.

During 2017, the Company completed the issuance of the 2025 Senior Notes at par. The proceeds from the issuance of the 2025 Senior Notes along with cash on hand and proceeds from Revolving Loan borrowings were deposited to redeem all of the then remaining $600 million aggregate principal amount of the 2022 Senior Notes. In connection with this redemption, the Company recorded a loss on extinguishment of long-term debt of $43 million in the Consolidated Statement of Operations for the year ended December 31, 2017. This loss represents $37 million in redemption premium and $6 million for the write-off of the remaining deferred financing fees related to the 2022 Senior Notes.

Total Debt Maturities

A summary of total debt maturities is as follows:



(in millions)
Years ending December 31,	Total
2019	$	25.3
2020	25.5
2021	67.2
2022	14.9
2023	1,918.6
Thereafter	1,175.0
	$	3,226.5

Fair Value

The fair values of the Senior Notes were estimated using quoted market prices for identical liabilities that are traded in over-the-counter secondary markets that are not considered active. The fair value of the Term Loan was estimated using

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

dealer quotes for identical liabilities in markets that are not considered active. The Senior Notes, Term Loan and CDW UK term loan are classified as Level 2 within the fair value hierarchy. The carrying value of the Revolving Loan and CDW UK revolving credit facility approximate fair value if there are outstanding borrowings. The approximate fair values and related carrying values of the Company's long-term debt, including current maturities and excluding unamortized discount and unamortized deferred financing costs, were as follows:



	December 31,
(in millions)	2018		2017
Fair value	$	3,145.8	$	3,366.5
Carrying value	3,226.5		3,255.9

10. Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. The Tax Cuts and Jobs Act changed several aspects of US federal tax law including: reducing the US corporate income tax rate from 35.0% to 21.0% beginning on January 1, 2018; applying a one-time tax on the deemed mandatory repatriation of the Company's unremitted foreign earnings which have not been subject to US tax; imposing a minimum US tax on foreign earnings; providing for the immediate expensing of certain qualified property; and changing the tax treatment of performance-based executive compensation and certain employee fringe benefits.

The SEC issued Staff Accounting Bulletin 118 allowing for provisional amounts to be recorded during a measurement period not to exceed one year. During the year ended December 31, 2017, the Company recorded provisional amounts for the impact of revaluing deferred tax assets and liabilities, the deemed mandatory repatriation tax on the Company's unremitted foreign earnings and the state income tax effects from the changes in federal tax law during the year. The Company adjusted the US federal and state provisional amounts during 2018, recording a net tax benefit of $2 million. The adjustment was primarily driven by the rate differential on adjustments to temporary book-tax differences made in finalizing the 2017 federal income tax return and finalizing the deemed mandatory repatriation tax on the Company's unremitted foreign earnings.

Income before income taxes was taxed under the following jurisdictions:



	Year Ended December 31,
(in millions)	2018		2017		2016
			(as adjusted)		(as adjusted)
Domestic	$	762.3	$	608.3	$	635.5
Foreign	78.2		52.4		37.7
Total	$	840.5	$	660.7	$	673.2

Components of Income tax expense (benefit) consist of the following:



	Year Ended December 31,
(in millions)	2018			2017			2016
				(as adjusted)			(as adjusted)
Current:
Federal	$	192.6		$	258.9		$	295.6
State	43.3			29.8			34.9
Foreign	17.7			21.3			16.8
Total current	253.6			310.0			347.3
Deferred:
Domestic	(52.7		)	(167.6		)	(90.5		)
Foreign	(3.4		)	(4.8		)	(8.7		)
Total deferred	(56.1		)	(172.4		)	(99.2		)
Income tax expense	$	197.5		$	137.6		$	248.1

The reconciliation between the statutory tax rate expressed as a percentage of income before income taxes and the effective tax rate is as follows:

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Year Ended December 31,
(dollars in millions)	2018					2017					2016
						(as adjusted)					(as adjusted)
Statutory federal income tax rate	$	176.5		21.0	%	$	231.1		35.0	%	$	235.5		35.0	%
State taxes, net of federal effect	31.1			3.7		18.3			2.8		17.7			2.6
Excess tax benefit of equity awards	(19.7		)	(2.3	)	(36.2		)	(5.5	)	(1.6		)	(0.2	)
Effect of rates different than statutory	0.6			0.1		(6.3		)	(1.0	)	(4.6		)	(0.7	)
Tax on foreign earnings	2.8			0.3		1.0			0.1		0.8			0.1
Effect of UK tax rate change on deferred taxes	—			—		—			—		(1.5		)	(0.2	)
Effect of US Tax Cuts and Jobs Act on deferred taxes and repatriation tax	(1.9		)	(0.2	)	(75.5		)	(11.4	)	—			—
Other	8.1			0.9		5.2			0.8		1.8			0.3
Effective tax rate	$	197.5		23.5	%	$	137.6		20.8	%	$	248.1		36.9	%

The tax effect of temporary differences that give rise to net deferred income tax liabilities is presented below:



	December 31,
(in millions)	2018		2017
Deferred tax assets:
Equity compensation plans	$	17.7	$	18.7
Payroll and benefits	9.3		8.0
Deferred interest	—		6.8
Net operating loss and credit carryforwards, net	23.8		28.1
Rent	7.5		7.4
Accounts receivable	6.5		5.4
Other	10.0		9.5
Total deferred tax assets	74.8		83.9

Deferred tax liabilities:
Software and intangibles	148.6		194.5
Deferred income	—		18.6
International investments	19.2		19.2
Property and equipment	20.0		20.4
Other	11.7		12.0
Total deferred tax liabilities	199.5		264.7
Deferred tax asset valuation allowance	17.2		15.5
Net deferred tax liabilities	$	141.9	$	196.3

The Company has state and international income tax net operating losses of $11 million, which will expire at various dates from 2026 through 2032 and state and international tax credit carryforwards of $25 million, which expire at various dates from 2021 through 2027.

Due to the nature of the CDW UK acquisition, the Company has provided US income taxes of $19 million on the excess of the financial reporting value of the investment over the corresponding tax basis. The Company is indefinitely reinvested in its UK business, and therefore will not provide for any US deferred taxes on the earnings of the UK business. The Company is not permanently reinvested in its Canadian business and therefore has recognized deferred tax liabilities of $3 million as of December 31, 2018 related to withholding taxes on earnings of its Canadian business.

In the ordinary course of business, the Company is subject to review by domestic and foreign taxing authorities, including the Internal Revenue Service ("IRS"). In general, the Company is no longer subject to audit by the IRS for tax years through 2014 and state, local or foreign taxing authorities for tax years through 2013. Various taxing authorities are in

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the process of auditing income tax returns of the Company and its subsidiaries. The Company does not anticipate that any adjustments from the audits would have a material impact on its consolidated financial position, results of operations or cash flows.

Changes in the Company's unrecognized tax benefits at December 31, 2018, 2017 and 2016 were as follows:



	Year Ended December 31,
(in millions)	2018		2017		2016
Balance as of January 1, 2018	$	—	$	—	$	—
Additions for tax positions related to current year	15.1		—		—
Balance as of December 31, 2018	$	15.1	$	—	$	—

As of December 31, 2018, the Company had $15 million of unrecognized tax benefits that, if recognized, would have decreased income taxes and the corresponding effective income tax rate and increased net earnings. The impact of recognizing these tax benefits, net of the federal income tax benefit related to unrecognized state income tax benefits, would be approximately $12 million.

11. Stockholders' Equity

Share Repurchase Program

The Company has a share repurchase program under which it may repurchase shares of its common stock in the open market or through privately negotiated other transactions, depending on share price, market conditions and other factors. The share repurchase program does not obligate the Company to repurchase any dollar amount or number of shares, and repurchases may be commenced or suspended from time to time without prior notice.

During 2018, the Company repurchased 6.3 million shares of its common stock for $522 million. These repurchases occurred under the program announced on August 3, 2017, by which the Board of Directors authorized a $750 million increase to the Company's share repurchase program. As of December 31, 2018, the Company has $336 million remaining under this program.

12. Equity-Based Compensation

Equity-based compensation expense, which is recorded in Selling and administrative expenses in the Consolidated Statements of Operations is as follows:



	Year Ended December 31,
(in millions)	2018			2017			2016
Equity-based compensation expense	$	40.7		$	43.7		$	39.2
Income tax benefit(1)	(9.9		)	(15.3		)	(13.3		)
Equity-based compensation expense (net of tax)	$	30.8		$	28.4		$	25.9


(1)	Represents equity-based compensation tax expense at the statutory tax rates. Excess tax benefits associated with equity awards are excluded from this disclosure and separately disclosed in Note 10 (Income Taxes).

The total unrecognized compensation cost related to nonvested awards was $36 million at December 31, 2018 and is expected to be recognized over a weighted-average period of 1.7 years.

2013 Long-Term Incentive Plan

The 2013 Long-Term Incentive Plan ("2013 LTIP") provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, bonus stock and performance awards. The maximum aggregate number of shares that may be issued under the 2013 LTIP is 15,500,000 shares of the Company's common stock, in addition to the 3,798,508 shares of restricted stock granted in exchange for unvested Class B Common Units in connection with the Company's IPO. As of December 31, 2018, 4,978,336 shares were available for issuance under the 2013 LTIP, which was approved by the Company's pre-IPO shareholders. Authorized but unissued shares are reserved for issuance in connection with equity-based awards.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

The exercise price of a stock option granted is equal to the fair value of the underlying stock on the date of the grant. Stock options have a contractual term of 10 years and generally vest ratably over three years. To estimate the fair value of options granted, the Company uses the Black-Scholes option pricing model. The weighted-average assumptions used to value the stock options granted were as follows:



	Year Ended December 31,
	2018			2017			2016
Grant date fair value	$	14.80		$	12.27		$	8.55
Volatility (1)	20.00		%	22.00		%	25.00		%
Risk-free rate (2)	2.75		%	2.08		%	1.47		%
Expected dividend yield	1.14		%	1.09		%	1.08		%
Expected term (in years) (3)	6.0			6.0			6.0


(1)	Based upon an assessment of the two-year and five-year historical and implied volatility for the Company's selected peer group, adjusted for the Company's leverage.


(2)	Based on a composite US Treasury rate.


(3)	Calculated using the simplified method, which defines the expected term as the average of the option's contractual term and the option's weighted-average vesting period. The Company utilizes this method as it has limited historical stock option data that is sufficient to derive a reasonable estimate of the expected stock option term.

Stock option activity for the year ended December 31, 2018 was as follows:



Options	Number of Options		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (millions)
Outstanding at January 1, 2018	4,457,996		$	37.41
Granted	1,021,398		73.85
Forfeited/Expired	(63,372	)	59.85
Exercised(1)	(935,250	)	30.59
Outstanding at December 31, 2018	4,480,772		$	46.82	7.04	$	153.5

Vested and exercisable at December 31, 2018	2,423,693		$	32.67	5.79	$	117.3
Expected to vest after December 31, 2018	2,031,401		$	63.43	8.52	$	35.9


(1)	The total intrinsic value of stock options exercised during the years ended December 31, 2018, 2017 and 2016 was $47 million, $17 million and $7 million, respectively.

Restricted Stock Units ("RSUs")

Restricted stock units represent the right to receive unrestricted shares of the Company's stock at the time of vesting. RSUs generally cliff-vest at the end of four years. The fair value of RSUs is equal to the closing price of the Company's common stock on date of grant.

RSU activity for the year ended December 31, 2018 was as follows:



	Number of Units		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2018	131,069		$	40.11
Granted (1)	177,525		73.95
Vested (2)	(26,886	)	60.18
Forfeited	(21,535	)	60.25
Nonvested at December 31, 2018	260,173		$	59.56

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)	The weighted-average grant date fair value of RSUs granted during the years ended December 31, 2018, 2017 and 2016 was $73.95, $58.90 and $39.82, respectively.


(2)	The aggregate fair value of RSUs that vested during the years ended December 31, 2018, 2017 and 2016 was $2 million, $18 million and $1 million, respectively.

Performance Share Units ("PSUs")

Performance share units represent the right to receive unrestricted shares of the Company's stock at the time of vesting. PSUs are granted under the 2013 LTIP which cliff-vest at the end of three years. The percentage of PSUs that shall vest will range from 0% to 200% of the number of PSUs granted based on the Company's performance against a cumulative adjusted free cash flow measure and cumulative non-GAAP net income per diluted share measure over a three-year performance period.

PSU activity for the year ended December 31, 2018 was as follows:



	Number of Units		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2018	418,973		$	50.75
Granted (1)	204,890		73.74
Attainment Adjustment (2)	154,234		37.84
Vested (3)	(334,255	)	39.92
Forfeited	(22,005	)	59.87
Nonvested at December 31, 2018	421,837		$	65.85


(1)	The weighted-average grant date fair value of PSUs granted during the years ended December 31, 2018, 2017 and 2016 was $73.74, $59.00 and $39.91, respectively.


(2)	During the year ended December 31, 2018, the attainment on PSUs vested at December 31, 2017 was adjusted to reflect actual performance. The weighted-average grant date fair value of PSUs included in the attainment adjustment is $37.84.


(3)	The aggregate fair value of PSUs that vested during the years ended December 31, 2018, 2017 and 2016 was $13 million, $20 million and $9 million, respectively.

Performance Share Awards ("PSAs")

Performance share awards represent the right to receive unrestricted shares of the Company's stock at the time of vesting. PSAs are granted under the 2013 LTIP which cliff-vest at the end of three years. The percentage of PSAs that shall vest will range from 0% to 200% of the number of PSAs granted based on the Company's performance against a cumulative adjusted free cash flow measure and cumulative non-GAAP net income per diluted share measure over a three-year performance period.

PSA activity for the year ended December 31, 2018 was as follows:



	Number of Units		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2018	122,467		$	40.08
Granted (1)	1,279		—
Attainment Adjustment (2)	111,565		37.79
Vested (3)	(227,298	)	40.12
Forfeited	(8,013	)	39.79
Nonvested at December 31, 2018	—		$	—

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)	The weighted-average grant date fair value of PSAs granted during the year ended December 31, 2018 and 2017 was zero as the units granted consisted of only dividends on previously granted units. The weighted-average grant date fair value of PSAs granted during the year ended December 31, 2016 was $40.06.


(2)	During the year ended December 31, 2018, the attainment on PSAs vested at December 31, 2017 was adjusted to reflect actual performance. The weighted-average grant date fair value of PSAs included in the attainment adjustment is $37.79.


(3)	The aggregate fair value of PSAs that vested during the years ended December 31, 2018 and 2017 was $9 million and $5 million, respectively. No PSAs vested during the year ended December 31, 2016.

Equity Awards Granted by Seller of CDW UK

During 2018, 456,613 stock options granted by one of the sellers of CDW UK to certain CDW UK coworkers as part of the Company's acquisition of CDW UK vested. These equity awards had a weighted-average grant-date fair value of $35.93 per option. In connection with the exercise of such options, the seller of CDW UK distributed shares of common stock to each participant and withheld the number of shares of common stock equal to the respective tax withholding for each participant. The seller of CDW UK then transferred such withheld shares to the Company to satisfy the tax withholding for participants. The Company was required to pay withholding taxes of $19 million to Her Majesty's Revenue and Customs taxing authority related to the exercise of these options. This amount is reported as a financing activity in the Consolidated Statement of Cash Flows and as an increase to Accumulated Deficit in the Consolidated Statement of Stockholders' Equity for the year ended December 31, 2018.

13. Earnings Per Share

The numerator for both basic and diluted earnings per share is Net income. The denominator for basic earnings per share is the weighted-average shares outstanding during the period.

A reconciliation of basic weighted-average shares outstanding to diluted weighted-average shares outstanding is as follows:



	Year Ended December 31,
(in millions)	2018	2017	2016
Basic weighted-average shares outstanding	150.9	155.4	163.6
Effect of dilutive securities (1)	2.7	2.8	2.4
Diluted weighted-average shares outstanding (2)	153.6	158.2	166.0


(1)	The dilutive effect of outstanding stock options, restricted stock units, restricted stock, performance share units and Coworker Stock Purchase Plan units is reflected in the diluted weighted-average shares outstanding using the treasury stock method.


(2)	There were fewer than 0.2 million potential common shares excluded from diluted weighted-average shares outstanding for the years ended December 31, 2018, 2017 and 2016, respectively, as their inclusion would have had an anti-dilutive effect.

14. Coworker Retirement and Other Compensation Benefits

Profit Sharing Plan and Other Savings Plans

The Company has a profit sharing plan that includes a salary reduction feature established under the Internal Revenue Code Section 401(k) covering substantially all coworkers in the US. In addition, coworkers outside the US participate in other savings plans. Company contributions to the profit sharing and other savings plans are made in cash and determined at the discretion of the Board of Directors. For the years ended December 31, 2018, 2017 and 2016, the amounts expensed for these plans were $34 million, $20 million and $23 million, respectively.

Coworker Stock Purchase Plan

The Company has a Coworker Stock Purchase Plan (the "CSPP") that provides the opportunity for eligible coworkers to acquire shares of the Company's common stock at a 5% discount from the closing market price on the final day of the offering period. There is no compensation expense associated with the CSPP.

15. Commitments and Contingencies

The Company is party to various legal proceedings that arise in the ordinary course of its business, which include commercial, intellectual property, employment, tort and other litigation matters. The Company is also subject to audit by federal, state, international, national, provincial and local authorities, and by various partners, group purchasing organizations and customers, including government agencies, relating to purchases and sales under various contracts. In addition, the Company is subject to indemnification claims under various contracts. From time to time, certain customers of the Company file voluntary petitions for reorganization or liquidation under the US bankruptcy laws or similar laws of the jurisdictions for the Company's business activities outside of the US. In such cases, certain pre-petition payments received by the Company could be considered preference items and subject to return to the bankruptcy administrator.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for these proceedings and matters, if any, has been incurred. However, the ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company's financial condition and results of operations could be adversely affected in any particular period by the unfavorable resolution of one or more of these proceedings or matters.

16. Segment Information

The Company's segment information is presented in accordance with a "management approach," which designates the internal reporting used by the Chief Operating Decision-Maker for deciding how to allocate resources and for assessing performance.

The Company has three reportable segments: Corporate, which is comprised primarily of private sector business customers with more than 250 employees in the US, Small Business, primarily servicing private sector business customers with up to 250 employees in the US, and Public, which is comprised of government agencies and education and healthcare institutions in the US. The Company has two other operating segments: CDW UK and CDW Canada, both of which do not meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category ("Other").

The Company has centralized logistics and headquarters functions that provide services to the segments. The logistics function includes purchasing, distribution and fulfillment services to support the Corporate, Small Business and Public segments. As a result, costs and intercompany charges associated with the logistics function are fully allocated to both of these segments based on a percent of Net sales. The centralized headquarters function provides services in areas such as accounting, information technology, marketing, legal and coworker services. Headquarters function costs that are not allocated to the segments are included under the heading of "Headquarters" in the tables below.

The Company allocates resources to and evaluates performance of its segments based on Net sales, Operating income and Adjusted EBITDA, a non-GAAP measure as defined in the Company's credit agreements. However, the Company has concluded that Operating income is the more useful measure in terms of discussion of operating results, as it is a GAAP measure.

Segment information for Total assets and capital expenditures is not presented, as such information is not used in measuring segment performance or allocating resources between segments.

Selected Segment Financial Information

Information about the Company's segments for the years ended December 31, 2018, 2017 and 2016 are as follows:



(in millions)	Corporate			Small Business			Public			Other			Headquarters			Total
2018:
Net sales	$	6,842.5		$	1,359.6		$	6,154.7		$	1,883.7		$	—		$	16,240.5
Operating income (loss)	536.9			95.7			410.8			82.2			(138.3		)	987.3
Depreciation and amortization expense	(81.7		)	(20.8		)	(45.4		)	(31.8		)	(85.9		)	(265.6		)

2017(1):
Net sales	$	6,172.8		$	1,220.5		$	5,906.5		$	1,533.1		$	—		$	14,832.9
Operating income (loss)	487.9			74.3			374.4			57.1			(127.2		)	866.5
Depreciation and amortization expense	(83.1		)	(20.7		)	(44.8		)	(30.9		)	(81.4		)	(260.9		)

2016(1):
Net sales	$	5,734.9		$	1,118.1		$	5,477.4		$	1,342.3		$	—		$	13,672.7
Operating income (loss)	453.5			69.1			367.7			44.6			(114.9		)	820.0
Depreciation and amortization expense	(82.9		)	(20.6		)	(44.7		)	(32.1		)	(74.2		)	(254.5		)


(1)	Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Geographic Areas and Revenue Mix



	Year Ended December 31, 2018
	Corporate		Small Business		Public		Other		Total
Geography(1)
United States	$	6,834.4	$	1,359.6	$	6,154.7	$	30.9	$	14,379.6
Rest of World	8.1		—		—		1,852.8		1,860.9
Total Net sales	6,842.5		1,359.6		6,154.7		1,883.7		16,240.5

Major Product and Services
Hardware	5,455.6		1,135.8		4,998.9		1,492.1		13,082.4
Software	982.3		174.5		976.4		213.8		2,347.0
Services	337.3		28.2		162.8		169.0		697.3
Other(2)	67.3		21.1		16.6		8.8		113.8
Total Net sales	6,842.5		1,359.6		6,154.7		1,883.7		16,240.5

Sales by Channel
Corporate	6,842.5		—		—		—		6,842.5
Small Business	—		1,359.6		—		—		1,359.6
Government	—		—		2,097.3		—		2,097.3
Education	—		—		2,327.4		—		2,327.4
Healthcare	—		—		1,730.0		—		1,730.0
Other	—		—		—		1,883.7		1,883.7
Total Net sales	6,842.5		1,359.6		6,154.7		1,883.7		16,240.5

Timing of Revenue Recognition
Transferred at a point in time where CDW is principal	6,256.5		1,281.3		5,758.6		1,687.6		14,984.0
Transferred at a point in time where CDW is agent	389.1		69.4		211.5		49.8		719.8
Transferred over time where CDW is principal	196.9		8.9		184.6		146.3		536.7
Total Net sales	$	6,842.5	$	1,359.6	$	6,154.7	$	1,883.7	$	16,240.5


(1)	Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.


(2)	Includes items such as delivery charges to customers.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Year Ended December 31, 2017(1)
	Corporate		Small Business		Public		Other		Total
Geography(2)
United States	$	6,167.4	$	1,220.5	$	5,906.5	$	25.5	$	13,319.9
Rest of World	5.4		—		—		1,507.6		1,513.0
Total Net sales	6,172.8		1,220.5		5,906.5		1,533.1		14,832.9

Major Product and Services
Hardware	4,871.6		1,012.5		4,846.5		1,229.8		11,960.4
Software	918.5		163.1		908.3		167.0		2,156.9
Services	316.2		24.5		133.5		128.5		602.7
Other(3)	66.5		20.4		18.2		7.8		112.9
Total Net sales	6,172.8		1,220.5		5,906.5		1,533.1		14,832.9

Sales by Channel
Corporate	6,172.8		—		—		—		6,172.8
Small Business	—		1,220.5		—		—		1,220.5
Government	—				2,109.8		—		2,109.8
Education	—		—		2,184.5		—		2,184.5
Healthcare	—		—		1,612.2		—		1,612.2
Other	—		—		—		1,533.1		1,533.1
Total Net sales	6,172.8		1,220.5		5,906.5		1,533.1		14,832.9

Timing of Revenue Recognition
Transferred at a point in time where CDW is principal	5,640.9		1,152.5		5,559.4		1,375.7		13,728.5
Transferred at a point in time where CDW is agent	344.2		59.4		184.1		27.9		615.6
Transferred over time where CDW is principal	187.7		8.6		163.0		129.5		488.8
Total Net sales	$	6,172.8	$	1,220.5	$	5,906.5	$	1,533.1	$	14,832.9


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.


(3)	Includes items such as delivery charges to customers.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Year Ended December 31, 2016(1)
	Corporate		Small Business		Public		Other		Total
Geography(2)
United States	$	5,594.6	$	1,118.1	$	5,477.4	$	28.2	$	12,218.3
Rest of World	140.3		—		—		1,314.1		1,454.4
Total Net sales	5,734.9		1,118.1		5,477.4		1,342.3		13,672.7

Major Product and Services
Hardware	4,495.6		908.3		4,481.2		1,030.9		10,916.0
Software	876.3		165.0		855.4		175.6		2,072.3
Services	291.5		24.1		119.6		129.0		564.2
Other(3)	71.5		20.7		21.2		6.8		120.2
Total Net sales	5,734.9		1,118.1		5,477.4		1,342.3		13,672.7

Sales by Channel
Corporate	5,734.9		—		—		—		5,734.9
Small Business	—		1,118.1		—		—		1,118.1
Government	—		—		1,813.6		—		1,813.6
Education	—		—		1,994.4		—		1,994.4
Healthcare	—		—		1,669.4		—		1,669.4
Other	—		—		—		1,342.3		1,342.3
Total Net sales	5,734.9		1,118.1		5,477.4		1,342.3		13,672.7

Timing of Revenue Recognition
Transferred at a point in time where CDW is principal	5,279.8		1,061.3		5,182.4		1,201.8		12,725.3
Transferred at a point in time where CDW is agent	281.4		46.8		149.3		22.5		500.0
Transferred over time where CDW is principal	173.7		10.0		145.7		118.0		447.4
Total Net sales	$	5,734.9	$	1,118.1	$	5,477.4	$	1,342.3	$	13,672.7


(1)	Amounts for 2016 have been adjusted to reflect the adoption of Topic 606.


(2)	Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.


(3)	Includes items such as delivery charges to customers.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents Net sales by major category for the years ended December 31, 2018, 2017 and 2016. Categories are based upon internal classifications.



	Year Ended December 31,
	2018				2017(1)(2)				2016(1)(2)
	Dollars in Millions		Percentage of Total Net Sales		Dollars in Millions		Percentage of Total Net Sales		Dollars in Millions		Percentage of Total Net Sales
Notebooks/Mobile Devices	$	4,053.6	25.0	%	$	3,519.8	23.7	%	$	2,942.9	21.5	%
Netcomm Products	2,119.8		13.1		2,040.3		13.8		1,957.0		14.3
Desktops	1,318.2		8.1		1,207.0		8.1		1,087.7		8.0
Video	1,185.6		7.3		1,078.4		7.3		963.0		7.0
Enterprise and Data Storage (Including Drives)	1,099.2		6.8		1,087.3		7.3		1,073.9		7.9
Other Hardware	3,306.0		20.3		3,027.6		20.4		2,891.5		21.1
Total Hardware	13,082.4		80.6		11,960.4		80.6		10,916.0		79.8

Software(3)	2,347.0		14.4		2,156.9		14.5		2,072.3		15.2
Services(3)	697.3		4.3		602.7		4.1		564.2		4.1
Other(4)	113.8		0.7		112.9		0.8		120.2		0.9
Total Net sales	$	16,240.5	100.0	%	$	14,832.9	100.0	%	$	13,672.7	100.0	%


(1)	Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.


(2)	Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the year ended December 31, 2018.


(3)	Certain software and services revenues are recorded on a net basis for accounting purposes. As a result, the category percentage of net revenues is not representative of the category percentage of gross profits.


(4)	Includes items such as delivery charges to customers.

17. Supplemental Guarantor Information

The 2023 Senior Notes, the 2024 Senior Notes and the 2025 Senior Notes are, and, prior to being redeemed in full, the 2022 Senior Notes were, guaranteed by the Parent and each of CDW LLC's direct and indirect, 100% owned, domestic subsidiaries (the "Guarantor Subsidiaries"). All guarantees by the Parent and the Guarantor Subsidiaries are and were joint and several, and full and unconditional; provided that guarantees by the Guarantor Subsidiaries (i) are subject to certain customary release provisions contained in the indentures governing the 2023 Senior Notes, the 2024 Senior Notes and the 2025 Senior Notes and (ii) were subject to certain customary release provisions contained in the indenture governing the 2022 Senior Notes until such indenture was satisfied and discharged during 2017. CDW LLC's 100% owned foreign subsidiaries, CDW International Holdings Limited, which is comprised of CDW UK and CDW Canada (together the "Non-Guarantor Subsidiaries"), do not guarantee the debt obligations. CDW LLC and CDW Finance Corporation, as co-issuers, are 100% owned by Parent and each of the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries are, directly or indirectly, 100% owned by CDW LLC.

The following tables set forth Condensed Consolidating Balance Sheets as of December 31, 2018 and 2017, Consolidating Statements of Operations for the years ended December 31, 2018, 2017 and 2016, Condensed Consolidating Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016, and Condensed Consolidating Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016, in accordance with Rule 3-10 of Regulation S-X. The consolidating financial information includes the accounts of CDW Corporation (the "Parent Guarantor"), which has no independent assets or operations, the accounts of CDW LLC (the "Subsidiary Issuer"), the combined accounts of the Guarantor Subsidiaries, the combined accounts of the Non-Guarantor Subsidiaries, and the accounts of CDW Finance Corporation (the "Co-Issuer") for the periods indicated. The information was prepared on the same basis as the Company's Consolidated Financial Statements.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheet

December 31, 2018
(in millions)	Parent Guarantor		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuer		Consolidating Adjustments			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	176.0	$	—	$	46.7	$	—	$	(16.9	)	$	205.8
Accounts receivable, net	—		—		2,331.2		340.0		—		—			2,671.2
Merchandise inventory	—		—		387.4		66.9		—		—			454.3
Miscellaneous receivables	—		110.6		187.7		18.1		—		—			316.4
Prepaid expenses and other	—		17.1		93.8		38.2		—		—			149.1
Total current assets	—		303.7		3,000.1		509.9		—		(16.9		)	3,796.8
Property and equipment, net	—		82.3		52.0		21.8		—		—			156.1
Goodwill	—		751.8		1,437.8		273.2		—		—			2,462.8
Other intangible assets, net	—		252.5		300.0		159.7		—		—			712.2
Other assets	1.4		49.8		9.6		140.2		—		(161.2		)	39.8
Investment in and advances to subsidiaries	973.8		3,028.9		—		—		—		(4,002.7		)	—
Total Assets	$	975.2	$	4,469.0	$	4,799.5	$	1,104.8	$	—	$	(4,180.8	)	$	7,167.7
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable-trade	$	—	$	39.2	$	1,387.9	$	166.9	$	—	$	(16.9	)	$	1,577.1
Accounts payable-inventory financing	—		0.2		406.1		23.0		—		—			429.3
Current maturities of long-term debt	—		14.9		4.0		6.4		—		—			25.3
Contract liabilities	—		—		95.6		82.7		—		—			178.3
Accrued expenses and other current liabilities	—		217.6		306.7		68.8		—		—			593.1
Total current liabilities	—		271.9		2,200.3		347.8		—		(16.9		)	2,803.1
Long-term liabilities:
Debt	—		3,121.3		4.3		57.7		—		—			3,183.3
Deferred income taxes	—		55.9		60.5		26.9		—		(1.4		)	141.9
Other liabilities	—		46.1		5.7		172.2		—		(159.8		)	64.2
Total long-term liabilities	—		3,223.3		70.5		256.8		—		(161.2		)	3,389.4
Total stockholders' equity	975.2		973.8		2,528.7		500.2		—		(4,002.7		)	975.2
Total Liabilities and Stockholders' Equity	$	975.2	$	4,469.0	$	4,799.5	$	1,104.8	$	—	$	(4,180.8	)	$	7,167.7

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheet

December 31, 2017
(as adjusted)
(in millions)	Parent Guarantor		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuer		Consolidating Adjustments			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	113.7	$	—	$	32.4	$	—	$	(1.9	)	$	144.2
Accounts receivable, net	—		—		2,015.7		313.6		—		—			2,329.3
Merchandise inventory	—		—		354.6		56.9		—		—			411.5
Miscellaneous receivables	—		103.9		211.1		28.0		—		—			343.0
Prepaid expenses and other	—		18.0		100.4		49.9		—		—			168.3
Total current assets	—		235.6		2,681.8		480.8		—		(1.9		)	3,396.3
Property and equipment, net	—		95.0		43.5		22.6		—		—			161.1
Goodwill	—		751.8		1,439.0		288.8		—		—			2,479.6
Other intangible assets, net	—		280.1		424.5		192.4		—		—			897.0
Other assets	1.7		30.7		209.3		2.6		—		(211.6		)	32.7
Investment in and advances to subsidiaries	983.9		3,066.1		—		—		—		(4,050.0		)	—
Total Assets	$	985.6	$	4,459.3	$	4,798.1	$	987.2	$	—	$	(4,263.5	)	$	6,966.7
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable-trade	$	—	$	42.5	$	1,112.1	$	165.0	$	—	$	(1.9	)	$	1,317.7
Accounts payable-inventory financing	—		1.0		480.9		16.1		—		—			498.0
Current maturities of long-term debt	—		14.9		3.8		6.8		—		—			25.5
Contract liabilities	—		—		87.5		71.3		—		—			158.8
Accrued expenses and other current liabilities	—		173.3		262.0		86.8		—		—			522.1
Total current liabilities	—		231.7		1,946.3		346.0		—		(1.9		)	2,522.1
Long-term liabilities:
Debt	—		3,134.2		8.3		67.5		—		—			3,210.0
Deferred income taxes	—		66.5		100.1		31.4		—		(1.7		)	196.3
Other liabilities	—		43.0		4.7		214.9		—		(209.9		)	52.7
Total long-term liabilities	—		3,243.7		113.1		313.8		—		(211.6		)	3,459.0
Total stockholders' equity	985.6		983.9		2,738.7		327.4		—		(4,050.0		)	985.6
Total Liabilities and Stockholders' Equity	$	985.6	$	4,459.3	$	4,798.1	$	987.2	$	—	$	(4,263.5	)	$	6,966.7

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidating Statement of Operations

Year Ended December 31, 2018
(in millions)	Parent Guarantor			Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Net sales	$	—		$	—		$	14,356.8		$	1,883.7		$	—	$	—		$	16,240.5
Cost of sales	—			—			11,962.7			1,570.9			—		—			13,533.6
Gross profit	—			—			2,394.1			312.8			—		—			2,706.9
Selling and administrative expenses	—			138.3			1,176.8			222.0			—		—			1,537.1
Advertising expense	—			—			173.9			8.6			—		—			182.5
Operating income (loss)	—			(138.3		)	1,043.4			82.2			—		—			987.3
Interest (expense) income, net	—			(146.7		)	3.5			(5.4		)	—		—			(148.6		)
Other income (expense), net	—			(0.2		)	0.7			1.3			—		—			1.8
Income (loss) before income taxes	—			(285.2		)	1,047.6			78.1			—		—			840.5
Income tax (expense) benefit	(0.4		)	67.0			(249.8		)	(14.3		)	—		—			(197.5		)
Income (loss) before equity in earnings of subsidiaries	(0.4		)	(218.2		)	797.8			63.8			—		—			643.0
Equity in earnings of subsidiaries	643.4			861.6			—			—			—		(1,505.0		)	—
Net income	$	643.0		$	643.4		$	797.8		$	63.8		$	—	$	(1,505.0	)	$	643.0

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidating Statement of Operations

Year Ended December 31, 2017
(as adjusted)
(in millions)	Parent Guarantor			Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Net sales	$	—		$	—		$	13,299.8		$	1,533.1		$	—	$	—		$	14,832.9
Cost of sales	—			—			11,103.5			1,279.2			—		—			12,382.7
Gross profit	—			—			2,196.3			253.9			—		—			2,450.2
Selling and administrative expenses	—			127.2			1,093.3			189.5			—		—			1,410.0
Advertising expense	—			—			166.4			7.3			—		—			173.7
Operating income (loss)	—			(127.2		)	936.6			57.1			—		—			866.5
Interest (expense) income, net	—			(148.3		)	4.1			(6.3		)	—		—			(150.5		)
Net loss on extinguishments of long-term debt	—			(57.4		)	—			—			—		—			(57.4		)
Other income (expense), net	—			(0.1		)	0.7			1.5			—		—			2.1
Income (loss) before income taxes	—			(333.0		)	941.4			52.3			—		—			660.7
Income tax (expense) benefit	(0.9		)	149.9			(270.2		)	(16.4		)	—		—			(137.6		)
Income (loss) before equity in earnings of subsidiaries	(0.9		)	(183.1		)	671.2			35.9			—		—			523.1
Equity in earnings of subsidiaries	524.0			707.1			—			—			—		(1,231.1		)	—
Net income	$	523.1		$	524.0		$	671.2		$	35.9		$	—	$	(1,231.1	)	$	523.1

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidating Statement of Operations

Year Ended December 31, 2016
(as adjusted)
(in millions)	Parent Guarantor		Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Net sales	$	—	$	—		$	12,330.4		$	1,342.3		$	—	$	—		$	13,672.7
Cost of sales	—		—			10,225.5			1,118.9			—		—			11,344.4
Gross profit	—		—			2,104.9			223.4			—		—			2,328.3
Selling and administrative expenses	—		114.9			1,057.4			173.1			—		—			1,345.4
Advertising expense	—		—			157.2			5.7			—		—			162.9
Operating income (loss)	—		(114.9		)	890.3			44.6			—		—			820.0
Interest (expense) income, net	—		(145.8		)	6.7			(7.4		)	—		—			(146.5		)
Net loss on extinguishments of long-term debt	—		(2.1		)	—			—			—		—			(2.1		)
Other income, net	—		0.2			1.0			0.6			—		—			1.8
Income (loss) before income taxes	—		(262.6		)	898.0			37.8			—		—			673.2
Income tax (expense) benefit	—		79.8			(319.8		)	(8.1		)	—		—			(248.1		)
Income (loss) before equity in earnings of subsidiaries	—		(182.8		)	578.2			29.7			—		—			425.1
Equity in earnings of subsidiaries	425.1		607.9			—			—			—		(1,033.0		)	—
Net income	$	425.1	$	425.1		$	578.2		$	29.7		$	—	$	(1,033.0	)	$	425.1

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Comprehensive Income

Year Ended December 31, 2018
(in millions)	Parent Guarantor		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuer		Consolidating Adjustments			Consolidated
Comprehensive income	$	608.3	$	608.7	$	797.8	$	31.1	$	—	$	(1,437.6	)	$	608.3

Condensed Consolidating Statement of Comprehensive Income

Year Ended December 31, 2017
(as adjusted)
(in millions)	Parent Guarantor		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuer		Consolidating Adjustments			Consolidated
Comprehensive income	$	567.0	$	567.9	$	671.2	$	79.6	$	—	$	(1,318.7	)	$	567.0

Condensed Consolidating Statement of Comprehensive Income

Year Ended December 31, 2016
(as adjusted)
(in millions)	Parent Guarantor		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Comprehensive income (loss)	$	346.4	$	346.4	$	578.2	$	(49.0	)	$	—	$	(875.6	)	$	346.4

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2018
(in millions)	Parent Guarantor			Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Net cash provided by (used in) operating activities	$	—		$	(85.7	)	$	1,073.6		$	75.0		$	—	$	(157.0	)	$	905.9
Cash flows from investing activities:
Capital expenditures	—			(40.8		)	(34.5		)	(10.8		)	—		—			(86.1		)
Net cash used in investing activities	—			(40.8		)	(34.5		)	(10.8		)	—		—			(86.1		)
Cash flows (used in) provided by: financing activities:
Proceeds from borrowings under revolving credit facilities	—			640.0			—			46.7			—		—			686.7
Repayments of borrowings under revolving credit facilities	—			(640.0		)	—			(46.7		)	—		—			(686.7		)
Repayments of long-term debt	—			(14.9		)	—			(6.7		)	—		—			(21.6		)
Net change in accounts payable-inventory financing	—			(0.8		)	(74.7		)	8.1			—		—			(67.4		)
Repurchases of common stock	(522.3		)	—			—			—			—		—			(522.3		)
Payment of incentive compensation plan withholding taxes	(33.9		)	—			—			—			—		—			(33.9		)
Dividends	(139.4		)	—			—			—			—		—			(139.4		)
Repayment of intercompany loan	—			—			47.5			(47.5		)	—		—			—
Other	—			34.6			(4.4		)	(0.4		)	—		—			29.8
Distributions and advances from (to) affiliates	695.6			169.9			(1,007.5		)	—			—		142.0			—
Net cash (used in) provided by financing activities	—			188.8			(1,039.1		)	(46.5		)	—		142.0			(754.8		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—			(3.4		)	—		—			(3.4		)
Net increase in cash and cash equivalents	—			62.3			—			14.3			—		(15.0		)	61.6
Cash and cash equivalents – beginning of period	—			113.7			—			32.4			—		(1.9		)	144.2
Cash and cash equivalents – end of period	$	—		$	176.0		$	—		$	46.7		$	—	$	(16.9	)	$	205.8

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2017
(as adjusted)
(in millions)	Parent Guarantor			Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Net cash provided by (used in) operating activities	$	0.6		$	(71.1	)	$	788.5		$	52.3		$	—	$	7.4		$	777.7
Cash flows from investing activities:
Capital expenditures	—			(55.2		)	(6.3		)	(19.6		)	—		—			(81.1		)
Net cash used in investing activities	—			(55.2		)	(6.3		)	(19.6		)	—		—			(81.1		)
Cash flows (used in) provided by financing activities:
Proceeds from borrowings under revolving credit facility	—			1,501.5			—			59.2			—		—			1,560.7
Repayments of borrowings under revolving credit facility	—			(1,501.5		)	—			(59.2		)	—		—			(1,560.7		)
Repayments of long-term debt	—			(14.9		)	—			—			—		—			(14.9		)
Proceeds from issuance of long-term debt	—			2,083.0			—			—			—		—			2,083.0
Payments to extinguish long-term debt	—			(2,121.3		)	—			—			—		—			(2,121.3		)
Net change in accounts payable-inventory financing	—			(0.2		)	(78.4		)	(5.4		)	—		—			(84.0		)
Repurchases of common stock	(534.0		)	—			—			—			—		—			(534.0		)
Payment of incentive compensation plan withholding taxes	(49.6		)	—			—			—			—		—			(49.6		)
Dividends	(106.9		)	—			—			—			—		—			(106.9		)
Repayment of intercompany loan	—			—			34.3			(34.3		)	—		—			—
Other	—			14.1			(4.0		)	(1.1		)	—		—			9.0
Distributions and advances from (to) affiliates	689.9			56.6			(737.2		)	—			—		(9.3		)	—
Net cash (used in) provided by financing activities	(0.6		)	17.3			(785.3		)	(40.8		)	—		(9.3		)	(818.7		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—			2.6			—		—			2.6
Net decrease in cash and cash equivalents	—			(109.0		)	(3.1		)	(5.5		)	—		(1.9		)	(119.5		)
Cash and cash equivalents—beginning of period	—			222.7			3.1			37.9			—		—			263.7
Cash and cash equivalents—end of period	$	—		$	113.7		$	—		$	32.4		$	—	$	(1.9	)	$	144.2

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2016
(as adjusted)
(in millions)	Parent Guarantor			Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Net cash provided by (used in) operating activities	$	—		$	(158.5	)	$	695.5		$	56.1		$	—	$	10.9		$	604.0
Cash flows from investing activities:
Capital expenditures	—			(50.9		)	(7.6		)	(5.0		)	—		—			(63.5		)
Premium payments on interest rate cap agreements	—			(2.4		)	—			—			—		—			(2.4		)
Net cash used in investing activities	—			(53.3		)	(7.6		)	(5.0		)	—		—			(65.9		)
Cash flows (used in) provided by financing activities:
Proceeds from borrowings under revolving credit facility	—			329.6			—			9.2			—		—			338.8
Repayments of borrowings under revolving credit facility	—			(329.6		)	—			(9.2		)	—		—			(338.8		)
Repayments of long-term debt	—			(15.2		)	—			(5.4		)	—		—			(20.6		)
Proceeds from issuance of long-term debt	—			1,483.0			—			—			—		—			1,483.0
Payments to extinguish long-term debt	—			(1,490.4		)	—			—			—		—			(1,490.4		)
Net change in accounts payable-inventory financing	—			1.5			131.0			11.1			—		—			143.6
Repurchases of common stock	(367.4		)	—			—			—			—		—			(367.4		)
Dividends	(78.7		)	—			—			—			—		—			(78.7		)
Repayment of intercompany loan	—			—			40.4			(40.4		)	—		—			—
Other	—			12.2			16.7			(3.0		)	—		—			25.9
Distributions and advances from (to) affiliates	446.1			398.3			(872.9		)	—			—		28.5			—
Net cash (used in) provided by financing activities	—			389.4			(684.8		)	(37.7		)	—		28.5			(304.6		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—			(7.4		)	—		—			(7.4		)
Net increase in cash and cash equivalents	—			177.6			3.1			6.0			—		39.4			226.1
Cash and cash equivalents – beginning of period	—			45.1			—			31.9			—		(39.4		)	37.6
Cash and cash equivalents – end of period	$	—		$	222.7		$	3.1		$	37.9		$	—	$	—		$	263.7

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Selected Quarterly Financial Results (unaudited)



	Year Ended December 31, 2018
(in millions, except per-share amounts)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Net Sales:
Corporate	$	1,565.8	$	1,733.8	$	1,706.5	$	1,836.4

Small Business	327.6		329.5		340.0		362.5

Public:
Government	418.5		493.5		639.3		546.0
Education	397.2		712.1		793.1		425.0
Healthcare	414.3		429.8		442.7		443.2
Total Public	1,230.0		1,635.4		1,875.1		1,414.2
Other	483.0		487.4		451.6		461.7
Net sales	3,606.4		4,186.1		4,373.2		4,074.8
Gross profit	603.9		695.6		713.6		693.8
Operating income	204.1		265.5		274.8		242.9
Net income	127.0		173.0		183.7		159.3
Basic(1)	0.83		1.14		1.22		1.07
Diluted(1)	0.82		1.12		1.20		1.05

Cash dividends declared per common share	$	0.210	$	0.210	$	0.210	$	0.295

	Year Ended December 31, 2017(2)(3)
(in millions, except per-share amounts)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Net Sales:
Corporate	$	1,440.6	$	1,580.1	$	1,552.8	$	1,599.3

Small Business	292.0		315.0		305.4		308.1

Public:
Government	374.6		523.4		591.9		619.9
Education	393.2		704.9		691.3		395.2
Healthcare	385.9		404.5		410.7		411.0
Total Public	1,153.7		1,632.8		1,693.9		1,426.1
Other	369.7		363.8		381.1		418.6
Net sales	3,256.0		3,891.7		3,933.2		3,752.1
Gross profit	553.5		640.8		642.2		613.7
Operating income	170.7		230.8		244.0		221.1
Net income	58.2		140.9		129.3		194.8
Basic(1)	0.36		0.90		0.84		1.28
Diluted(1)	0.36		0.89		0.83		1.25

Cash dividends declared per common share	$	0.160	$	0.160	$	0.160	$	0.210


(1)	Basic and diluted net income per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted net income per share.


(2)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(3)	Sum of quarters may not agree to reported yearly totals due to rounding.

19. Subsequent Events

On January 11, 2019, the Company announced its agreement to acquire Scalar Decisions Inc., a leading technology solutions provider in Canada. The acquisition closed on February 1, 2019.

On February 7, 2019, the Company announced that its Board of Directors authorized a $1.0 billion increase to its previously announced share repurchase program.

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

Years ended December 31, 2018, 2017 and 2016




(in millions)	Balance at Beginning of Period		Charged to Costs and Expenses		Deductions			Balance at End of Period
Allowance for doubtful accounts:
Year Ended December 31, 2018	$	6.2	$	2.0	$	(1.2	)	$	7.0
Year Ended December 31, 2017	5.9		2.1		(1.8		)	6.2
Year Ended December 31, 2016	6.0		2.0		(2.1		)	5.9

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