Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	44
Consolidated Balance Sheets as of December 31, 2019 and 2018	46
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017	47
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017	48
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017	49
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017	50
Notes to Consolidated Financial Statements	51

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, 2019 and 2018, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 28, 2020 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 U.S. 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 included 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.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

	Revenue recognition
Description of the Matter	As described in Note 1 to the consolidated financial statements, the Company recognizes revenue upon transfer of control of promised products or services to customers. The Company applies judgment in determining whether it is the principal and reports revenue on a gross basis, or agent and reports revenue on a net basis. The Company also sells some of its products and services as part of bundled contract arrangements containing multiple performance obligations. Significant judgment may be required when determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together. For each distinct performance obligation, judgment is required to determine the relative standalone selling price to allocate the transaction price, such as using an expected cost plus margin approach. Auditing the Company's contracts with customers was challenging given the significant audit effort required to analyze the Company's various products, services and contract arrangements. For example, certain customer contracts contain multiple parties and there can be subjective judgment in assessing the Company's role as principal or agent in the contract arrangement. For certain other customer contracts, there can be judgment in the identification of the distinct performance obligations along with the determination of the associated relative standalone selling prices.
How We Addressed the Matter in Our Audit	We obtained an understanding of the revenue process, evaluated the design and tested the operating effectiveness of the Company's internal controls over the relevant terms of the customer contracts, including the determination of principal versus agent, the identification of distinct performance obligations and the determination of the relative standalone selling price for separate performance obligations. To test revenue recognition, our audit procedures included among others, examination of executed customer contracts for a sample of sales transactions, and evaluating the Company's determination of principal versus agent, identifying products and services in the contract and assessing separate distinct performance obligations. To test management's determination of relative standalone selling price for separate performance obligations, we performed audit procedures that included, among others, assessing the appropriateness of the methodology applied, testing the mathematical accuracy of the underlying data and calculations and inspecting the underlying data information on a sample basis.

/s/ Ernst & Young LLP
We have served as the Company's auditor since 2011.
Chicago, Illinois
February 28, 2020

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in millions, except per share amounts)
	December 31,
	2019				2018
Assets
Current assets:
Cash and cash equivalents	$	154.0			$	205.8
Accounts receivable, net of allowance for doubtful accounts of $7.9 and $7.0, respectively	3,002.2				2,671.2
Merchandise inventory	611.2				454.3
Miscellaneous receivables	395.1				316.4
Prepaid expenses and other	171.6				149.1
Total current assets	4,334.1				3,796.8
Operating lease right-of-use assets	131.8				—
Property and equipment, net	363.1				156.1
Goodwill	2,553.0				2,462.8
Other intangible assets, net	594.1				712.2
Other assets	23.3				39.8
Total Assets	$	7,999.4			$	7,167.7
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable-trade	$	1,835.0			$	1,577.1
Accounts payable-inventory financing	429.9				429.3
Current maturities of long-term debt	34.1				25.3
Contract liabilities	252.2				178.3
Accrued expenses and other current liabilities:
Compensation	212.3				186.4
Advertising	147.9				119.2
Sales and income taxes	88.6				55.5
Other	491.4				232.0
Total current liabilities	3,491.4				2,803.1
Long-term liabilities:
Debt	3,283.2				3,183.3
Deferred income taxes	62.4				141.9
Operating lease liabilities	131.1				—
Other liabilities	71.0				64.2
Total long-term liabilities	3,547.7				3,389.4
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; 143.0 and 147.7 shares outstanding, respectively	1.4				1.5
Paid-in capital	3,095.3				2,996.9
Accumulated deficit	(2,018.6		)		(1,892.6		)
Accumulated other comprehensive loss	(117.8		)		(130.6		)
Total stockholders' equity	960.3				975.2
Total Liabilities and Stockholders' Equity	$	7,999.4			$	7,167.7

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

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in millions, except per share amounts)
	Year Ended December 31,
	2019				2018				2017
Net sales	$	18,032.4			$	16,240.5			$	14,832.9
Cost of sales	14,992.5				13,533.6				12,382.7
Gross profit	3,039.9				2,706.9				2,450.2
Selling and administrative expenses	1,713.1				1,537.1				1,410.0
Advertising expense	193.2				182.5				173.7
Operating income	1,133.6				987.3				866.5
Interest expense, net	(159.4		)		(148.6		)		(150.5		)
Other (expense) income, net	(24.5		)		1.8				(55.3		)
Income before income taxes	949.7				840.5				660.7
Income tax expense	(212.9		)		(197.5		)		(137.6		)
Net income	$	736.8			$	643.0			$	523.1
Net income per common share:
Basic	$	5.08			$	4.26			$	3.37
Diluted	$	4.99			$	4.19			$	3.31
Weighted-average common shares outstanding:
Basic	145.1				150.9				155.4
Diluted	147.8				153.6				158.2

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

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in millions)
		Year Ended December 31,
		2019				2018				2017
Net income		$	736.8			$	643.0			$	523.1
Other comprehensive income (loss):
Unrealized loss from hedge accounting, net of tax		(11.3		)		(5.9		)		(0.1		)
Reclassification of hedge accounting gain to net income, net of tax		1.7				3.9				0.3
Foreign currency translation, net of tax		22.4				(32.7		)		43.7
Other comprehensive income (loss):		12.8				(34.7		)		43.9
Comprehensive income		$	749.6			$	608.3			$	567.0

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

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in millions)
		Common Stock							Treasury Stock
		Shares			Amount				Shares			Amount				Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive Loss				Total Stockholders' Equity
Balance as of December 31, 2016		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		)
Dividend payments ($0.690 per share)		—			—				—			—				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 loss from hedge accounting		—			—				—			—				—				—				(0.1		)		(0.1		)
Realized gain from hedge accounting		—			—				—			—				—				—				0.3				0.3
Balance as of December 31, 2017		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		)
Dividend payments ($0.925 per share)		—			—				—			—				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		—			—				—			—				—				—				(5.9		)		(5.9		)
Realized gain from hedge accounting		—			—				—			—				—				—				3.9				3.9
Balance as of December 31, 2018		147.7			$	1.5			—			$	—			$	2,996.9			$	(1,892.6	)		$	(130.6	)		$	975.2
Net income		—			—				—			—				—				736.8				—				736.8
Equity-based compensation expense		—			—				—			—				47.7				—				—				47.7
Stock option exercises		1.3			—				—			—				34.9				—				—				34.9
Coworker stock purchase plan		0.1			—				—			—				14.9				—				—				14.9
Repurchases of common stock		(6.1	)		(0.1		)		—			—				—				(657.1		)		—				(657.2		)
Dividend payments ($1.265 per share)		—			—				—			—				0.9				(184.3		)		—				(183.4		)
Incentive compensation plan stock withheld for taxes		—			—				—			—				—				(21.4		)		—				(21.4		)
Foreign currency translation		—			—				—			—				—				—				22.4				22.4
Unrealized loss from hedge accounting		—			—				—			—				—				—				(11.3		)		(11.3		)
Realized gain from hedge accounting		—			—				—			—				—				—				1.7				1.7
Balance as of December 31, 2019		143.0			$	1.4			—			$	—			$	3,095.3			$	(2,018.6	)		$	(117.8	)		$	960.3

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

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in millions)
	Year Ended December 31,
	2019				2018				2017
Cash flows from operating activities:
Net income	$	736.8			$	643.0			$	523.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	267.1				265.6				260.9
Equity-based compensation expense	48.5				40.7				43.7
Deferred income taxes	(87.9		)		(56.1		)		(172.7		)
Other	29.0				10.9				62.4
Changes in assets and liabilities:
Accounts receivable	(244.8		)		(365.1		)		(136.8		)
Merchandise inventory	(153.0		)		(46.8		)		16.9
Other assets	(10.9		)		25.2				(117.8		)
Accounts payable-trade	194.1				271.2				231.5
Other liabilities	248.3				117.3				66.5
Net cash provided by operating activities	1,027.2				905.9				777.7
Cash flows used in investing activities:
Capital expenditures	(236.3		)		(86.1		)		(81.1		)
Acquisition of businesses, net of cash acquired	(95.1		)		—				—
Net cash used in investing activities	(331.4		)		(86.1		)		(81.1		)
Cash flows used in financing activities:
Proceeds from borrowings under revolving credit facilities	2,445.5				686.7				1,560.7
Repayments of borrowings under revolving credit facilities	(2,394.5		)		(686.7		)		(1,560.7		)
Repayments of long-term debt	(23.5		)		(21.6		)		(14.9		)
Proceeds from issuance of long-term debt	600.0				—				2,083.0
Payments to extinguish long-term debt	(539.0		)		—				(2,121.3		)
Net change in accounts payable-inventory financing	(1.3		)		(67.4		)		(84.0		)
Repurchases of common stock	(657.2		)		(522.3		)		(534.0		)
Payment of incentive compensation plan withholding taxes	(21.4		)		(33.9		)		(49.6		)
Dividend payments	(183.4		)		(139.4		)		(106.9		)
Other	25.0				29.8				9.0
Net cash used in financing activities	(749.8		)		(754.8		)		(818.7		)
Effect of exchange rate changes on cash and cash equivalents	2.2				(3.4		)		2.6
Net (decrease) increase in cash and cash equivalents	(51.8		)		61.6				(119.5		)
Cash and cash equivalents – beginning of period	205.8				144.2				263.7
Cash and cash equivalents – end of period	$	154.0			$	205.8			$	144.2
Supplementary disclosure of cash flow information:
Interest paid	$	(154.2	)		$	(148.8	)		$	(148.5	)
Taxes paid, net	$	(272.2	)		$	(261.2	)		$	(275.7	)

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

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

1.	Description of Business and Summary of Significant Accounting Policies

Description of Business

CDW Corporation ("Parent"), a Fortune 500 company and member of the S&P 500 Index, is 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 18 (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").

Reclassifications

Certain prior period amounts have been reclassified to conform with current period presentation.

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 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 and outcomes could differ from those estimates.

Business Combinations

The Company accounts for 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 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

(dollars in millions, except per share data, unless otherwise noted)

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 the 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. For revenue generating assets, the Company calculates depreciation expense using the straight-line method to the estimated residual value over the estimated useful life of the assets. Property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying amount 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. 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.

Leases

The Company enters into operating lease contracts, as assessed at contract inception, primarily for real estate, data centers and equipment. On the lease commencement date, the Company records operating lease liabilities based on the present value of the future lease payments. In determining the present value of future lease payments, the Company uses its incremental borrowing rate based on the information available at the commencement date. For real estate and data center contracts, the Company accounts for the lease and non-lease components as a single lease component. For certain equipment leases, the Company applies a portfolio approach to account for the right-of-use asset and operating lease liability. In assessing the lease term, the Company includes options to renew only when it is reasonably certain that it will be exercised; a determination which is at the sole discretion of the Company. For leases with an initial term of 12 months or less, the Company has elected to not record a right-of-use asset and lease liability. For equipment leases used in revenue generating activities, the Company records a right-of-use asset and lease liability for leases with a term of 12 months or less. The Company records lease expense on a straight-line basis over the lease term beginning on the commencement date.

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.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

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 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.

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, net in the same period the hedge transaction affects earnings.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

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

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

specifically for the customer, cannot be redirected to another customer and for customer orders that include configuration services, when such services have been completed.

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 extended 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 information 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.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

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 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 Consolidated Balance Sheets. Contract assets are comprised primarily of professional services with fixed fee arrangements.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

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.

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 include 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.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

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.

2.	Recent Accounting Pronouncements

Measurement of Credit Losses on Financial Instruments

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("Topic 326"). This ASU introduced a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate required considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expanded the disclosure requirements to enable users of financial statements to understand the assumptions, models and methods for estimating expected credit losses.

The Company established a cross-functional implementation team to analyze the effect of Topic 326. The analysis included identifying pools of receivables, developing and assessing estimation methodologies, assessing policy elections, and evaluating its business processes and internal controls to meet the accounting, reporting and disclosure requirements. On January 1, 2020, the Company adopted and applied Topic 326 using the modified retrospective method. The adoption of Topic 326, as well as the adjustment to retained earnings for the cumulative effect, was not significant to the Company's Consolidated Financial Statements.

Accounting for Leases

On January 1, 2019, the Company adopted and applied ASU 2016-02 Leases (Topic 842), resulting in the recognition of right-of-use assets and additional lease liabilities of $81 million as of January 1, 2019, mainly related to operating leases for the Company's real estate portfolio. As part of the adoption, financial information and disclosures are not updated for comparative reporting periods. Additionally, the Company elected the transition package of practical expedients upon adoption which, among other things, allows an entity to not reassess the historical lease classification. For additional information regarding the impact to the Company's Consolidated Balance Sheets from adopting this standard, see Note 11 (Leases).

3**.** Acquisition

On February 1, 2019, the Company completed the acquisition of all issued and outstanding shares of Scalar Decisions Inc. ("Scalar"), a leading technology solutions provider in Canada, for a total final purchase price of $88 million of which $13 million is deferred to satisfy potential indemnity obligations and is expected to be paid in the first quarter of 2021. The financial results of Scalar have been included in the Company's Consolidated Financial Statements since the date of the acquisition. The financial results are included in the CDW Canada operating segment which is shown in an all other category ("Other") along with CDW UK. The purchase price allocation is final.

The final purchase price allocation is as follows:

		Acquisition-Date Fair Value
Net assets acquired		$	5.7
Identified intangible assets(1)		20.3
Goodwill(2)		62.0
Total purchase price		$	88.0

(1)	Net of a related deferred tax liability of $7 million.

(2)	Goodwill in the amount of $62 million was recognized in connection with the acquisition of Scalar, primarily attributed to cross selling opportunities and overall corporate synergies. The full amount of goodwill recognized is not deductible for income tax purposes in Canada.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

4**.** Property and Equipment

Property and equipment consists of the following:

			December 31,
	Useful Lives (Years)		2019				2018
Revenue generating assets	Up to 1		$	212.0			$	—
Building and leasehold improvements	5 - 25		134.2				129.1
Computer and data processing equipment	3 - 5		132.0				105.4
Machinery and equipment	5 - 10		45.4				44.1
Land	-*		27.7				27.7
Computer software	3 - 5		25.1				22.2
Construction in progress	-*		23.3				24.5
Furniture and fixtures	5 - 10		20.5				18.9
Property and equipment, gross			620.2				371.9
Less: accumulated depreciation			(257.1		)		(215.8		)
Property and equipment, net			$	363.1			$	156.1

*Asset is not depreciated.

During 2019, the Company recorded $212 million in revenue generating assets related to the delivery of a mobility solution.

During 2019, 2018 and 2017, the Company recorded disposals of $3 million, $25 million and $23 million, respectively, to remove from Property and equipment, gross assets that were no longer in use.

Depreciation expense for the years ended December 31, 2019, 2018, and 2017 was $41 million, $42 million and $40 million, respectively.

5**.** Goodwill and Other Intangible Assets

Goodwill

The changes in goodwill by reportable segment are as follows:

		Corporate				Small Business				Public				Other(1)				Consolidated
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
Scalar acquisition(3)		—				—				—				62.0				62.0
Other acquisition(4)		16.5				—				—				—				16.5
Foreign currency translation		—				—				—				11.7				11.7
Balances as of December 31, 2019(2)		$	1,090.6			$	185.9			$	929.6			$	346.9			$	2,553.0

(1)	Other is comprised of CDW UK and CDW 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.

(3)	For additional information regarding the addition to goodwill resulting from the Company's acquisition, see Note 3 (Acquisition).

(4)	The Company acquired Aptris, Inc. on October 1, 2019.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

December 1, 2019 Impairment Analysis

The Company completed its annual impairment analysis as of December 1, 2019. For all reporting units, the Company performed a quantitative analysis. Based on the results of the quantitative analysis the Company determined that the fair values of Corporate, Small Business, Public, CDW UK, and CDW Canada reporting units substantially exceeded their carrying values and no impairment existed.

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.

Other Intangible Assets

A summary of intangible assets is as follows:

December 31, 2019		Useful Lives (Years)		Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Customer relationships and contracts		3 - 14		$	2,111.2			$	(1,786.4	)		$	324.8
Trade name		generally 20		422.8				(259.0		)		163.8
Internally developed software		3 - 5		263.5				(160.0		)		103.5
Other		1 - 10		5.5				(3.5		)		2.0
Total				$	2,803.0			$	(2,208.9	)		$	594.1
December 31, 2018
Customer relationships and contracts		3 - 14		$	2,071.0			$	(1,625.5	)		$	445.5
Trade name		generally 20		422.1				(237.3		)		184.8
Internally developed software		3 - 5		205.8				(125.4		)		80.4
Other		1 - 10		3.7				(2.2		)		1.5
Total				$	2,702.6			$	(1,990.4	)		$	712.2

During the years ended December 31, 2019, 2018 and 2017, the Company recorded disposals of $11 million, $26 million and $24 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, 2019, 2018 and 2017 was $219 million, $223 million and $221 million, respectively.

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

Years ending December 31,		Estimated Future Amortization Expense
2020		$	206.4
2021		110.4
2022		62.8
2023		41.3
2024		41.1
Thereafter		132.1
Total future amortization expense		$	594.1

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

6**.** 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,
		2019				2018
Revolving Loan inventory financing agreement(1)		$	379.1			$	406.3
Other inventory financing agreements		50.8				23.0
Accounts payable-inventory financing		$	429.9			$	429.3

(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.

7**.** 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, 2019 and December 31, 2018, the contract liability balance was $252 million and $178 million, respectively. For the years ended December 31, 2019, 2018 and 2017, the Company recognized revenue of $136 million, $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 additional 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, 2019 related to non-cancelable contracts longer than 12 months in duration that is expected to be recognized over future periods.

		Within 1 Year				Years 1-2				Years 2-3				Thereafter
Remaining performance obligations		$	43.1			$	21.3			$	8.2			$	1.0

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 London Interbank Offered Rate ("LIBOR") exceeds the strike rates of the caps during the agreement period in exchange for an upfront premium. During 2019, the Company entered into interest rate cap agreements with a combined notional value of $1.2 billion resulting in premiums paid to the counterparties of $6 million. As of December 31, 2019 and December 31, 2018, 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, 2019				December 31, 2018
Notional Value				Effective Date		Maturity Date		Fair Value				Fair Value
$	1,400.0			December 31, 2018		December 31, 2020		$	—			$	10.6
1,400.0				December 31, 2020		December 31, 2022		0.9				1.5
								$	0.9			$	12.1

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

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 information, 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, net in the period when the hedged forecasted transaction affects earnings. The Company recorded a loss of $11 million and $2 million, net of tax, into Accumulated other comprehensive loss for the years ended December 31, 2019 and 2018, respectively. During 2019 and 2018, the Company reclassified $2 million and $5 million, respectively, from Accumulated other comprehensive loss to earnings within Interest expense, net on the Consolidated Statement of Operations. The Company expects to reclassify $8 million from Accumulated other comprehensive loss into Interest expense, net during the next 12 months.

9**.** Long-Term Debt

				As of December 31, 2019							As of December 31, 2018
		Maturity Date		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		5.00	%		51.0				—	%		—
Total credit facilities							51.0							—
Term Loans
CDW UK term loan(1)		August 2021		2.19	%		61.0				2.29	%		65.0
Senior secured term loan facility		October 2026		3.55	%		1,438.3				4.10	%		1,453.2
Total term loans							1,499.3							1,518.2
Unsecured Senior Notes
Senior notes due 2023 ("2023 Senior Notes")		September 2023		—	%		—				5.00	%		525.0
Senior notes due 2024 ("2024 Senior Notes")		December 2024		5.50	%		575.0				5.50	%		575.0
Senior notes due 2025 ("2025 Senior Notes")		September 2025		5.00	%		600.0				5.00	%		600.0
Senior notes due 2028 ("2028 Senior Notes")		April 2028		4.25	%		600.0				—	%		—
Total unsecured senior notes							1,775.0							1,700.0
Other long-term obligations							12.6							8.3
Unamortized deferred financing fees							(20.6		)					(17.9		)
Current maturities of long-term debt							(34.1		)					(25.3		)
Total long-term debt							$	3,283.2						$	3,183.3

(1)	British pound-denominated debt facilities.

As of December 31, 2019, the Company is in compliance with the covenants under the various credit agreements and indentures.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

Credit Facilities

The Company has a variable rate CDW UK revolving credit facility that is denominated in British pounds. As of December 31, 2019, the Company could have borrowed up to an additional £50 million ($66 million at December 31, 2019) 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. As of December 31, 2019, the Revolving Loan has less than $1 million of undrawn letters of credit, $359 million reserved for the floorplan sub-facility and a borrowing base of $2.0 billion, which is based on the amount of eligible inventory and accounts receivable balances as of November 30, 2019. As of December 31, 2019, the Company could have borrowed up to an additional $1.0 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 6 (Inventory Financing Agreements)), deposits, and accounts receivable, and by a second priority interest in substantially all other US assets.

Term Loans

The CDW UK term loan has a variable interest rate. The Company is required to make annual principal installments of £5 million ($7 million at December 31, 2019), 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 things, the maintenance of a minimum net leverage ratio. As of December 31, 2019, the amount of restricted payment capacity under the CDW UK term loan was £154 million ($204 million at December 31, 2019).

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 December 31, 2019 and 2018, 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, 2019, the amount of CDW's restricted payment capacity under the Term Loan was $1.8 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 6 (Inventory Financing Agreements)), deposits and accounts receivable, and by a first priority interest in substantially all other US assets.

On October 11, 2019, CDW extended the maturity date of the existing Term Loan to October 2026.

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.

Unsecured Senior Notes

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

Debt Issuance and Extinguishments

On September 26, 2019, the Company completed the issuance of $600 million aggregate principal amount of 4.25% Senior Notes due 2028 at par. The 2028 Senior Notes will mature on April 1, 2028 and bear interest at a rate of 4.25% per annum, payable semi-annually on April 1 and October 1 of each year, commencing on April 1, 2020. The net proceeds from the issuance of the 2028 Senior Notes were primarily used to redeem all of the remaining $525 million aggregate principal amount of the 2023 Senior Notes at a redemption price of 102.5% of the principal amount redeemed, plus accrued and unpaid interest to the date of redemption, and to pay fees and expenses related to the issuance and redemption. The redemption date was October 12, 2019. On the same date, the indenture governing the 2023 Senior Notes was satisfied and discharged.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

Total Debt Maturities

A summary of total debt maturities is as follows:

Years ending December 31,		Debt Maturities
2020		$	34.1
2021		69.3
2022		65.9
2023		14.9
2024		589.9
Thereafter		2,563.8
Total debt maturities		$	3,337.9

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 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, are as follows:

		December 31,
		2019				2018
Fair value		$	3,447.5			$	3,145.8
Carrying value		3,337.9				3,226.5

10**.** Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act ("TCJA") was enacted into law. TCJA 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. The Company's analysis and decisions on accounting for TCJA are complete.

Income before income taxes was taxed under the following jurisdictions:

		Year Ended December 31,
		2019				2018				2017
Domestic		$	854.1			$	762.3			$	608.3
Foreign		95.6				78.2				52.4
Total		$	949.7			$	840.5			$	660.7

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

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

		Year Ended December 31,
		2019				2018				2017
Current:
Federal		$	224.7			$	192.6			$	258.9
State		56.1				43.3				29.8
Foreign		20.0				17.7				21.3
Total current		300.8				253.6				310.0
Deferred:
Domestic		(83.0		)		(52.7		)		(167.6		)
Foreign		(4.9		)		(3.4		)		(4.8		)
Total deferred		(87.9		)		(56.1		)		(172.4		)
Income tax expense		$	212.9			$	197.5			$	137.6

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

		Year Ended December 31,
		2019							2018							2017
Statutory federal income tax rate		$	199.4			21.0	%		$	176.5			21.0	%		$	231.1			35.0	%
State taxes, net of federal effect		35.4				3.7			31.1				3.7			18.3				2.8
Excess tax benefit of equity awards		(26.8		)		(2.8	)		(19.7		)		(2.3	)		(36.2		)		(5.5	)
Effect of rates different than statutory		0.8				0.1			0.6				0.1			(6.3		)		(1.0	)
Tax on foreign earnings		2.1				0.2			2.8				0.3			1.0				0.1
Effect of TCJA on deferred taxes and repatriation tax		—				—			(1.9		)		(0.2	)		(75.5		)		(11.4	)
Other		2.0				0.2			8.1				0.9			5.2				0.8
Effective tax rate		$	212.9			22.4	%		$	197.5			23.5	%		$	137.6			20.8	%

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

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

		December 31,
		2019				2018
Deferred tax assets:
Contract liabilities		$	40.7			$	—
Equity compensation plans		21.1				17.7
Net operating loss and credit carryforwards, net		20.1				23.8
Payroll and benefits		9.6				9.3
Rent		7.3				7.5
Accounts receivable		7.0				6.5
Other		14.1				10.0
Total deferred tax assets		119.9				74.8
Deferred tax liabilities:
Acquisition-related intangibles		112.2				148.6
Property and equipment		27.0				20.0
International investments		19.2				19.2
Other		3.3				11.7
Total deferred tax liabilities		161.7				199.5
Deferred tax asset valuation allowance		16.8				17.2
Net deferred tax liabilities		$	58.6			$	141.9

The Company has international income tax net operating losses of $6 million that do not expire and state and international tax credit carryforwards of $20 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 $1 million as of December 31, 2019 related to Canada 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 or state, local, or foreign taxing authorities for tax years through 2014. Various taxing authorities are in 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 Statements.

Changes in the Company's unrecognized tax benefits as of December 31, 2019, 2018 and 2017 were as follows:

		Year Ended December 31,
		2019				2018				2017
Balance as of January 1		$	15.1			$	—			$	—
Additions for tax positions related to current year		2.6				15.1				—
Balance as of December 31		$	17.7			$	15.1			$	—

As of December 31, 2019, the Company had $18 million of unrecognized tax benefits that, if recognized, would have decreased income taxes and the corresponding effective income tax rate and increased net income. The impact of recognizing these tax benefits, net of the federal income tax benefit related to unrecognized state income tax benefits, would be approximately $14 million.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

11**.** Leases

The Company has operating leases primarily for real estate, data centers and equipment. Lease terms range from 1 year to 17 years.

Supplemental Consolidated Balance Sheets information related to the Company's operating leases is as follows:

		Classification on the Consolidated Balance Sheets		December 31, 2019
Assets
		Operating lease right-of-use assets		$	131.8
Liabilities
Current		Accrued expenses and other current liabilities - Other		$	30.1
Long-term		Long-term operating lease liabilities		131.1
Total lease liabilities				$	161.2
Lease term and discount rate				December 31, 2019
Weighted average remaining lease term (years)				9.7
Weighted average discount rate				4.78		%

The components of operating lease expense are as follows:

Financial statement line item		Twelve Months Ended December 31, 2019
Cost of sales		$	62.7
Selling and administrative expenses		30.6
Total lease cost		$	93.3

Maturities of operating lease liabilities are as follows:

		December 31, 2019
2020		$	32.2
2021		27.9
2022		23.0
2023		19.9
2024		17.7
Thereafter		156.6
Total lease payments		$	277.3
Less: Interest		(80.9		)
Less: Lease incentives (1)		(35.2		)
Present value of lease liabilities		$	161.2

(1) Includes lease incentives that will be realized in 2020.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

Supplemental cash flow information related to operating leases is as follows:

		Twelve Months Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		$	88.0
Right-of-use assets obtained in exchange for lease obligations
Operating leases		$	110.2

Disclosure related to periods prior to adoption of Topic 842

For the years ended December 31, 2018 and 2017 lease expense was $30 million and $29 million, respectively.

The Company had the following future minimum lease payments under non-cancelable leases as of December 31, 2018:

		December 31, 2018
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

12**.** 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 2019, the Company repurchased 6.1 million shares of its common stock for $657 million. These repurchases occurred under the programs announced on August 3, 2017 and February 7, 2019, by which the Board of Directors authorized an increase to the Company's share repurchase program by $750 million and $1.0 billion, respectively. As of December 31, 2019, the Company has $679 million remaining under this program.

13**.** Equity-Based Compensation

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

		Year Ended December 31,
		2019				2018				2017
Equity-based compensation expense		$	48.5			$	40.7			$	43.7
Income tax benefit(1)		(9.8		)		(9.9		)		(15.3		)
Equity-based compensation expense, net of tax		$	38.7			$	30.8			$	28.4

(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).

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

The total unrecognized compensation cost related to non-vested awards was $48 million as of December 31, 2019 and is expected to be recognized over a weighted-average period of 1.8 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 Initial Public Offering ("IPO"). As of December 31, 2019, 3,980,054 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.

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 ten 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,
		2019				2018				2017
Grant date fair value		$	19.26			$	14.80			$	12.27
Volatility (1)		20.00		%		20.00		%		22.00		%
Risk-free rate (2)		2.53		%		2.75		%		2.08		%
Expected dividend yield		1.23		%		1.14		%		1.09		%
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, 2019 was as follows:

Options		Number of Options			Weighted-Average Exercise Price				Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2019		4,480,772			$	46.82
Granted		786,601			96.24
Forfeited/Expired		(63,947	)		74.56
Exercised(1)		(1,065,184	)		32.80
Outstanding at December 31, 2019		4,138,242			$	59.39			6.17		$	345.3
Vested and exercisable at December 31, 2019		2,364,405			$	43.61			4.99		$	234.6
Expected to vest after December 31, 2019		1,752,687			$	80.34			7.72		$	109.5

(1)	The total intrinsic value of stock options exercised during the years ended December 31, 2019, 2018 and 2017 was $83 million, $47 million and $17 million, respectively.

Restricted Stock Units ("RSUs")

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

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 three 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, 2019 was as follows:

		Number of Units			Weighted-Average Grant-Date Fair Value
Non-vested at January 1, 2019		260,173			$	59.56
Granted (1)		58,577			103.24
Vested (2)		(88,097	)		44.62
Forfeited		(21,275	)		78.52
Non-vested at December 31, 2019		209,378			$	75.56

(1)	The weighted-average grant date fair value of RSUs granted during the years ended December 31, 2019, 2018 and 2017 was $103.24, $73.95 and $58.90, respectively.

(2)	The aggregate fair value of RSUs that vested during the years ended December 31, 2019, 2018 and 2017 was $4 million, $2 million and $18 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, 2019 was as follows:

		Number of Units			Weighted-Average Grant-Date Fair Value
Non-vested at January 1, 2019		421,837			$	65.85
Granted (1)		201,441			101.33
Attainment Adjustment (2)		129,498			39.92
Vested (3)		(350,816	)		52.16
Forfeited		(20,055	)		72.96
Non-vested at December 31, 2019		381,905			$	87.78

(1)	The weighted-average grant date fair value of PSUs granted during the years ended December 31, 2019, 2018 and 2017 was $101.33, $73.74 and $59.00, respectively.

(2)	During the year ended December 31, 2019, the attainment on PSUs vested at December 31, 2018 was adjusted to reflect actual performance.

(3)	The aggregate fair value of PSUs that vested during the years ended December 31, 2019, 2018 and 2017 was $18 million, $13 million and $20 million, respectively.

Equity Awards Granted by Seller of CDW UK

As part of the Company's acquisition of CDW UK, stock options were granted by one of the sellers of CDW UK to certain CDW UK coworkers. These equity awards had a weighted-average grant-date fair value of $35.93 per option. In 2019 and 2018, 110,978 and 456,613 stock options vested and were exercised. 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

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

withheld shares to the Company to satisfy the tax withholding for participants. The Company was required to pay withholding taxes in 2019 and 2018 of $6 million and $19 million to Her Majesty's Revenue and Customs taxing authority for the exercise of these options. The amounts are reported as a financing activity in the Consolidated Statement of Cash Flows and as increases to Accumulated Deficit in the Consolidated Statement of Stockholders' Equity for the years ended December 31, 2019 and December 31, 2018.

14**.** 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,
		2019			2018			2017
Basic weighted-average shares outstanding		145.1			150.9			155.4
Effect of dilutive securities (1)		2.7			2.7			2.8
Diluted weighted-average shares outstanding (2)		147.8			153.6			158.2

(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 0.1 million potential common shares excluded from diluted weighted-average shares outstanding for the years ended December 31, 2019, 2018 and 2017, respectively, as their inclusion would have had an anti-dilutive effect.

15**.** 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, 2019, 2018 and 2017, the amounts expensed for these plans were $38 million, $34 million and $20 million, respectively.

Coworker Stock Purchase Plan

The Company has a Coworker Stock Purchase Plan ("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.

16**.** 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.

As of December 31, 2019, 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 consolidated financial statements could be adversely affected in any particular period by the unfavorable resolution of one or more of these proceedings or matters.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

17**.** 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 all 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 Non-GAAP Operating income. 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.

During the first quarter of 2019, the Company evaluated its methodology for allocating certain depreciation and amortization expenses to each of its segments. The evaluation resulted in a revision to the allocation of depreciation and amortization expenses from Headquarters to the Company's reportable segments, effective January 1, 2019. The prior period results have been recast to reflect these changes and present comparable information.

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, 2019, 2018 and 2017 is as follows:

		Corporate				Small Business				Public				Other				Headquarters				Total
2019:
Net sales		$	7,499.0			$	1,510.3			$	6,864.8			$	2,158.3			$	—			$	18,032.4
Operating income (loss)		585.1				107.5				475.0				101.6				(135.6		)		1,133.6
Depreciation and amortization expense		(86.9		)		(22.5		)		(56.3		)		(31.2		)		(70.2		)		(267.1		)
2018:
Net sales		$	6,842.5			$	1,359.6			$	6,154.7			$	1,883.7			$	—			$	16,240.5
Operating income (loss)		530.4				94.4				405.0				82.2				(124.7		)		987.3
Depreciation and amortization expense		(88.2		)		(22.1		)		(51.2		)		(31.8		)		(72.3		)		(265.6		)
2017:
Net sales		$	6,172.8			$	1,220.5			$	5,906.5			$	1,533.1			$	—			$	14,832.9
Operating income (loss)		480.9				73.0				367.7				57.1				(112.2		)		866.5
Depreciation and amortization expense		(90.1		)		(22.0		)		(51.5		)		(30.9		)		(66.4		)		(260.9		)

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

Geographic Areas and Revenue Mix

	Year Ended December 31, 2019
	Corporate				Small Business				Public				Other				Total
Geography**(1)**
United States	$	7,485.7			$	1,510.3			$	6,864.8			$	32.5			$	15,893.3
Rest of World	13.3				—				—				2,125.8				2,139.1
Total Net sales	7,499.0				1,510.3				6,864.8				2,158.3				18,032.4
Major Product and Services
Hardware	5,955.5				1,263.2				5,584.8				1,559.7				14,363.2
Software	1,079.4				197.5				1,059.4				300.9				2,637.2
Services	393.8				28.4				199.3				286.1				907.6
Other(2)	70.3				21.2				21.3				11.6				124.4
Total Net sales	7,499.0				1,510.3				6,864.8				2,158.3				18,032.4
Sales by Channel
Corporate	7,499.0				—				—				—				7,499.0
Small Business	—				1,510.3				—				—				1,510.3
Government	—				—				2,519.3				—				2,519.3
Education	—				—				2,411.6				—				2,411.6
Healthcare	—				—				1,933.9				—				1,933.9
Other	—				—				—				2,158.3				2,158.3
Total Net sales	7,499.0				1,510.3				6,864.8				2,158.3				18,032.4
Timing of Revenue Recognition
Transferred at a point in time where CDW is principal	6,818.7				1,423.1				6,410.2				1,900.6				16,552.6
Transferred at a point in time where CDW is agent	446.1				80.0				248.5				59.6				834.2
Transferred over time where CDW is principal	234.2				7.2				206.1				198.1				645.6
Total Net sales	$	7,499.0			$	1,510.3			$	6,864.8			$	2,158.3			$	18,032.4

(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

(dollars in millions, except per share data, unless otherwise noted)

	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	5,462.1				1,134.6				5,010.4				1,492.0				13,099.1
Software	976.2				175.8				965.9				214.0				2,331.9
Services	336.9				28.1				161.8				169.0				695.8
Other(2)	67.3				21.1				16.6				8.7				113.7
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

(dollars in millions, except per share data, unless otherwise noted)

	Year Ended December 31, 2017
	Corporate				Small Business				Public				Other				Total
Geography**(1)**
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	4,879.7				1,015.9				4,846.4				1,229.8				11,971.8
Software	910.4				159.7				908.3				167.0				2,145.4
Services	316.2				24.5				133.6				128.5				602.8
Other(2)	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)	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

(dollars in millions, except per share data, unless otherwise noted)

The following table presents Net sales by major category for the years ended December 31, 2019, 2018 and 2017. Categories are based upon internal classifications.

	Year Ended December 31,
	2019							2018(1)							2017(1)
	Net Sales				Percentage of Total Net Sales			Net Sales				Percentage of Total Net Sales			Net Sales				Percentage of Total Net Sales
Notebooks/Mobile Devices	$	4,631.7			25.7	%		$	4,062.2			25.0	%		$	3,491.8			23.5	%
Netcomm Products	2,193.4				12.2			2,119.1				13.0			2,021.6				13.6
Desktops	1,598.2				8.9			1,322.2				8.1			1,196.0				8.1
Video	1,272.7				7.1			1,184.3				7.3			1,070.0				7.2
Enterprise and Data Storage (Including Drives)	1,146.0				6.4			1,102.5				6.8			1,070.2				7.2
Other Hardware	3,521.2				19.5			3,308.8				20.4			3,122.2				21.0
Total Hardware	14,363.2				79.8			13,099.1				80.6			11,971.8				80.6
Software(2)	2,637.2				14.6			2,331.9				14.4			2,145.4				14.5
Services(2)	907.6				5.0			695.8				4.3			602.8				4.1
Other(3)	124.4				0.6			113.7				0.7			112.9				0.8
Total Net sales	$	18,032.4			100.0	%		$	16,240.5			100.0	%		$	14,832.9			100.0	%

(1)	Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the year ended December 31, 2019.

(2)	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.

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

18**.** Supplemental Guarantor Information

The Senior Notes are guaranteed by Parent and each of CDW LLC's direct and indirect, 100% owned, domestic subsidiaries (the "Guarantor Subsidiaries"). All guarantees by Parent and the Guarantor Subsidiaries are and were joint and several, and full and unconditional; provided that guarantees by the Guarantor Subsidiaries are subject to certain customary release provisions contained in the indentures governing the Senior Notes. 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 Senior Notes. 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, 2019 and 2018, Consolidating Statements of Operations for the years ended December 31, 2019, 2018 and 2017, Condensed Consolidating Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017, and Condensed Consolidating Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017, 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

(dollars in millions, except per share data, unless otherwise noted)

Condensed Consolidating Balance Sheet
December 31, 2019
	Parent Guarantor				Subsidiary Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Co-Issuer				Consolidating Adjustments				Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—			$	73.9			$	—			$	98.9			$	—			$	(18.8	)		$	154.0
Accounts receivable, net	—				—				2,517.0				485.2				—				—				3,002.2
Merchandise inventory	—				—				524.9				86.3				—				—				611.2
Miscellaneous receivables	—				97.9				265.9				31.3				—				—				395.1
Prepaid expenses and other	—				22.1				99.9				49.6				—				—				171.6
Total current assets	—				193.9				3,407.7				751.3				—				(18.8		)		4,334.1
Operating lease right-of-use assets	—				75.4				29.1				27.3				—				—				131.8
Property and equipment, net	—				73.3				259.0				30.8				—				—				363.1
Goodwill	—				751.8				1,454.3				346.9				—				—				2,553.0
Other intangible assets, net	—				242.9				177.6				173.6				—				—				594.1
Other assets	1.4				25.7				20.1				171.9				—				(195.8		)		23.3
Investment in and advances to subsidiaries	958.9				3,342.9				—				—				—				(4,301.8		)		—
Total Assets	$	960.3			$	4,705.9			$	5,347.8			$	1,501.8			$	—			$	(4,516.4	)		$	7,999.4
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable-trade	$	—			$	46.5			$	1,525.7			$	281.6			$	—			$	(18.8	)		$	1,835.0
Accounts payable-inventory financing	—				0.1				378.9				50.9				—				—				429.9
Current maturities of long-term debt	—				14.9				12.4				6.8				—				—				34.1
Contract liabilities	—				—				146.4				105.8				—				—				252.2
Accrued expenses and other current liabilities	—				291.3				559.1				89.8				—				—				940.2
Total current liabilities	—				352.8				2,622.5				534.9				—				(18.8		)		3,491.4
Long-term liabilities:
Debt	—				3,229.5				—				53.7				—				—				3,283.2
Deferred income taxes	—				49.7				—				29.9				—				(17.2		)		62.4
Operating lease liabilities	—				84.9				22.9				23.3				—				—				131.1
Other liabilities	—				30.1				0.7				218.8				—				(178.6		)		71.0
Total long-term liabilities	—				3,394.2				23.6				325.7				—				(195.8		)		3,547.7
Total stockholders' equity	960.3				958.9				2,701.7				641.2				—				(4,301.8		)		960.3
Total Liabilities and Stockholders' Equity	$	960.3			$	4,705.9			$	5,347.8			$	1,501.8			$	—			$	(4,516.4	)		$	7,999.4

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

Condensed Consolidating Balance Sheet
December 31, 2018
	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

(dollars in millions, except per share data, unless otherwise noted)

Consolidating Statement of Operations
Year Ended December 31, 2019
	Parent Guarantor				Subsidiary Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Co-Issuer				Consolidating Adjustments				Consolidated
Net sales	$	—			$	—			$	15,874.1			$	2,158.3			$	—			$	—			$	18,032.4
Cost of sales	—				—				13,207.3				1,785.2				—				—				14,992.5
Gross profit	—				—				2,666.8				373.1				—				—				3,039.9
Selling and administrative expenses	—				136.4				1,317.5				259.2				—				—				1,713.1
Advertising expense	—				—				180.8				12.4				—				—				193.2
Operating income (loss)	—				(136.4		)		1,168.5				101.5				—				—				1,133.6
Interest (expense) income, net	—				(158.1		)		0.3				(1.6		)		—				—				(159.4		)
Other (expense) income, net	—				(21.9		)		2.1				(4.7		)		—				—				(24.5		)
Income (loss) before income taxes	—				(316.4		)		1,170.9				95.2				—				—				949.7
Income tax (expense) benefit	—				87.4				(285.2		)		(15.1		)		—				—				(212.9		)
Income (loss) before equity in earnings of subsidiaries	—				(229.0		)		885.7				80.1				—				—				736.8
Equity in earnings of subsidiaries	736.8				965.8				—				—				—				(1,702.6		)		—
Net income	$	736.8			$	736.8			$	885.7			$	80.1			$	—			$	(1,702.6	)		$	736.8

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

Consolidating Statement of Operations
Year Ended December 31, 2018
	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

(dollars in millions, except per share data, unless otherwise noted)

Consolidating Statement of Operations
Year Ended December 31, 2017
	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		)
Other (expense) income, net	—				(57.5		)		0.7				1.5				—				—				(55.3		)
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

(dollars in millions, except per share data, unless otherwise noted)

Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2019
	Parent Guarantor				Subsidiary Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Co-Issuer				Consolidating Adjustments				Consolidated
Comprehensive income	$	749.6			$	749.6			$	885.7			$	102.5			$	—			$	(1,737.8	)		$	749.6

Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2018
	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
	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

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2019
	Parent Guarantor				Subsidiary Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Co-Issuer				Consolidating Adjustments				Consolidated
Net cash provided by (used in) operating activities	$	—			$	14.8			$	927.8			$	97.1			$	—			$	(12.5	)		$	1,027.2
Cash flows used in investing activities:
Capital expenditures	—				(61.5		)		(160.4		)		(14.4		)		—				—				(236.3		)
Acquisition of businesses, net of cash acquired	—				—				(20.1		)		(75.0		)		—				—				(95.1		)
Net cash used in investing activities	—				(61.5		)		(180.5		)		(89.4		)		—				—				(331.4		)
Cash flows (used in) provided by: financing activities:
Proceeds from borrowings under revolving credit facility	—				2,445.5				—				—				—				—				2,445.5
Repayments of borrowings under revolving credit facility	—				(2,394.5		)		—				—				—				—				(2,394.5		)
Repayments of long-term debt	—				(14.9		)		—				(8.6		)		—				—				(23.5		)
Proceeds from issuance of long-term debt	—				600.0				—				—				—				—				600.0
Payments to extinguish long-term debt	—				(539.0		)		—				—				—				—				(539.0		)
Net change in accounts payable-inventory financing	—				—				(27.3		)		26.0				—				—				(1.3		)
Repurchases of common stock	(657.2		)		—				—				—				—				—				(657.2		)
Payment of incentive compensation plan withholding taxes	(21.4		)		—				—				—				—				—				(21.4		)
Dividend payments	(183.4		)		—				—				—				—				—				(183.4		)
Capital contributions	—				(76.0		)		—				76.0				—				—				—
Other	—				35.5				(10.2		)		(0.3		)		—				—				25.0
Distributions and advances from (to) affiliates	862.0				(112.0		)		(709.8		)		(50.8		)		—				10.6				—
Net cash (used in) provided by financing activities	—				(55.4		)		(747.3		)		42.3				—				10.6				(749.8		)
Effect of exchange rate changes on cash and cash equivalents	—				—				—				2.2				—				—				2.2
Net (decrease) increase in cash and cash equivalents	—				(102.1		)		—				52.2				—				(1.9		)		(51.8		)
Cash and cash equivalents – beginning of period	—				176.0				—				46.7				—				(16.9		)		205.8
Cash and cash equivalents – end of period	$	—			$	73.9			$	—			$	98.9			$	—			$	(18.8	)		$	154.0

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2018
	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 used in 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 facility	—				640.0				—				46.7				—				—				686.7
Repayments of borrowings under revolving credit facility	—				(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		)
Dividend payments	(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

(dollars in millions, except per share data, unless otherwise noted)

Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2017
	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 used in 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		)
Dividend payments	(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

(dollars in millions, except per share data, unless otherwise noted)

19**.** Selected Quarterly Financial Results (unaudited)

		Year Ended December 31, 2019
		First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Net sales:
Corporate		$	1,736.2			$	1,883.9			$	1,913.5			$	1,965.4
Small Business		355.6				377.4				386.2				391.1
Public:
Government		488.4				578.4				793.4				659.1
Education		400.4				773.6				807.0				430.6
Healthcare		441.9				488.1				500.5				503.4
Total Public		1,330.7				1,840.1				2,100.9				1,593.1
Other		535.4				528.5				507.1				587.3
Net sales		$	3,957.9			$	4,629.9			$	4,907.7			$	4,536.9
Gross profit		672.1				773.8				816.5				777.5
Operating income		228.9				300.3				320.6				283.8
Net income		152.9				196.6				201.7				185.6
Basic(1)		1.04				1.35				1.39				1.29
Diluted(1)		1.02				1.33				1.37				1.27
		Year Ended December 31, 2018
		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

(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.

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

Years ended December 31, 2019, 2018 and 2017

(dollars in millions)

Allowance for doubtful accounts:		Balance at Beginning of Period				Charged to Costs and Expenses				Deductions				Balance at End of Period
Year Ended December 31, 2019		$	7.0			$	2.2			$	(1.3	)		$	7.9
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