Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

			Page
Report of Independent Registered Public Accounting Firm			46
Consolidated Balance Sheets as of December 31, 2020 and 2019			48
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018			49
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018			50
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018			51
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018			52
Notes to Consolidated Financial Statements			53

Table of Contents

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, 2020 and 2019, 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, 2020, 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 at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. 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, 2020, 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 26, 2021 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 Matter

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.

Table of Contents

			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 an 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 26, 2021

Table of Contents

CDW CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in millions, except per share amounts)

			December 31,
			2020						2019
Assets
Current assets:
Cash and cash equivalents			$	1,410.2					$	154.0
Accounts receivable, net of allowance for credit losses of $29.6 and $7.9, respectively			3,212.6						3,002.2
Merchandise inventory			760.0						611.2
Miscellaneous receivables			379.5						395.1
Prepaid expenses and other			191.2						171.6
Total current assets			5,953.5						4,334.1
Operating lease right-of-use assets			130.8						131.8
Property and equipment, net			175.5						363.1
Goodwill			2,595.9						2,553.0
Other intangible assets, net			445.1						594.1
Other assets			43.9						23.3
Total Assets			$	9,344.7					$	7,999.4
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable-trade			$	2,088.4					$	1,835.0
Accounts payable-inventory financing			524.6						429.9
Current maturities of long-term debt			70.9						34.1
Contract liabilities			243.7						252.2
Accrued expenses and other current liabilities:
Compensation			288.3						212.3
Advertising			153.4						147.9
Sales and income taxes			104.2						88.6
Other			424.8						491.4
Total current liabilities			3,898.3						3,491.4
Long-term liabilities:
Debt			3,856.3						3,283.2
Deferred income taxes			55.3						62.4
Operating lease liabilities			169.0						131.1
Other liabilities			68.7						71.0
Total long-term liabilities			4,149.3						3,547.7
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; 141.9 and 143.0 shares outstanding, respectively			1.4						1.4
Paid-in capital			3,204.9						3,095.3
Accumulated deficit			(1,813.4)						(2,018.6)
Accumulated other comprehensive loss			(95.8)						(117.8)
Total stockholders' equity			1,297.1						960.3
Total Liabilities and Stockholders' Equity			$	9,344.7					$	7,999.4

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,
			2020						2019						2018
Net sales			$	18,467.5					$	18,032.4					$	16,240.5
Cost of sales			15,257.4						14,992.5						13,533.6
Gross profit			3,210.1						3,039.9						2,706.9
Selling and administrative expenses			2,030.9						1,906.3						1,719.6
Operating income			1,179.2						1,133.6						987.3
Interest expense, net			(154.9)						(159.4)						(148.6)
Other (expense) income, net			(22.0)						(24.5)						1.8
Income before income taxes			1,002.3						949.7						840.5
Income tax expense			(213.8)						(212.9)						(197.5)
Net income			$	788.5					$	736.8					$	643.0
Net income per common share:
Basic			$	5.53					$	5.08					$	4.26
Diluted			$	5.45					$	4.99					$	4.19
Weighted-average common shares outstanding:
Basic			142.6						145.1						150.9
Diluted			144.8						147.8						153.6

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,
						2020						2019						2018
Net income						$	788.5					$	736.8					$	643.0
Other comprehensive income (loss):
Unrealized loss from hedge accounting, net of tax						(0.6)						(11.3)						(5.9)
Reclassification of hedge accounting loss to net income, net of tax						6.0						1.7						3.9
Foreign currency translation, net of tax						16.6						22.4						(32.7)
Other comprehensive income (loss)						22.0						12.8						(34.7)
Comprehensive income						$	810.5					$	749.6					$	608.3

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, 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)
Reclassification of hedge accounting loss to net income						—						—						—						—						—						—						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)
Reclassification of hedge accounting loss to net income						—						—						—						—						—						—						1.7						1.7
Balance as of December 31, 2019						143.0						$	1.4					—						$	—					$	3,095.3					$	(2,018.6)					$	(117.8)					$	960.3
Net income						—						—						—						—						—						788.5						—						788.5
Equity-based compensation expense						—						—						—						—						42.5						—						—						42.5
Stock option exercises						1.4						—						—						—						49.2						—						—						49.2
Coworker Stock Purchase Plan						0.1						—						—						—						16.8						—						—						16.8
Repurchases of common stock						(2.6)						—						—						—						—						(340.6)						—						(340.6)
Dividend payments ($1.540 per share)						—						—						—						—						1.1						(220.7)						—						(219.6)
Incentive compensation plan stock withheld for taxes						—						—						—						—						—						(22.5)						—						(22.5)
Foreign currency translation						—						—						—						—						—						—						16.6						16.6
Unrealized loss from hedge accounting						—						—						—						—						—						—						(0.6)						(0.6)
Reclassification of hedge accounting loss to net income						—						—						—						—						—						—						6.0						6.0
Impact of adoption of Topic 326						—						—						—						—						—						0.5						—						0.5
Balance as of December 31, 2020						141.9						$	1.4					—						$	—					$	3,204.9					$	(1,813.4)					$	(95.8)					$	1,297.1

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,
			2020						2019						2018
Cash flows from operating activities:
Net income			$	788.5					$	736.8					$	643.0
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			425.6						267.1						265.6
Equity-based compensation expense			42.5						48.5						40.7
Deferred income taxes			(20.2)						(87.9)						(56.1)
Provision for credit losses			30.9						0.8						0.9
Other			42.1						28.2						10.0
Changes in assets and liabilities:
Accounts receivable			(226.4)						(244.8)						(365.1)
Merchandise inventory			(71.4)						(153.0)						(46.8)
Other assets			18.6						(10.9)						25.2
Accounts payable-trade			253.7						194.1						271.2
Other liabilities			30.4						248.3						117.3
Net cash provided by operating activities			1,314.3						1,027.2						905.9
Cash flows used in investing activities:
Capital expenditures			(158.0)						(236.3)						(86.1)
Acquisition of businesses, net of cash acquired			(43.0)						(95.1)						—
Net cash used in investing activities			(201.0)						(331.4)						(86.1)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facilities			1,024.0						2,445.5						686.7
Repayments of borrowings under revolving credit facilities			(1,075.0)						(2,394.5)						(686.7)
Proceeds from issuance of long-term debt			1,300.0						600.0						—
Payments to extinguish long-term debt			(622.5)						(539.0)						—
Net change in accounts payable-inventory financing			93.0						(1.3)						(67.4)
Repurchases of common stock			(340.6)						(657.2)						(522.3)
Payment of incentive compensation plan withholding taxes			(22.5)						(21.4)						(33.9)
Dividend payments			(219.6)						(183.4)						(139.4)
Other			2.0						1.5						8.2
Net cash provided by (used in) financing activities			138.8						(749.8)						(754.8)
Effect of exchange rate changes on cash and cash equivalents			4.1						2.2						(3.4)
Net increase (decrease) in cash and cash equivalents			1,256.2						(51.8)						61.6
Cash and cash equivalents – beginning of period			154.0						205.8						144.2
Cash and cash equivalents – end of period			$	1,410.2					$	154.0					$	205.8
Supplementary disclosure of cash flow information:
Interest paid			$	(139.4)					$	(154.2)					$	(148.8)
Income taxes paid, net			$	(245.6)					$	(272.2)					$	(261.2)

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 multi-brand provider of 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 broad array of offerings ranges from discrete hardware and software products to integrated IT solutions and services that include on-premise, hybrid and cloud capabilities across data center and networking, digital workspace, security and virtualization.

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 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 ("US 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 US 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 including management’s current assumptions with respect to implications of the novel coronavirus ("COVID-19") pandemic, 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.

Except as noted within Note 2 (Recent Accounting Pronouncements) for the adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("Topic 326"), there have been no changes to the Company's significant accounting policies and estimates during the year ended December 31, 2020.

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

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and typically do not bear interest. The Company estimates an allowance for credit losses related to accounts receivable for future expected credit losses by using relevant information such as historical information, current conditions, and reasonable and supportable forecasts. The allowance is measured on a pool basis when similar risk characteristics exist, and a loss-rate for each pool is determined using historical credit loss experience as the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current conditions as well as changes in forecasted macroeconomic conditions, such as changes in the unemployment rate or gross domestic product growth rate. The Company has typically observed a higher loss-rate experience with customers in pools associated with the Company's Corporate and Small Business segments, as compared to the pools associated with the Public segment.

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

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

Fair Value Measurements

Fair value is defined under US 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

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

supplier or (iii) via electronic delivery of keys for software licenses. The Company's shipping terms typically allow for the Company to recognize revenue when the product reaches the customer's location.

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

Revenue Recognition for Hardware

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

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

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.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Revenue Recognition for Services

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

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.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Other

The nature of the Company's contracts give rise to variable consideration in the form of volume rebates and sales returns and allowances, which are estimated at contract inception. 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 a liability for estimated sales returns and allowances and an associated right of return asset. The Company also records a provision for volume rebates based on the evaluation of contract terms and historical experience.

The Company excludes amounts collected on behalf of third-parties, such as sales taxes, when determining the transaction price.

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.

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 and are recorded in Selling and administrative expenses in the Consolidated Statements of Operations. 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. During the years ended December 31, 2020, 2019 and 2018, the Company had advertising costs of $191 million, $193 million and $183 million, respectively.

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.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Interest Expense

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

Foreign Currency Translation

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

Income Taxes

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

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

2. Recent Accounting Pronouncements

Accounting for Income Taxes

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("Topic 740"). This ASU simplifies various areas related to the accounting for income taxes by removing certain exceptions to the general principles and by amending the existing guidance in order to improve consistency in application. This ASU is effective for the Company beginning in the first quarter of 2021 and allows for early adoption.

On January 1, 2021, the Company adopted the updated Topic 740 in accordance with the applicable transition methods. Among the various updates, the Company adopted the accounting for ownership changes when transitioning from equity method to consolidation on a modified retrospective basis, which resulted in a $19 million adjustment to retained earnings as of January 1, 2021 for the cumulative effect of derecognizing the deferred tax liability related to the UK acquisition. For additional information regarding the deferred tax liability previously recognized for the UK acquisition, see Note 11 (Income Taxes). The remaining components of the updated Topic 740 did not have an impact to the Company’s Consolidated Financial Statements.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Topic 848 temporarily provides optional expedients and exceptions for applying existing guidance to contract modifications, hedging relationships and other transactions that are expected to be affected by reference rate reform. Topic 848 was effective upon issuance and will remain in effect for all contract modifications and hedging relationships entered into through December 31, 2022. The adoption of Topic 848, along with the related expedients, did not have an impact to the Company’s Consolidated Financial Statements.

Measurement of Credit Losses on Financial Instruments

On January 1, 2020, the Company adopted and applied Topic 326 using the modified retrospective approach. Topic 326 introduced a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables, which is reflected in the Company’s policies. The adoption of Topic

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

326, as well as the adjustment to retained earnings for the cumulative effect, was not significant to the Company's Consolidated Financial Statements.

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 purchase price allocation is final.

4. Allowance for Credit Losses

The changes in the allowance for credit losses related to accounts receivable were as follows:

						Year Ended December 31, 2020
Balance as of December 31, 2019						$	7.9
Provision for credit losses						30.9
Write-offs charged against the allowance for credit losses						(10.8)
Other						1.6
Balance as of December 31, 2020						$	29.6

During the year ended December 31, 2020, the Company recognized a provision for credit losses of $31 million to reflect the forecasted credit deterioration primarily due to the COVID-19 pandemic, which considered geographic-specific factors, customer makeup and the overall size of the Company's pools, as well as the impacts experienced to date and the impacts from the last significant economic downturn in 2008-2009. Due to the higher inherent risk in the pools associated with the Company's Corporate and Small Business segments, the overall size of certain pools within the Public segment, and the increased risk with customers based from the UK pool, the majority of the allowance relates to these pools. As the overall impact and duration of the COVID-19 pandemic remains uncertain, the Company's estimates and assumptions may evolve as conditions change.

5. Property and Equipment

Property and equipment consists of the following:

									December 31,
			Useful Lives (Years)						2020						2019
Building and leasehold improvements			5 - 25						$	126.8					$	134.2
Computer and data processing equipment			3 - 5						126.5						132.0
Construction in progress			-*						50.8						23.3
Machinery and equipment			5 - 10						43.3						45.4
Land			-*						27.7						27.7
Computer software			3 - 5						22.9						25.1
Furniture and fixtures			5 - 10						21.2						20.5
Revenue generating assets			Up to 1						—						212.0
Property and equipment, gross									419.2						620.2
Less: accumulated depreciation									(243.7)						(257.1)
Property and equipment, net									$	175.5					$	363.1

*Asset is not depreciated.

During 2019, the Company recorded additions of $212 million to revenue generating assets related to the delivery of a mobility solution, which was delivered throughout 2020.

During 2020, 2019 and 2018, the Company recorded disposals of $54 million, $3 million and $25 million, respectively, to remove Property and equipment that were no longer in use.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Depreciation expense for the years ended December 31, 2020, 2019, and 2018 was $213 million, $41 million and $42 million, respectively. During 2020, the increased depreciation expense was primarily due to the delivery of a mobility solution.

6. 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, 2018(2)						$	1,074.1					$	185.9					$	929.6					$	273.2					$	2,462.8
Scalar acquisition(3)						—						—						—						62.0						62.0
Aptris, Inc. 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
IGNW, Inc. acquisition(5)						33.0						—						—						—						33.0
Foreign currency translation						—						—						—						9.9						9.9
Balances as of December 31, 2020(2)						$	1,123.6					$	185.9					$	929.6					$	356.8					$	2,595.9

(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.

(5)The Company acquired IGNW, Inc. on July 1, 2020.

December 1, 2020 and 2019 Impairment Analysis

The Company completed its annual impairment analysis as of December 1, 2020 and 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.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Other Intangible Assets

A summary of intangible assets is as follows:

December 31, 2020						Useful Lives (Years)						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Customer relationships and contracts						3 - 14						$	2,131.5					$	(1,927.9)					$	203.6
Trade name						generally 20						422.8						(280.1)						142.7
Internally developed software						3 - 5						280.6						(186.0)						94.6
Other						1 - 10						9.6						(5.4)						4.2
Total												$	2,844.5					$	(2,399.4)					$	445.1
December 31, 2019
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

During the years ended December 31, 2020, 2019 and 2018, the Company recorded disposals of $25 million, $11 million and $26 million, respectively, to remove fully amortized intangible assets that were no longer in use.

During the years ended December 31, 2020, 2019 and 2018, the Company recorded amortization expense related to intangible assets of $212 million, $219 million and $223 million, respectively.

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

Years ending December 31,						Estimated Future Amortization Expense
2021						$	126.4
2022						77.1
2023						57.5
2024						43.0
2025						42.9
Thereafter						98.2
Total future amortization expense						$	445.1

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

7. 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,
						2020						2019
Revolving Loan inventory financing agreement(1)						$	470.1					$	379.1
Other inventory financing agreements						54.5						50.8
Accounts payable-inventory financing						$	524.6					$	429.9

(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.

8. 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, 2020 and December 31, 2019, the contract liability balance was $244 million and $252 million, respectively. For the years ended December 31, 2020, 2019 and 2018, the Company recognized revenue of $203 million, $136 million, and $123 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, 2020 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						$	38.2					$	24.9					$	8.5					$	0.3

9. 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 2020, the Company did not enter into new interest rate cap agreements.

As of December 31, 2020 and December 31, 2019, the Company had interest rate cap agreements with a fair value of less than $1 million which were classified within Other assets on the Consolidated Balance Sheets. The total notional value of the interest rate cap agreements was $1.4 billion and $2.8 billion as of December 31, 2020 and December 31, 2019, respectively, of which $1.4 billion matured at December 31, 2020 and $1.4 billion will mature at December 31, 2022.

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-

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 10 (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 ("AOCL") and are subsequently reclassified into Interest expense in the period when the hedged forecasted transaction affects earnings. The following tables provide the activity in AOCL, net of tax, for the years ended December 31, 2020, 2019 and 2018.

						Year Ended December 31,
						2020						2019						2018
Change in fair value recorded to AOCL						$	(0.6)					$	(11.3)					$	(5.9)
Reclassification from AOCL to Interest expense, net						$	6.0					$	1.7					$	3.9

The Company expects to reclassify $3 million from Accumulated other comprehensive loss into Interest expense, net during the next 12 months.

10. Long-Term Debt

												As of December 31, 2020												As of December 31, 2019
						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						—		%				—						5.000		%				51.0
Total credit facilities																		—												51.0
Term Loans
CDW UK term loan(1)						August 2021						1.445		%				56.0						2.190		%				61.0
Senior secured term loan facility						October 2026						1.900		%				1,423.4						3.550		%				1,438.3
Total term loans																		1,479.4												1,499.3
Unsecured Senior Notes
Senior notes due 2024						December 2024						5.500		%				575.0						5.500		%				575.0
Senior notes due 2025						May 2025						4.125		%				600.0						—		%				—
Senior notes due 2025						September 2025						—		%				—						5.000		%				600.0
Senior notes due 2028						April 2028						4.250		%				600.0						4.250		%				600.0
Senior notes due 2029						February 2029						3.250		%				700.0						—		%				—
Total unsecured senior notes																		2,475.0												1,775.0
Other long-term obligations																		—												12.6
Unamortized deferred financing fees																		(27.2)												(20.6)
Current maturities of long-term debt																		(70.9)												(34.1)
Total long-term debt																		$	3,856.3											$	3,283.2

(1)British pound-denominated debt facilities.

As of December 31, 2020, 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, 2020, the Company could have borrowed up to an additional £50 million ($68 million) 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, 2020, the Revolving Loan has less than $1 million of undrawn letters of credit, $459 million reserved for the floorplan sub-facility and a borrowing base of $2.2 billion, which is based on the amount of eligible inventory and accounts receivable balances as of November 30, 2020. As of December 31, 2020, 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 7 (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 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, 2020, the amount of restricted payment capacity under the CDW UK term loan was £159 million ($218 million).

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 9 (Financial Instruments)). The interest rate disclosed in the table above represents the variable interest rates in effect for December 31, 2020 and 2019, 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, 2020, the amount of CDW's restricted payment capacity under the Term Loan was $2.2 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 7 (Inventory Financing Agreements)), deposits and accounts receivable, and by a first priority interest in substantially all other US assets.

Unsecured Senior Notes

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

Debt Issuance and Extinguishments

On April 21, 2020, the Company completed the issuance of $600 million aggregate principal amount of 4.125% Senior Notes due 2025 at par ("2025 Senior Notes"). The 2025 Senior Notes will mature on May 1, 2025 and bear interest of 4.125% per annum, payable semi-annually on May 1 and November 1 of each year, which had payments commence November 1, 2020.

On August 13, 2020, the Company completed the issuance of $700 million aggregate principal amount of 3.25% Senior Notes due 2029 at par ("2029 Senior Notes"). The 2029 Senior Notes will mature on February 15, 2029 and bear interest of 3.25% per annum, payable semi-annually on February 15 and August 15 of each year, which had payments commence February 15, 2021. The net proceeds from the issuance were primarily used to redeem all of the remaining $600 million aggregate principal amount of the 5.000% Senior Notes due September 2025 at a redemption price of 103.75% of the principal amount redeemed, plus accrued and unpaid interest to the date of redemption, to pay fees and expenses related to the issuance and redemption, and for general corporate purposes.

On September 26, 2019, the Company completed the issuance of $600 million aggregate principal amount of 4.25% Senior Notes due 2028 ("2028 Senior Notes") 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, which had payments commence 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 5.00% Senior Notes due 2023 at a redemption price of 102.5% of the principal amount redeemed, plus accrued and unpaid interest to the date of

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 Senior Notes due 2023 was satisfied and discharged.

Total Debt Maturities

A summary of total debt maturities is as follows:

Years ending December 31,						Debt Maturities
2021						$	70.9
2022						15.0
2023						14.9
2024						589.9
2025						614.9
Thereafter						2,648.8
Total debt maturities						$	3,954.4

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,
						2020						2019
Fair value						$	4,077.9					$	3,447.5
Carrying value						3,954.4						3,337.9

11. Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted into law. The primary impact to the Company’s financial statements as a result of the CARES Act was the deferral of US corporate income tax payments from the second quarter of 2020 to July 2020, as well as the deferral of employer related payroll tax payments from the second, third and fourth quarters of 2020 with 50% to be paid in the fourth quarter of 2021 and the remaining 50% to be paid in the fourth quarter of 2022.

Income before income taxes was taxed under the following jurisdictions:

						Year Ended December 31,
						2020						2019						2018
Domestic						$	934.3					$	854.1					$	762.3
Foreign						68.0						95.6						78.2
Total						$	1,002.3					$	949.7					$	840.5

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,
						2020						2019						2018
Current:
Federal						$	166.5					$	224.7					$	192.6
State						49.2						56.1						43.3
Foreign						18.3						20.0						17.7
Total current						234.0						300.8						253.6
Deferred:
Domestic						(18.8)						(83.0)						(52.7)
Foreign						(1.4)						(4.9)						(3.4)
Total deferred						(20.2)						(87.9)						(56.1)
Income tax expense						$	213.8					$	212.9					$	197.5

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,
						2020												2019												2018
Statutory federal income tax rate						$	210.5					21.0		%				$	199.4					21.0		%				$	176.5					21.0		%
State taxes, net of federal effect						36.0						3.6						35.4						3.7						31.1						3.7
Excess tax benefit of equity awards						(28.8)						(2.9)						(26.8)						(2.8)						(19.7)						(2.3)
Effect of rates different than statutory						(0.8)						(0.1)						0.8						0.1						0.6						0.1
Tax on foreign earnings						1.0						0.1						2.1						0.2						2.8						0.3
Effect of tax law changes						(6.8)						(0.7)						—						—						(1.9)						(0.2)
Other						2.7						0.3						2.0						0.2						8.1						0.9
Effective tax rate						$	213.8					21.3		%				$	212.9					22.4		%				$	197.5					23.5		%

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. Reclassifications have been made to conform to current year presentation.

						December 31,
						2020						2019
Deferred tax assets:
Contract liabilities						$	13.2					$	46.3
Equity compensation plans						20.1						21.1
Net operating loss and credit carryforwards, net						22.9						20.1
Payroll and benefits						21.8						9.6
Operating lease liabilities						47.5						41.0
Accounts receivable						26.0						15.6
Other						15.9						14.1
Total deferred tax assets						167.4						167.8
Deferred tax liabilities:
Acquisition-related intangibles						76.5						112.2
Property and equipment						39.9						27.0
International investments						19.2						19.2
Operating lease right-of-use assets						32.5						33.7
Other						23.3						17.5
Total deferred tax liabilities						191.4						209.6
Deferred tax asset valuation allowance						16.9						16.8
Net deferred tax liabilities						$	40.9					$	58.6

The Company has international income tax net operating losses of $6 million that do not expire and state and international tax credit carryforwards of $23 million, which expire at various dates from 2024 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, 2020 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, 2020, 2019 and 2018 were as follows:

						Year Ended December 31,
						2020						2019						2018
Balance as of January 1						$	17.7					$	15.1					$	—
Additions for tax positions related to current year						0.1						2.6						15.1
Additions for tax positions related to prior year						0.5						—						—
Balance as of December 31						$	18.3					$	17.7					$	15.1

As of December 31, 2020, 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

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

recognizing these tax benefits, net of the federal income tax benefit related to unrecognized state income tax benefits, would be approximately $15 million.

12. Leases

The Company has operating leases primarily for real estate, data centers and equipment. Lease terms range from 1 year to 16 years.

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

												December 31,
Classification on the Consolidated Balance Sheets												2020						2019
Assets
						Operating lease right-of-use assets						$	130.8					$	131.8
Liabilities
Current						Accrued expenses and other current liabilities - Other						$	25.6					$	30.1
Long-term						Long-term operating lease liabilities						169.0						131.1
Total lease liabilities												$	194.6					$	161.2
												December 31,
Lease term and discount rate												2020						2019
Weighted average remaining lease term (years)												10.3						9.7
Weighted average discount rate												3.98		%				4.78		%

Operating lease expense for the years ended December 31, 2020 and 2019 was $53 million and $93 million, respectively. Prior to the adoption of Topic 842, operating lease expense for the year ended December 31, 2018 was $30 million.

Maturities of operating lease liabilities are as follows:

						December 31, 2020
2021						$	32.8
2022						26.7
2023						22.5
2024						19.5
2025						18.3
Thereafter						123.4
Total lease payments						$	243.2
Less: Interest						(48.6)
Present value of lease liabilities						$	194.6

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

						Year Ended December 31,
						2020						2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases						$	35.8					$	88.0
Right-of-use assets obtained in exchange for lease obligations
Operating leases						$	26.7					$	110.2

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

13. 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 2020, the Company repurchased 2.6 million shares of its common stock for $341 million. These repurchases occurred under the program announced on February 7, 2019, by which the Board of Directors authorized an increase to the Company's share repurchase program by $1.0 billion. As of December 31, 2020, the Company has $338 million remaining under this program.

14. 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,
						2020						2019						2018
Equity-based compensation expense						$	42.5					$	48.5					$	40.7
Income tax benefit(1)						(7.7)						(9.8)						(9.9)
Equity-based compensation expense, net of tax						$	34.8					$	38.7					$	30.8

(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 11 (Income Taxes).

The total unrecognized compensation cost related to non-vested awards was $43 million as of December 31, 2020 and is expected to be recognized over a weighted-average period of 2.0 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 15.5 million shares of the Company's common stock, in addition to the 3.8 million 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, 2020, 2.6 million 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,
						2020						2019						2018
Grant date fair value						$	20.46					$	19.26					$	14.80
Volatility (1)						25.50		%				20.00		%				20.00		%
Risk-free rate (2)						0.51		%				2.53		%				2.75		%
Expected dividend yield						1.52		%				1.23		%				1.14		%
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.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(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, 2020 was as follows:

Options						Number of Options						Weighted-Average Exercise Price						Weighted-Average Remaining Contractual Term (years)						Aggregate Intrinsic Value
Outstanding at January 1, 2020						4,138,242						$	59.39
Granted						991,431						100.80
Forfeited/Expired						(44,409)						92.54
Exercised(1)						(1,119,812)						44.05
Outstanding at December 31, 2020						3,965,452						$	73.71					6.48						$	230.3
Vested and exercisable at December 31, 2020						2,192,951						$	56.63					4.98						$	164.8
Expected to vest after December 31, 2020						1,745,547						$	94.70					8.32						$	64.7

(1)The total intrinsic value of stock options exercised during the years ended December 31, 2020, 2019 and 2018 was $94 million, $83 million and $47 million, respectively.

Restricted Stock Units ("RSUs")

Restricted stock units represent the right to receive unrestricted shares of the Company's stock at the time of vesting. RSUs generally cliff-vest at the end of 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, 2020 was as follows:

						Number of Units						Weighted-Average Grant-Date Fair Value
Non-vested at January 1, 2020						209,378						$	75.56
Granted (1)						66,685						112.55
Vested (2)						(172,691)						68.78
Forfeited						(10,936)						86.16
Non-vested at December 31, 2020						92,436						$	107.88

(1)The weighted-average grant date fair value of RSUs granted during the years ended December 31, 2020, 2019 and 2018 was $112.55, $103.24 and $73.95, respectively.

(2)The aggregate fair value of RSUs that vested during the years ended December 31, 2020, 2019 and 2018 was $12 million, $4 million and $2 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.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

PSU activity for the year ended December 31, 2020 was as follows:

						Number of Units						Weighted-Average Grant-Date Fair Value
Non-vested at January 1, 2020						381,905						$	87.78
Granted (1)						253,307						102.96
Attainment Adjustment (2)						166,574						59.00
Vested (3)						(353,245)						68.07
Forfeited						(27,377)						88.98
Non-vested at December 31, 2020						421,164						$	102.07

(1)The weighted-average grant date fair value of PSUs granted during the years ended December 31, 2020, 2019 and 2018 was $102.96, $101.33 and $73.74, respectively.

(2)During the year ended December 31, 2020, the attainment on PSUs vested at December 31, 2019 was adjusted to reflect actual performance.

(3)The aggregate fair value of PSUs that vested during the years ended December 31, 2020, 2019 and 2018 was $24 million, $18 million and $13 million, respectively.

Equity Awards Granted by Seller of CDW UK

As part of the Company's acquisition of CDW UK in 2015, stock options were granted by one of the sellers of CDW UK to certain CDW UK coworkers. In 2020, there were no outstanding option awards granted by this seller. In 2019 and 2018, 110,978 and 456,613 stock options, respectively, vested and were exercised. The activity was 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 2018.

15. 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,
						2020						2019						2018
Basic weighted-average shares outstanding						142.6						145.1						150.9
Effect of dilutive securities (1)						2.2						2.7						2.7
Diluted weighted-average shares outstanding (2)						144.8						147.8						153.6

(1) The dilutive effect of outstanding stock options, restricted stock units, 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, 2020, 2019 and 2018, respectively, as their inclusion would have had an anti-dilutive effect.

16. 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

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

determined at the discretion of the Board of Directors. For the years ended December 31, 2020, 2019 and 2018, the amounts expensed for these plans were $28 million, $38 million and $34 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.

17. 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, 2020, 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.

18. Segment Information

The Company's segment information reflects the way the Chief Operating Decision Maker uses internal reporting to evaluate business performance, allocate resources and manage operations.

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 US GAAP measure.

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

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Selected Segment Financial Information

Information about the Company's segments for the years ended December 31, 2020, 2019 and 2018 is as follows:

						Corporate						Small Business						Public						Other						Headquarters						Total
2020:
Net sales						$	6,846.0					$	1,397.1					$	8,137.7					$	2,086.7					$	—					$	18,467.5
Operating income (loss)						489.5						99.0						678.2						65.9						(153.4)						1,179.2
Depreciation and amortization expense						(73.2)						(18.3)						(229.7)						(32.5)						(71.9)						(425.6)
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)

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, 2020
			Corporate						Small Business						Public						Other						Total
Geography**(1)**
United States			$	6,823.6					$	1,397.1					$	8,137.7					$	20.8					$	16,379.2
Rest of World			22.4						—						—						2,065.9						2,088.3
Total Net sales			6,846.0						1,397.1						8,137.7						2,086.7						18,467.5
Major Product and Services
Hardware			5,289.2						1,156.1						6,844.0						1,544.1						14,833.4
Software			1,088.3						189.3						982.8						320.6						2,581.0
Services			400.8						31.5						269.8						211.8						913.9
Other(2)			67.7						20.2						41.1						10.2						139.2
Total Net sales			6,846.0						1,397.1						8,137.7						2,086.7						18,467.5
Sales by Channel
Corporate			6,846.0						—						—						—						6,846.0
Small Business			—						1,397.1						—						—						1,397.1
Government			—						—						2,978.5						—						2,978.5
Education			—						—						3,458.1						—						3,458.1
Healthcare			—						—						1,701.1						—						1,701.1
Other			—						—						—						2,086.7						2,086.7
Total Net sales			6,846.0						1,397.1						8,137.7						2,086.7						18,467.5
Timing of Revenue Recognition
Transferred at a point in time where CDW is principal			6,140.7						1,301.3						7,477.4						1,835.5						16,754.9
Transferred at a point in time where CDW is agent			457.4						84.5						292.5						61.6						896.0
Transferred over time where CDW is principal			247.9						11.3						367.8						189.6						816.6
Total Net sales			$	6,846.0					$	1,397.1					$	8,137.7					$	2,086.7					$	18,467.5

(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, 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**(2)**
Hardware			5,963.7						1,264.7						5,624.9						1,628.9						14,482.2
Software			1,069.2						196.0						1,019.6						300.2						2,585.0
Services			395.8						28.5						199.0						217.6						840.9
Other(3)			70.3						21.1						21.3						11.6						124.3
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)Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the year ended December 31, 2020.

(3)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**(2)**
Hardware			5,464.9						1,135.2						5,039.3						1,492.3						13,131.7
Software			973.3						175.2						937.0						213.6						2,299.1
Services			336.9						28.1						161.8						169.1						695.9
Other(3)			67.4						21.1						16.6						8.7						113.8
Total Net sales			6,842.5						1,359.6						6,154.7						1,883.7						16,240.5
Sales by Channel
Corporate			6,842.5						—						—						—						6,842.5
Small Business			—						1,359.6						—						—						1,359.6
Government			—						—						2,097.3						—						2,097.3
Education			—						—						2,327.4						—						2,327.4
Healthcare			—						—						1,730.0						—						1,730.0
Other			—						—						—						1,883.7						1,883.7
Total Net sales			6,842.5						1,359.6						6,154.7						1,883.7						16,240.5
Timing of Revenue Recognition
Transferred at a point in time where CDW is principal			6,256.5						1,281.3						5,758.6						1,687.6						14,984.0
Transferred at a point in time where CDW is agent			389.1						69.4						211.5						49.8						719.8
Transferred over time where CDW is principal			196.9						8.9						184.6						146.3						536.7
Total Net sales			$	6,842.5					$	1,359.6					$	6,154.7					$	1,883.7					$	16,240.5

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

(2)Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the year ended December 31, 2020.

(3)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, 2020, 2019 and 2018. Categories are based upon internal classifications.

			Year Ended December 31,
			2020												2019(1)												2018(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			$	5,486.2					29.7		%				$	4,344.9					24.1		%				$	3,843.3					23.7		%
Netcomm Products			1,955.0						10.6						2,189.1						12.1						2,116.6						13.0
Desktops			1,132.4						6.1						1,547.3						8.6						1,254.9						7.7
Video			1,190.8						6.4						1,272.9						7.1						1,184.1						7.3
Enterprise and Data Storage (Including Drives)			947.4						5.1						1,147.6						6.4						1,102.4						6.8
Other Hardware			4,121.6						22.3						3,980.4						22.1						3,630.4						22.4
Total Hardware			14,833.4						80.2						14,482.2						80.4						13,131.7						80.9
Software(2)			2,581.0						14.0						2,585.0						14.3						2,299.1						14.2
Services(2)			913.9						4.9						840.9						4.7						695.9						4.3
Other(3)			139.2						0.9						124.3						0.6						113.8						0.6
Total Net sales			$	18,467.5					100.0		%				$	18,032.4					100.0		%				$	16,240.5					100.0		%

(1)Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the year ended December 31, 2020.

(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.

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, 2020
						First Quarter						Second Quarter						Third Quarter						Fourth Quarter
Net sales:
Corporate						$	1,911.0					$	1,557.5					$	1,660.0					$	1,717.5
Small Business						391.5						302.1						337.0						366.5
Public:
Government						568.5						719.7						847.7						842.6
Education						476.2						876.8						1,078.2						1,026.9
Healthcare						480.6						425.6						367.9						427.0
Total Public						1,525.3						2,022.1						2,293.8						2,296.5
Other						561.4						484.0						465.6						575.7
Net sales						$	4,389.2					$	4,365.7					$	4,756.4					$	4,956.2
Gross profit						756.5						747.2						825.5						880.9
Operating income						245.8						283.4						317.8						332.2
Net income						167.9						189.1						193.2						238.3
Basic(1)						1.18						1.32						1.36						1.67
Diluted(1)						1.16						1.31						1.33						1.65
						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

(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, 2020, 2019 and 2018

(dollars in millions)

Allowance for credit losses:						Balance at Beginning of Period						Charged to Costs and Expenses						Deductions (1)						Balance at End of Period
Year Ended December 31, 2020						$	7.9					$	30.9					$	(9.2)					$	29.6
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

(1) Primarily includes write-offs of uncollectible accounts.