Item 1. Financial Statements

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in millions, except per share amounts)
			September 30, 2021						December 31, 2020
Assets			(unaudited)
Current assets:
Cash and cash equivalents			$	245.1					$	1,410.2
Accounts receivable, net of allowance for credit losses of $19.4 and $29.6, respectively			3,561.0						3,212.6
Merchandise inventory			844.4						760.0
Miscellaneous receivables			394.3						379.5
Prepaid expenses and other			247.4						191.2
Total current assets			5,292.2						5,953.5
Operating lease right-of-use assets			122.2						130.8
Property and equipment, net			179.3						175.5
Goodwill			2,804.6						2,595.9
Other intangible assets, net			503.3						445.1
Other assets			110.0						43.9
Total Assets			$	9,011.6					$	9,344.7
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable-trade			$	2,280.7					$	2,088.4
Accounts payable-inventory financing			340.0						524.6
Current maturities of long-term debt			28.5						70.9
Contract liabilities			304.0						243.7
Accrued expenses and other current liabilities:
Compensation			277.7						288.3
Advertising			149.8						153.4
Sales and income taxes			65.7						104.2
Other			386.8						424.8
Total current liabilities			3,833.2						3,898.3
Long-term liabilities:
Debt			4,037.7						3,856.3
Deferred income taxes			29.6						55.3
Operating lease liabilities			159.4						169.0
Other liabilities			114.7						68.7
Total long-term liabilities			4,341.4						4,149.3
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; 136.2 and 141.9 shares outstanding, respectively			1.4						1.4
Paid-in capital			3,335.7						3,204.9
Accumulated deficit			(2,402.6)						(1,813.4)
Accumulated other comprehensive loss			(97.5)						(95.8)
Total stockholders' equity			837.0						1,297.1
Total Liabilities and Stockholders' Equity			$	9,011.6					$	9,344.7

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

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in millions, except per-share amounts) (unaudited)
						Three Months Ended September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Net sales						$	5,300.0					$	4,756.4					$	15,283.9					$	13,511.3
Cost of sales						4,385.1						3,930.9						12,691.0						11,182.1
Gross profit						914.9						825.5						2,592.9						2,329.2
Selling and administrative expenses						528.5						507.7						1,513.2						1,482.2
Operating income						386.4						317.8						1,079.7						847.0
Interest expense, net						(36.4)						(40.2)						(107.5)						(117.8)
Other income (expense), net						0.4						(27.5)						38.3						(21.9)
Income before income taxes						350.4						250.1						1,010.5						707.3
Income tax expense						(83.8)						(56.9)						(237.2)						(157.1)
Net income						$	266.6					$	193.2					$	773.3					$	550.2
Net income per common share:
Basic						$	1.94					$	1.36					$	5.54					$	3.86
Diluted						$	1.91					$	1.33					$	5.47					$	3.80
Weighted-average common shares outstanding:
Basic						137.3						142.7						139.5						142.6
Diluted						139.4						144.8						141.4						144.7

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

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in millions) (unaudited)
						Three Months Ended September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Net income						$	266.6					$	193.2					$	773.3					$	550.2
Other comprehensive income (loss):
Unrealized loss from hedge accounting, net of tax						—						(0.4)						—						(0.6)
Reclassification of hedge accounting loss to net income, net of tax						0.7						1.6						1.7						4.1
Foreign currency translation, net of tax						(15.0)						19.7						(3.4)						(16.4)
Other comprehensive income (loss)						(14.3)						20.9						(1.7)						(12.9)
Comprehensive income						$	252.3					$	214.1					$	771.6					$	537.3

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

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in millions) (unaudited)
						Three Months Ended September 30, 2021
						Common Stock
						Shares						Amount						Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Stockholders' Equity
Balance as of June 30, 2021						138.3						$	1.4					$	3,294.1					$	(2,163.5)					$	(83.2)					$	1,048.8
Net income						—						—						—						266.6						—						266.6
Equity-based compensation expense						—						—						16.9						—						—						16.9
Stock option exercises						0.3						—						18.9						—						—						18.9
Coworker Stock Purchase Plan						—						—						5.5						—						—						5.5
Repurchases of common stock						(2.4)						—						—						(450.0)						—						(450.0)
Dividends paid ($0.40 per share)						—						—						0.3						(55.1)						—						(54.8)
Incentive compensation plan stock withheld for taxes						—						—						—						(0.6)						—						(0.6)
Reclassification of hedge accounting loss to net income						—						—						—						—						0.7						0.7
Foreign currency translation						—						—						—						—						(15.0)						(15.0)
Balance as of September 30, 2021						136.2						1.4						3,335.7						(2,402.6)						(97.5)						837.0

						Three Months Ended September 30, 2020
						Common Stock
						Shares						Amount						Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Stockholders' Equity
Balance as of June 30, 2020						142.6						$	1.4					$	3,138.3					$	(1,932.5)					$	(151.6)					$	1,055.6
Net income						—						—						—						193.2						—						193.2
Equity-based compensation expense						—						—						11.6						—						—						11.6
Stock option exercises						0.2						—						7.1						—						—						7.1
Coworker Stock Purchase Plan						—						—						4.5						—						—						4.5
Dividends paid ($0.38 per share)						—						—						0.3						(54.5)						—						(54.2)
Incentive compensation plan stock withheld for taxes						—						—						—						(0.2)						—						(0.2)
Unrealized loss from hedge accounting						—						—						—						—						(0.4)						(0.4)
Reclassification of hedge accounting loss to net income						—						—						—						—						1.6						1.6
Foreign currency translation						—						—						—						—						19.7						19.7
Balance as of September 30, 2020						142.8						1.4						3,161.8						(1,794.0)						(130.7)						1,238.5

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in millions) (unaudited)
						Nine Months Ended September 30, 2021
						Common Stock
						Shares						Amount						Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Stockholders' Equity
Balance as of December 31, 2020						141.9						$	1.4					$	3,204.9					$	(1,813.4)					$	(95.8)					$	1,297.1
Net income						—						—						—						773.3						—						773.3
Equity-based compensation expense						—						—						53.3						—						—						53.3
Stock option exercises						1.2						—						60.7						—						—						60.7
Coworker Stock Purchase Plan						0.1						—						15.9						—						—						15.9
Repurchases of common stock						(7.0)						—						—						(1,185.3)						—						(1,185.3)
Dividends paid ($1.20 per share)						—						—						0.9						(168.0)						—						(167.1)
Incentive compensation plan stock withheld for taxes						—						—						—						(28.4)						—						(28.4)
Reclassification of hedge accounting loss to net income						—						—						—						—						1.7						1.7
Foreign currency translation						—						—						—						—						(3.4)						(3.4)
Impact of adoption of Topic 740						—						—						—						19.2						—						19.2
Balance as of September 30, 2021						136.2						$	1.4					$	3,335.7					$	(2,402.6)					$	(97.5)					$	837.0

						Nine Months Ended September 30, 2020
						Common Stock
						Shares						Amount						Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Stockholders' Equity
Balance as of December 31, 2019						143.0						$	1.4					$	3,095.3					$	(2,018.6)					$	(117.8)					$	960.3
Net income						—						—						—						550.2						—						550.2
Equity-based compensation expense						—						—						26.0						—						—						26.0
Stock option exercises						0.9						—						26.9						—						—						26.9
Coworker Stock Purchase Plan						—						—						12.8						—						—						12.8
Repurchases of common stock						(1.1)						—						—						(140.8)						—						(140.8)
Dividends paid ($1.14 per share)						—						—						0.8						(163.2)						—						(162.4)
Incentive compensation plan stock withheld for taxes						—						—						—						(22.1)						—						(22.1)
Unrealized loss from hedge accounting						—						—						—						—						(0.6)						(0.6)
Reclassification of hedge accounting loss to net income						—						—						—						—						4.1						4.1
Foreign currency translation						—						—						—						—						(16.4)						(16.4)
Impact of adoption of Topic 326						—						—						—						0.5						—						0.5
Balance as of September 30, 2020						142.8						$	1.4					$	3,161.8					$	(1,794.0)					$	(130.7)					$	1,238.5

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

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in millions) (unaudited)
						Nine Months Ended September 30,
						2021						2020
Cash flows from operating activities:
Net income						$	773.3					$	550.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization						140.0						349.0
Equity-based compensation expense						53.3						26.0
Deferred income taxes						(6.7)						(2.5)
Provision for credit losses						(7.3)						30.4
Other						(33.4)						38.4
Changes in assets and liabilities:
Accounts receivable						(323.5)						(304.9)
Merchandise inventory						(87.5)						(34.2)
Other assets						(92.6)						(10.3)
Accounts payable-trade						179.7						106.8
Other liabilities						41.4						(10.5)
Net cash provided by operating activities						636.7						738.4
Cash flows from investing activities:
Capital expenditures						(66.2)						(133.6)
Acquisitions of businesses, net of cash acquired						(339.7)						(38.5)
Proceeds from the sale of equity method investment						36.0						—
Net cash used in investing activities						(369.9)						(172.1)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility						548.3						1,024.0
Repayments of borrowings under revolving credit facility						(379.6)						(1,075.0)
Proceeds from issuance of long-term debt						—						1,300.0
Payments to extinguish long-term debt						(56.5)						(622.5)
Net change in accounts payable-inventory financing						(183.7)						232.5
Financing payments for revenue generating assets						(46.1)						—
Repurchases of common stock						(1,185.3)						(140.8)
Proceeds from stock option exercises						60.7						26.9
Payment of incentive compensation plan withholding taxes						(28.4)						(22.1)
Dividend payments						(167.1)						(162.4)
Other						5.9						(28.9)
Net cash (used in) provided by financing activities						(1,431.8)						531.7
Effect of exchange rate changes on cash and cash equivalents						(0.1)						(2.5)
Net (decrease) increase in cash and cash equivalents						(1,165.1)						1,095.5
Cash and cash equivalents—beginning of period						1,410.2						154.0
Cash and cash equivalents—end of period						$	245.1					$	1,249.5
Supplementary disclosure of cash flow information:
Interest paid						$	(85.1)					$	(90.5)
Income taxes paid, net						$	(264.4)					$	(196.4)

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 accompanying unaudited interim Consolidated Financial Statements as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 (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 (the "SEC") for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the "December 31, 2020 Consolidated Financial Statements"). The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in the December 31, 2020 Consolidated Financial Statements. In the opinion of management, the Consolidated Financial Statements contain all adjustments (consisting of a normal, recurring nature) necessary to present fairly the Company's financial position, results of operations, comprehensive income, cash flows and changes in stockholders' equity as of the dates and for the periods indicated. The unaudited results of operations for such interim periods reported are not necessarily indicative of results for the full year.

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, 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.

The notes to the Consolidated Financial Statements contained in the December 31, 2020 Consolidated Financial Statements include a discussion of the Company's significant accounting policies and estimates. Except as noted within Note 2 (Recent Accounting Pronouncements) for the adoption of Accounting Standards Update ("ASU") 2019-12,

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, there have been no changes to the Company's significant accounting policies and estimates during the nine months ended September 30, 2021.

2. Recent Accounting Pronouncements

Accounting for Income Taxes

On January 1, 2021, the Company adopted and applied ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("Topic 740") in accordance with the applicable transition methods. Among the various updates, the Company adopted the accounting for ownership changes when transitioning from the 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. The adoption of the remaining components of Topic 740 did not have an impact to the Company’s Consolidated Financial Statements.

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, followed by an amendment issued in January 2021. This ASU 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. This ASU, as amended, 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 this ASU along with the related expedients did not have an impact to the Company’s Consolidated Financial Statements.

3. Acquisitions

On March 15, 2021, the Company completed the acquisition of Amplified IT LLC ("Amplified IT") through a purchase of all issued and outstanding membership interests. Amplified IT is a Google Premium education partner and leading provider of Google Cloud services, solutions and software for education partners. This strategic acquisition expands the Company's services and solutions capabilities to help schools leverage technology to achieve greater educational outcomes. The financial results of Amplified IT have been included in the Company's Consolidated Financial Statements since the date of the acquisition. These amounts are presented within the Public reportable segment and are insignificant during the three and nine months ended September 30, 2021. The purchase price allocation is preliminary and subject to customary closing adjustments and revision as additional information about fair value of assets and liabilities become available. Preliminarily, the Company recorded approximately $88 million of intangible assets, which primarily consisted of customer relationships.

On July 30, 2021, the Company completed the acquisition of Focal Point Data Risk LLC and certain affiliates ("Focal Point") through a purchase of all issued and outstanding equity interests. Focal Point is a leading US-based cybersecurity services firm that brings a team skilled in identity and access management as well as the ability to serve customers across the full cybersecurity landscape. This strategic acquisition expands the Company’s services and capabilities to help customers address risks posed by malicious cyber threats and cyber workforce shortages, while helping customers navigate shifting data protection laws. The financial results of Focal Point have been included in the Company's Consolidated Financial Statements since the date of the acquisition. These amounts are presented within the Public reportable segment and are insignificant during the three and nine months ended September 30, 2021. The purchase price allocation is preliminary and subject to customary closing adjustments and revision as additional information about fair value of assets and liabilities become available. Preliminarily, the Company recorded approximately $37 million of intangible assets related to customer relationships.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4. Goodwill

The changes in goodwill by reportable segment are as follows:

						Corporate						Small Business						Public						Other(1)						Consolidated
Balances as of December 31, 2020(2)						$	1,123.6					$	185.9					$	929.6					$	356.8					$	2,595.9
Amplified IT acquisition(3)						—						—						130.3						—						130.3
Focal Point acquisition(3)						—						—						81.8						—						81.8
Other acquisition adjustments						0.2						—						—						—						0.2
Foreign currency translation						—						—						—						(3.6)						(3.6)
Balances as of September 30, 2021(2)						$	1,123.8					$	185.9					$	1,141.7					$	353.2					$	2,804.6

(1)Other is comprised of CDW UK and CDW Canada operating segments.

(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, recorded in 2008 and 2009.

(3)For additional information regarding the Company's acquisitions, see Note 3 (Acquisitions).

5. Inventory Financing Agreements

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

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

						September 30, 2021						December 31, 2020
Revolving Loan inventory financing agreement(1)						$	283.4					$	470.1
Other inventory financing agreements						56.6						54.5
Accounts payable-inventory financing						$	340.0					$	524.6

(1)The senior secured asset-based revolving credit facility includes an inventory floorplan sub-facility that enables the Company to maintain an inventory financing agreement with a financial intermediary to facilitate the purchase of inventory from certain vendors on more favorable terms than offered directly by the vendors.

6. Contract Liabilities and 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 September 30, 2021 and December 31, 2020, the contract liability balance was $304 million and $244 million, respectively. During the nine months ended September 30, 2021 and 2020, the Company recognized revenue of $156 million and $157 million, respectively, related to its contract liabilities that were included in the beginning balance of the respective periods.

A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The following table represents the total transaction price for the remaining performance obligations as of September 30, 2021 related to noncancelable 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						$	36.9					$	22.5					$	7.4					$	2.7

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

7. Debt

												As of September 30, 2021												As of December 31, 2020
						Maturity Date						Interest Rate						Amount						Interest Rate						Amount
Credit Facility
Senior secured asset-based revolving credit facility						March 2026						Variable						$	165.9					Variable						$	—
Term Loans
CDW UK term loan(1)						August 2021						—		%				—						1.445		%				56.0
Senior secured term loan facility						October 2026						Variable						1,412.2						Variable						1,423.4
Total term loans																		1,412.2												1,479.4
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						4.125		%				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						3.250		%				700.0
Total unsecured senior notes																		2,475.0												2,475.0
Other debt obligations																		36.8												—
Unamortized deferred financing fees																		(23.7)												(27.2)
Current maturities of long-term debt																		(28.5)												(70.9)
Total long-term debt																		$	4,037.7											$	3,856.3

(1)Denominated in British pounds.

As of September 30, 2021, the Company is in compliance with the covenants under the various credit agreements and indentures.

Credit Facility

The Company has a variable rate senior secured asset-based revolving credit facility (the "Revolving Loan") that is denominated in US dollars, British pounds or Euros. The Revolving Loan is used by the Company for borrowings, issuances of letters of credit and floorplan financing. As of September 30, 2021, the Revolving Loan had less than $1 million of undrawn letters of credit, $280 million reserved for the floorplan sub-facility and a borrowing base of $2.7 billion, which is based on the amount of eligible inventory and accounts receivable balances as of August 31, 2021. As of September 30, 2021, the Company could have borrowed up to an additional $1.2 billion under the Revolving Loan.

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

Term Loan

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. The Company is required to pay quarterly principal installments of $4 million with the remaining principal amount due at the maturity date. As of September 30, 2021, the amount of CDW's restricted payment capacity under the Term Loan was $2.6 billion.

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

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Unsecured Senior Notes

The Senior Notes have fixed interest rates, for which interest is paid semi-annually.

Issuances and Extinguishments

During the first quarter of 2021, the Company amended, extended and increased the size of the Revolving Loan. The amended Revolving Loan (i) authorized CDW UK to draw from the facility, (ii) increased the capacity from $1.45 billion to $1.60 billion, of which $150 million may be borrowed by CDW UK, and (iii) extended the maturity date from March 31, 2022 to March 26, 2026. Due to the addition of CDW UK as a borrower on the amended Revolving Loan, the variable rate CDW UK revolving credit facility was closed. The Company may borrow amounts denominated in US dollars, British pounds or Euros. Additionally, the Company paid off the remaining principal amount on the variable rate CDW UK term loan by drawing on the amended Revolving Loan.

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 and Term Loan were classified as Level 2 within the fair value hierarchy. The carrying value of the Revolving Loan approximates its 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 fees, were as follows:

						September 30, 2021						December 31, 2020
Fair value						$	4,202.4					$	4,077.9
Carrying value						4,089.9						3,954.4

8. Income Taxes

Income tax expense was $84 million and $57 million for the three months ended September 30, 2021 and 2020, respectively. The effective tax rate was 23.9% and 22.7% for the three months ended September 30, 2021 and 2020, respectively. The effective tax rate for the three months ended September 30, 2021 differed from the US federal statutory rate of 21.0% primarily due to state and local income taxes, partially offset by excess tax benefits on equity-based compensation. The effective tax rate for the three months ended September 30, 2020 differed from the US federal statutory rate of 21.0% primarily due to state and local income taxes and a discrete deferred tax expense as a result of an increase in the UK corporate tax rate that was effective in the prior year, partially offset by excess tax benefits on equity-based compensation.

Income tax expense was $237 million and $157 million for the nine months ended September 30, 2021 and 2020, respectively. The effective tax rate was 23.5% and 22.2% for the nine months ended September 30, 2021 and 2020, respectively. The effective tax rate for the nine months ended September 30, 2021 differed from the US federal statutory rate of 21.0% primarily due to state and local income taxes and a discrete deferred tax expense as a result of an increase in the UK corporate tax rate effective in 2023, partially offset by excess tax benefits on equity-based compensation. The effective tax rate for the nine months ended September 30, 2020 differed from the US federal statutory rate of 21.0% primarily due to state and local income taxes and a discrete deferred tax expense as a result of an increase in the UK corporate tax rate that was effective in the prior year, largely offset by excess tax benefits on equity-based compensation.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

9. 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:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
Basic weighted-average shares outstanding			137.3						142.7						139.5						142.6
Effect of dilutive securities(1)			2.1						2.1						1.9						2.1
Diluted weighted-average shares outstanding(2)			139.4						144.8						141.4						144.7

(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 both the three and nine months ended September 30, 2021 and 2020 as their inclusion would have had an anti-dilutive effect.

10. 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 September 30, 2021, 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.

A subsidiary of the Company received a Civil Investigative Demand dated September 20, 2021 from the US Department of Justice ("DOJ") in connection with a False Claims Act investigation. The DOJ has requested information related to teaming agreements with original equipment manufacturers ("OEMs"). The Company is cooperating with the request and, given the early stage of the matter, the Company is currently unable to assess the probability of any outcome or the range of possible loss, if any.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

11. Segment Information

The Company has three reportable segments: Corporate, which is comprised primarily of US private sector business customers with more than 250 employees, Small Business, which primarily serves US private sector business customers with up to 250 employees, 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"). Headquarters function costs that are not allocated to the segments are included under the heading of "Headquarters" in the tables below.

Information about the Company's segments is as follows:

						Corporate						Small Business						Public						Other						Headquarters						Total
Three Months Ended September 30, 2021
Net sales						$	2,067.3					$	467.1					$	2,153.9					$	611.7					$	—					$	5,300.0
Operating income (loss)						186.0						41.4						178.7						21.9						(41.6)						386.4
Depreciation and amortization expense						(4.1)						(0.9)						(16.9)						(8.5)						(17.8)						(48.2)
Three Months Ended September 30, 2020
Net sales						$	1,660.0					$	337.0					$	2,293.8					$	465.6					$	—					$	4,756.4
Operating income (loss)						128.5						24.3						196.1						18.7						(49.8)						317.8
Depreciation and amortization expense						(22.4)						(5.6)						(77.2)						(8.4)						(18.8)						(132.4)
Nine Months Ended September 30, 2021
Net sales						$	5,856.2					$	1,382.7					$	6,156.3					$	1,888.7					$	—					$	15,283.9
Operating income (loss)						522.6						128.2						468.7						73.3						(113.1)						1,079.7
Depreciation and amortization expense						(11.9)						(2.5)						(46.4)						(25.7)						(53.5)						(140.0)
Nine Months Ended September 30, 2020
Net sales						$	5,128.5					$	1,030.6					$	5,841.2					$	1,511.0					$	—					$	13,511.3
Operating income (loss)						378.9						72.6						468.4						49.9						(122.8)						847.0
Depreciation and amortization expense						(66.8)						(17.0)						(184.0)						(24.3)						(56.9)						(349.0)

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Geographic Areas and Revenue Mix

			Three Months Ended September 30, 2021
			Corporate						Small Business						Public						Other						Total
Geography**(1)**
United States			$	2,064.6					$	467.1					$	2,153.9					$	5.4					$	4,691.0
Rest of World			2.7						—						—						606.3						609.0
Total Net sales			2,067.3						467.1						2,153.9						611.7						5,300.0
Major Product and Services
Hardware			1,641.2						400.7						1,747.3						474.5						4,263.7
Software			279.3						50.2						312.9						75.3						717.7
Services			128.5						10.4						89.2						58.8						286.9
Other(2)			18.3						5.8						4.5						3.1						31.7
Total Net sales			2,067.3						467.1						2,153.9						611.7						5,300.0
Sales by Channel
Corporate			2,067.3						—						—						—						2,067.3
Small Business			—						467.1						—						—						467.1
Government			—						—						568.8						—						568.8
Education			—						—						1,103.6						—						1,103.6
Healthcare			—						—						481.5						—						481.5
Other			—						—						—						611.7						611.7
Total Net sales			2,067.3						467.1						2,153.9						611.7						5,300.0
Timing of Revenue Recognition
Transferred at a point in time where CDW is principal			1,851.0						434.6						1,984.8						542.6						4,813.0
Transferred at a point in time where CDW is agent			135.6						27.8						109.1						16.3						288.8
Transferred over time where CDW is principal			80.7						4.7						60.0						52.8						198.2
Total Net sales			$	2,067.3					$	467.1					$	2,153.9					$	611.7					$	5,300.0
(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)

			Three Months Ended September 30, 2020
			Corporate						Small Business						Public						Other						Total
Geography**(1)**
United States			$	1,658.4					$	337.0					$	2,293.8					$	6.1					$	4,295.3
Rest of World			1.6						—						—						459.5						461.1
Total Net sales			1,660.0						337.0						2,293.8						465.6						4,756.4
Major Product and Services**(2)**
Hardware			1,256.7						282.2						1,924.2						344.2						3,807.3
Software			280.8						42.7						298.2						69.8						691.5
Services			106.5						7.1						63.9						49.4						226.9
Other(3)			16.0						5.0						7.5						2.2						30.7
Total Net sales			1,660.0						337.0						2,293.8						465.6						4,756.4
Sales by Channel
Corporate			1,660.0						—						—						—						1,660.0
Small Business			—						337.0						—						—						337.0
Government			—						—						847.7						—						847.7
Education			—						—						1,078.2						—						1,078.2
Healthcare			—						—						367.9						—						367.9
Other			—						—						—						465.6						465.6
Total Net sales			1,660.0						337.0						2,293.8						465.6						4,756.4
Timing of Revenue Recognition
Transferred at a point in time where CDW is principal			1,474.2						313.9						2,080.3						407.7						4,276.1
Transferred at a point in time where CDW is agent			121.3						20.9						89.3						13.9						245.4
Transferred over time where CDW is principal			64.5						2.2						124.2						44.0						234.9
Total Net sales			$	1,660.0					$	337.0					$	2,293.8					$	465.6					$	4,756.4
(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 three months ended September 30, 2021.
(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)

			Nine Months Ended September 30, 2021
			Corporate						Small Business						Public						Other						Total
Geography**(1)**
United States			$	5,844.3					$	1,382.7					$	6,156.3					$	14.7					$	13,398.0
Rest of World			11.9						—						—						1,874.0						1,885.9
Total Net sales			5,856.2						1,382.7						6,156.3						1,888.7						15,283.9
Major Product and Services
Hardware			4,648.6						1,185.3						5,180.5						1,445.9						12,460.3
Software			813.9						148.7						745.4						251.2						1,959.2
Services			342.0						31.9						217.2						181.3						772.4
Other(2)			51.7						16.8						13.2						10.3						92.0
Total Net sales			5,856.2						1,382.7						6,156.3						1,888.7						15,283.9
Sales by Channel
Corporate			5,856.2						—						—						—						5,856.2
Small Business			—						1,382.7						—						—						1,382.7
Government			—						—						1,598.3						—						1,598.3
Education			—						—						3,159.0						—						3,159.0
Healthcare			—						—						1,399.0						—						1,399.0
Other			—						—						—						1,888.7						1,888.7
Total Net sales			5,856.2						1,382.7						6,156.3						1,888.7						15,283.9
Timing of Revenue Recognition
Transferred at a point in time where CDW is principal			5,267.9						1,288.2						5,764.2						1,670.4						13,990.7
Transferred at a point in time where CDW is agent			368.6						80.6						252.2						59.5						760.9
Transferred over time where CDW is principal			219.7						13.9						139.9						158.8						532.3
Total Net sales			$	5,856.2					$	1,382.7					$	6,156.3					$	1,888.7					$	15,283.9
(1)Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.
(2)Includes items such as delivery charges to customers.

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

			Nine Months Ended September 30, 2020
			Corporate						Small Business						Public						Other						Total
Geography**(1)**
United States			$	5,109.1					$	1,030.6					$	5,841.2					$	16.1					$	11,997.0
Rest of World			19.4						—						—						1,494.9						1,514.3
Total Net sales			5,128.5						1,030.6						5,841.2						1,511.0						13,511.3
Major Product and Services**(2)**
Hardware			3,986.2						855.1						4,864.5						1,121.1						10,826.9
Software			791.8						138.0						755.7						230.0						1,915.5
Services			299.6						22.4						197.9						152.2						672.1
Other(3)			50.9						15.1						23.1						7.7						96.8
Total Net sales			5,128.5						1,030.6						5,841.2						1,511.0						13,511.3
Sales by Channel
Corporate			5,128.5						—						—						—						5,128.5
Small Business			—						1,030.6						—						—						1,030.6
Government			—						—						2,135.9						—						2,135.9
Education			—						—						2,431.2						—						2,431.2
Healthcare			—						—						1,274.1						—						1,274.1
Other			—						—						—						1,511.0						1,511.0
Total Net sales			5,128.5						1,030.6						5,841.2						1,511.0						13,511.3
Timing of Revenue Recognition
Transferred at a point in time where CDW is principal			4,602.4						961.3						5,339.1						1,332.9						12,235.7
Transferred at a point in time where CDW is agent			341.1						61.8						209.9						41.9						654.7
Transferred over time where CDW is principal			185.0						7.5						292.2						136.2						620.9
Total Net sales			$	5,128.5					$	1,030.6					$	5,841.2					$	1,511.0					$	13,511.3
(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 nine months ended September 30, 2021.
(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 three and nine months ended September 30, 2021 and 2020. Categories are based upon internal classifications.

			Three Months Ended September 30,
			2021												2020(1)
			Net Sales						Percentage of Total Net Sales						Net Sales						Percentage of Total Net Sales
Notebooks/Mobile Devices			$	1,641.6					31.0		%				$	1,384.0					29.1		%
Netcomm Products			501.7						9.5						524.4						11.0
Desktops			316.1						6.0						245.3						5.2
Video			424.0						8.0						316.3						6.6
Enterprise and Data Storage (Including Drives)			228.1						4.3						247.9						5.2
Other Hardware			1,152.2						21.7						1,089.4						22.9
Total Hardware			4,263.7						80.5						3,807.3						80.0
Software(2)			717.7						13.5						691.5						14.5
Services(2)			286.9						5.4						226.9						4.8
Other(3)			31.7						0.6						30.7						0.7
Total Net sales			$	5,300.0					100.0		%				$	4,756.4					100.0		%
			Nine Months Ended September 30,
			2021												2020(1)
			Net Sales						Percentage of Total Net Sales						Net Sales						Percentage of Total Net Sales
Notebooks/Mobile Devices			$	4,944.3					32.3		%				$	3,922.2					29.0		%
Netcomm Products			1,442.2						9.4						1,450.4						10.7
Desktops			873.5						5.7						881.3						6.5
Video			1,161.7						7.6						877.0						6.5
Enterprise and Data Storage (Including Drives)			730.2						4.8						688.8						5.1
Other Hardware			3,308.4						21.6						3,007.2						22.3
Total Hardware			12,460.3						81.4						10,826.9						80.1
Software(2)			1,959.2						12.8						1,915.5						14.2
Services(2)			772.4						5.1						672.1						5.0
Other(3)			92.0						0.7						96.8						0.7
Total Net sales			$	15,283.9					100.0		%				$	13,511.3					100.0		%

(1)Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the three and nine months ended September 30, 2021.

(2)Certain software and services revenues are recorded on a net basis as the Company is acting as an agent in the transaction. 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)

12. Subsequent Event

On October 15, 2021, the Company entered into a Purchase and Sale Agreement (the "Purchase Agreement") to acquire all issued and outstanding equity interests in Granite Parent, Inc., the parent company of Sirius Computer Solutions, Inc. ("Sirius"), for $2.5 billion in cash, subject to customary closing adjustments ("Consideration"). Sirius is a leading provider of secure, mission-critical technology-based solutions and is one of the largest IT solutions integrators in the United States, leveraging its services-led approach, broad portfolio of hybrid infrastructure solutions, and deep technical expertise of its 2,600 coworkers to support corporate and public customers. This strategic acquisition will enhance the Company’s breadth and depth of services and solutions offerings.

The completion of this acquisition is subject to customary closing conditions, including among other things, the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. In the event of termination of the Purchase Agreement under certain circumstances, the Company would be contractually required to pay a termination fee of $75 million or $125 million, as further specified in the Purchase Agreement. The Company expects the transaction to close in the fourth quarter of 2021.

In connection with the Purchase Agreement, on October 15, 2021, the Company entered into a Commitment Letter with JPMorgan Chase Bank, N.A. (the "Arranger") pursuant to which the Arranger has committed to provide, subject to the terms and conditions of the Commitment Letter, a senior unsecured 364-day bridge loan facility in an aggregate principal amount up to $2.5 billion (the "Bridge Facility"). To the extent the Company does not obtain permanent financing on or before the close of the acquisition, the Bridge Facility will be used to fund all or a portion of the Consideration and to pay fees and expenses related to the acquisition. The funding of the Bridge Facility provided for in the Commitment Letter is contingent on the satisfaction of customary conditions for transactions of this type.