2017 Annual Report
Evolving with customers
Leading through complexity and change
CDW’s integrated technology
solutions and services help
more than 250,000 business,
government, education and
healthcare customers across
the United States, Canada
and the United Kingdom
navigate an increasingly
complex IT market and
maximize the return on their
technology investment.
FINANCIAL PERFORMANCE
Net Sales ($B)
Net Sales Compound Annual
Growth Rate (CAGR)
9 %
r C
a
R
A G
Y e
-
4
$15.2
$14.0
$13.0
$12.1
$10.8
Adjusted EBITDA** ($MM)
Margin (%)
Adjusted EBITDA Compound
Annual Growth Rate
R
A G
0 %
r C
a
1
Y e
-
4
$1,019
$1,186
$1,117
$907
$809
7.5%
7.5%
7.8%
8.0%
7.8%
2013*
2014
2015
2016
2017
2013*
2014
2015
2016
2017
Non-GAAP Net Income** ($MM)
GAAP Net Income ($MM)
Non-GAAP Net Income per
Diluted Share** ($)
Non-GAAP Net Income per Diluted
Share Compound Annual Growth Rate (%)
US IT Spending Growth1
CDW Net Sales Compound Annual
Growth Rate2
1.9x
9.0%
R
G
A
0 %
r C
a
2
e
Y
-
4
$504
$410
$403
$606
$523
$569
$424
$314
$133
$1.83
$245
$2.37
$3.83
$3.43
$2.93
1.6x
7.0%
4.8%
4.4%
2013*
2014
2015
2016
2017
2006-2017
2009-2017
* CDW went public on June 26, 2013.
** Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP
Net Income per Diluted Share are Non-GAAP financial
measures. Please refer to Use of Non-GAAP Financial
Measures on the inside back cover for further information.
1
IDC Worldwide Black Book, 12/8/17
2 Organic Net Sales only, excluding CDW UK
2017 Net Sales – $15.2B
Corporate (>250 employees)
Education (K-12, Higher Ed)
$1.2B
$1.6B
Government (Federal, State and Local)
$1.7B
$6.3B
Healthcare
Other (Canada, UK)
Small Businesses (<250 employees)
$2.2B
$2.2B
Chairman’s Letter
Dear Fellow Stockholders,
Our more than 250,000 customers are focused on the results
that matter to them. Representing public and private sectors
and every major industry, their end-goals vary, but they all
have one thing in common. Information technology, in one way
or another, is critical to their ability to achieve their goals, and
technology solutions are changing at a dizzying pace. Keeping
up with all of it, wading through the complexity, managing risk
and identifying the right partners and solutions can be daunting.
That’s where CDW comes in. In an incredibly dynamic industry,
we never stand still. We evolve–our capabilities, our offerings,
our expertise–with the needs of our customers, and that is
key to the value we deliver. With CDW, customers can focus on
their priorities while we make technology work for them. We
understand our customers’ objectives, the challenges they face
and how IT can best enable their success. We cut through the
complexity. We identify the right partners and build the most
effective and efficient solutions to meet our customers’ unique
needs. We orchestrate IT.
In 2017, we delivered yet again for our customers, our
partners, our stockholders and our coworkers. Our nimble
business model, diverse product suite and balanced portfolio of
end markets enabled us to deliver strong financial performance
in 2017. For the year, net sales increased 8.7 percent, adjusted
EBITDA increased 6.1 percent and non-GAAP earnings per share
increased 11.7 percent.
Our nimble business model enabled us to pivot to capture
growth opportunities driven by four customer trends. The
first–customer focus on hardware refresh–was driven by
renewed confidence in the economy. Customers’ determination
to have the most secure IT strategy possible led to the second
trend–a focus on security. The third trend was the adoption
of more flexible architectures to enable customers to handle
growth efficiently. And, the fourth was an ongoing trend of more
and more solutions being delivered via software. Our results
show our success in capitalizing on these trends.
Thomas E. Richards
Chairman, President and Chief Executive Officer
In an incredibly dynamic industry,
we never stand still. We evolve–
our capabilities, our offerings, our
expertise–with the needs of our
customers, and that is key to the
value we deliver.
CDW CORPORATION 1
Chairman’s Letter (continued)
Our diverse product suite of more than 100,000 products
from over 1,000 leading and emerging brands ensured we were
well positioned to meet customers’ evolving needs and market
trends. In 2017, we saw balanced growth across Hardware,
Software and Services.
The final driver of our performance was the power of our
balanced portfolio of end markets. We have five US channels,
each with over $1 billion in 2017 net sales and an additional
$1 billion plus from our UK and Canadian operations. The
diversity of these end markets enables us to consistently
deliver overall profitable growth regardless of macro and
exogenous impacts on the business.
In addition to our financial achievements in 2017, we made
excellent progress executing our three-part strategy for
growth. Examples of progress in our first strategy, to capture
share and acquire new customers, included the evolution of
our go-to-market model to better serve small businesses;
enhancement of our international capabilities to further
support our sellers’ ability to provide solutions to customers
outside their domestic markets; and piloting of AMANDA,
an automated digital assistant designed to take many
administrative tasks, like fulfilling requests for quotes and
providing order status, off an account manager’s plate.
Examples of progress in our second strategy, to enhance our
capabilities in high-growth solutions areas, include the creation
and launch of an artificial intelligence tool to identify customers
with the highest propensity to purchase hyper-converged
infrastructure; joint CDW and partner ‘security thought
leadership’ sessions across the US; and the addition of
coworkers focused on providing analytics and information
management solutions for customers.
Lastly, for our third strategy, to continue expanding our
integrated, value-added services, examples include bringing
our Device-as-a-Service offering to market; launching a
custom services recommendation engine that identifies
the most relevant services and provides an immediate price
quote; and expanding our Cloud Planning Services to include
‘micro consulting engagements.’
Our diverse product suite of more than
100,000 products from over 1,000 leading
and emerging brands ensured we were
well positioned to meet customers’ evolving
needs and market trends. In 2017, we
saw balanced growth across Hardware,
Software and Services.
2 CDW CORPORATION
In 2017, we continued to invest in our partners and coworkers
as well. We added more than 80 new partners, many in
high-growth areas such as end-point security, video and
cloud. We also added 125 customer-facing coworkers in 2017
with more than half in technical roles supporting sellers.
I want to thank our 8,700 coworkers for their incredible
commitment, hard work and dedication to our customers and
CDW in 2017. They truly are our secret weapon. And, for that
reason, we were very pleased to be able to invest a portion
of the benefit from the 2017 Tax Cuts and Jobs Act in our
coworkers. We made a one-time Coworker Equity Grant
valued at $12 million to all non-executive coworkers and a
$1,000 cash bonus to all of our hourly and frontline coworkers.
These investments were designed both to recognize the
contribution each and every one of our coworkers makes
to meeting our customers’ needs and drive alignment with
shareholders further into the organization.
Looking ahead, we remain committed to aggressively pursuing
our vision of being the leading IT solutions and services provider
in the markets we serve. We will continue to invest to deepen
our relationships with customers and ensure our expertise and
capabilities evolve to meet their ever-changing needs. I have no
doubt in 2018, with relentless focus and strong execution, CDW
will again deliver profitable growth, outpace the market, stay
ahead of our competitors and return value to shareholders.
Thank you for your continued confidence in CDW.
Thomas E. Richards
Chairman, President and Chief Executive Officer
April 2, 2018
Looking ahead, we remain committed to
aggressively pursuing our vision of being
the leading IT solutions and services
provider in the markets we serve.
CDW CORPORATION 3
Leadership
Board of Directors
Thomas E. Richards
Chairman, President and
Chief Executive Officer
James A. Bell
Retired Executive Vice President,
The Boeing Company
David W. Nelms
Chairman and Chief Executive Officer,
Discover Financial Services, Inc.
Virginia C. Addicott
President and Chief Executive Officer,
FedEx Custom Critical
Benjamin D. Chereskin
President,
Profile Capital Management LLC
Joseph R. Swedish
Executive Chairman,
Anthem, Inc.
Steven W. Alesio
Fellow,
Harvard Advanced Leadership Initiative
Barry K. Allen
Operating Partner,
Providence Equity Partners L.L.C.;
President,
Allen Enterprises, LLC
Lynda M. Clarizio
Former Executive Vice President,
Strategic Initiatives,
The Nielsen Company (US), LLC
Paul J. Finnegan
Co-Chief Executive Officer,
Madison Dearborn Partners, LLC
Donna F. Zarcone
President and Chief Executive Officer,
The Economic Club of Chicago
Executive Committee
Thomas E. Richards
Chairman, President and
Chief Executive Officer
Douglas E. Eckrote
Senior Vice President—Small Business
Sales and eCommerce
Christina V. Rother
Senior Vice President—Public and
Advanced Technology Sales
Neal J. Campbell
Senior Vice President—Strategic Solutions
and Services
Collin B. Kebo
Senior Vice President and
Chief Financial Officer
Jonathan J. Stevens
Senior Vice President—Operations
and Chief Information Officer
Mark C. Chong
Senior Vice President—Strategy
and Marketing
Christina M. Corley
Senior Vice President—Commercial
and International Markets
Frederick J. Kulevich
Senior Vice President, General Counsel
and Corporate Secretary
Matthew A. Troka
Senior Vice President—Product
and Partner Management
Christine A. Leahy
Chief Revenue Officer
4 CDW CORPORATION
CDW CORPORATION
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
or
Commission File Number 001-35985
CDW CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
75 Tri-State International
Lincolnshire, Illinois
(Address of principal executive offices)
26-0273989
(I.R.S. Employer
Identification No.)
60069
(Zip Code)
(847) 465-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Name of each exchange on which registered
Common stock, par value $0.01 per share
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
____________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
No
12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2017, the last business day of the registrant’s
most recently completed second fiscal quarter, was $9,577.6 million, based on the per share closing sale price of $62.53 on that date.
As of February 23, 2018, there were 152,423,423 shares of common stock, $0.01 par value, outstanding.
Table of Contents
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of the registrant’s definitive proxy statement for its 2018 annual meeting of stockholders to be held on May 23, 2018 (“2018 Proxy Statement”), which will
be filed with the Securities and Exchange Commission on or before April 30, 2018, are incorporated by reference into Part III of this Annual Report on Form 10-K.
CDW CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
Year Ended December 31, 2017
TABLE OF CONTENTS
Business
Item
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers
Item 3.
Item 4.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page
4
9
19
19
19
20
20
23
25
29
55
56
103
103
105
106
106
106
106
106
107
112
113
2
Table of Contents
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the federal securities laws. All statements other
than statements of historical fact included in this report are forward-looking statements. These statements relate to analyses and
other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements
also relate to our future prospects, developments and business strategies. We claim the protection of The Private Securities Litigation
Reform Act of 1995 for all forward-looking statements in this report.
These forward-looking statements are identified by the use of terms and phrases such as “anticipate,” “believe,” “could,”
“estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will” and similar terms and phrases, including
references to assumptions. However, these words are not the exclusive means of identifying such statements. Although we believe
that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot
assure you that we will achieve those plans, intentions or expectations. All forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially from those that we expected.
Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are
disclosed under the section entitled “Risk Factors” included elsewhere in this report. All written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements contained
in the section entitled “Risk Factors” included elsewhere in this report as well as other cautionary statements that are made from
time to time in our other Securities and Exchange Commission (“SEC”) filings and public communications. You should evaluate
all forward-looking statements made in this report in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that could cause actual
results to differ from our expectations. In addition, we cannot assure you that we will realize the results or developments we expect
or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way
we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation
to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as
otherwise required by law.
3
Table of Contents
Item 1. Business
Our Company
PART I
CDW Corporation (together with its subsidiaries, the “Company,” “CDW” or “we”) is a Fortune 500 company and a
leading provider of integrated information technology (“IT”) solutions to small, medium and large business, government, education
and healthcare customers in the United States (“US”), Canada, and the United Kingdom (“UK”). Our broad array of offerings
ranges from discrete hardware and software products to integrated IT solutions such as mobility, security, data center optimization,
cloud computing, virtualization and collaboration.
We are technology “agnostic,” with a solutions portfolio including more than 100,000 products and services from more
than 1,000 leading and emerging brands. Our solutions are delivered in physical, virtual and cloud-based environments through
over 6,000 customer-facing coworkers, including sellers, highly-skilled technology specialists and advanced service delivery
engineers. We are a leading sales channel partner for many original equipment manufacturers (“OEMs”), software publishers and
cloud providers (collectively, our “vendor partners”), whose products we sell or include in the solutions we offer. We provide our
vendor partners with a cost-effective way to reach customers and deliver a consistent brand experience through our established
end-market coverage, technical expertise and extensive customer access.
We simplify the complexities of technology across design, selection, procurement, integration and management for our
customers. Our goal is to have our customers, regardless of their size, view us as a trusted adviser and extension of their IT
resources. We do not manufacture products. Our multi-brand offering approach enables us to identify the products or combination
of products from our vendor partners that best address each customer’s specific IT requirements.
We provide integrated IT solutions in more than 80 countries for customers with primary locations in the US, UK and
Canada, which are large and growing markets. According to the International Data Corporation (“IDC”), the total US, UK and
Canadian IT market generated approximately $925 billion in sales in 2017. We believe our addressable markets in the US, UK
and Canada represent approximately $300 billion in annual sales. These are highly fragmented markets served by thousands of
IT resellers and solutions providers. For the year ended December 31, 2017, we estimate that our total Net sales of $15 billion
represented approximately 5% of our addressable markets. We believe that demand for IT will continue to outpace general economic
growth in the markets we serve fueled by new technologies, including cloud computing, virtualization and mobility, as well as
growing end-user demand for security, efficiency and productivity.
Value Proposition
We are positioned in the middle of the IT ecosystem where we procure products from OEMs, software publishers, cloud
providers and wholesale distributors and provide added value to our customers by helping them navigate through complex options
and implement the best solution for their business. In this role, we believe we provide unique value to both our vendor partners
and our customers.
Our value proposition to our customers
Our value proposition to our vendor partners
Broad selection of products and multi-branded IT
solutions
Access to over 250,000 customers
Value-added services with integration capabilities
Large and established customer channels
Highly-skilled specialists and engineers
Strong distribution and implementation capabilities
Solutions across a very broad IT landscape
Value-added solutions and marketing programs that
generate end-user demand
Customers
We provide integrated IT solutions to over 250,000 small, medium and large business, government, education and
healthcare customers throughout the US, UK and Canada.
We serve our customers through sales teams focused on customer end-markets that are supported by technical specialists
and highly skilled service delivery engineers. Our market segmentation allows us to customize our offerings and to provide
enhanced expertise in designing and implementing IT solutions that meet our customer’s specific needs.
In our US business, which represents approximately 90% of our revenues, we currently have five dedicated customer
channels: corporate, small business, government, education and healthcare, each of which generated over $1.0 billion in Net sales
in 2017. Net sales to customers in the UK and Canada combined generated $1.6 billion in 2017. We believe this diversity of
4
Table of Contents
customer end-markets provides us with multiple avenues for growth and has been a key factor in our ability to weather economic
and technology cycles and continue to gain market share.
Information regarding our reportable segments and our customer channels is as follows:
Public Segment
Corporate
Segment
>250
employees
Small
Business
Segment
1 - 250
employees
Government
Education
Healthcare
Other
Various federal, state
and local agencies
Higher
education and
K-12
Hospitals, ambulatory
service providers and
long-term care facilities
UK and Canada
$6.3
$1.2
$2.2
$2.2
$1.7
$1.6
Customer Channels
Target Customers
2017 Net Sales
(in billions)
For further information regarding our segments, including financial results, see Note 18 (Segment Information) to the
accompanying Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”
Partners
We provide more than 100,000 products and services from more than 1,000 partners, including well-established companies
such as Adobe, APC, Apple, Cisco, Dell EMC, Google, Hewlett Packard Enterprise, HP Inc., IBM, Intel, Lenovo, Microsoft,
NetApp, Samsung, Symantec and VMware, as well as from emerging technology companies such as Calabrio, Cohesity,
Crowdstrike, Nutanix, Proofpoint, Snow, Splunk, Veeam, Viptella and WidePoint. This broad portfolio of partners and technologies
enables us to offer customers significant choice and meet customer demand for the products and solutions that best meet their
needs. We believe our value proposition to vendor partners enables us to evolve our offering as new technologies emerge and new
companies seek us as a channel partner.
In 2017, we generated over $1.0 billion of Net sales from each of five of our vendor partners and over $100 million of
revenue from each of thirteen other vendor partners. We have received the highest level of certification from major vendor partners
such as Cisco, Dell EMC, Hewlett Packard Enterprise and Microsoft, which reflects the extensive product and solution knowledge
and capabilities that we bring to our customers’ IT challenges. These certifications also provide us with access to favorable pricing,
tools and resources, including vendor incentive programs, which we use to provide additional value to our customers. Our vendor
partners also regularly recognize us with top awards and select us to develop and grow new customer solutions.
Product Procurement
We may purchase all or only some of the products our vendor partners offer for resale to our customers or for inclusion
in the solutions we offer. Each vendor partner agreement provides for specific terms and conditions, which may include one or
more of the following: product return privileges, price protection policies, purchase discounts and vendor incentive programs,
such as, purchase or sales rebates and cooperative advertising reimbursements. We also purchase software from major software
publishers and cloud providers for resale to our customers or for inclusion in the solutions we offer. Our agreements allow the
end-user customer to acquire cloud-based solutions software or licensed products and services.
In addition to purchasing products directly from our vendor partners, we purchase products from wholesale distributors
for resale to our customers or for inclusion in the solutions we offer. These wholesale distributors provide logistics management
and supply-chain services for us, as well as for our vendor partners.
For our US operations, we purchased approximately 50% of the products we sold as discrete products or as components
of a solution directly from our vendor partners and the remaining 50% from wholesale distributors for the year ended December 31,
2017. Purchases from our three largest wholesale distributors, Ingram Micro, SYNNEX and Tech Data, are each approximately
10% of total 2017 purchases.
Inventory Management
We operate two distribution centers in North America: a 513,000 square foot facility in North Las Vegas, Nevada, and a
442,000 square foot facility in Vernon Hills, Illinois. We also operate a 120,000 square foot distribution center in Rugby,
Warwickshire, UK. We ship over 40 million units annually on an aggregate basis from our distribution centers.
We also have drop-shipment arrangements with many of our OEMs and wholesale distributors, which permit us to offer
products to our customers without having to take physical delivery at our distribution centers. These arrangements represent
approximately 50% of total consolidated 2017 Net sales, of which approximately 25% relate to electronic delivery for software
licenses.
5
Table of Contents
We believe that the location of our distribution centers allows us to efficiently ship products to our customers and provide
timely access to our principal distributors.
We believe competitive sources of supply are available in substantially all of the product categories that we offer.
Competition
The market for technology products and services is highly competitive and subject to economic conditions and rapid
technological changes. Competition is based on many things, including the ability to tailor specific solutions to customer needs,
the quality and breadth of product and service offerings, knowledge and expertise of sales force, customer service, price, product
availability, speed of delivery and credit availability. We face competition from resellers, direct manufacturers, large service
providers, cloud providers, telecommunication companies, and to a lesser extent e-tailers and retailers. Smaller, local or regional
value added resellers typically focus on a single solution suite or portfolio of solutions from one or two vendor partners.
We believe we are well positioned to compete within this marketplace due to our competitive advantages. We expect the
competitive landscape in which we compete to continue to evolve as new technologies are developed. While innovation can help
our business as it creates new offerings for us to sell, it can also disrupt our business model and create new and stronger competitors.
For a discussion of the risks associated with competition, see Item 1A, “Risk Factors.”
We believe we have sustainable competitive advantages that differentiate us in the marketplace. We have built a strong
sales organization and deep services and solutions capabilities over time and expect to continue to invest to enhance these
capabilities, which we believe when combined with our competitive advantages of scale and a performance driven culture, will
help drive sustainable, profitable growth for us today and in the future. Our scale enables us to have a national and international
footprint, as well as invest in resources to meet specific customer end-market needs. Our sellers are organized around unique
customer end-markets that are both vertically and geographically focused. Our scale enables our ability to invest in technical
coworkers who work directly with our sellers to help customers implement increasingly complex IT solutions. Our scale also
enables us to operate our three distribution centers (two in the US and one in the UK) which combined are more than 1 million
square feet in size. With the acquisition of CDW UK in 2015, we have cross-border relationships that enable us to serve the needs
of our US, UK and Canadian-based customers in more than 80 countries. Our strong, execution-oriented culture is underpinned
by our compensation system.
Our Offerings
Our offerings range from discrete hardware and software products and services to complex integrated solutions including
one or more of these elements. We believe our customers increasingly view technology purchases as integrated solutions rather
than discrete product and service categories. We estimate that more than 40% of our Net sales in 2017 in the US came from sales
of product categories and services typically associated with solutions. Our hardware products include notebooks/mobile devices
(including tablets), network communications, desktop computers, video monitors, enterprise and data storage, printers and servers.
Our software products include application suites, security, virtualization, operating systems and network management. Our services
include warranties, managed services, consulting design and implementation.
Today, IT is critical to both “run the business” and drive greater growth and productivity. To help our customers accomplish
their goals, we have built a robust portfolio of solutions across data center, digital workspace, security, virtualization and services
that we provide in physical, virtual, or cloud-based environments.
We provide public cloud solutions, which reside off customer premises on a public (shared) infrastructure, and private
cloud solutions, which reside on customer premises. We also offer hybrid cloud solutions that deliver the benefits of both public
and private solutions. Our migration, integration and managed services offerings help our customers simplify cloud adoption, as
well as the ongoing management of cloud solutions across the entire IT lifecycle. Dedicated Cloud Client Executives work with
our customers to architect cloud solutions meeting their organizational, technology and financial objectives.
We offer a broad portfolio of integrated solutions that include the following on and off-premise capabilities:
•
•
Data Center: We assess our customers data center needs, design flexible, resilient and efficient solutions and manage the
solution throughout its lifecycle. Our broad portfolio of hardware and software, for both on and off-premise solutions,
enables us to provide a well-integrated solution, including converged and hyper-converged infrastructure, physical and
virtualized servers, software defined data center, storage and energy-efficient power and cooling.
Digital Workspace: We build end-to-end solutions, using hardware, software and services, that deliver access to
applications that improve our customers’ productivity regardless of device or location. We connect our customers’ physical
devices, including laptops, desktops, IP Phones, mobile devices and print systems, and utilize solutions to unite
6
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•
•
•
collaboration and applications. We do this through the integration of products that facilitate the use of multiple enterprise
communication methods including email, persistent chat, social media, voice and video. We also host cloud-based
collaboration solutions. Our solutions provide the tools that allow our customers’ employees to share knowledge, ideas
and information among each other and with clients and partners effectively, securely and quickly.
Security: We assess the security needs of our customers and provide them with risk mitigation tools and services across
a multitude of categories such as: endpoint security, email security, web security, intrusion prevention, authentication,
firewall, virtual private network services and network access control. Security consulting engagements include security
assessment, policy and procedure gap analysis and development of security roadmaps.
Virtualization: We design and implement server, storage and desktop virtualization solutions. Virtualization enables our
customers to efficiently utilize hardware resources by running multiple, independent, virtual operating systems on a single
computer and multiple virtual servers simultaneously on a single server. Virtualization also can separate a desktop
environment and associated application software from the hardware device that is used to access it, and provides employees
with remote desktop access. Our specialists assist customers with the steps of implementing virtualization solutions,
including evaluating network environments, deploying shared storage options and licensing platform software.
Services: We advise on, architect and manage integrated business technology for commercial and business organizations.
Our solutions include integrated cloud, collaboration, data center, mobility and security business technology, from the
physical to the application layer. We provide advisory, architectural and managed services across basic, discrete and
integrated business technology solutions. We leverage best-in-class partner technology platforms to seamlessly architect
and manage disparate IT platforms into integrated business technology solutions.
Although we believe customers increasingly view technology purchases as solutions rather than discrete product and
service categories, our Net sales by major category, based upon our internal category classifications was as follows:
2017
Years Ended December 31,
2016(1)
2015 (1)
Dollars in
Millions
Percentage
of Total
Net Sales
Dollars in
Millions
Percentage
of Total
Net Sales
Dollars in
Millions
Percentage
of Total
Net Sales
Notebooks/Mobile Devices
$ 3,490.9
23.1% $ 2,921.6
20.9% $
2,537.3
Netcomm Products
Desktops
Video
Enterprise and Data Storage
(Including Drives)
Other Hardware
Total Hardware
Software(2)
Services(2)
Other(3)
Total Net sales
2,042.9
1,159.4
1,076.9
1,071.5
3,100.3
11,941.9
2,540.1
611.3
98.2
13.4
7.6
7.1
7.1
20.4
78.7
16.7
4.0
0.6
1,958.2
1,050.0
962.1
1,053.1
3,042.6
10,987.6
2,389.3
575.1
29.9
14.0
7.5
6.9
7.5
21.8
78.6
17.1
4.1
0.2
1,915.0
965.6
853.8
1,067.2
2,950.5
10,289.4
2,152.3
467.7
79.3
$ 15,191.5
100.0% $ 13,981.9
100.0% $ 12,988.7
19.5%
14.7
7.4
6.6
8.2
22.7
79.1
16.6
3.6
0.7
100.0%
(1)
(2)
Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the
year ended December 31, 2017.
Certain software and services revenue is recorded on a net basis for accounting purposes, so 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 and certain commission revenue.
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Our Internal Capabilities
Our Coworkers
As of December 31, 2017, we employed 8,726 coworkers with approximately 7,200 coworkers in the US, 1,100 in the
UK and 400 in Canada. Approximately two thirds of our coworkers at year-end 2017 were customer facing. Over half of our Net
sales are generated by account managers who have greater than seven years of experience. Account managers are supported by
field sellers, highly skilled technology specialists and advanced service delivery engineers. We believe this structure to be core to
our ability to continue to offer complex IT solutions and services.
None of our coworkers are covered by collective bargaining agreements. We consider our coworker relations to be
good.
Marketing
We market the CDW brand to US, British and Canadian audiences using a variety of channels that include online, broadcast,
print, social and other media. We market to current and prospective customers through integrated marketing programs including
behaviorally targeted email, print, online media, events and sponsorships, as well as broadcast media. This promotion is also
supported by integrated communication efforts targeting decision-makers, influencers and the general public using a combination
of news releases, case studies, media interviews and speaking opportunities.
As a result of our relationships with our vendor partners, a significant portion of our advertising and marketing expenses
is reimbursed through cooperative advertising programs. These programs are at the discretion of our vendor partners and are
typically tied to sales or other commitments to be met by us within a specified period of time. We believe that our results and
analytical techniques that measure the efficacy of our marketing programs differentiate us from our competitors.
Information Technology Systems
We maintain customized IT and unified communication systems that enhance our ability to provide prompt, efficient and
expert service to our customers. In addition, these systems enable centralized management of key functions, including purchasing,
inventory management, billing and collection of accounts receivable, sales and distribution. Our systems provide us with thorough,
detailed and real-time information regarding key aspects of our business. This capability helps us to continuously enhance
productivity, ship customer orders quickly and efficiently, respond appropriately to industry changes and provide high levels of
customer service. We believe our websites, which provide electronic order processing and advanced tools, such as order tracking,
reporting and asset management, make it easy for customers to transact business with us and ultimately strengthen our customer
relationships.
Intellectual Property
The CDW trademark and certain variations thereon are registered or subject to pending trademark applications in the US,
UK, Canada and certain other jurisdictions. We believe our trademarks have significant value and are important factors in our
marketing programs. In addition, we own registrations for domain names, including cdw.com and cdwg.com and variations thereon,
for certain of our primary trademarks. We also own patent rights and have unregistered copyrights in our website content, software
and other written materials.
History
Founded in 1984, CDW became a public company in 1993. In 2003, we purchased selected US assets and the Canadian
operations of Micro Warehouse, which extended our growth platform into Canada. In 2006, we acquired Berbee Information
Networks Corporation, a regional provider of technology products, solutions and customized engineering services in advanced
technologies primarily across Cisco, IBM and Microsoft portfolios. This acquisition increased our capabilities in customized
engineering services and managed services.
We were a public company from 1993 until 2007 when we were acquired through a merger transaction by an entity
controlled by investment funds affiliated with Madison Dearborn Partners, LLC (“Madison Dearborn”) and Providence Equity
Partners L.L.C. (“Providence Equity”). CDW Corporation continued as the surviving corporation and same legal entity after the
acquisition, but became a wholly owned subsidiary of VH Holdings, Inc., a Delaware corporation.
In July 2013, CDW Corporation completed the IPO of its common stock.
After the IPO, through secondary offerings and fund distributions, Madison Dearborn and Providence Equity liquidated
their previous ownership positions in CDW.
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In November 2014, we completed the acquisition of a 35% non-controlling equity interest in UK-based IT solutions
provider, Kelway TopCo Limited (“Kelway”). In August 2015, we purchased the remaining 65% of Kelway’s outstanding common
stock, which increased our ownership interest from 35% to 100% and provided us control. Rebranded CDW UK in April 2016,
the acquisition extended our footprint into the UK. It also enhanced our ability to provide IT solutions to US-based customers
with multinational locations. Financial results of CDW UK are included in our Consolidated Financial Statements from the date
of acquisition.
Available Information
We maintain a website at www.cdw.com. You may access our Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 with the SEC free of charge at our website as soon as reasonably practicable after such material
is electronically filed with, or furnished to, the SEC. Our website and the information contained on that site, or connected to that
site, are not incorporated into and are not a part of this report.
Item 1A. Risk Factors
There are many factors that could adversely affect our business, results of operations and cash flows, some of which are beyond
our control. The following is a description of some important factors that may cause our business prospects, results of operations
and cash flows in future periods to differ materially from those currently expected or desired. Factors not currently known to us
or that we currently deem to be immaterial may also materially and adversely affect our business, results of operations and cash
flows.
Risks Related to Our Business
Global and regional economic and political conditions may have an adverse impact on our business.
Weak economic conditions generally, sustained uncertainty about global economic and political conditions, government
spending cuts and the impact of new government policies, or a tightening of credit markets, could cause our customers and potential
customers to postpone or reduce spending on technology products or services or put downward pressure on prices, which could
have an adverse effect on our business, results of operations or cash flows. For example, there continues to be substantial uncertainty
regarding the economic impact of the Referendum on the UK’s Membership of the European Union (“EU”) advising for the exit
of the UK from the EU (referred to as “Brexit”). Potential adverse consequences of Brexit such as global market uncertainty,
volatility in currency exchange rates, greater restrictions on imports and exports between UK and EU countries and increased
regulatory complexities could have a negative impact on our business, financial condition and results of operations.
Our financial performance could be adversely affected by decreases in spending on technology products and services by our
public sector customers.
Our sales to our public sector customers are impacted by government spending policies, budget priorities and revenue
levels. An adverse change in government spending policies (such as budget cuts or limitations), budget priorities or revenue levels
could cause our public sector customers to reduce their purchases or to terminate or not renew their contracts with us, which could
adversely affect our business, results of operations or cash flows. For example, in 2013, as a result of sequestration and related
budget uncertainty and the partial shutdown of the US federal government for 16 days, we experienced significantly reduced US
Federal sales in our Public segment.
Our business depends on our vendor partner relationships and the availability of their products.
We purchase products for resale from vendor partners, which include OEMs and software publishers, and wholesale
distributors. For the year ended December 31, 2017, we purchased approximately 50% of the products we sold directly from
vendor partners and the remaining amount from wholesale distributors for our North American operations. We are authorized by
vendor partners to sell all or some of their products via direct marketing activities. Our authorization with each vendor partner is
subject to specific terms and conditions regarding such things as sales channel restrictions, product return privileges, price protection
policies, purchase discounts and vendor partner programs and funding, including purchase rebates, sales volume rebates, purchasing
incentives and cooperative advertising reimbursements. However, we do not have any long-term contracts with our vendor partners
and many of these arrangements are terminable upon notice by either party. A reduction in vendor partner programs or funding or
our failure to timely react to changes in vendor partner programs or funding could have an adverse effect on our business, results
of operations or cash flows. In addition, a reduction in the amount of credit granted to us by our vendor partners could increase
our need for, and the cost of, working capital and could have an adverse effect on our business, results of operations or cash flows,
particularly given our substantial indebtedness.
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From time to time, vendor partners may terminate or limit our right to sell some or all of their products or change the
terms and conditions or reduce or discontinue the incentives that they offer us. For example, there is no assurance that, as our
vendor partners continue to sell directly to end users and through resellers, they will not limit or curtail the availability of their
products to solutions providers like us. Any such termination or limitation or the implementation of such changes could have a
negative impact on our business, results of operations or cash flows.
Although we purchase from a diverse vendor base, in 2017, products we purchased from wholesale distributors Ingram
Micro, SYNNEX and Tech Data each represented approximately 10% of total US purchases. In addition, sales of products
manufactured by Apple, Cisco, Dell EMC, Hewlett Packard Enterprise, HP Inc., Lenovo and Microsoft, whether purchased directly
from these vendor partners or from a wholesale distributor, represented in the aggregate nearly 60% of our 2017 consolidated Net
sales. Sales of products manufactured by Cisco and HP Inc. represented over 25% of our 2017 consolidated Net sales. The loss
of, or change in business relationship with, any of these or any other key vendor partners, or the diminished availability of their
products, including due to backlogs for their products leading to manufacturer allocation, could reduce the supply and increase
the cost of products we sell and negatively impact our competitive position.
Additionally, the relocation of key distributors utilized in our purchasing model could increase our need for, and the cost
of, working capital and have an adverse effect on our business, results of operations or cash flows. Further, the sale, spin-off or
combination of any of our vendor partners and/or certain of their business units, including any such sale to or combination with
a vendor with whom we do not currently have a commercial relationship or whose products we do not sell, could have an adverse
impact on our business, results of operations or cash flows.
Our sales are dependent on continued innovations in hardware, software and services offerings by our vendor partners and
the competitiveness of their offerings, and our ability to partner with new and emerging technology providers.
The technology industry is characterized by rapid innovation and the frequent introduction of new and enhanced hardware,
software and services offerings, such as cloud-based solutions, including SaaS, Infrastructure as a Service (“IaaS”) and Platform
as a Service (“PaaS”), Device as a Service (“DaaS”) and the Internet of Things (“IoT”). We have been and will continue to be
dependent on innovations in hardware, software and services offerings, as well as the acceptance of those innovations by customers.
Also, customers may delay spending while they evaluate new technologies. A decrease in the rate of innovation, or the lack of
acceptance of innovations or delays in technology spending by customers, could have an adverse effect on our business, results
of operations or cash flows.
In addition, if we are unable to keep up with changes in technology and new hardware, software and services offerings,
for example by providing the appropriate training to our account managers, sales technology specialists and engineers to enable
them to effectively sell and deliver such new offerings to customers, our business, results of operations or cash flows could be
adversely affected.
We also are dependent upon our vendor partners for the development and marketing of hardware, software and services
to compete effectively with hardware, software and services of vendors whose products and services we do not currently offer or
that we are not authorized to offer in one or more customer channels. In addition, our success is dependent on our ability to develop
relationships with and sell hardware, software and services from new emerging vendors and vendors that we have not historically
represented in the marketplace. To the extent that a vendor’s offering that is highly in demand is not available to us for resale in
one or more customer channels, and there is not a competitive offering from another vendor that we are authorized to sell in such
customer channels, or we are unable to develop relationships with new technology providers or companies that we have not
historically represented, our business, results of operations or cash flows could be adversely impacted.
Substantial competition could reduce our market share and significantly harm our financial performance.
•
•
•
•
•
•
Our current competition includes:
resellers, such as Computacenter, Connection, Dimension Data, ePlus, Insight Enterprises, PCM, Presidio, SCC,
Softchoice, World Wide Technology and many smaller resellers;
manufacturers who sell directly to customers, such as Adobe, Apple, Dell, HP Inc. and Hewlett Packard Enterprise;
large service providers and system integrators, such as Accenture, Dell, Hewlett Packard Enterprise and IBM;
communications service providers, such as AT&T, CenturyLink and Verizon;
cloud providers, such as Amazon Web Services, Box and Microsoft;
e-tailers, such as Amazon, Newegg and TigerDirect.com; and
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•
retailers (including their e-commerce activities), such as Office Depot and Staples.
We expect the competitive landscape to continue to evolve as new technologies are developed, such as cloud-based
solutions, hyper-converged infrastructure and embedded software solutions. While innovation can help our business as it creates
new offerings for us to sell, it can also disrupt our business model and create new and stronger competitors. For instance, while
cloud-based solutions present an opportunity for us, cloud-based solutions and technologies that deliver technology solutions as
a service could increase the amount of sales directly to customers rather than through solutions providers like us, or could reduce
the amount of hardware we sell. In addition, some of our hardware and software vendor partners sell, and could intensify their
efforts to sell, their products directly to our customers. Moreover, traditional OEMs have increased their services capabilities
through mergers and acquisitions with service providers, which could potentially increase competition in the market to provide
comprehensive technology solutions to customers. If we are unable to effectively respond to the evolving competitive landscape,
our business, results of operations or cash flows could be adversely impacted.
We focus on offering a high level of service to gain new customers and retain existing customers. To the extent we face
increased competition to gain and retain customers, we may be required to reduce prices, increase advertising expenditures or take
other actions which could adversely affect our business, results of operations or cash flows. Additionally, some of our competitors
may reduce their prices in an attempt to stimulate sales, which may require us to reduce prices. This would require us to sell a
greater number of products to achieve the same level of Net sales and Gross profit. If such a reduction in prices occurs and we
are unable to attract new customers and sell increased quantities of products, our sales growth and profitability could be adversely
affected.
The success of our business depends on the continuing development, maintenance and operation of our information technology
systems.
Our success is dependent on the accuracy, proper utilization and continuing development of our information technology
systems, including our business systems, such as our sales, customer management, financial and accounting, marketing, purchasing,
warehouse management, e-commerce and mobile systems, as well as our operational platforms, including voice and data networks
and power systems. The quality and our utilization of the information generated by our information technology systems, and our
success in implementing new systems and upgrades, affects, among other things, our ability to:
•
•
•
•
conduct business with our customers, including delivering services and solutions to them;
manage our inventory and accounts receivable and accounts payable;
purchase, sell, ship and invoice our hardware and software products and provide and invoice our services
efficiently and on a timely basis; and
maintain our cost-efficient operating model while scaling our business.
The integrity of our information technology systems is vulnerable to disruption due to forces beyond our control. While
we have taken steps to protect our information technology systems from a variety of threats, both internal and external, and human
error, there can be no guarantee that those steps will be effective. Furthermore, although we have redundant systems at a separate
location to back up our primary systems, there can be no assurance that these redundant systems will operate properly if and when
required. Any disruption to or infiltration of our information technology systems could significantly harm our business and results
of operations.
Breaches of data security and the failure to protect our information technology systems from cybersecurity threats could
adversely impact our business.
Our business involves the storage and transmission of proprietary information and sensitive or confidential data, including
personal information of coworkers, customers and others. In addition, we operate data centers for our customers that host their
technology infrastructure and may store and transmit both business-critical data and confidential information. In connection with
our services business, some of our coworkers also have access to our customers’ confidential data and other information. We have
privacy and data security policies in place that are designed to prevent security breaches; however, as newer technologies evolve,
and the portfolio of the service providers we share confidential information with grows, we could be exposed to increased risk of
breaches in security and other illegal or fraudulent acts, including cyberattacks. The evolving nature of such threats, in light of
new and sophisticated methods used by criminals and cyberterrorists, including computer viruses, malware, phishing,
misrepresentation, social engineering and forgery, are making it increasingly challenging to anticipate and adequately mitigate
these risks.
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Breaches in security could expose us, our supply chain, our customers or other individuals to significant disruptions, a
risk of public disclosure, loss or misuse of this information. Security breaches could result in legal claims or proceedings, liability
or regulatory penalties under laws protecting the privacy of personal information, as well as the loss of existing or potential
customers and damage to our brand and reputation. Moreover, media or other reports of perceived vulnerabilities in our network
security or perceived lack of security within our environment, even if inaccurate, could adversely impact our reputation and
materially impact our business. The cost and operational consequences of implementing further data protection measures could
be significant. Such breaches, costs and consequences could adversely affect our business, results of operations or cash flows.
The failure to comply with our public sector contracts or applicable laws and regulations could result in, among other things,
termination, fines or other liabilities, and changes in procurement regulations could adversely impact our business, results of
operations or cash flows.
Revenues from our public sector customers are derived from sales to governmental entities, educational institutions and
healthcare customers, through various contracts and open market sales of products and services. Sales to public sector customers
are highly regulated. Noncompliance with contract provisions, government procurement regulations or other applicable laws or
regulations (including the False Claims Act and the Medicare and Medicaid Anti-Kickback Statute or similar laws of the jurisdictions
for our business activities outside of the US) could result in civil, criminal and administrative liability, including substantial
monetary fines or damages, termination of government contracts or other public sector customer contracts, and suspension,
debarment or ineligibility from doing business with governmental entities or other customers in the public sector. In addition,
contracts in the public sector are generally terminable at any time for convenience of the contracting agency or group purchasing
organization (“GPO”) or upon default. Furthermore, our inability to enter into or retain contracts with GPOs may threaten our
ability to sell to customers in those GPOs and compete effectively. The effect of any of these possible actions could adversely
affect our business, results of operations or cash flows. In addition, the adoption of new or modified procurement regulations and
other requirements may increase our compliance costs and reduce our gross margins, which could have a negative effect on our
business, results of operations or cash flows.
If we fail to provide high-quality services to our customers, or if our third-party service providers fail to provide high-quality
services to our customers, our reputation, business, results of operations or cash flows could be adversely affected.
Our service offerings include field services, managed services, warranties, configuration services, partner services and
telecom services. Additionally, we deliver and manage mission critical software, systems and network solutions for our customers.
We also offer certain services, such as implementation and installation services and repair services, to our customers through
various third-party service providers engaged to perform these services on our behalf. If we or our third-party service providers
fail to provide high-quality services to our customers or such services result in a disruption of our customers’ businesses, this
could, among other things, result in legal claims and proceedings and liability for us. Moreover, as we expand our services and
solutions business, we may be exposed to additional operational, regulatory and other risks. We also could incur liability for failure
to comply with the rules and regulations applicable to the new services and solutions we provide to our customers. If any of the
foregoing were to occur, our reputation with our customers, our brand and our business, results of operations or cash flows could
be adversely affected.
If we lose any of our key personnel, or are unable to attract and retain the talent required for our business, our business could
be disrupted and our financial performance could suffer.
Our success is heavily dependent upon our ability to attract, develop, engage and retain key personnel to manage and
grow our business, including our key executive, management, sales, services and technical coworkers.
Our future success will depend to a significant extent on the efforts of Thomas E. Richards, our Chairman and Chief
Executive Officer, as well as the continued service and support of our other executive officers. Our future success also will depend
on our ability to retain and motivate our customer-facing coworkers, who have been given critical CDW knowledge regarding,
and the opportunity to develop strong relationships with, many of our customers. In addition, as we seek to expand our offerings
of value-added services and solutions, our success will even more heavily depend on attracting and retaining highly skilled
technology specialists and engineers, for whom the market is extremely competitive.
Our inability to attract, develop, engage and retain key personnel could have an adverse effect on our relationships with
our vendor partners and customers and adversely affect our ability to expand our offerings of value-added services and solutions.
Moreover, our inability to train our sales, services and technical personnel effectively to meet the rapidly changing technology
needs of our customers could cause a decrease in the overall quality and efficiency of such personnel. Such consequences could
adversely affect our business, results of operations or cash flows.
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The interruption of the flow of products from suppliers could disrupt our supply chain.
While we purchase our products primarily in the markets we serve (for example, products for US customers are sourced
in the US), our vendor partners manufacture or purchase a significant portion of the products we sell outside of the US, primarily
in Asia. Political, social or economic instability in Asia, or in other regions in which our vendor partners purchase or manufacture
the products we sell, could cause disruptions in trade, including exports to the US. Other events that could also cause disruptions
to our supply chain include:
•
•
•
•
•
•
•
the imposition of additional trade law provisions or regulations;
the imposition of additional duties, tariffs and other charges on imports and exports;
foreign currency fluctuations;
natural disasters or other adverse occurrences at, or affecting, any of our suppliers’ facilities;
restrictions on the transfer of funds;
the financial instability or bankruptcy of manufacturers; and
significant labor disputes, such as strikes.
We cannot predict whether the countries in which the products we sell are purchased or manufactured, or may be purchased
or manufactured in the future, will be subject to new or additional trade restrictions or sanctions imposed by the US or foreign
governments, including the likelihood, type or effect of any such restrictions. Trade restrictions, including new or increased tariffs
or quotas, embargoes, sanctions, safeguards and customs restrictions against the products we sell, as well as foreign labor strikes
and work stoppages or boycotts, could increase the cost or reduce the supply of product available to us and adversely affect our
business, results of operations or cash flows. In addition, our exports are subject to regulations, some of which may be inconsistent,
and noncompliance with these requirements could have a negative effect on our business, results of operations or cash flows.
A natural disaster or other adverse occurrence at one of our primary facilities or customer data centers could damage our
business.
We have two warehouse and distribution facilities in the US and one in the UK. If the warehouse and distribution equipment
at one of our distribution centers were to be seriously damaged by a natural disaster or other adverse occurrence, we could utilize
another distribution center or third-party distributors to ship products to our customers. However, this may not be sufficient to
avoid interruptions in our service and may not enable us to meet all of the needs of our customers and would cause us to incur
incremental operating costs. In addition, we operate three customer data centers and numerous sales offices which may contain
both business-critical data and confidential information of our customers. A natural disaster or other adverse occurrence at any of
the customer data centers or at any of our major sales offices could negatively impact our business, results of operations or cash
flows.
Increases in the cost of commercial delivery services or disruptions of those services could adversely impact our business.
We generally ship hardware products to our customers by FedEx, United Parcel Service and other commercial delivery
services and invoice customers for delivery charges. If we are unable to pass on to our customers future increases in the cost of
commercial delivery services, our profitability could be adversely affected. Additionally, strikes, inclement weather, natural
disasters or other service interruptions by such shippers could adversely affect our ability to deliver products on a timely basis.
We are exposed to accounts receivable and inventory risks.
We extend credit to our customers for a significant portion of our Net sales, typically on 30-day payment terms. We are
subject to the risk that our customers may not pay for the products they have purchased, or may pay at a slower rate than we have
historically experienced, the risk of which is heightened during periods of economic downturn or uncertainty or, in the case of
public sector customers, during periods of budget constraints.
We are also exposed to inventory risks as a result of the rapid technological changes that affect the market and pricing
for the products we sell. We seek to minimize our inventory exposure through a variety of inventory management procedures and
policies, including our rapid-turn inventory model, as well as vendor price protection and product return programs. However, if
we were unable to maintain our rapid-turn inventory model, if there were unforeseen product developments that created more
rapid obsolescence or if our vendor partners were to change their terms and conditions, our inventory risks could increase. We
also from time to time take advantage of cost savings associated with certain opportunistic bulk inventory purchases offered by
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our vendor partners or we may decide to carry high inventory levels of certain products that have limited or no return privileges
due to customer demand or request. These bulk purchases could increase our exposure to inventory obsolescence.
We could be exposed to additional risks if we continue to make strategic investments or acquisitions or enter into alliances.
We may continue to pursue transactions, including strategic investments, acquisitions or alliances, in an effort to extend
or complement our existing business. These types of transactions involve numerous business risks, including finding suitable
transaction partners and negotiating terms that are acceptable to us, the diversion of management’s attention from other business
concerns, extending our product or service offerings into areas in which we have limited experience, entering into new geographic
markets, the potential loss of key coworkers or business relationships and successfully integrating acquired businesses. There can
be no assurance that the intended benefits of our investments, acquisitions and alliances will be realized, or that those benefits
will offset these numerous risks or other unforeseen factors, any of which could adversely affect our business, results of operations
or cash flows.
In addition, our financial results could be adversely affected by financial adjustments required by generally accepted
accounting principles in the United States of America (“GAAP”) in connection with these types of transactions where significant
goodwill or intangible assets are recorded. To the extent the value of goodwill or identifiable intangible assets with indefinite lives
becomes impaired, we may be required to incur material charges relating to the impairment of those assets.
Our future operating results may fluctuate significantly, which may result in volatility in the market price of our stock and
could impact our ability to operate our business effectively.
We may experience significant variations in our future quarterly results of operations. These fluctuations may cause the
market price of our common stock to be volatile and may result from many factors, including the condition of the technology
industry in general, shifts in demand and pricing for hardware, software and services and the introduction of new products or
upgrades.
Our operating results are also highly dependent on our level of Gross profit as a percentage of Net sales. Our Gross profit
percentage fluctuates due to numerous factors, some of which may be outside of our control, including general macroeconomic
conditions; pricing pressures; changes in product costs from our vendor partners; the availability of price protection, purchase
discounts and incentive programs from our vendor partners; changes in product, order size and customer mix; the risk of some
items in our inventory becoming obsolete; increases in delivery costs that we cannot pass on to customers; and general market
and competitive conditions.
In addition, our cost structure is based, in part, on anticipated sales and gross margins. Therefore, we may not be able to
adjust our cost structure quickly enough to compensate for any unexpected sales or gross margin shortfall, and any such inability
could have an adverse effect on our business, results of operations or cash flows.
Fluctuations in foreign currency have an effect on our reported results of operations.
Our exposure to fluctuations in foreign currency rates results primarily from the translation exposure associated with the
preparation of our Consolidated Financial Statements. While our Consolidated Financial Statements are reported in US dollars,
the financial statements of our subsidiaries outside the US are prepared using the local currency as the functional currency and
translated into US dollars. As a result, fluctuations in the exchange rate of the US dollar relative to the local currencies of our
international subsidiaries, particularly the British pound and the Canadian dollar, could cause fluctuations in our reported results
of operations. We also have foreign currency exposure to the extent sales and purchases are not denominated in a subsidiary’s
functional currency, which could have an adverse effect on our business, results of operations or cash flows.
We are exposed to risks from legal proceedings and audits, which may result in substantial costs and expenses or interruption
of our normal business operations.
We are party to various legal proceedings that arise in the ordinary course of our business, which include commercial,
employment, tort and other litigation.
We are subject to intellectual property infringement claims against us in the ordinary course of our business, either because
of the products and services we sell or the business systems and processes we use to sell such products and services, in the form
of cease-and-desist letters, licensing inquiries, lawsuits and other communications and demands. In our industry, such intellectual
property claims have become more frequent as the complexity of technological products and the intensity of competition in our
industry have increased. Increasingly, many of these assertions are brought by non-practicing entities whose principal business
model is to secure patent licensing revenue, but we may also be subject to demands from inventors, competitors or other patent
holders who may seek licensing revenue, lost profits and/or an injunction preventing us from engaging in certain activities, including
selling certain products or services.
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We also are subject to proceedings, investigations and audits by federal, state, international, national, provincial and local
authorities, including because of our significant sales to governmental entities. We also are subject to audits by various vendor
partners and large customers, including government agencies, relating to purchases and sales under various contracts. In addition,
we are subject to indemnification claims under various contracts.
Current and future litigation, infringement claims, governmental proceedings and investigations, audits or indemnification
claims that we face may result in substantial costs and expenses and significantly divert the attention of our management regardless
of the outcome. In addition, these matters could lead to increased costs or interruptions of our normal business operations. Litigation,
infringement claims, governmental proceedings and investigations, audits or indemnification claims involve uncertainties and the
eventual outcome of any such matter could adversely affect our business, results of operations or cash flows.
Failure to comply with complex and evolving US and foreign laws and regulations applicable to our operations could adversely
impact our business, results of operations or cash flows.
Our operations are subject to numerous complex US and foreign laws and regulations in a number of areas including
areas of labor and employment, advertising, e-commerce, tax, import and export requirements, anti-corruption, data privacy
requirements (including those under the European Union General Data Protection Regulation), anti-competition, and
environmental, health, and safety. The evaluation of, and compliance with these laws, regulations and similar requirements may
be onerous and expensive, and these laws and regulations may have other adverse impacts on our business, results of operations
or cash flows. For example, the Tax Cuts and Jobs Act of 2017 was signed into law in the fourth quarter of 2017, making significant
changes to the US Internal Revenue Code. While we have estimated the income tax effects of the Act in our Consolidated Financial
Statements, we continue to analyze the income tax effects of the Act, as well as to monitor tax and accounting guidance issued by
various authorities, which could result in material changes as we refine those estimates. Furthermore, the laws and regulations to
which the Company is subject are evolving and may be inconsistent from jurisdiction to jurisdiction, further increasing the cost
of compliance and doing business, and the risk of noncompliance.
We have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations,
but there can be no guarantee against coworkers, contractors or agents violating such laws and regulations or our policies and
procedures.
As a public company, we also are subject to increasingly complex public disclosure, corporate governance and accounting
requirements that increase compliance costs and require significant management focus.
Risks Related to Our Indebtedness
We have a substantial amount of indebtedness, which could have important consequences to our business.
We have a substantial amount of indebtedness. As of December 31, 2017, we had $3.2 billion of total long-term debt
outstanding, as defined by GAAP, and $498 million of obligations outstanding under our inventory financing agreements, and the
ability to borrow an additional $996 million under our senior secured asset-based revolving credit loan facility (the “Revolving
Loan”) and an additional £50 million ($68 million at December 31, 2017) under our CDW UK revolving credit facility. Our
substantial indebtedness could have important consequences, including the following:
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•
•
•
•
making it more difficult for us to satisfy our obligations with respect to our indebtedness;
requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments on our and our
subsidiaries’ debt, which reduces the funds available for working capital, capital expenditures, acquisitions and other
general corporate purposes;
requiring us to comply with restrictive covenants in our senior credit facilities and indentures, which limit the manner in
which we conduct our business;
making it more difficult for us to obtain vendor financing from our vendor partners, including original equipment
manufacturers and software publishers;
limiting our flexibility in planning for, or reacting to, changes in the industry in which we operate;
placing us at a competitive disadvantage compared to any of our less-leveraged competitors;
increasing our vulnerability to both general and industry-specific adverse economic conditions; and
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•
limiting our ability to obtain additional debt or equity financing to fund future working capital, capital expenditures,
acquisitions or other general corporate requirements and increasing our cost of borrowing.
Restrictive covenants under our senior credit facilities and, to a lesser degree, our indentures may adversely affect our operations
and liquidity.
Our senior credit facilities and, to a lesser degree, our indentures contain, and any future indebtedness of ours may contain,
various covenants that limit our ability to, among other things:
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•
•
•
•
•
•
•
•
•
incur or guarantee additional debt;
pay dividends or make distributions to holders of our capital stock or to make certain other restricted payments or
investments;
repurchase or redeem capital stock;
make loans, capital expenditures or investments or acquisitions;
receive dividends or other payments from our subsidiaries;
enter into transactions with affiliates;
create liens;
merge or consolidate with other companies or transfer all or substantially all of our assets;
transfer or sell assets, including capital stock of subsidiaries; and
prepay, repurchase or redeem debt.
As a result of these covenants, we are limited in the manner in which we conduct our business and we may be unable to
engage in favorable business activities or finance future operations or capital needs. A breach of any of these covenants or any of
the other restrictive covenants would result in a default under our senior credit facilities. Upon the occurrence of an event of default
under our senior credit facilities, the lenders:
•
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•
will not be required to lend any additional amounts to us;
could elect to declare all borrowings outstanding thereunder, together with accrued and unpaid interest and fees, to be
due and payable; or
could require us to apply all of our available cash to repay these borrowings.
The acceleration of amounts outstanding under our senior credit facilities would likely trigger an event of default under
our existing indentures.
If we were unable to repay those amounts, the lenders under our senior credit facilities could proceed against the collateral
granted to them to secure our borrowings thereunder. We have pledged a significant portion of our assets as collateral under our
senior credit facilities. If the lenders under our senior credit facilities accelerate the repayment of borrowings, we cannot assure
you that we will have sufficient assets to repay our senior credit facilities and our other indebtedness or the ability to borrow
sufficient funds to refinance such indebtedness. Even if we were able to obtain new financing, it may not be on commercially
reasonable terms, or terms that are acceptable to us.
In addition, under our Revolving Loan, we are permitted to borrow an aggregate amount of up to $1.5 billion. However,
our ability to borrow under our Revolving Loan is limited by a borrowing base and a liquidity condition. The borrowing base at
any time equals the sum of up to 85% of CDW LLC and its subsidiary guarantors’ eligible accounts receivable (net of accounts
reserves) (up to 30% of such eligible accounts receivable which can consist of federal government accounts receivable) plus the
lesser of (i) 75% of CDW LLC and its subsidiary guarantors’ eligible inventory (valued at cost and net of inventory reserves) and
(ii) the product of 85% multiplied by the net orderly liquidation value percentage multiplied by eligible inventory (valued at cost
and net of inventory reserves), less reserves (other than accounts reserves and inventory reserves). The borrowing base in effect
as of December 31, 2017 was $1.6 billion and, therefore, did not restrict our ability to borrow under our Revolving Loan as of
that date.
Our ability to borrow under our Revolving Loan is also limited by a minimum liquidity condition, which provides that,
if excess cash availability is less than the lesser of (i) $125 million and (ii) the greater of (A) 10% of the borrowing base and (B)
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$100 million, the lenders are not required to lend any additional amounts under our Revolving Loan unless the consolidated fixed
charge coverage ratio (as defined in the credit agreement for our Revolving Loan) is at least 1.00 to 1.00. It is an event of default
under our Revolving Loan if our excess cash availability and consolidated fixed charge coverage ratio remain below such levels
for a period of five or more consecutive business days. Moreover, our Revolving Loan provides discretion to the agent bank acting
on behalf of the lenders to impose additional availability reserves, which could materially impair the amount of borrowings that
would otherwise be available to us. We cannot assure you that the agent bank will not impose such reserves or, were it to do so,
that the resulting impact of this action would not materially and adversely impair our liquidity.
We will be required to generate sufficient cash to service our indebtedness and, if not successful, we may be forced to take other
actions to satisfy our obligations under our indebtedness.
Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial and operating
performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other
factors beyond our control. Our outstanding long-term debt will impose significant cash interest payment obligations on us and,
accordingly, we will have to generate significant cash flow from operating activities to fund our debt service obligations. We
cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal,
premium, if any, and interest on our indebtedness. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations-Liquidity and Capital Resources” included elsewhere in this report.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce
or delay capital expenditures, sell assets or operations, seek additional debt or equity capital, restructure or refinance our
indebtedness, or revise or delay our strategic plan. We cannot assure you that we would be able to take any of these actions, that
these actions would be successful and permit us to meet our scheduled debt service obligations or satisfy our capital requirements,
or that these actions would be permitted under the terms of our existing or future debt agreements, including our senior credit
facilities and indentures. In the absence of such operating results and resources, we could face substantial liquidity problems and
might be required to dispose of material assets or operations to meet our debt service and other obligations. Our senior credit
facilities restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate
those dispositions or to obtain the proceeds which we could realize from them and these proceeds may not be adequate to meet
any debt service obligations then due.
If we cannot make scheduled payments on our debt, we will be in default and, as a result:
our debt holders could declare all outstanding principal and interest to be due and payable;
the lenders under our senior credit facilities could foreclose against the assets securing the borrowings from them and
the lenders under our Revolving Loan and CDW UK revolving credit facility could terminate their commitments to lend
us money; and
we could be forced into bankruptcy or liquidation.
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Despite our indebtedness levels, we and our subsidiaries may be able to incur substantially more debt, including secured debt.
This could further increase the risks associated with our leverage.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of our senior
credit facilities and indentures do not fully prohibit us or our subsidiaries from doing so. To the extent that we incur additional
indebtedness, the risks associated with our substantial indebtedness described above, including our possible inability to service
our debt, will increase. As of December 31, 2017, we had $996 million available for additional borrowing under our Revolving
Loan after taking into account borrowing base limitations (net of $1 million of issued and undrawn letters of credit and $454
million of reserves related to our floorplan sub-facility) and an additional £50 million ($68 million at December 31, 2017) available
under our CDW UK revolving credit facility.
Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase
significantly.
Certain of our borrowings, primarily borrowings under our senior credit facilities, are at variable rates of interest and
expose us to interest rate risk. As of December 31, 2017, we had $1.5 billion of variable rate debt outstanding. If interest rates
increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained
the same, and our net income would decrease. Although we have entered into interest rate cap agreements on our term loan facility
to reduce interest rate volatility, we cannot assure you we will be able to enter into interest rate cap agreements in the future on
acceptable terms or that such caps or the caps we have in place now will be effective.
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Risks Related to Ownership of Our Common Stock
Our common stock price may be volatile and may decline regardless of our operating performance, and holders of our common
stock could lose a significant portion of their investment.
The market price for our common stock may be volatile. Our stockholders may not be able to resell their shares of common
stock at or above the price at which they purchased such shares, due to fluctuations in the market price of our common stock,
which may be caused by a number of factors, many of which we cannot control, including the risk factors described in this Annual
Report on Form 10-K and the following:
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•
changes in financial estimates by any securities analysts who follow our common stock, our failure to meet these estimates
or failure of securities analysts to maintain coverage of our common stock;
downgrades by any securities analysts who follow our common stock;
future sales of our common stock by our officers, directors and significant stockholders;
market conditions or trends in our industry or the economy as a whole;
investors’ perceptions of our prospects;
announcements by us or our competitors of significant contracts, acquisitions, joint ventures or capital commitments;
and
changes in key personnel.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue
to affect the market prices of equity securities of many companies, including companies in our industry. In the past, securities
class action litigation has followed periods of market volatility. If we were involved in securities litigation, we could incur substantial
costs, and our resources and the attention of management could be diverted from our business.
In the future, we may also issue our securities in connection with investments or acquisitions. The number of shares of
our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding
shares of our common stock and depress our stock price.
Anti-takeover provisions in our charter documents and Delaware law might discourage or delay acquisition attempts for us
that you might consider favorable.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may
make the acquisition of the Company more difficult without the approval of our Board of Directors. These provisions:
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authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which
may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other
rights or preferences superior to the rights of the holders of common stock;
establish a classified Board of Directors so that not all members of our Board of Directors are elected at one time;
generally prohibit stockholder action by written consent, requiring all stockholder actions be taken at a meeting of our
stockholders;
provide that special meetings of the stockholders can only be called by or at the direction of our Board of Directors
pursuant to a written resolution adopted by the affirmative vote of the majority of the total number of directors that the
Company would have if there were no vacancies;
establish advance notice requirements for nominations for elections to our Board of Directors or for proposing matters
that can be acted upon by stockholders at stockholder meetings; and
provide that our Board of Directors is expressly authorized to make, alter or repeal our amended and restated bylaws.
Our amended and restated certificate of incorporation also contains a provision that provides us with protections similar
to Section 203 of the Delaware General Corporation Law, and will prevent us from engaging in a business combination with a
person who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common
stock, unless board or stockholder approval is obtained prior to the acquisition. These anti-takeover provisions and other provisions
under Delaware law could discourage, delay or prevent a transaction involving a change in control of the Company, even if doing
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so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for our
stockholders to elect directors of their choosing and to cause us to take other corporate actions our stockholders desire.
We cannot assure you that we will continue to pay dividends on our common stock or repurchase any of our common stock
under our share repurchase program, and our indebtedness and certain tax considerations could limit our ability to continue
to pay dividends on, or make share repurchases of, our common stock. If we do not continue to pay dividends, you may not
receive any return on investment unless you are able to sell your common stock for a price greater than your purchase price.
We expect to continue to pay a cash dividend on our common stock, currently at the rate of $0.21 per share per quarter,
or $0.84 per share per annum. However, any determination to pay dividends in the future will be at the discretion of our Board of
Directors. Any determination to pay dividends on, or repurchase, shares of our common stock in the future will depend upon our
results of operations, financial condition, business prospects, capital requirements, contractual restrictions, any potential
indebtedness we may incur, restrictions imposed by applicable law, tax considerations and other factors our Board of Directors
deems relevant. In addition, our ability to pay dividends on, or repurchase, shares of our common stock will be limited by restrictions
on our ability to pay dividends or make distributions to our stockholders and on the ability of our subsidiaries to pay dividends or
make distributions to us, in each case, under the terms of our current and any future agreements governing our indebtedness. There
can be no assurance that we will continue to pay a dividend at the current rate or at all or that we will repurchase shares of our
common stock. If we do not pay dividends in the future, realization of a gain on your investment will depend entirely on the
appreciation of the price of our common stock, which may never occur.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our
subsidiaries to meet our obligations.
We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent
upon cash dividends and distributions and other transfers from our subsidiaries to meet our obligations. The agreements governing
the indebtedness of our subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us.
The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could also limit or impair their
ability to pay dividends or other distributions to us.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2017, we owned or leased a total of 2.3 million square feet of space, primarily in the US, Canada
and UK. We own two properties: a 513,000 square foot distribution center in North Las Vegas, Nevada, and a combined office
and a 442,000 square foot distribution center in Vernon Hills, Illinois. In addition, we conduct sales, services and administrative
activities in various leased locations primarily in the US, Canada and UK, including data centers in Madison, Wisconsin,
Minneapolis, Minnesota and the UK.
We believe our facilities are well maintained, suitable for our business and occupy sufficient space to meet our operating
needs. As part of our normal business, we regularly evaluate sales center performance and site suitability. Leases covering our
currently occupied leased properties expire at varying dates, generally within the next ten years. We anticipate no difficulty in
retaining occupancy through lease renewals, month-to-month occupancy or replacing the leased properties with equivalent
properties. We believe that suitable additional or substitute leased properties will be available as required.
Item 3. Legal Proceedings
We are party to various legal proceedings that arise in the ordinary course of our business, which include commercial,
intellectual property, employment, tort and other litigation matters. We are 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, we are subject to indemnification claims
under various contracts. From time to time, certain of our customers file voluntary petitions for reorganization or liquidation under
the US bankruptcy laws or similar laws of the jurisdictions for our business activities outside of the US. In such cases, certain pre-
petition payments received by us could be considered preference items and subject to return to the bankruptcy administrator.
As of December 31, 2017, we do 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, our financial condition and results of operations could be
adversely affected in any particular period by the unfavorable resolution of one or more of these proceedings or matters.
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On October 29, 2015, the Company learned of an investigation by the SEC of the Company’s vendor partner program
incentives. On May 19, 2017, the SEC Staff informed the Company that the SEC has concluded its investigation and does not
intend to recommend an enforcement action. The investigation did not have any impact on the Company’s financial condition or
results of operations other than customary costs related to the Company’s cooperation with the investigation.
Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers
Name
Thomas E. Richards
Dennis G. Berger
Neal J. Campbell
Mark C. Chong
Christina M. Corley
Douglas E. Eckrote
Collin B. Kebo
Age Position
63 Chairman, President and Chief Executive Officer and Director
53 Senior Vice President and Chief Coworker Services Officer
56 Senior Vice President - Strategic Solutions and Services
47 Senior Vice President - Strategy and Marketing
50 Senior Vice President - Commercial and International Markets
53 Senior Vice President - Small Business Sales and eCommerce
51 Senior Vice President and Chief Financial Officer
Frederick J. Kulevich
52 Senior Vice President, General Counsel and Corporate Secretary
Christine A. Leahy
Christina V. Rother
Jonathan J. Stevens
Matthew A. Troka
53 Chief Revenue Officer
54 Senior Vice President - Public and Advanced Technology Sales
48 Senior Vice President - Operations and Chief Information Officer
47 Senior Vice President - Product and Partner Management
Thomas E. Richards serves as our Chairman, President and Chief Executive Officer and as a member of our board of
directors. Mr. Richards has served as our President and Chief Executive Officer since October 2011 and was named Chairman in
January 2013. From 2009 to 2011, Mr. Richards served as our President and Chief Operating Officer. Prior to joining CDW,
Mr. Richards held leadership positions with Qwest Communications International Inc. (“Qwest”), a broadband Internet-based
communications company. From 2008 to 2009, he served as Executive Vice President and Chief Operating Officer, where he was
responsible for the day-to-day operation and performance of Qwest, and before assuming that role, was the Executive Vice President
of the Business Markets Group from 2005 to 2008. Mr. Richards also has served as Chairman and Chief Executive Officer of
Clear Communications Corporation and as Executive Vice President of Ameritech Corporation. Mr. Richards serves as a board
member of The Northern Trust Corporation, Junior Achievement of Chicago, Rush University Medical Center and the University
of Pittsburgh. Mr. Richards also is a member of the Economic Club of Chicago and the Executives’ Club of Chicago. Mr. Richards
is a graduate of the University of Pittsburgh where he earned a bachelor’s degree and a graduate of Massachusetts Institute of
Technology where he earned a Master of Science in Management as a Sloan Fellow.
Dennis G. Berger serves as our Senior Vice President and Chief Coworker Services Officer and is responsible for leading
CDW’s programs in coworker learning and development, benefits, compensation, performance management, coworker relations
and talent acquisition. Mr. Berger joined CDW in 2005 as Vice President-Coworker Services. In 2007, he was named Senior Vice
President and Chief Coworker Services Officer. Prior to joining CDW, he served as Vice President of Human Resources at
PepsiAmericas, a beverage company, from 2002 to 2005. Mr. Berger has also held human resources positions of increasing
responsibility at Pepsi Bottling Group, Inc., PepsiCo, Inc. and GTE Corporation. Mr. Berger serves on the board of directors of
Glenwood Academy, the Anti-Defamation League of Chicago and Skills for Chicagoland’s Future. Mr. Berger is a graduate of
Northeastern University where he earned a bachelor’s degree and a graduate of John M. Olin School of Business at Washington
University in St. Louis where he earned a Master of Business Administration.
Neal J. Campbell serves as our Senior Vice President of Strategic Solutions and Services and is responsible for CDW’s
technology solutions teams focusing on cloud, mobility, security, collaboration, data center and services. Mr. Campbell served
as Senior Vice President and Chief Marketing Officer from 2011 to August 2016. Prior to joining CDW in 2011, Mr. Campbell
served as Chief Executive Officer of TrafficCast, a provider of real-time and predictive traffic information to Google, Yahoo and
others from 2008 to 2011. From 2006 to 2008, he served as Executive Vice President and General Manager-Strategic Marketing
and Next Generation Products for ISCO International, a manufacturer of wireless telecommunications components. Mr. Campbell
also spent 17 years with Motorola, most recently as Vice President and General Manager, GSM Portfolio Marketing and Planning
for the company’s mobile device business. He currently serves as a board member of Junior Achievement of Chicago and is on
the Executive Advisory Council of Bradley University. Mr. Campbell is a graduate of Bradley University where he earned a
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bachelor’s degree and a graduate of Northwestern University’s Kellogg School of Management where he earned a Master of
Business Administration.
Mark C. Chong serves as our Senior Vice President of Strategy and Marketing and is responsible for the Company’s
corporate strategy; business development and marketing efforts, including analytics and insights; brand, advertising and
sponsorships; marketing operations and execution; and corporate communications. Mr. Chong joined CDW in November 2016.
Prior to joining CDW, Mr. Chong served as a Partner in the Chicago office of Bain & Company, a global management consulting
firm (“Bain”), and as a leader in the Technology, Media and Telecom practice as well as the Customer Strategy and Marketing
and Mergers & Acquisition practice areas. Mr. Chong was with Bain from 1999 to 2003, and then again from 2007 to 2016. From
2003 to 2007, Mr. Chong served as Director of Corporate Strategy and then Vice President of Strategy and Marketing for the
Aerospace Business of Honeywell, Intl. Mr. Chong is a graduate of the University of Chicago where he earned a bachelor’s degree
and a graduate of University of Pennsylvania’s Wharton School where he earned a Master of Business Administration.
Christina M. Corley serves as our Senior Vice President - Commercial and International Markets and is responsible for
all aspects of the corporate sales force and for CDW’s international growth platform, including CDW Canada and CDW UK (which
includes our locations in Europe, the Middle East, Africa, and Asia). Additionally, Ms. Corley is responsible for ensuring that the
Company is continuing to build and fully leverage its global capabilities while delivering a consistent customer experience. Ms.
Corley served as Senior Vice President - Corporate Sales from 2011 to July 2017. Prior to joining CDW in 2011, Ms. Corley served
as President and Chief Operating Officer of Zones, Inc. (“Zones”), a provider of IT products and solutions, from 2006 to 2011.
She served as Executive Vice President of Purchasing and Operations for Zones from 2005 to 2006. She served as President of
Corporate PC Source (“CPCS”), a wholly owned subsidiary of Zones, from 2003 to 2005. Prior to its acquisition by Zones,
Ms. Corley served as Chief Executive Officer of CPCS from 1999 to 2003. Ms. Corley began her career in sales and marketing,
holding various positions at IBM, Dataflex and VisionTek. She currently serves as a board member of the Boys and Girls Club of
Chicago. Ms. Corley is a graduate of the University of Illinois at Urbana-Champaign where she earned a bachelor’s degree and a
graduate of Northwestern University’s Kellogg School of Management where she earned a Master of Business Administration in
management and strategy.
Douglas E. Eckrote serves as our Senior Vice President of Small Business Sales and eCommerce and is responsible for
managing all aspects of CDW’s Small Business organization, including sales force strategy, structure, goals, operations, revenue
generation and training and development, as well as the technical solutions and services and marketing functions specific to Small
Business. Additionally, he oversees CDW’s eCommerce operations. Mr. Eckrote joined CDW in 1989 as an account manager and
quickly rose through the ranks. Since joining the Company, he has served in a variety of management roles of increasing
responsibility. Mr. Eckrote was appointed Director of Operations in 1996, Vice President of Operations in 1999, Senior Vice
President of Purchasing in April 2001, Senior Vice President of Purchasing and Operations in October 2001, Senior Vice President
of Operations, Services and Canada in 2006, and Senior Vice President of Strategic Solutions and Services in 2009. He was
appointed to his current role in August 2016. Mr. Eckrote currently serves on the National Board of Make a Wish of America, the
Board of Directors of The Northern Illinois Food Bank, the Board of Trustees of The Center for Enriched Living and the Advisory
Board of Feed My Starving Children. Mr. Eckrote is a graduate of Purdue University where he earned a bachelor’s degree and a
graduate of Northwestern University’s Kellogg School of Management where he earned an Executive Master of Business
Administration.
Collin B. Kebo serves as our Senior Vice President and Chief Financial Officer and is responsible for financial planning
and analysis, accounting, treasury, tax, investor relations, internal audit and real estate. From 2008 to December 2017, Mr. Kebo
was Vice President, Financial Planning and Analysis and, in 2016, he also became Chief Financial Officer - International. Prior
to joining CDW in 2008, Mr. Kebo held a series of senior finance positions with PepsiCo, Inc., a beverage company. Most recently,
he was Vice President of Sales Finance for PepsiCo’s Quaker, Tropicana and Gatorade businesses. Prior to that, Mr. Kebo served
as Vice President of Finance and Chief Financial Officer for Gatorade North America. Mr. Kebo is a graduate of DePauw University
where he earned a bachelor’s degree and a graduate of Indiana University’s Kelley School of Business where he earned his Master
of Business Administration in Finance.
Frederick J. Kulevich serves as our Senior Vice President, General Counsel and Corporate Secretary and is responsible
for the legal, corporate governance, enterprise risk management, ethics and compliance functions. Mr. Kulevich joined CDW in
2006 as Director, Ethics and Compliance. In 2014, he was appointed Vice President and Assistant General Counsel and in 2016
he was named Vice President and Deputy General Counsel. Mr. Kulevich was appointed to his current role in October 2017. Before
joining CDW, Mr. Kulevich served as Associate General Counsel and Deputy Chief Compliance Officer of Aon Corporation, a
global professional services firm. Prior to Aon Corporation, Mr. Kulevich was with Sears, Roebuck and Co., a national retail chain,
in a series of senior legal positions. Mr. Kulevich is a graduate of West Liberty University where he earned a bachelor’s degree
and a graduate of The John Marshall Law School where he earned his Juris Doctor.
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Christine A. Leahy serves as our Chief Revenue Officer and is responsible for all customer-facing units of the Company,
including its Corporate, Public, Small Business, International and Strategic Solutions & Services organizations. Ms. Leahy joined
CDW in 2002 as the Company’s first general counsel. In 2016, Ms. Leahy was appointed Senior Vice President - International,
Chief Legal Officer and Corporate Secretary. Ms. Leahy was appointed to her current role in July 2017. Prior to joining CDW,
Ms. Leahy served as a corporate partner in the Chicago office of Sidley Austin LLP where she specialized in mergers and
acquisitions, strategic counseling, corporate governance and securities law. Ms. Leahy serves as Vice Chair of the board of trustees
of Children’s Home and Aid. She also is a member of the Economic Club of Chicago and The Chicago Network. In addition, she
is a founder and current sponsor of CDW's Women’s Opportunity Network, a business resource group dedicated to helping women
advance and grow into tomorrow’s leaders. Ms. Leahy is a graduate of Brown University where she earned a bachelor’s degree
and a graduate of Boston College Law School where she earned her Juris Doctor. She also completed the CEO Perspective and
Women’s Director Development Programs at Northwestern University’s Kellogg School of Management.
Christina V. Rother serves as our Senior Vice President - Public and Advanced Technology Sales and is responsible for
managing all aspects of our public sector and advanced technology sales forces, including sales force strategy, structure, goals,
operations, revenue generation and training and development. Ms. Rother joined CDW in 1991 as an account manager. In 2002,
she was appointed Vice President for Education and State and Local Sales. In 2005, she was chosen to lead our newly formed
healthcare sales team. Beginning in 2006, Ms. Rother has held various positions ranging from Group Vice President of CDW
Government LLC, President of CDW Government LLC and Senior Vice President of Sales. In September 2011, Ms. Rother
assumed her current role as Senior Vice President of Public and Advanced Technology Sales. Prior to joining CDW, Ms. Rother
held a number of sales positions with technology companies including Laser Computers and Price Electronics. Ms. Rother currently
serves as chair of the board of directors of the Make-A-Wish Foundation of Illinois. Ms. Rother is a graduate of the University of
Illinois at Chicago where she earned a bachelor’s degree.
Jonathan J. Stevens serves as our Senior Vice President - Operations and Chief Information Officer and is responsible
for the strategic direction of our information technology. Additionally, he holds responsibility for our distribution centers,
transportation, facilities, customer relations and operational excellence practices. Mr. Stevens joined CDW in 2001 as Vice
President-Information Technology, was named Chief Information Officer in 2002 and was named Vice President-International
and Chief Information Officer in 2005. In 2007, he was named Senior Vice President and Chief Information Officer and assumed
his current role in 2009. Prior to joining CDW, Mr. Stevens served as regional technology director for Avanade, an international
technology integration company formed through a joint venture between Microsoft and Accenture from 2000 to 2001. Prior to
that, Mr. Stevens was a principal with Microsoft Consulting Services and led an information technology group for a corporate
division of AT&T/NCR. He currently serves on the board of directors of SingleWire Software, LLC. Mr. Stevens is a graduate of
the University of Dayton where he earned a bachelor’s degree.
Matthew A. Troka serves as our Senior Vice President - Product and Partner Management and is responsible for managing
our relationships with all of our vendor partners. In addition, he directs the day-to-day operations of our purchasing department.
Mr. Troka joined CDW in 1992 as an account manager and became a sales manager in 1995. From 1998 to 2001, he served as
Corporate Sales Director. From 2001 to 2004, Mr. Troka was Senior Director of Purchasing. From 2004 to 2006, Mr. Troka served
as Vice President of Purchasing. From 2006 to 2011, Mr. Troka was Vice President of Product and Partner Management. Mr. Troka
was appointed to his current role in 2011. Mr. Troka is a graduate of the University of Illinois where he earned a bachelor’s degree.
22
Table of Contents
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock has been listed on the Nasdaq Global Select Market since June 27, 2013 under the symbol “CDW.”
The following table sets forth the ranges of high and low sales prices per share of our common stock as reported on the Nasdaq
Global Select Market and the cash dividends per share of common stock declared for the two most recent fiscal years.
Year Ended December 31,
2017
2016
High
Low
Dividends
Declared per
Share
High
Low
Dividends
Declared per
Share
$
$
$
$
71.53
66.80
66.33
61.00
$
$
$
$
65.59
58.57
55.80
50.49
$
$
$
$
0.2100
0.1600
0.1600
0.1600
$
$
$
$
55.47
47.50
43.11
41.89
$
$
$
$
43.64
39.17
37.80
30.40
$
$
$
$
0.1600
0.1075
0.1075
0.1075
Fourth quarter
Third quarter
Second quarter
First quarter
Holders
As of February 23, 2018, there were 24 holders of record of our common stock. The number of beneficial stockholders
is substantially greater than the number of holders of record because a portion of our common stock is held through brokerage
firms.
Dividends
On February 7, 2018, we announced that our Board of Directors declared a quarterly cash dividend on our common stock
of $0.21 per share. The dividend will be paid on March 12, 2018 to all stockholders of record as of the close of business on
February 26, 2018.
We expect to continue to pay quarterly cash dividends on our common stock in the future, but such payments remain at
the discretion of our Board of Directors and will depend upon our results of operations, financial condition, business prospects,
capital requirements, contractual restrictions, any potential indebtedness we may incur, restrictions imposed by applicable law,
tax considerations and other factors that our Board of Directors deems relevant. In addition, our ability to pay dividends on our
common stock will be limited by restrictions on our ability to pay dividends or make distributions to our stockholders and on the
ability of our subsidiaries to pay dividends or make distributions to us, in each case, under the terms of our current and any future
agreements governing our indebtedness. For a discussion of our cash resources and needs and restrictions on our ability to pay
dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources” included elsewhere in this report. For additional discussion of restrictions on our ability to pay dividends, see Note
10 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
Issuer Purchases of Equity Securities
On May 4, 2016, we announced that our Board of Directors authorized a $750 million increase to our previously announced
$500 million share repurchase program under which we may repurchase shares of our common stock in the open market through
privately negotiated or other transactions, depending on share price, market conditions and other factors. On August 3, 2017, we
announced that our Board of Directors authorized another $750 million increase to our share repurchase program. As of the year
ended December 31, 2017, we have $858 million remaining under this program.
Stock Performance Graph
The information contained in this Stock Performance Graph section shall not be deemed to be “soliciting material” or
“filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities
Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into a document filed under the Securities
Act of 1933 or the Securities Exchange Act of 1934.
The following graph compares the cumulative total shareholder return, calculated on a dividend reinvested basis, on
$100.00 invested at the closing of the market on June 27, 2013, the date our common stock first traded on the Nasdaq Global
Select Market, through and including the market close on December 31, 2017, with the cumulative total return for the same time
23
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period of the same amount invested in the S&P MidCap 400 index and a peer group index. Our peer group index for 2017 consists
of the following companies: Accenture plc, Anixter International, Inc., Arrow Electronics, Inc., Avnet, Inc., CGI Group Inc.,
Essendant Inc., Genuine Parts Company, Henry Schein, Inc., Insight Enterprises, Inc., Owens & Minor, Inc., Patterson Companies,
Inc., SYNNEX Corporation, W.W. Grainger, Inc. and Wesco International, Inc. This peer group was selected based on a review
of publicly available information about these companies and our determination that they met one or more of the following criteria:
(i) similar size in terms of revenue and/or enterprise value (one-third to three times our revenue or enterprise value); (ii) operates
in a business-to-business distribution environment; (iii) members of the technology industry; (iv) similar customers (i.e., business,
government, healthcare, and education); (v) companies that provide services and/or solutions; and (vi) similar EBITDA and gross
margins.
Shareholder returns over the indicated period are based on historical data and should not be considered indicative of
future shareholder returns.
CDW Corp
S&P MidCap 400 index
CDW Peers
June 27,
2013
December 31,
2013
December 31,
2014
December 31,
2015
December 31,
2016
December 31,
2017
$
$
$
100
100
100
$
$
$
127
114
110
$
$
$
193
126
122
$
$
$
233
123
126
$
$
$
291
148
144
$
$
$
393
172
167
Recent Sales of Unregistered Securities
None.
Use of Proceeds from Registered Securities
None.
24
Table of Contents
Item 6. Selected Financial Data
The selected financial data set forth below are not necessarily indicative of the results of future operations and should be
read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our
Consolidated Financial Statements and the related notes.
We have derived the selected financial data presented below as of December 31, 2017 and 2016 and for the years ended
December 31, 2017, 2016 and 2015 from our Consolidated Financial Statements and related notes included in this report. The
selected financial data as of December 31, 2014 and December 31, 2013 have been derived from our Consolidated Financial
Statements as of and for those periods and are not included in this report.
25
Table of Contents
(dollars and shares in millions, except per share amounts)
Statement of Operations Data:
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Advertising expense
Income from operations
Interest expense, net
Net loss on extinguishments of long-term debt
Gain on remeasurement of equity investment
Other income (expense), net
Income before income taxes
Income tax expense(1)
Net income
Net income per common share:
Basic
Diluted
2017
Years Ended December 31,
2015(6)
2014
2016
2013
$ 15,191.5
$ 13,981.9
$ 12,988.7
$ 12,074.5
$ 10,768.6
12,741.6
11,654.7
10,872.9
10,153.2
2,449.9
1,410.1
2,327.2
1,345.1
2,115.8
1,226.0
1,921.3
1,110.3
173.7
866.1
(150.5)
(57.4)
—
2.1
660.3
(137.3)
523.0
3.37
3.31
$
$
$
162.9
819.2
(146.5)
(2.1)
—
1.8
672.4
(248.0)
424.4
2.59
2.56
147.8
742.0
(159.5)
(24.3)
98.1
(9.3)
647.0
(243.9)
403.1
2.37
2.35
$
$
$
138.0
673.0
(197.3)
(90.7)
—
2.7
387.7
(142.8)
244.9
1.44
1.42
$
$
$
$
$
$
9,008.3
1,760.3
1,120.9
130.8
508.6
(250.1)
(64.0)
—
1.0
195.5
(62.7)
132.8
0.85
0.84
$
$
$
Cash dividends declared per common share
$ 0.6900
$ 0.4825
$ 0.3100
$ 0.1950
$ 0.0425
Balance Sheet Data (at period end):
Cash and cash equivalents
Working capital
Total assets
Total debt and capitalized lease obligations(2)(3)
Total stockholders’ equity
Other Financial Data:
Capital expenditures
Gross profit as a percentage of Net sales
EBITDA(4)
Adjusted EBITDA(4)
Non-GAAP net income(5)
Statement of Cash Flows Data:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
$
144.2
863.5
6,956.6
3,236.7
982.9
$
263.7
957.4
6,948.4
3,236.6
1,045.5
$
37.6
$
903.5
6,755.3
3,262.9
1,095.9
344.5
985.4
6,075.9
3,166.1
936.5
$
81.1
$
63.5
$
90.1
16.1%
16.6%
16.3%
$ 1,071.7
$ 1,073.4
$ 1,033.9
1,185.6
605.8
1,117.3
569.0
1,018.5
503.5
$
777.7
(81.1)
(818.7)
$
604.0
(65.9)
(304.6)
$
277.5
(354.4)
(226.5)
$
$
$
55.0
15.9%
792.9
907.0
409.9
435.0
(164.8)
(112.0)
$
$
$
$
188.1
810.9
5,899.3
3,226.0
711.7
47.1
16.3%
653.8
808.5
314.3
366.3
(47.1)
(168.3)
(1)
(2)
Includes the benefit of the Tax Cuts and Jobs Act enacted during 2017.
Excludes borrowings of $498 million, $580 million, $440 million, $332 million and $257 million, as of December 31,
2017, 2016, 2015, 2014 and 2013, respectively, under our inventory financing agreements. We do not include these
borrowings in total debt because we have not in the past incurred, and in the future do not expect to incur, any interest
expense or late fees under these agreements.
26
Table of Contents
(3)
(4)
Includes capitalized lease obligations of $1 million and $2 million as of December 31, 2017 and 2016, respectively, which
are included in Other liabilities on the Consolidated Balance Sheet.
EBITDA is defined as consolidated net income before interest expense, income tax expense, depreciation and amortization.
Adjusted EBITDA, which is a measure defined in our credit agreements, means EBITDA adjusted for certain items which
are described in the table below. We have included a reconciliation of EBITDA and Adjusted EBITDA in the table below.
Both EBITDA and Adjusted EBITDA are considered non-GAAP financial measures. Generally, a non-GAAP financial
measure is a numerical measure of a company’s performance or financial position that either excludes or includes amounts
that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance
with GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies,
even when similar terms are used to identify such measures.
We believe that EBITDA and Adjusted EBITDA provide analysts, investors and management with helpful information
regarding the underlying operating performance of our business, as they remove the impact of items that management
believes are not reflective of underlying operating performance. Management uses these measures to evaluate period-
over-period performance as management believes they provide a more comparable measure of the underlying business.
Additionally, Adjusted EBITDA is a measure in the credit agreement governing our Senior Secured Term Loan Facility
(“Term Loan”) used to evaluate our ability to make certain investments, incur additional debt, and make restricted
payments, such as dividends and share repurchases, as well as whether we are required to make additional principal
prepayments on the Term Loan beyond the quarterly amortization payments. For further details regarding the Term Loan,
see Note 10 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
The following unaudited table sets forth reconciliations of net income to EBITDA and EBITDA to Adjusted EBITDA
for the periods presented:
(in millions)
Net income
Depreciation and amortization
Income tax expense
Interest expense, net
EBITDA
2017
Years Ended December 31,
2015(g)
2016
2014
2013
$
523.0
$
424.4
$
403.1
$ 244.9
$ 132.8
260.9
137.3
150.5
254.5
248.0
146.5
227.4
243.9
159.5
1,071.7
1,073.4
1,033.9
207.9
142.8
197.3
792.9
208.2
62.7
250.1
653.8
Non-cash equity-based compensation
Net loss on extinguishments of long-term debt(a)
(Income) loss from equity investments(b)
Acquisition and integration expenses(c)
Gain on remeasurement of equity investment(d)
Reinstatement of prior year unclaimed property balances(e)
Other adjustments(f)
Adjusted EBITDA
43.7
57.4
(0.7)
2.5
—
4.1
6.9
$ 1,185.6
39.2
2.1
(1.1)
7.3
—
—
(3.6)
$ 1,117.3
31.2
24.3
10.1
10.2
(98.1)
—
6.9
16.4
90.7
(2.2)
—
—
—
9.2
8.6
64.0
(0.6)
—
—
—
82.7
$ 1,018.5
$ 907.0
$ 808.5
(a)
(b)
(c)
(d)
During the years ended December 31, 2017, 2016, 2015, 2014 and 2013, we recorded net losses on
extinguishments of long-term debt. The losses represented the difference between the amount paid upon
extinguishment, including call premiums and expenses paid to the debt holders and agents, and the net carrying
amount of the extinguished debt, adjusted for a portion of the unamortized deferred financing costs.
Represents our share of (Income) loss from our equity investments. Our 35% share of CDW UK’s net loss
includes our 35% share of an expense related to certain equity awards granted by one of the sellers to CDW UK
coworkers in July 2015 prior to the acquisition.
Comprised of expenses related to CDW UK.
Represents the gain resulting from the remeasurement of our previously held 35% equity investment to fair
value upon the completion of the acquisition of CDW UK.
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Table of Contents
(e)
(f)
Comprised of the reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois
state law change enacted during 2017.
Primarily includes expenses related to payroll taxes on equity-based compensation during 2017. The year ended
December 31, 2016 primarily includes our share of the settlement payments received from the Dynamic Random
Access Memory class action lawsuits and the favorable resolution of a local sales tax matter, partially offset by
expenses related to the consolidation of office locations north of Chicago. During the year ended December 31,
2013, we recorded IPO and secondary offering- related expenses of $75 million.
(g)
Includes the impact of consolidating five months of CDW UK’s financial results for the year ended December
31, 2015.
(5)
Non-GAAP net income excludes, among other things, charges related to the amortization of acquisition-related intangible
assets, non-cash equity-based compensation, acquisition and integration expenses, and gains and losses from the
extinguishments of long-term debt. Non-GAAP net income is considered a non-GAAP financial measure. Generally, a
non-GAAP financial measure is a numerical measure of a company’s performance or financial position that either excludes
or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and
presented in accordance with GAAP. Non-GAAP measures used by management may differ from similar measures used
by other companies, even when similar terms are used to identify such measures. We believe that non-GAAP net income
provides analysts, investors and management with helpful information regarding the underlying operating performance
of our business, as this measure removes the impact of items that management believes are not reflective of underlying
operating performance. Management uses this measure to evaluate period-over-period performance as management
believes it provides a more comparable measure of the underlying business.
The following unaudited table sets forth a reconciliation of net income to non-GAAP net income for the periods presented:
(in millions)
Net income
Amortization of intangibles(a)
Non-cash equity-based compensation
Non-cash equity-based compensation related to equity
investment(b)
Net loss on extinguishments of long-term debt
Acquisition and integration expenses(c)
Gain on remeasurement of equity investment(d)
Reinstatement of prior year unclaimed property balances(e)
Other adjustments(f)
Aggregate adjustment for income taxes(g)
Non-GAAP net income
2017
Years Ended December 31,
2015(h)
2014
2016
2013
$ 523.0
$ 424.4
$ 403.1
$ 244.9
$ 132.8
185.1
43.7
187.2
39.2
173.9
31.2
161.2
16.4
161.2
8.6
—
57.4
2.5
—
4.1
4.9
(214.9)
$ 605.8
—
2.1
7.3
—
—
(5.4)
(85.8)
$ 569.0
20.0
24.3
10.2
(98.1)
—
3.7
(64.8)
$ 503.5
—
90.7
—
—
—
(0.3)
(103.0)
$ 409.9
—
64.0
—
—
—
61.2
(113.5)
$ 314.3
(a)
(b)
(c)
(d)
(e)
(f)
Includes amortization expense for acquisition-related intangible assets, primarily customer relationships,
customer contracts and trade names.
Represents our 35% share of an expense related to certain equity awards granted by one of the sellers to CDW
UK coworkers in July 2015 prior to our acquisition of CDW UK.
Comprised of expenses related to CDW UK.
Represents the gain resulting from the remeasurement of our previously held 35% equity investment to fair
value upon the completion of the acquisition of CDW UK.
Comprised of the reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois
law change enacted during 2017.
Primarily includes expenses related to payroll taxes on equity-based compensation during 2017. The year ended
December 31, 2016 primarily includes our share of the settlement payments received from the Dynamic Random
Access Memory class action lawsuits and the favorable resolution of a local sales tax matter, partially offset by
28
Table of Contents
expenses related to the consolidation of office locations north of Chicago. The amount in 2013 primarily relates
to IPO and secondary offering-related expenses.
(g)
Aggregate adjustment for income taxes consists of the following:
Total Non-GAAP adjustments
Weighted-average statutory effective rate
Income tax
Deferred tax adjustment due to law changes
Excess tax benefits from equity-based compensation
Tax Cuts and Jobs Act
Withholding tax expense on the unremitted earnings of our Canadian
subsidiary
Non-deductible adjustments and other
Year Ended December 31,
2017
2016
2015
2014
2013
$ 297.7
$ 230.4
$ 165.2
$ 268.0
$ 295.0
36.0%
36.0%
38.0%
39.0%
39.0%
(107.2)
(82.9)
(62.8)
(104.5)
(115.1)
1.3
(36.2)
(75.5)
—
2.7
(1.5)
(1.8)
—
—
0.4
(4.0)
—
—
3.3
(1.3)
—
—
—
—
1.5
—
—
—
—
1.6
Total aggregate adjustment for income taxes
$(214.9)
$ (85.8)
$ (64.8)
$(103.0)
$(113.5)
(h)
Includes the impact of consolidating five months for the year ended December 31, 2015 of CDW UK’s financial
results.
(6)
Includes the impact of consolidating five months of CDW UK’s financial results for the year ended December 31, 2015.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated or the context otherwise requires, as used in this “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” the terms “we,” “us,” “the Company,” “our,” “CDW” and similar terms refer
to CDW Corporation and its subsidiaries. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere
in this report. This discussion contains forward-looking statements that are subject to numerous risks and uncertainties. Actual
results may differ materially from those contained in any forward-looking statements. See “Forward-Looking Statements” above.
Overview
CDW Corporation is a Fortune 500 company and a leading provider of integrated IT solutions to small, medium and
large business, and government, education and healthcare customers in the US, the UK and Canada. Our broad array of offerings
ranges from discrete hardware and software products to integrated IT solutions such as mobility, security, data center optimization,
cloud computing, virtualization and collaboration.
We are technology “agnostic,” with a product portfolio including more than 100,000 products and services from more
than 1,000 leading and emerging brands. Our solutions are delivered in physical, virtual and cloud-based environments through
over 6,000 customer-facing coworkers, including sellers, highly-skilled technology specialists and advanced service delivery
engineers. We are a leading sales channel partner for many original equipment manufacturers (“OEMs”), software publishers and
cloud providers (collectively, our “vendor partners”), whose products we sell or include in the solutions we offer. We provide our
vendor partners with a cost-effective way to reach customers and deliver a consistent brand experience through our established
end-market coverage, technical expertise and extensive customer access.
In August 2015, we acquired CDW UK, which enhanced our ability to provide IT solutions to US based customers with
multinational locations. It also extended our footprint into the United Kingdom. Financial results of CDW UK are included in
our Consolidated Financial Statements from the date of acquisition.
We have three reportable segments, Corporate, Small Business and Public. Our Corporate segment primarily serves
private sector business customers with more than 250 employees. Our Small Business segment primarily serves private sector
business customers with up to 250 employees. Our Public segment is comprised of government agencies and education and
healthcare institutions in the US. We also have two other operating segments: Canada and CDW UK, each of which do not meet
the reportable segment quantitative thresholds and, accordingly, are included in an all other category (“Other”).
We may sell all or only select products that our vendor partners offer. Each vendor partner agreement provides for specific
terms and conditions, which may include one or more of the following: product return privileges, price protection policies, purchase
discounts and vendor incentive programs, such as purchase or sales rebates and cooperative advertising reimbursements. We also
resell software for major software publishers. Our agreements with software publishers allow the end-user customer to acquire
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Table of Contents
software or licensed products and services. In addition to helping our customers determine the best software solutions for their
needs, we help them manage their software agreements, including warranties and renewals. A significant portion of our advertising
and marketing expenses is reimbursed through cooperative advertising programs with our vendor partners. These programs are
at the discretion of our vendor partners and are typically tied to sales or other commitments to be met by us within a specified
period of time.
Trends and Key Factors Affecting our Financial Performance
•
•
•
•
•
•
•
We believe the following trends and key factors may have an important impact on our financial performance:
General economic conditions are a key factor affecting our ability to generate sales and achieve our targeted operating
results as they impact our customers’ willingness to spend on information technology. This is particularly the case for
business customers, as their purchases tend to reflect confidence in their business prospects, which are driven by their
perceptions of business conditions. Purchasing behavior may be different between our Corporate customers and Small
Business customers due to their perception of business conditions.
Changes in spending policies, budget priorities and revenue levels are a key factor influencing government purchasing
levels. Our Government results also reflect increased interest in meeting public safety needs through technology solutions
by State and Local customers, as well as our ability to address strategic changes made by the Federal government toward
a more programmatic technology strategy.
Customer focus on security has been, and we expect will continue to be, an ongoing trend. Customers are seeking solutions
to protect their internal systems against threats and are implementing solutions that provide enterprise-wide visibility,
detection expertise and investigation workflows. They are also implementing endpoint security, firewall segmentation
and user authentication tools.
The Healthcare industry continues to experience uncertainty given recent proposed legislative action and concerns related
to funding, which is impacting healthcare spending as customers seek more clarity.
Our Education sales channel performance continues to benefit from the creation of new learning environments for students.
It has also been positively affected by the implementation of networking projects related to the US Federal Communications
Commission E-Rate program. Within the higher education market, networking projects continue to be a key priority
across campuses. While technology is an opportunity to create cost savings and improve productivity, funding is a key
determinant of technology spending in education.
There continues to be substantial uncertainty regarding the impact of the Referendum on the United Kingdom’s (“UK”)
Membership of the European Union (“EU”), advising for the exit of the UK from the EU (referred to as “Brexit”). Potential
adverse consequences of Brexit such as global market uncertainty, volatility in currency exchange rates, greater restrictions
on imports and exports between UK and EU countries and increased regulatory complexities could have a negative impact
on our business, financial condition and results of operations. To date, CDW UK is not seeing significant changes in the
buying behavior of its customers even with the uncertainty related to the timing and terms of Brexit.
Technology trends drive customer purchase behaviors and we are seeing continuing evolution in the market. Innovation
influences customer purchases across all of our customer end-markets. Key trends in technology include increasing
adoption of cloud-based solutions for certain key workloads, including backup and recovery, collaboration and security,
as well as adoption of hyper-converged appliances to deliver greater flexibility and efficiency. In addition, hybrid IT
solutions are being adopted, along with software being embedded into solutions.
Key Business Metrics
We monitor a number of financial and non-financial measures and ratios on a regular basis in order to track the progress
of our business and make adjustments as necessary. We believe that the most important of these measures and ratios include average
daily sales, gross margin, operating margin, Net income, Non-GAAP income before income taxes, Non-GAAP net income, Net
income per common share, Non-GAAP net income per diluted share, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin,
free cash flow, return on working capital, Cash and cash equivalents, net working capital, cash conversion cycle (defined to be
days of sales outstanding in Accounts receivable plus days of supply in Inventory minus days of purchases outstanding in Accounts
payable, based on a rolling three-month average), debt levels including available credit and leverage ratios, sales per coworker
and coworker turnover. These measures and ratios are compared to standards or objectives set by management, so that actions can
be taken, as necessary, in order to achieve the standards and objectives.
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In this Form 10-K, we discuss Non-GAAP income before income taxes, Non-GAAP net income, Non-GAAP net income
per diluted share, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial measures.
We believe these measures provide analysts, investors and management with helpful information regarding the underlying
operating performance of our business, as they remove the impact of items that management believes are not reflective of underlying
operating performance. Management uses these measures to evaluate period-over-period performance as management believes
they provide a more comparable measure of the underlying business. Additionally, Adjusted EBITDA is a measure in the credit
agreement governing our Senior Secured Term Loan Facility (“Term Loan”), which is used to evaluate our ability to make certain
investments, incur additional debt, and make restricted payments, such as dividends and share repurchases, as well as whether we
are required to make additional principal prepayments on the Term Loan beyond the quarterly amortization payments. For further
details regarding the Term Loan, see Long-Term Debt and Financing Arrangements within Management’s Discussion and Analysis
of Financial Condition and Results of Operations and Note 10 (Long-Term Debt) to the accompanying Consolidated Financial
Statements. For the definitions of Non-GAAP income before income taxes, Non-GAAP net income and Adjusted EBITDA and
reconciliations to Net income, see “Results of Operations”.
The results of certain key business metrics are as follows:
(dollars in millions)
Net sales
Gross profit
Income from operations
Net income
Non-GAAP net income
Adjusted EBITDA
Average daily sales
Net debt(1)
Cash conversion cycle (in days)(2)
Years Ended December 31,
2017
2016
$
15,191.5
2,449.9
$
13,981.9
2,327.2
$
866.1
523.0
605.8
1,185.6
59.8
3,091.3
19
819.2
424.4
569.0
1,117.3
55.0
2,970.7
19
2015
12,988.7
2,115.8
742.0
403.1
503.5
1,018.5
51.1
3,222.1
21
(1)
(2)
Defined as Total debt minus Cash and cash equivalents.
Cash conversion cycle is defined as days of sales outstanding in Accounts receivable and certain receivables due from
vendors plus days of supply in Merchandise inventory minus days of purchases outstanding in Accounts payable and
Accounts payable-inventory financing, based on a rolling three-month average.
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Results of Operations
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Results of operations, in dollars and as a percentage of Net sales are as follows:
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Advertising expense
Income from operations
Interest expense, net
Net loss on extinguishments of long-term debt
Other income, net
Income before income taxes
Income tax expense
Net income
(1)
Percentages may not total due to rounding.
Net sales
Years Ended December 31,
2017
2016
Dollars in
Millions
Percentage of
Net Sales (1)
Dollars in
Millions
Percentage of
Net Sales (1)
$ 15,191.5
100.0% $ 13,981.9
100.0%
12,741.6
2,449.9
1,410.1
173.7
866.1
(150.5)
(57.4)
2.1
660.3
(137.3)
523.0
$
83.9
16.1
9.3
1.1
5.7
(1.0)
(0.4)
—
4.3
(0.9)
3.4% $
11,654.7
2,327.2
1,345.1
162.9
819.2
(146.5)
(2.1)
1.8
672.4
(248.0)
424.4
83.4
16.6
9.6
1.2
5.9
(1.0)
—
—
4.8
(1.8)
3.0%
Net sales by segment, in dollars and as a percentage of total Net sales, and the year-over-year dollar and percentage
change in Net sales are as follows:
(dollars in millions)
Corporate(2)
Small Business(2)
Public:
Government
Education
Healthcare
Total Public
Other
Total Net sales
Years Ended December 31,
2017
2016
Net Sales
Percentage
of Total
Net Sales
Net Sales
Percentage
of Total
Net Sales
Dollar
Change
Percent
Change(1)
$
6,347.0
41.8% $
5,889.8
42.1% $
457.2
7.8%
1,246.5
8.2
1,140.1
8.2
106.4
9.3
2,167.5
2,211.4
1,658.6
6,037.5
1,560.5
14.3
14.6
10.9
39.7
10.3
1,863.7
2,018.3
1,707.4
5,589.4
1,362.6
13.3
14.4
12.2
40.0
9.7
303.8
193.1
(48.8)
448.1
16.3
9.6
(2.9)
8.0
197.9
14.5
$ 15,191.5
100.0% $ 13,981.9
100.0% $
1,209.6
8.7%
(1)
(2)
There were 254 selling days for the years ended December 31, 2017 and 2016.
Amounts have been recast for 2016 to present Small Business as its own operating and reportable segment.
Total Net sales in 2017 increased $1,210 million, or 8.7%, to $15,192 million, compared to $13,982 million for the year
ended December 31, 2016. Net sales on a constant currency basis, which excludes the impact of currency translation, for the year
ended December 31, 2017 increased $1,238 million, or 8.9%, to $15,192 million, compared to $13,954 million for the year ended
December 31, 2016.
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For the year ended December 31, 2017, sales growth was driven by gains in all our customer markets except Healthcare,
which saw a Net sales decline year over year. During the year, and in contrast to 2016, we saw an acceleration of hardware sales,
driven by strong growth within client device sales due to customer refresh, which impacted categories such as notebooks, mobile
devices and desktops. Additionally, we saw growth in several other categories, including video and networking. We also saw
ongoing customer focus on designing IT securely, which led to strong sales growth across our entire security portfolio and the
adoption of more efficient architectures, which drove strong growth in hyper-converged infrastructure and solutions delivered via
the cloud, as well as the continuing trend of greater integration of software into solutions.
Corporate segment Net sales in 2017 increased $457 million, or 7.8%, compared to 2016, as customer confidence improved
throughout the year. Growth was primarily driven by customer refresh of client devices and networking.
Small Business segment Net sales in 2017 increased by $106 million, or 9.3%, compared to 2016. Sales growth was
primarily driven by customer refresh of client devices and video.
Public segment Net sales in 2017 increased $448 million, or 8.0%, compared to 2016. The growth was primarily driven
by Government and Education customers. Net sales to Federal government customers reflected a focus on spending existing
budgets on planned projects and ongoing successful alignment with strategic programs, as well as success meeting the Department
of Defense mandated move to new client devices with stronger security features. Strong Net sales to our State and Local government
customers was driven by a continued focus on public safety and the on-going success executing against recently added contracts.
Net sales to our Higher Education customers were driven by networking and software as we continued to see the benefit from
“connected campus” strategies to ensure network infrastructures can handle multiple devices used by students, faculty and visitors
across the entire campus. K-12 growth was driven by success in delivering collaborative learning environments and networking.
Net sales to Healthcare customers decreased 2.9%, reflecting continued customer uncertainty related to reimbursements and
funding.
Net sales in Other for 2017 increased $198 million, or 14.5%, compared to 2016. Other is comprised of results from our
Canadian and UK operations. Both operations had strong growth in local currency as we continued to take share in the local
markets, as well as the benefit from increased sales for referrals from US customers to the UK. The impact of foreign currency
exchange decreased Other sales growth by approximately 250 basis points, due to the impact resulting from the British pound to
US dollar translation, partially offset by favorable translation of the Canadian to US dollar.
Gross profit
Gross profit increased $123 million, or 5.3%, to $2,450 million in 2017, compared to $2,327 million in 2016. As a
percentage of Net sales, Gross profit decreased 50 basis points to 16.1% in 2017, down from 16.6% in 2016. Although there was
an increase in Gross profit due to higher sales volumes, we experienced a decline in our Gross profit margin. This decline was
primarily driven by product margin compression due to increased hardware sales, which generally have lower profit margins, and
an ongoing competitive marketplace.
Gross profit margin may fluctuate based on various factors, including vendor incentive and inventory price protection
programs, cooperative advertising funds classified as a reduction of cost of sales, product mix, net service contract revenue,
commission revenue, pricing strategies, market conditions and other factors.
Selling and administrative expenses
Selling and administrative expenses increased $65 million, or 4.8%, to $1,410 million in 2017, compared to $1,345
million in 2016. This was driven by higher sales payroll costs, including sales commissions, year over year, primarily due to higher
Gross profit, as well as higher coworker costs between years consistent with increased coworker count. Total coworker count was
8,726 at December 31, 2017, up 210 from 8,516 at December 31, 2016. Additionally, equity-based compensation expense and the
associated payroll taxes increased $8 million, or 19.8%, during 2017 compared to 2016, primarily due to the impact of annual
equity awards granted under our Long-Term Incentive Plan and the vesting of an equity grant made at the time of our initial public
offering. Also during 2017, a retroactive Illinois state law change was enacted which required the reinstatement of unclaimed
property balances, resulting in an additional $4 million of expenses. These increases were partially offset by lower senior
management incentive compensation.
As a percentage of total Net sales, Selling and administrative expenses decreased 30 basis points to 9.3% in 2017, down
from 9.6% in 2016.
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Income from operations
Income from operations by segment, in dollars and as a percentage of Net sales, and the year-over-year percentage change
was as follows:
Years Ended December 31,
2017
2016
Dollars in
Millions
Operating
Margin
Dollars in
Millions
Operating
Margin
Percent Change
in Income
from Operations
$
$
487.0
74.4
374.0
57.9
(127.2)
866.1
7.7% $
6.0
6.2
3.7
nm*
5.7% $
453.6
68.9
368.0
43.6
(114.9)
819.2
7.7%
6.0
6.6
3.2
nm*
5.9%
7.4%
8.0
1.6
32.8
10.7
5.7%
Segments:(1)
Corporate(2)
Small Business(2)
Public
Other(3)
Headquarters(4)
Total Income from operations
* Not meaningful
(1)
(2)
(3)
Segment income from operations includes the segment’s direct operating income, allocations for certain Headquarters’
costs, allocations for income and expenses from logistics services, certain inventory adjustments and volume rebates and
cooperative advertising from vendors.
Amounts have been recast for 2016 to present Small Business as its own operating and reportable segment.
Includes the financial results for our other operating segments, CDW Canada and CDW UK, which do not meet the
reportable segment quantitative thresholds.
(4)
Includes Headquarters’ function costs that are not allocated to the segments.
Income from operations was $866 million in 2017, an increase of $47 million, or 5.7%, compared to $819 million in
2016. Although Income from operations increased, total operating margin percentage decreased 20 basis points to 5.7% in 2017,
from 5.9% in 2016. The decrease was primarily due to Gross profit margin compression from higher hardware sales and an ongoing
competitive marketplace. Also contributing to lower operating margin percentage was the reinstatement of prior year unclaimed
property balances in 2017 and the non-recurrence of the settlement payments received from the Dynamic Random Access Memory
class action lawsuits in 2016. Partially offsetting these decreases were lower sales payroll, consistent with our variable compensation
cost structure, lower senior management incentive compensation and a decline in intangible asset amortization expense as a
percentage of Net sales.
Corporate segment Income from operations was $487 million in 2017, an increase of $33 million, or 7.4%, compared to
$454 million in 2016. Corporate segment operating margin remained flat at 7.7% for 2017 and 2016. Although Income from
operations increased, primarily due to an increase in sales volume, Corporate segment operating margin percentage remained flat.
The flat operating margin percentage reflects higher hardware sales and an ongoing competitive marketplace, which were fully
offset by lower sales payroll expenses.
Small Business segment Income from operations was $74 million in 2017, an increase of $5 million, or 8.0%, compared
to $69 million in 2016. Income from operations increased due to an increase in sales volume, while operating margin remained
flat at 6.0% for 2017 and 2016. The flat operating margin percentage reflects higher hardware sales and an ongoing competitive
marketplace, which were fully offset by lower sales payroll expenses.
Public segment Income from operations was $374 million in 2017, an increase of $6 million, or 1.6%, compared to $368
million in 2016. Public segment operating margin decreased 40 basis points to 6.2% in 2017, from 6.6% in 2016. This decrease
in operating margin percentage was primarily driven by higher hardware sales, which were partially offset by lower sales payroll
expenses.
Other Income from operations was $58 million in 2017, an increase of $14 million, or 32.8%, compared to $44 million
in 2016. Other Income from operations increased primarily due to higher sales volumes and Gross profit as we continue to take
share in the local markets. Other operating margin percentage increased 50 basis points to 3.7% in 2017, from 3.2% in 2016. This
increase was primarily driven by a decline in intangible asset amortization expense as a percentage of Net sales.
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Interest expense, net
Net interest expense in 2017 was $151 million, an increase of $4 million, compared to $147 million in 2016. This increase
was primarily driven by mark-to-market gains recognized on our interest rate cap agreements in 2016, with no comparable activity
in 2017 due to the election of hedge accounting in February 2017 and by a rising interest rate environment which resulted in higher
interest expense on the Term Loan. This was partially offset by a reduced coupon rate due to the refinancing activity that occurred
during 2017.
Net loss on extinguishments of long-term debt
For information regarding our debt, see Note 10 (Long-Term Debt) to the accompanying Consolidated Financial
Statements. During 2017, we recorded a net loss on extinguishments of long-term debt of $57 million compared to $2 million in
2016.
Net loss on extinguishments of long-term debt are as follows:
Month of Extinguishment
Debt Instrument
Amount Extinguished
Loss Recognized
(in millions)
For the Year Ended December 31, 2017
February 2017
Senior Secured Term Loan Facility
March 2017
March 2017
Senior Notes due 2022
Senior secured asset-based revolving credit facility
Total Loss Recognized
For the Year Ended December 31, 2016
August 2016
Senior Secured Term Loan Facility
Total Loss Recognized
$
$
1,483.0
$
600.0
—
$
$
$
1,490.4
(13.7)
(42.5) (1)
(1.2)
(57.4)
(2.1)
(2.1)
(1)
We repaid all of the remaining aggregate principal amount outstanding. The loss recognized represents the difference
between the aggregate principal amount and the net carrying amount of the purchased debt, adjusted for the remaining
unamortized deferred financing costs and premium.
Income tax expense
On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. The Tax Cuts and Jobs Act changes several
aspects of US federal tax law including: reducing the US corporate income tax rate from 35% to 21% beginning on January 1,
2018; establishing a territorial tax system, which includes a one-time tax on the deemed mandatory repatriation of our international
operations’ unremitted earnings which have not been subject to US tax; imposing a minimum US tax on foreign earnings; providing
for the immediate expensing of certain qualified property; and changing the tax treatment of performance based executive
compensation and certain employee fringe benefits. GAAP requires the income tax effects of the Tax Cuts and Jobs Act to be
accounted for in the period of enactment.
The SEC issued Staff Accounting Bulletin 118 allowing for provisional amounts to be recorded during a measurement
period not to exceed one year. We recorded provisional amounts for the impact of revaluing deferred tax assets and liabilities, the
deemed mandatory repatriation tax of our international operations’ unremitted earnings and the state income tax effects from the
change in federal tax law. We continue to analyze the income tax effects of the Tax Cuts and Jobs Act, as well as monitor guidance
from the Internal Revenue Service and the US Treasury Department. Any additional income tax effects of the Tax Cuts and Jobs
Act are expected to be recorded within the measurement period.
Income tax expense was $137 million in 2017, compared to $248 million in 2016. The effective income tax rate, expressed
by calculating income tax expense as a percentage of Income before income taxes, was 20.8% and 36.9% for 2017 and 2016,
respectively. We expect to have an effective tax rate of between 24% and 25% in 2018. The 2018 effective tax rate may change
due to various factors including: adjustments we make to the estimates of the impact of the Tax Cuts and Jobs Act that were
recorded as of December 31, 2017, as well as additional guidance that the Internal Revenue Service, US Treasury Department and
state taxing authorities may issue, changes in the estimated excess tax benefits due to the changes in the market value of our
common stock and changes in the number of awards vesting and changes in state tax laws.
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For 2017, the effective tax rate differed from the US federal statutory rate primarily due to a one-time benefit of $96
million to reflect the revaluation of deferred tax assets and liabilities, excess tax benefits on equity compensation and lower
corporate tax rates on our international income, partially offset by state income taxes and a one-time charge of $20 million for the
mandatory repatriation tax. For 2016, the effective tax rate differed from the US federal statutory rate primarily due to state income
taxes and non-deductible meals and entertainment expenses, which were partially offset by lower corporate tax rates on our
international income, a deferred tax benefit as a result of a tax rate reduction in the UK and excess tax benefits on equity-based
compensation as a result of adopting ASU 2016-09, Compensation - Stock Compensation. The lower effective tax rate for 2017
as compared to 2016 was primarily attributable to the impact of revaluing deferred tax assets and liabilities, and excess tax benefits
on equity compensation, offset by a one-time charge for the mandatory repatriation tax.
Non-GAAP Financial Measure Reconciliations
We have included reconciliations of Non-GAAP income before income taxes, Non-GAAP net income, EBITDA, Adjusted
EBITDA, Adjusted EBITDA margin and consolidated Net sales growth on a constant currency basis for the years ended December
31, 2017 and 2016 below.
Non-GAAP income before income taxes and Non-GAAP net income exclude, among other things, charges related to the
amortization of acquisition-related intangible assets, equity-based compensation and associated taxes, gains and losses from the
extinguishment of debt and integration expenses. EBITDA is defined as consolidated net income before interest expense, net,
income tax expense, depreciation and amortization. Adjusted EBITDA, which is a measure defined in our credit agreements,
means EBITDA adjusted for certain items which are described in the table below. Adjusted EBITDA margin is defined as Adjusted
EBITDA as a percentage of Net sales. Consolidated Net sales growth on a constant currency basis is defined as consolidated Net
sales growth excluding the impact of foreign currency translation on net sales compared to the prior period.
Non-GAAP income before income taxes, Non-GAAP net income, EBITDA, Adjusted EBITDA, Adjusted EBITDA
margin and consolidated Net sales growth on a constant currency basis are considered non-GAAP financial measures. Generally,
a non-GAAP financial measure is a numerical measure of a company’s performance or financial position that either excludes or
includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented
in accordance with GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies,
even when similar terms are used to identify such measures.
We believe these measures provide analysts, investors and management with helpful information regarding the underlying
operating performance of our business, as they remove the impact of items that management believes are not reflective of underlying
operating performance. Management uses these measures to evaluate period-over-period performance as management believes
they provide a more comparable measure of the underlying business. Additionally, Adjusted EBITDA is a measure in the credit
agreement governing our Term Loan used to evaluate our ability to make certain investments, incur additional debt and make
restricted payments, such as dividends and share repurchases, as well as whether we are required to make additional principal
prepayments on the Term Loan beyond the quarterly amortization payments. For further details regarding the Term Loan, see Note
10 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
Non-GAAP income before income taxes and Non-GAAP net income
Non-GAAP net income was $606 million for the year ended December 31, 2017, an increase of $37 million, or 6.5%,
compared to $569 million for the year ended December 31, 2016.
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(in millions)
GAAP (as reported)
Amortization of intangibles(1)
Equity-based compensation(2)
Net loss on extinguishments of long-term debt
Integration expenses(3)
Reinstatement of prior year unclaimed property
balances(4)
Deferred tax adjustment due to state law changes
Tax Cuts and Jobs Act
Other adjustments(5)
Non-GAAP
Year Ended December 31, 2017
Year Ended December 31, 2016
Income
before
income
taxes
$
660.3
185.1
43.7
57.4
2.5
4.1
—
—
4.9
$
958.0
Income tax
benefit
(expense)
Net income
Income
before
income
taxes
Income tax
benefit
(expense)
Net income
$ (137.3) $
(66.6)
(51.9)
(20.7)
(0.9)
(1.5)
1.3
(75.5)
0.9
$ (352.2) $
523.0
$
672.4
118.5
(8.2)
36.7
1.6
2.6
1.3
(75.5)
5.8
605.8
$
187.2
39.2
2.1
7.3
—
—
—
(5.4)
902.8
$ (248.0) $
(67.4)
(15.9)
(0.8)
(2.6)
—
(1.5)
—
2.4
$ (333.8) $
424.4
119.8
23.3
1.3
4.7
—
(1.5)
—
(3.0)
569.0
(1)
(2)
(3)
(4)
(5)
Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer
contracts and trade names.
Includes excess tax benefits related to equity-based compensation.
Comprised of expenses related to CDW UK.
Comprised of the reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois state law
change enacted during 2017.
Primarily includes expenses related to payroll taxes on equity-based compensation during 2017. The year ended December
31, 2016 primarily includes our share of the settlement payments received from the Dynamic Random Access Memory
class action lawsuits and the favorable resolution of a local sales tax matter, partially offset by expenses related to the
consolidation of office locations north of Chicago.
Adjusted EBITDA
Adjusted EBITDA was $1,186 million for the year ended December 31, 2017, an increase of $69 million, or 6.1%,
compared to $1,117 million for the year ended December 31, 2016. As a percentage of Net sales, Adjusted EBITDA was 7.8%
and 8.0% for the years ended December 31, 2017 and 2016, respectively.
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(in millions)
Net income
Depreciation and amortization
Income tax expense
Interest expense, net
EBITDA
Adjustments:
2017
$
523.0
260.9
137.3
150.5
Years Ended December 31,
Percentage of
Net Sales
2016
3.4%
$
Percentage of
Net Sales
3.0%
424.4
254.5
248.0
146.5
1,071.7
7.1%
1,073.4
7.7%
Equity-based compensation
Net loss on extinguishments of long-term debt
Income from equity investment(1)
Integration expenses(2)
Reinstatement of prior year unclaimed property
balances(3)
Other adjustments(4)
Total adjustments
43.7
57.4
(0.7)
2.5
4.1
6.9
113.9
39.2
2.1
(1.1)
7.3
—
(3.6)
43.9
Adjusted EBITDA
$
1,185.6
7.8%
$
1,117.3
8.0%
(1)
(2)
(3)
(4)
Represents our share of net income from our equity investment.
Comprised of expenses related to CDW UK.
Comprised of the reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois state law
change enacted during 2017.
Primarily includes expenses related to payroll taxes on equity-based compensation and historical retention costs during
2017. The year ended December 31, 2016 primarily includes our share of the settlement payments received from the
Dynamic Random Access Memory class action lawsuits and the favorable resolution of a local sales tax matter, partially
offset by expenses related to the consolidation of office locations north of Chicago.
Consolidated Net sales growth on a constant currency basis
Consolidated Net sales increased $1,210 million, or 8.7%, to $15,192 million for the year ended December 31, 2017,
compared to $13,982 million for the year ended December 31, 2016. Consolidated Net sales on a constant currency basis, which
excludes the impact of foreign currency translation, increased $1,238 million, or 8.9%, to $15,192 million for the year ended
December 31, 2017, compared to $13,954 million for the year ended December 31, 2016.
(in millions)
Net sales, as reported
Foreign currency translation(2)
Consolidated Net sales, on a constant currency basis
Years Ended December 31,
2017
15,191.5
—
15,191.5
$
$
2016
% Change
Average Daily
% Change(1)
$
$
13,981.9
(28.3)
13,953.6
8.7%
8.7%
8.9%
8.9%
(1)
(2)
There were 254 selling days for the years ended December 31, 2017 and 2016.
Represents the effect of translating the prior year results of CDW Canada and CDW UK at the average exchange rates
applicable in the current year.
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Table of Contents
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Results of operations, in dollars and as a percentage of Net sales are as follows:
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Advertising expense
Income from operations
Interest expense, net
Net loss on extinguishments of long-term debt
Gain on remeasurement of equity investment
Other income (expense), net
Income before income taxes
Income tax expense
Net income
(1)
Percentages may not total due to rounding.
Years Ended December 31,
2016
2015
Dollars in
Millions
Percentage of
Net Sales (1)
Dollars in
Millions
Percentage of
Net Sales (1)
$
13,981.9
100.0% $
12,988.7
100.0%
11,654.7
2,327.2
1,345.1
162.9
819.2
(146.5)
(2.1)
—
1.8
672.4
(248.0)
424.4
$
83.4
16.6
9.6
1.2
5.9
(1.0)
—
—
—
4.8
(1.8)
3.0% $
10,872.9
2,115.8
1,226.0
147.8
742.0
(159.5)
(24.3)
98.1
(9.3)
647.0
(243.9)
403.1
83.7
16.3
9.4
1.1
5.7
(1.2)
(0.2)
0.8
(0.1)
5.0
(1.9)
3.1%
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Net sales
Net sales by segment, in dollars and as a percentage of total Net sales, and the year-over-year dollar and percentage
change in Net sales are as follows:
(dollars in millions)
Corporate (2)
Small Business (2)
Public:
Government
Education
Healthcare
Total Public
Other
Total Net sales
Years Ended December 31,
2016
2015
Net Sales
Percentage
of Total
Net sales
Net Sales
Percentage
of Total
Net Sales
Dollar
Change
Percent
Change (1)
$
5,889.8
42.1% $
5,878.7
45.3% $
1,140.1
8.2
1,089.6
8.4
1,863.7
2,018.3
1,707.4
5,589.4
1,362.6
13.3
14.4
12.2
40.0
9.7
1,700.9
1,818.8
1,663.9
5,183.6
836.8
13.1
14.0
12.8
39.9
6.4
11.1
50.5
162.7
199.5
43.5
405.7
525.9
0.2%
4.6
9.6
11.0
2.6
7.8
62.8
$
13,981.9
100.0% $
12,988.7
100.0% $
993.2
7.6%
(1)
(2)
There were 254 selling days for the years ended December 31, 2016 and 2015.
Amounts have been recast to present Small Business as its own operating and reportable segment.
Total Net sales in 2016 increased $993 million, or 7.6%, to $13,982 million, compared to $12,989 million in 2015,
reflecting both solid organic increases and the inclusion of seven months of incremental CDW UK sales. Total Net sales increased
8.3% on a constant currency basis. There were five key trends that impacted our Net sales growth. First, customers were seeking
to optimize their infrastructure by extending asset lives or adding capacity, which led to increases in warranties and virtualization
software. Second, customer focus on designing IT securely continued to be a major area of interest for customers, and we saw
excellent increases across our entire security portfolio, including security software. We also saw our customers seeking architectures
to increase the flexibility and efficiency of their IT infrastructure, which drove increased adoption of cloud solutions for certain
workloads, including security, as well as increased sales of hyper-converged infrastructure. Fourth, we saw the on-going trend
where a greater proportion of solutions are being delivered via software. With software becoming more “mission critical,” customers
continued to turn to software assurance to protect their investment. Finally, customer demand for digital signage and video screens,
as well as notebook/mobile devices, drove growth across all of our customer end-markets.
Corporate segment Net sales in 2016 increased $11 million, or 0.2%, year over year, as customer demand for longer tail
purchases, including data center and networking solutions, was impacted by slow economic growth and market trends. Corporate
had strong sales performance in notebook/mobile devices and software products.
Economic conditions had less of an impact on Small Business results, as Net sales to Small Business customers increased
by $51 million, or 4.6%, between periods, driven by growth in notebooks/mobile devices, desktops and video projection hardware.
Public segment Net sales in 2016 increased $406 million, or 7.8%, between years. Net sales to government customers
increased $163 million, or 9.6%. State and local government customers continued to focus on public safety and we benefited from
new contracts. Our Federal channel saw low single-digit growth as the success we had meeting new strategic programs was partially
offset by the impact of several large client device purchase orders that were delayed into 2017. Net sales to education customers
increased $199 million, or 11.0%, year over year, driven by continued success providing client devices to support digital testing
and curriculums, as well as desktops and video projection hardware to support new learning environments for students. Healthcare
growth was 2.6% or $43 million, driven by notebooks/mobile devices, desktops, and software. Patient data security continues to
be a top concern. We continued to see some of our larger customers shifting priorities to reducing costs due to industry consolidation.
Net sales in Other, which is comprised of our Canadian and CDW UK operations, increased $526 million, or 62.8%,
compared to 2015. The increase in Net sales was primarily driven by the impact of consolidating twelve months of CDW UK Net
sales in 2016 compared to consolidating five months of CDW UK results in 2015. Both our Canadian and UK businesses grew
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high-single digits in local currency in 2016. Currency was impacted by Canadian dollar to US dollar translation in the first half
of the year and British pound to US dollar translation in the second half.
Gross profit
Gross profit increased $211 million, or 10.0%, to $2,327 million in 2016, compared to $2,116 million in 2015. As a
percentage of Net sales, Gross profit increased 30 basis points to 16.6% in 2016, from 16.3% in 2015.
Gross profit margin was positively impacted by a higher mix of net service contract revenue as customers looked to
extend the life of equipment through warranties, protect their software investments through software assurance and adopt cloud
solutions to deliver certain workloads. All of these solutions grew faster than our overall Net sales. In addition, vendor partner
funding positively impacted gross margin. These increases helped offset the impact from unfavorable product margin.
Gross profit margin may fluctuate based on various factors, including vendor incentive and inventory price protection
programs, cooperative advertising funds classified as a reduction of cost of sales, product mix, net service contract revenue,
commission revenue, pricing strategies, market conditions and other factors.
Selling and administrative expenses
Selling and administrative expenses increased $119 million, or 9.7%, to $1,345 million in 2016, compared to $1,226
million in 2015. As a percentage of total Net sales, Selling and administrative expenses increased 20 basis points
to 9.6% in 2016, up from 9.4% in 2015. Payroll costs increased $65 million, or 11.7%, year over year, primarily due to incremental
coworker hires at the end of 2015, higher compensation costs consistent with increased Gross profit and the inclusion of twelve
months of CDW UK payroll costs in 2016 compared to five months in 2015. Total coworker count was 8,516 at December 31,
2016, up 51 from 8,465 at December 31, 2015. Amortization expense related to intangibles increased $18 million, or 8.8%,
during 2016 compared to 2015, primarily due to incremental amortization expense related to the intangible assets arising from
our acquisition of CDW UK. Non-cash equity-based compensation expense increased $8 million, or 25.8%, during 2016 compared
to 2015, primarily due to annual equity awards granted under our 2013 Long-Term Incentive Plan, performance against long-term
incentive program targets and equity awards granted in connection with our acquisition of CDW UK.
Income from operations
Income from operations by segment, in dollars and as a percentage of Net sales, and the year-over-year percentage change
was as follows:
Years Ended December 31,
2016
2015
Dollars in
Millions
Operating
Margin
Dollars in
Millions
Operating
Margin
Percent Change
in Income
from Operations
$
$
453.6
68.9
368.0
43.6
(114.9)
819.2
7.7% $
6.0
6.6
3.2
nm*
5.9% $
432.5
68.3
328.6
27.1
(114.5)
742.0
7.4%
6.3
6.3
3.2
nm*
5.7%
4.9%
0.9
12.0
60.9
0.3
10.4%
Segments: (1)
Corporate(2)(3)(4)
Small Business(2)(3)(4)
Public(2)(4)
Other(4)(5)
Headquarters(6)
Total Income from operations
* Not meaningful
(1)
Segment income from operations includes the segment’s direct operating income, allocations for certain Headquarters’
costs, allocations for income and expenses from logistics services, certain inventory adjustments and volume rebates and
cooperative advertising from vendors.
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(2)
(3)
(4)
(5)
(6)
Certain costs related to technology specialists have been reclassified between our Corporate, Small Business and Public
segments. The prior period has been reclassified to conform to the current period presentation.
Amounts have been recast to present Small Business as its own operating and reportable segment.
Effective January 1, 2016, CDW Advanced Services is included in our Corporate, Small Business and Public segments
and Other is comprised of CDW Canada and CDW UK. The prior period has been reclassified to conform to the current
period presentation.
Includes the financial results for our other operating segments, CDW Canada and CDW UK, which do not meet the
reportable segment quantitative thresholds.
Includes Headquarters’ function costs that are not allocated to the segments. Certain Headquarters expenses have been
allocated to CDW Canada in 2016. The prior period has been reclassified to conform to the current period presentation.
Income from operations was $819 million in 2016, an increase of $77 million, or 10.4%, compared to $742
million in 2015. Total operating margin increased 20 basis points to 5.9% in 2016, from 5.7% in 2015. Operating margin was
positively impacted by the increase in Gross profit margin, driven by higher contribution from net service contract revenue and
vendor partner funding. Selling and administrative expenses as a percentage of Net sales increased 20 basis points in 2016 versus
2015, primarily reflecting increased sales compensation and coworker costs resulting from the inclusion of CDW UK expenses
for twelve months in 2016 compared to five months in 2015.
Corporate segment income from operations was $454 million in 2016, an increase of $21 million, or 4.9%, compared
to $433 million in 2015. Corporate segment operating margin increased 30 basis points to 7.7% in 2016, from 7.4% in 2015. This
increase was primarily due to an increase in Gross profit driven by a higher mix of net service contract revenue, as well as higher
volume rebates, partially offset by an increase in Selling and administrative expenses as a percentage of Net sales, due to higher
sales payroll costs.
Small Business segment income from operations was $69 million in 2016, an increase of $1 million, or 0.9%, compared
to 2015. Small Business operating margin decreased by 30 basis points to 6.0% in 2016, from 6.3% in 2015. The decrease in
operating margin was primarily due to an increase in Selling and administrative expenses as a percentage of Net sales, due to
higher sales payroll costs.
Public segment income from operations was $368 million in 2016, an increase of $39 million, or 12.0%, compared
to $329 million in 2015. Public segment operating margin increased 30 basis points to 6.6% in 2016, from 6.3% in 2015. This
decrease was driven primarily due to an increase in Net sales and Gross profit driven by a higher mix of net service contract
revenue, as well as higher volume rebates, partially offset by an increase in Selling and administrative expenses as a percentage
of Net sales, due to higher sales payroll costs.
Other income from operations was $44 million in 2016, an increase of $17 million, or 60.9%, compared to $27 million
in 2015. This was primarily due to the inclusion of an additional seven months of CDW UK income from operations. Other
operating margin percentage remained flat at 3.2% in both 2016 and 2015.
Interest expense, net
At December 31, 2016, our outstanding long-term debt totaled $3,234 million, compared to $3,260 million at
December 31, 2015, a decrease of $26 million primarily due to principal payments on the loans. Net interest expense
in 2016 was $147 million, a decrease of $13 million, compared to $160 million in 2015. This decrease was primarily due to the
lower effective interest rates and the lower principal loan balances for 2016 compared to 2015 as a result of redemptions and
refinancing activities completed during 2016 and 2015, and the impact in 2016 of mark-to-market gains associated with our interest
rate cap agreements.
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Net loss on extinguishments of long-term debt
For information regarding our debt, see Note 10 (Long-Term Debt) to the accompanying Consolidated Financial
Statements. During 2016, we recorded a net loss on extinguishments of long-term debt of $2 million compared to $24 million in
2015.
Net loss on extinguishments of long-term debt are as follows:
Month of Extinguishment
Debt Instrument
For the Year Ended December 31, 2016
August 2016
Senior Secured Term Loan Facility
Total Loss Recognized
For the Year Ended December 31, 2015
March 2015
2019 Senior Notes
Total Loss Recognized
(in millions)
Amount Extinguished
Loss Recognized
$
$
1,490.4
503.9
$
$
$
$
(2.1)
(2.1)
(24.3) (1)
(24.3)
(1)
We repaid all of the remaining aggregate principal amount outstanding. The loss recognized represents the difference
between the aggregate principal amount and the net carrying amount of the purchased debt, adjusted for the remaining
unamortized deferred financing costs and premium.
Gain on remeasurement of equity investment
On August 1, 2015, we completed the acquisition of CDW UK by purchasing the remaining 65% of its outstanding
common stock which increased our ownership interest from 35% to 100%, and provided us control. As a result, our previously
held 35% equity investment was remeasured to fair value, resulting in a gain of $98 million recorded in Gain on remeasurement
of equity investment in the Consolidated Statements of Operations.
Income tax expense
Income tax expense was $248 million in 2016, compared to $244 million in 2015. The effective income tax rate, expressed
by calculating income tax expense or benefit as a percentage of income before income taxes, was 36.9% and 37.7% for 2016
and 2015, respectively.
For 2016, the effective tax rate differed from the US federal statutory rate primarily due to state income taxes and non-
deductible meals and entertainment expenses, which were partially offset by lower corporate tax rates on our international income,
a deferred tax benefit as a result of a tax rate reduction in the UK and excess tax benefits on equity compensation as a result of
adopting ASU 2016-09. For 2015, the effective tax rate differed from the US federal statutory rate primarily due to state income
taxes and withholding tax expense on the earnings of our Canadian business as a result of no longer asserting permanent
reinvestment, which was partially offset by a deferred tax benefit as a result of a tax rate reduction in the UK. The lower effective
tax rate for 2016 as compared to 2015 was primarily attributable to a larger benefit in 2016 related to our international income,
which is taxed at lower tax rates than our US income, excess tax benefits on equity compensation as a result of adopting ASU
2016-09 in 2016 and less Canadian withholding tax expense in 2016 than in 2015, partially offset by a greater deferred tax benefit
related to UK tax rate reductions in 2015 than in 2016.
Non-GAAP Financial Measure Reconciliations
We have included reconciliations of Non-GAAP income before income taxes, Non-GAAP net income, EBITDA, Adjusted
EBITDA, Adjusted EBITDA margin and consolidated Net sales growth on a constant currency basis for the years ended December
31, 2016 and 2015 below. See the “Non-GAAP Financial Measure Reconciliations” section included above for the years ended
December 31, 2017 and 2016 for all Non-GAAP measure definitions.
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Non-GAAP net income
Non-GAAP net income was $569 million for the year ended December 31, 2016, an increase of $65 million, or 13.0%,
compared to $504 million for the year ended December 31, 2015.
(in millions)
Year Ended December 31, 2016
Year Ended December 31, 2015(7)
Income
before
income
taxes
Income tax
benefit
(expense)
Net income
Income
before
income
taxes
424.4
$
647.0
As reported
Amortization of intangibles(1)
Equity-based compensation(2)
Equity-based compensation related to equity
investment(3)
Net loss on extinguishments of long-term debt
Acquisition and integration expenses(4)
Gain on remeasurement of equity investment(5)
Deferred tax adjustment due to state law changes
Withholding tax expense on the unremitted
earnings of our Canadian subsidiary
Other adjustments(6)
Non-GAAP
$
672.4
187.2
39.2
$ (248.0) $
(67.4)
(15.9)
—
2.1
7.3
—
—
—
(5.4)
902.8
$
—
(0.8)
(2.6)
—
(1.5)
—
2.4
$ (333.8) $
119.8
23.3
—
1.3
4.7
—
(1.5)
—
(3.0)
569.0
Income tax
benefit
(expense)
Net income
$ (243.9) $
(66.1)
(11.9)
403.1
107.8
19.3
(7.6)
(9.2)
(3.9)
37.3
(4.0)
3.3
(2.7)
12.4
15.1
6.3
(60.8)
(4.0)
3.3
1.0
173.9
31.2
20.0
24.3
10.2
(98.1)
—
—
3.7
$
812.2
$ (308.7) $
503.5
(1)
(2)
(3)
(4)
(5)
(6)
Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer
contracts and trade names.
Includes excess tax benefits related to equity-based compensation.
Represents our 35% share of an expense related to certain equity awards granted by one of the sellers to CDW UK
coworkers in July 2015 prior to our acquisition of CDW UK.
Comprised of expenses related to CDW UK.
Represents the gain resulting from the remeasurement of our previously held 35% equity investment to fair value upon
the completion of the acquisition of CDW UK.
Primarily includes our share of settlement payments received from the Dynamic Random Access Memory class action
lawsuits and the favorable resolution of a local sales tax matter during the year ended December 31, 2016. Also includes
expenses related to the consolidation of office locations north of Chicago during the years ended December 31, 2016 and
2015.
(7)
Includes the impact of consolidating five months of CDW UK’s financial results for the year ended December 31, 2015.
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Adjusted EBITDA
Adjusted EBITDA was $1,117 million for the year ended December 31, 2016, an increase of $99 million, or 9.7%,
compared to $1,018 million for the year ended December 31, 2015. As a percentage of Net sales, Adjusted EBITDA was 8.0% and
7.8% for the years ended December 31, 2016 and 2015, respectively.
(in millions)
Net income
Depreciation and amortization
Income tax expense
Interest expense, net
EBITDA
Adjustments:
Years Ended December 31,
2016
Percentage of
Net Sales
2015
3.0%
$
$
424.4
254.5
248.0
146.5
403.1
227.4
243.9
159.5
Percentage of
Net Sales
3.1%
1,073.4
7.7%
1,033.9
8.0%
Non-cash equity-based compensation
Net loss on extinguishments of long-term debt
(Income) loss from equity investments(1)
Acquisition and integration expenses(2)
Gain on remeasurement of equity investment(3)
Other adjustments(4)
Total adjustments
39.2
2.1
(1.1)
7.3
—
(3.6)
43.9
31.2
24.3
10.1
10.2
(98.1)
6.9
(15.4)
Adjusted EBITDA(5)
$
1,117.3
8.0%
$
1,018.5
7.8%
(1)
(2)
(3)
(4)
Represents our share of (income) loss from our equity investments. Our 35% share of CDW UK's net loss for the year
ended December 31, 2015 includes our 35% share of an expense related to certain equity awards granted by one of the
sellers to CDW UK coworkers in July 2015 prior to the acquisition.
Comprised of expenses related to CDW UK.
Represents the gain resulting from the remeasurement of our previously held 35% equity investment to fair value upon
the completion of the acquisition of CDW UK.
Primarily includes our share of settlement payments received from the Dynamic Random Access Memory class action
lawsuits and the favorable resolution of a local sales tax matter during the year ended December 31, 2016. Also includes
expenses related to the consolidation of office locations north of Chicago during the years ended December 31, 2016 and
2015.
(5)
Includes the impact of consolidating five months of CDW UK’s financial results for the year ended December 31, 2015.
Consolidated Net sales growth on a constant currency basis
Consolidated Net sales increased $993 million, or 7.6%, to $13,982 million for the year ended December 31, 2016,
compared to $12,989 million for the year ended December 31, 2015. Consolidated Net sales on a constant currency basis, which
excludes the impact of foreign currency translation, increased $1,070 million, or 8.3%, to $13,982 million for the year ended
December 31, 2016, compared to $12,912 million for the year ended December 31, 2015.
(in millions)
Net sales, as reported
Foreign currency translation(2)
Consolidated Net sales, on a constant currency basis
Years Ended December 31,
2016
13,981.9
—
13,981.9
$
$
2015
% Change
Average Daily %
Change (1)
$
$
12,988.7
(76.3)
12,912.4
7.6%
8.3%
7.6%
8.3%
(1)
There were 254 selling days for the years ended December 31, 2016 and 2015.
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(2)
Represents the effect of translating the prior year results of CDW Canada and CDW UK at the average exchange rates
applicable in the current year. Includes the impact of consolidating five months of CDW UK's financial results for the
year ended December 31, 2015.
Seasonality
While we have not historically experienced significant seasonality throughout the year, sales in our Corporate segment,
which primarily serves private sector business customers with more than 250 employees, are typically higher in the fourth quarter
than in other quarters due to customers spending their remaining technology budget dollars at the end of the year. Additionally,
sales in our Public segment have historically been higher in the third quarter than in other quarters primarily due to the buying
patterns of the federal government and education customers.
Liquidity and Capital Resources
Overview
We finance our operations and capital expenditures with internally generated cash from operations. We also have $996
million of availability for borrowings under our senior secured asset-based revolving credit facility and an additional £50 million
($68 million at December 31, 2017) under the CDW UK revolving credit facility. Our liquidity and borrowing plans are established
to align with our financial and strategic planning processes and ensure we have the necessary funding to meet our operating
commitments, which primarily include the purchase of inventory, payroll and general expenses. We also take into consideration
our overall capital allocation strategy, which includes investment for future growth, dividend payments, acquisitions and stock
repurchases. We believe we have adequate sources of liquidity and funding available for at least the next year, however, there are
a number of factors that may negatively impact our available sources of funds. The amount of cash generated from operations will
be dependent upon factors such as the successful execution of our business plan and general economic conditions.
Long-Term Debt Activities
On March 31, 2017, we amended, extended and increased our Revolving Loan to a five-year, $1.5 billion senior secured
asset-based revolving credit facility, with the facility being available to us for borrowings, issuance of letters of credit and floorplan
financing. In connection with the amendment of the previous facility, we recorded a loss on extinguishment of long-term debt of
$1 million in the Consolidated Statement of Operations during 2017, representing a write-off of a portion of unamortized deferred
financing costs. Fees of $4 million related to the Revolving Loan were capitalized as deferred financing costs and are being
amortized over the five-year term of the facility on a straight-line basis. These deferred financing costs are recorded in Other assets
on the Consolidated Balance Sheets.
On March 2, 2017, the proceeds from the issuance of the 2025 Senior Notes, along with cash on hand and proceeds from
Revolving Loan borrowings, were deposited with the trustee to redeem all of the remaining $600 million aggregate principal
amount of the 2022 Senior Notes at a redemption price of 106.182% of the principal amount redeemed, plus accrued and unpaid
interest through the date of redemption. The redemption date was April 2, 2017. On the same date, the indenture governing the
2022 Senior Notes was satisfied and discharged. In connection with this redemption, we recorded a loss on extinguishment of
long-term debt of $43 million in the Consolidated Statement of Operations for 2017. This loss represents $37 million in redemption
premium and $6 million for the write-off of the remaining deferred financing costs related to the 2022 Senior Notes.
On February 28, 2017, we amended the Term Loan to reprice the facility, reducing interest rate margins by 25 basis points.
The Term Loan replaced the prior senior secured term loan facility (the “Prior Term Loan Facility”) that had an outstanding
aggregate principal amount of $1.5 billion. We are required to pay quarterly principal installments equal to 0.25% of the original
principal amount of the Prior Term Loan Facility, with the remaining principal amount payable on the maturity date of August 17,
2023, which was retained from the Prior Term Loan Facility. In connection with this refinancing, we recorded a loss on
extinguishment of long-term debt of $14 million in the Consolidated Statement of Operations for the year ended December 31,
2017. This loss represented the write-off of a portion of the unamortized deferred financing costs of $5 million and unamortized
discount related to the Prior Term Loan Facility of $9 million. In connection with the issuance of the Term Loan, we incurred and
recorded $2 million in deferred financing fees, which are recorded as a reduction to the debt as of December 31, 2017.
Refer to Note 10 (Long-Term Debt) for additional information.
Share Repurchase Program
During 2017, we repurchased 9 million shares of our common stock for $534 million under the previously announced
$750 million share repurchase program. On August 3, 2017, we announced that our Board of Directors authorized a $750 million
increase to our share repurchase program under which we may repurchase shares of our common stock in the open market or
through privately negotiated or other transactions, depending on share price, market conditions and other factors. As of
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December 31, 2017, we have $858 million remaining under this program. For more information on our share repurchase program,
see Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
Refer to Note 12 (Stockholders’ Equity) for additional information.
Dividends
A summary of 2017 dividend activity for our common stock is as follows:
Dividend Amount
$0.160
$0.160
$0.160
$0.210
$0.690
Declaration Date
February 7, 2017
May 3, 2017
August 3, 2017
Record Date
February 24, 2017
May 25, 2017
August 25, 2017
November 1, 2017
November 24, 2017
Payment Date
March 10, 2017
June 12, 2017
September 11, 2017
December 11, 2017
On February 7, 2018, we announced that our Board of Directors declared a quarterly cash dividend on our common stock
of $0.21 per share. The dividend will be paid on March 12, 2018 to all stockholders of record as of the close of business on
February 26, 2018.
The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon our results
of operations, financial condition, business prospects, capital requirements, contractual restrictions, any potential indebtedness
we may incur, restrictions imposed by applicable law, tax considerations and other factors that our Board of Directors deems
relevant. In addition, our ability to pay dividends on our common stock will be limited by restrictions on our ability to pay dividends
or make distributions to our stockholders and on the ability of our subsidiaries to pay dividends or make distributions to us, in
each case, under the terms of our current and any future agreements governing our indebtedness.
Cash Flows
Cash flows from operating, investing and financing activities are as follows:
(in millions)
Net cash provided by (used in):
Operating activities
Investing activities
Net change in accounts payable - inventory financing
Other financing activities
Financing activities
Years Ended December 31,
2017
2016
2015
$
$
777.7
(81.1)
$
604.0
(65.9)
277.5
(354.4)
(84.0)
(734.7)
(818.7)
143.6
(448.2)
(304.6)
95.9
(322.4)
(226.5)
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
2.6
(119.5) $
$
(7.4)
226.1
$
(3.5)
(306.9)
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Operating Activities
Cash flows from operating activities are as follows:
(in millions)
2017
2016
Dollar Change
Years Ended December 31,
Net income
Adjustments for the impact of non-cash items(1)
Net income adjusted for the impact of non-cash items(2)
Changes in assets and liabilities:
Accounts receivable(3)
Merchandise inventory(4)
Accounts payable-trade
Other(5)
Net cash provided by operating activities
$
$
523.0
$
424.4
$
194.4
717.4
(128.4)
8.5
231.5
(51.3)
777.7
202.9
627.3
(179.9)
(68.5)
225.1
—
$
604.0
$
(1)
(2)
(3)
(4)
(5)
Includes items such as Deferred income taxes, Depreciation and amortization, Equity-based compensation expense and
Net loss on extinguishments of long-term debt.
The change is primarily due to stronger operating results driven by Net sales and Gross profit growth and excess tax
benefits recognized related to equity-based compensation.
The change in Accounts receivable was primarily due to the timing of sales compared to the same period in 2016.
The change in Merchandise inventory was primarily due to higher inventory levels in 2016 compared to 2015 as a result
of the timing of inventory shipments to customers, increased returns and higher bill-and-hold orders.
The change in Other is driven by an increase in the receivables from vendors due to the growth in business and the
settlement of our Restricted Debt Unit Plan liability, partially offset by an increase in accrued marketing expenses.
(in millions)
2016
2015
Dollar Change
Years Ended December 31,
Net income
Adjustments for the impact of non-cash items(1)
Net income adjusted for the impact of non-cash items(2)
Changes in assets and liabilities:
Accounts receivable(3)
Merchandise inventory
Accounts payable-trade(4)
Other
$
424.4
$
403.1
$
202.9
627.3
(179.9)
(68.5)
225.1
—
150.3
553.4
(342.6)
(31.5)
100.5
(2.3)
277.5
$
Net cash provided by operating activities
$
604.0
$
(1)
(2)
(3)
Includes items such as Deferred income taxes, Depreciation and amortization, Equity-based compensation expense, Gain
on remeasurement of equity method investment, Loss from equity method investment and net loss on extinguishments
of long-term debt.
The change in cash flows reflected stronger operating results driven by Net sales growth and the impact of consolidating
a full year of CDW UK financial results in 2016, compared to five months in 2015.
The change in cash flows was primarily due to an increase in collections during 2016 due to the higher accounts receivable
balance as of December 31, 2015 driven by higher sales in our Public segment where customers generally take longer to
pay than customers in our Corporate and Small Business segments. In addition, the lower accounts receivable balances
as of December 31, 2014, driven by early payments from certain customers, resulted in lower cash flows in the prior year
period.
48
98.6
(8.5)
90.1
51.5
77.0
6.4
(51.3)
173.7
21.3
52.6
73.9
162.7
(37.0)
124.6
2.3
326.5
Table of Contents
(4)
The increase in cash flows was primarily due to the timing of inventory purchases and longer payment terms with certain
vendors.
In order to manage our working capital and operating cash needs, we monitor our cash conversion cycle, defined as days
of sales outstanding in accounts receivable plus days of supply in inventory minus days of purchases outstanding in accounts
payable, based on a rolling three-month average. Components of our cash conversion cycle are as follows:
(in days)
Days of sales outstanding (DSO)(1)
Days of supply in inventory (DIO)(2)
Days of purchases outstanding (DPO)(3)
Cash conversion cycle
December 31,
2017
2016
2015
52
12
(45)
19
51
12
(44)
19
48
13
(40)
21
(1)
(2)
(3)
Represents the rolling three-month average of the balance of Accounts receivable, net at the end of the period, divided
by average daily Net sales for the same three-month period. Also incorporates components of other miscellaneous
receivables.
Represents the rolling three-month average of the balance of Merchandise inventory at the end of the period divided by
average daily Cost of sales for the same three-month period.
Represents the rolling three-month average of the combined balance of Accounts payable-trade, excluding cash overdrafts,
and Accounts payable-inventory financing at the end of the period divided by average daily Cost of sales for the same
three-month period.
The cash conversion cycle was 19 days at December 31, 2017 and 2016. The increase in DSO was primarily driven by
higher Net sales and related Accounts receivable for third-party services such as SaaS, software assurance and warranties. These
services have an unfavorable impact on DSO as the receivable is recognized on the Consolidated Balance Sheet on a gross basis
while the corresponding sales amount in the Consolidated Statement of Operations is recorded on a net basis. This also results in
a favorable impact on DPO as the payable is recognized on the Consolidated Balance Sheet without a corresponding Cost of sales
in the Statement of Operations because the cost paid to the vendor or third-party service provider is recorded as a reduction to Net
sales. In addition, DPO also increased due to the mix of payables with certain vendors that have longer payment terms.
The cash conversion cycle was 19 and 21 days at December 31, 2016 and 2015, respectively. The increase in DSO was
primarily driven by higher Net sales and related Accounts receivable for third-party services such as SaaS, software assurance and
warranties. These services have an unfavorable impact on DSO as the receivable is recognized on the balance sheet on a gross
basis while the corresponding sales amount in the Statement of Operations is recorded on a net basis. These services have a
favorable impact on DPO as the payable is recognized on the balance sheet without a corresponding cost of sale in the Statement
of Operations because the cost paid to the vendor or third-party service provider is recorded as a reduction to Net sales. In addition
to the impact of these services on DPO, DPO also increased due to the mix of payables with certain vendors that have longer
payment terms.
Investing Activities
Net cash used in investing activities increased $15 million in 2017 compared to 2016. Capital expenditures increased
$17 million to $81 million from $64 million for 2017 and 2016, respectively, primarily related to improvements to our information
technology systems.
Net cash used in investing activities decreased $289 million in 2016 compared to 2015. The decrease in cash used was
primarily due to the completion of the acquisition of CDW UK in 2015. Additionally, capital expenditures decreased $26 million
to $64 million from $90 million for 2016 and 2015, respectively, primarily due to spending for our new office location in 2015.
Financing Activities
Net cash used in financing activities increased $514 million in 2017 compared to 2016. The increase was primarily driven
by changes in accounts payable-inventory financing, which resulted in an increase in cash used for financing activities of $228
million and by share repurchases during 2017, which resulted in an increase in cash used for financing activities of $167 million.
For more information on our share repurchase program, see Part II, Item 5, “Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.” The increase in cash used for Accounts payable-inventory financing
was primarily driven by the termination of one of our inventory financing agreements in the fourth quarter of 2016, with amounts
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owed subsequently reported as Accounts payable - trade on the Consolidated Balance Sheet, which reduced cash flows reported
as financing activities during 2017. In addition, an increase in incentive compensation plan tax withholdings paid of $50 million,
coupled with an increase in dividends paid of $28 million, contributed to the increase in cash used in financing activities.
Net cash used in financing activities increased $78 million in 2016 compared to 2015. The increase was primarily driven
by higher share repurchases during the year ended December 31, 2016, which resulted in an increase in cash used for financing
activities of $126 million. The increase was partially offset by the changes in accounts payable-inventory financing, which resulted
in an increase in cash provided for financing activities of $48 million. The increase in cash provided by accounts payable-inventory
financing was primarily due to a new vendor added to our previously existing inventory financing agreement. For a description
of the inventory financing transactions impacting each period, see Note 7 (Inventory Financing Agreements) to the accompanying
Consolidated Financial Statements. For more information on our share repurchase program, see Item 5, “Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
Long-Term Debt and Financing Arrangements
As of December 31, 2017, we had total indebtedness of $3.2 billion, of which $1.5 billion was secured indebtedness. At
December 31, 2017, we were in compliance with the covenants under our various credit agreements and indentures. The amount
of CDW’s restricted payment capacity under the Senior Secured Term Loan Facility was $1.2 billion at December 31, 2017. The
amount of restricted payment capacity for the CDW UK Term Loan was $98 million.
For additional details regarding our debt and refinancing activities, refer to Note 10 (Long-Term Debt) to the accompanying
Consolidated Financial Statements.
Inventory Financing Agreements
We have entered into agreements with certain financial intermediaries to facilitate the purchase of inventory from various
suppliers under certain terms and conditions. These amounts are classified separately as Accounts payable-inventory financing
on the Consolidated Balance Sheets. We do not incur any interest expense associated with these agreements as balances are paid
when they are due. For further details, see Note 7 (Inventory Financing Agreements) to the accompanying Consolidated Financial
Statements.
Contractual Obligations
We have future obligations under various contracts relating to debt and interest payments, operating leases and payment
obligations under the Tax Cuts and Jobs Act. Our estimated future payments, based on undiscounted amounts, under these
obligations that existed as of December 31, 2017, are as follows:
(in millions)
Term Loan(1)
CDW UK Term Loan(1)
Senior Notes due 2023(2)
Senior Notes due 2024(2)
Senior Notes due 2025(2)
Operating leases(3)
Mandatory repatriation tax(4)
Total
Payments Due by Period
Total
2018
2019-2020
2021-2022
2023 &
Thereafter
$ 1,762.7
$
66.1
$
136.4
$
134.2
$ 1,426.0
80.3
682.5
796.4
840.0
131.8
20.3
8.2
26.3
31.6
30.0
22.1
1.6
16.0
52.5
63.3
60.0
42.8
3.2
56.1
52.5
63.3
60.0
23.5
3.2
—
551.2
638.2
690.0
43.4
12.3
$ 4,314.0
$
185.9
$
374.2
$
392.8
$ 3,361.1
(1)
(2)
(3)
Includes future principal and cash interest payments on long-term borrowings through scheduled maturity dates. Interest
payments for variable rate debt were calculated using interest rates as of December 31, 2017. Excluded from these amounts
are the amortization of debt issuance and other costs related to indebtedness.
Includes future principal and cash interest payments on long-term borrowings through scheduled maturity dates. Interest
on the Senior Notes is calculated using the stated interest rates. Excluded from these amounts are the amortization of
debt issuance and other costs related to indebtedness.
Includes the minimum lease payments for non-cancelable operating leases of properties and equipment used in our
operations. Capital leases included in property and equipment are not material.
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(4)
Represents future cash tax payments for the deemed mandatory repatriation of our international operations unremitted
earnings, as required by the Tax Cuts and Jobs Act.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect
on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources.
Inflation
Inflation has not had a material impact on our operating results. We generally have been able to pass along price increases
to our customers, though certain economic factors and technological advances in recent years have tended to place downward
pressure on pricing. We also have been able to generally offset the effects of inflation on operating costs by continuing to emphasize
productivity improvements and by accelerating our overall cash conversion cycle. There can be no assurances, however, that
inflation would not have a material impact on our sales or operating costs in the future.
Commitments and Contingencies
The information set forth in Note 16 (Commitments and Contingencies) to the accompanying Consolidated Financial
Statements included in Part II, Item 8 of this Form 10-K is incorporated herein by reference.
Critical Accounting Policies and Estimates
The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make use
of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the
reported periods. We base our estimates on historical experience and on various other assumptions that we believe 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. These estimates have not historically required significant management judgment.
Our actual results have not differed materially from our estimates, nor have we historically made significant changes to the methods
for determining these estimates. We do not believe it is reasonably likely that the estimates and related assumptions will change
materially in the foreseeable future however actual results could differ from those estimates.
In Note 1 (Description of Business and Summary of Significant Accounting Policies) to the accompanying Consolidated
Financial Statements, we include a discussion of the significant accounting policies used in the preparation of our Consolidated
Financial Statements. We believe the following are the most critical accounting policies and estimates that include significant
judgments used in the preparation of the Consolidated Financial Statements. We consider an accounting policy or estimate to be
critical if it requires assumptions to be made that were uncertain at the time they were made, and if changes in these assumptions
could have a material impact on our financial condition or results of operations.
Revenue Recognition
We are a primary distribution channel for a large group of vendors and suppliers, including OEMs, software publishers
and wholesale distributors. We record revenue from sales transactions when title and risk of loss are passed to our customer, there
is persuasive evidence of an arrangement for sale, delivery has occurred and/or services have been rendered, the sales price is
fixed or determinable, and collectability is reasonably assured. Our shipping terms typically specify F.O.B. destination, at which
time title and risk of loss have passed to the customer.
Revenues from the sales of hardware products and software products and licenses are generally recognized on a gross
basis with the selling price to the customer recorded as sales and the acquisition cost of the product recorded as cost of sales. These
items can be delivered to customers in a variety of ways, including (i) as physical product shipped from our warehouse, (ii) via
drop-shipment by the vendor or supplier, or (iii) via electronic delivery for software licenses. At the time of sale, we record an
estimate for sales returns and allowances based on historical experience. Our vendor partners warrant most of the products we
sell.
We leverage drop-shipment arrangements with many of our vendors and suppliers to deliver products to our customers
without having to physically hold the inventory at our warehouses, thereby increasing efficiency and reducing costs. We recognize
revenue for drop-shipment arrangements on a gross basis upon delivery to the customer with contract terms that typically specify
F.O.B. destination. We recognize revenue on a gross basis as the principal in the transaction because we are the primary obligor
in the arrangement, we assume inventory risk if the product is returned by the customer, we set the price of the product charged
to the customer, we assume credit risk for the amounts invoiced, and we work closely with our customers to determine their
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hardware and software specifications. These arrangements represent approximately 50% of total Net sales, of which approximately
25% relate to electronic delivery for software licenses.
Revenue from professional services is recognized in either of two ways: services as an hourly rate (recognized using a
percentage of completion model) or a fixed fee (recognized using a proportional performance model for the fixed fee). Revenues
for cloud computing solutions including SaaS and IaaS arrangements with one time invoicing to the customer are recognized at
the time of invoice. Revenues for data center services such as managed and remote managed services, server co-location, internet
connectivity, data backup and storage, and SaaS and IaaS arrangements where the customer is invoiced over time are recognized
over the period service is provided.
We also sell certain products for which we act as an agent. Products in this category include the sale of third-party services,
warranties, software assurance (“SA”) and third-party hosted SaaS and IaaS arrangements. SA is a product that allows customers
to upgrade, at no additional cost, to the latest technology if new applications are introduced during the period that the SA is in
effect. These sales do not meet the criteria for gross sales recognition, and thus are recognized on a net basis at the time of sale.
Under Net sales recognition, the cost paid to the vendor or third-party service provider is recorded as a reduction to sales, resulting
in Net sales being equal to the Gross profit on the transaction.
Our larger customers are offered the opportunity by certain of our vendors to purchase software licenses and SA under
enterprise agreements (“EAs”). Under EAs, customers are considered to be compliant with applicable license requirements for
the ensuing year, regardless of changes to their employee base. Customers are charged an annual true-up fee for changes in the
number of users over the year. With most EAs, our vendors will transfer the license and bill the customer directly, paying resellers
such as us an agency fee or commission on these sales. We record these fees as a component of Net sales as earned and there is
no corresponding cost of sales amount. In certain instances, we bill the customer directly under an EA and account for the individual
items sold based on the nature of the item. Our vendors typically dictate how the EA will be sold to the customer.
We also sell some of our products and services as part of bundled contract arrangements containing multiple deliverables,
which may include a combination of the products and services. For each deliverable that represents a separate unit of accounting,
total arrangement consideration is allocated based upon the relative selling prices of each element. The allocated arrangement
consideration is recognized as revenue in accordance with the principles described above. Selling prices are determined by using
vendor specific objective evidence (“VSOE”) if it exists. Otherwise, selling prices are determined using third party evidence
(“TPE”). If neither VSOE or TPE is available, we use our best estimate of selling prices.
We record freight billed to our customers as Net sales and the related freight costs as a Cost of sales.
Deferred revenue includes (1) payments received from customers in advance of providing the product or performing
services, and (2) amounts deferred if other conditions of revenue recognition have not been met.
We perform an analysis of the estimated number of days of sales in-transit to customers at the end of each period based
on a weighted-average analysis of commercial delivery terms that includes drop-shipment arrangements. This analysis is the basis
upon which we estimate the amount of sales in-transit at the end of the period and adjust revenue and the related costs to reflect
only what has been received by the customer. Changes in delivery patterns may result in a different number of business days used
in making this adjustment and could have a material impact on our revenue recognition for the period.
Vendor Programs
We receive incentives from certain of our vendors related to cooperative advertising allowances, volume rebates, bid
programs, price protection and other programs. These incentives generally relate to written agreements with specified performance
requirements with the vendors and are recorded as adjustments to cost of sales or inventory, depending on the nature of the incentive.
Vendors may change the terms of some or all of these programs, which could have an impact on our results of operations.
We record receivables from vendors related to these programs when the amounts are probable and reasonably estimable.
Some programs are based on the achievement of specific targets, and we base our estimates on information provided by our vendors
and internal information to assess our progress toward achieving those targets. If actual performance does not match our estimates,
we may be required to adjust our receivables. We record reserves for vendor receivables for estimated losses due to vendors’
inability to pay or rejections by vendors of claims; however, if actual collections differ from our estimates, we may incur additional
losses that could have a material impact on Gross profit and Income from operations.
Goodwill
Goodwill is not amortized but is subject to periodic testing for impairment at the reporting unit level. We perform an
evaluation of goodwill, utilizing either a quantitative or qualitative impairment test. A qualitative assessment is performed on at
least 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
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value. We perform 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. Our reporting units used to assess
potential goodwill impairment are the same as our operating segments.
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 our fair value in an orderly transaction between market participants.
Under the income approach, we determine 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. We use a range of 2.0-3.5% long-
term assumed consolidated annual Net sales growth rate for periods after the terminal year.
Under the market approach, we utilize 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 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.
Under a qualitative assessment, the most recent quantitative assessment is the starting point to determine if it is more
likely than not that the reporting unit’s fair value is less than its carrying value. As part of this qualitative assessment, we assess
relevant events and circumstances including macroeconomic conditions, industry and market conditions, cost factors, overall
financial performance, changes in share price and entity-specific events.
2017 Impairment Analysis
We completed our annual impairment analysis as of December 1, 2017. For the Corporate, Small Business and UK
reporting units, we performed a qualitative analysis. We determined that it was more-likely-than-not that the individual fair values
of the Corporate, Small Business and UK reporting units exceeded the individual carrying values and therefore a quantitative
impairment analysis was deemed unnecessary. Although uncertainty regarding the impact of Brexit still exists in the current year,
we do not believe there to be any additional risk that would indicate the quantitative analysis performed in the prior year to have
different results. Therefore a qualitative analysis was deemed appropriate for the UK reporting unit. We performed a quantitative
analysis of the Public and Canada reporting units. Based on the results of the quantitative analysis, we determined that the fair
value of the Public and Canada reporting units exceeded their carrying values by 179% and 153%, respectively, and no impairment
existed. We identified that the most sensitive assumptions used in the quantitative analysis were Net sales growth and EBITDA
margin and, although we believe our assumptions are reasonable based on current market conditions, actual results may vary
significantly and could expose us to impairment charges in the future.
With the establishment of Small Business as its own reporting unit, we performed a quantitative analysis in order to
allocate Goodwill between Corporate and Small Business. Based on the results of the quantitative analysis performed as of January
1, 2017, we determined that the fair values of Corporate and Small Business reporting units exceeded their carrying values by
227% and 308%, respectively, and no impairment existed.
2016 Impairment Analysis
We completed our annual impairment analysis as of December 1, 2016. For the Corporate (which, as of December 1,
2016, included Small Business), Public and Canada reporting units, we performed a qualitative analysis. We determined that it
was more-likely-than-not that the individual fair values of the Corporate, Public and Canada reporting units exceeded the individual
carrying values and therefore a quantitative impairment analysis was deemed unnecessary. Due to the substantial uncertainty
regarding the impact of Brexit, we performed a quantitative analysis of the CDW UK reporting unit. Based on the results of the
quantitative analysis, we determined that the fair value of the CDW UK reporting unit exceeded its carrying value by 16% and
no impairment existed. We identified that the most sensitive assumptions used in the quantitative analysis were Net sales growth
and EBITDA margin and, although we believe our assumptions are reasonable based on current market conditions, actual results
may vary significantly and could expose us to impairment charges in the future.
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Intangible assets
Intangible assets include customer relationships, trade names, internally developed software and other intangibles.
Intangible assets with finite lives are amortized on a straight-line basis over the estimated useful lives of the assets. The cost of
software developed or obtained for internal use is capitalized and amortized on a straight-line basis over the estimated useful life.
These intangible assets are reviewed for impairment whenever 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, we evaluate whether events and circumstances warrant a revision to the remaining estimated useful life of each of
these intangible assets. If we 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.
During the years ended December 31, 2017 and 2016, we concluded our intangible assets with finite lives were not
impaired and no changes to the remaining useful lives were necessary.
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. We perform an evaluation of the realizability of our deferred tax assets on a quarterly basis. This evaluation
requires us to use estimates and make 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 we operate, and prudent and feasible
tax planning strategies.
We account for unrecognized tax benefits based upon our assessment of whether a tax benefit is more likely than not to
be sustained upon examination by tax authorities. We report a liability for unrecognized tax benefits resulting from unrecognized
tax benefits taken or expected to be taken in a tax return and recognize interest and penalties, if any, related to unrecognized tax
benefits in income tax expense.
The Tax Cuts and Jobs Act contains a provision which subjects a US parent of a foreign subsidiary to current US tax on
its global intangible low-tax income (“GILTI”). The GILTI income is eligible for a deduction, which lowers the effective tax rate
to 10.5% for taxable years 2018 through 2025 and 13.125% after 2025. As we continue to evaluate our accounting policy with
respect to GILTI, the provisional estimates were reported on the basis that GILTI will be accounted for as a period cost when
incurred. Accordingly, we are not providing deferred taxes for basis differences expected to reverse as GILTI.
Recent Accounting Pronouncements
The information set forth in Note 2 (Recent Accounting Pronouncements) to the accompanying Consolidated Financial
Statements included in Part II, Item 8 of this Form 10-K is incorporated herein by reference.
Subsequent Events
The information set forth in Note 21 (Subsequent Events) to the accompanying Consolidated Financial Statements included
in Part II, Item 8 of this Form 10-K is incorporated herein by reference.
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Item 7A. Quantitative and Qualitative Disclosures of Market Risks
Interest Rate Risk
Our market risks relate primarily to changes in interest rates. The interest rates on borrowings under our senior secured
asset-based revolving credit facility, our senior secured term loan facility and the CDW UK term loan are floating and, therefore,
are subject to fluctuations. In order to manage the risk associated with changes in interest rates on borrowings under our senior
secured term loan facility, we have entered into interest rate caps to add stability to interest expense and to manage our exposure
to interest rate fluctuations.
As of December 31, 2017, we have interest rate cap agreements in effect through December 31, 2018 with a combined
notional amount of $1.4 billion which entitle us to payments from the counterparty of the amount, if any, by which three-month
LIBOR exceeds 1.5% during the agreement period.
For additional details, see Note 10 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital
Resources - Contractual Obligations” for information on cash flows, interest rates and maturity dates of our debt obligations.
Foreign Currency Risk
We transact business in foreign currencies other than the US dollar, primarily the Canadian dollar and the British pound,
which exposes us to foreign currency exchange rate fluctuations. Revenue and expenses generated from our international operations
are generally denominated in the local currencies of the corresponding countries. The functional currency of our international
operating subsidiaries is the same as the corresponding local currency. Upon consolidation, as results of operations are translated,
operating results may differ from expectations. The direct effect of foreign currency fluctuations on our results of operations has
not been material as the majority of our results of operations are denominated in US dollars.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Page
57
58
59
60
61
62
63
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Report of Independent Registered Public Accounting Firm
To the Stockholders and 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, 2017 and 2016, 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, 2017, and the related notes and the 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, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2017, 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, 2017, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated February 28, 2018 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.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2011.
Chicago, Illinois
February 28, 2018
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CONSOLIDATED BALANCE SHEETS
(in millions, except per-share amounts)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $6.2 and $5.9, respectively
Merchandise inventory
Miscellaneous receivables
Prepaid expenses and other
Total current assets
Property and equipment, net
Goodwill
Other intangible assets, net
Other assets
Total Assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable-trade
Accounts payable-inventory financing
Current maturities of long-term debt
Deferred revenue
Accrued expenses and other current liabilities:
Compensation
Interest
Sales taxes
Advertising
Income taxes
Other
Total current liabilities
Long-term liabilities:
Debt
Deferred income taxes
Other liabilities
Total long-term liabilities
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; 153.1 and 160.3 shares issued, respectively
Less: treasury stock, $0.01 par value, 0.1 and 0 shares held, respectively
Outstanding common stock, $0.01 par value, 153.0 and 160.3 shares outstanding, respectively
Paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
December 31,
2017
2016
$
144.2
$
263.7
2,320.5
2,168.6
449.5
336.5
127.4
3,378.1
161.1
2,479.6
897.0
40.8
452.0
234.9
118.9
3,238.1
163.7
2,455.0
1,055.6
36.0
$
6,956.6
$
6,948.4
$
1,317.7
$
1,072.9
498.0
25.5
194.0
129.5
21.6
43.8
89.2
15.1
580.4
18.5
172.6
167.6
25.1
38.0
55.8
2.6
180.2
2,514.6
147.2
2,280.7
3,210.0
3,215.9
196.3
52.8
369.2
37.1
3,459.1
3,622.2
—
1.5
—
1.5
—
1.6
—
1.6
2,911.6
2,857.3
(1,834.3)
(1,673.8)
(95.9)
982.9
(139.6)
1,045.5
$
6,956.6
$
6,948.4
The accompanying notes are an integral part of the Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per-share amounts)
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Advertising expense
Income from operations
Interest expense, net
Net loss on extinguishments of long-term debt
Gain on remeasurement of equity investment
Other income (expense), net
Income before income taxes
Income tax expense
Net income
Net income per common share:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Cash dividends declared per common share
Years Ended December 31,
2017
$15,191.5
12,741.6
2,449.9
1,410.1
173.7
866.1
(150.5)
(57.4)
—
2.1
660.3
(137.3)
523.0
$
2016
$13,981.9
11,654.7
2,327.2
1,345.1
162.9
819.2
(146.5)
(2.1)
—
1.8
672.4
(248.0)
424.4
$
2015
$ 12,988.7
10,872.9
2,115.8
1,226.0
147.8
742.0
(159.5)
(24.3)
98.1
(9.3)
647.0
(243.9)
403.1
$
$
$
3.37
3.31
$
$
2.59
2.56
$
$
2.37
2.35
155.4
158.2
163.6
166.0
170.3
171.8
$ 0.6900
$ 0.4825
$ 0.3100
The accompanying notes are an integral part of the Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Net income
Foreign currency translation, net(1)
Unrealized gain from hedge accounting, net(2)
Other comprehensive income (loss), net of tax
Comprehensive income
Years Ended December 31,
2017
2016
2015
$
$
523.0
43.5
0.2
43.7
566.7
$
$
424.4
(78.5)
—
(78.5)
345.9
$
$
403.1
(44.5)
—
(44.5)
358.6
(1)
(2)
Net of tax expense of $0.2 million, $0.2 million and $0.3 million, respectively.
Net of tax expense of $0.1 million for 2017.
The accompanying notes are an integral part of the Consolidated Financial Statements.
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Balance as of
December 31, 2014
Equity-based
compensation expense
Stock option exercises
Common stock issued for
equity-based
compensation
Excess tax benefits from
equity-based
compensation
Coworker Stock Purchase
Plan
Common stock issued for
acquisition of business
Dividends paid
Net income
Repurchases of common
stock
Foreign currency
translation
Balance as of
December 31, 2015
Equity-based
compensation expense
Stock option exercises
Common stock issued for
equity-based
compensation
Coworker Stock Purchase
Plan
Dividends paid
Net income
Repurchases of common
stock
Foreign currency
translation
Balance as of
December 31, 2016
Equity-based
compensation expense
Stock option exercises
Coworker Stock Purchase
Plan
Dividends paid
Incentive compensation
plan shares withheld for
taxes
Net income
Repurchases of common
stock
Unrealized gain from
hedge accounting
Foreign currency
translation
Balance as of
December 31, 2017
CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
Preferred Stock
Common Stock
Treasury Stock
Shares
Amount
Shares
Amount
Shares
Amount
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
— $ —
172.2
$
1.7
— $ — $
2,711.9
$
(1,760.5) $
(16.6) $
936.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.1
0.3
—
0.3
1.6
—
—
(6.3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
28.3
2.4
—
0.6
8.7
55.0
—
—
—
—
—
—
—
—
—
—
(52.9)
403.1
(241.3)
—
—
—
—
—
—
—
—
—
28.3
2.4
—
0.6
8.7
55.0
(52.9)
403.1
(241.3)
—
(44.5)
(44.5)
— $ —
168.2
$
1.7
— $ — $
2,806.9
$
(1,651.6) $
(61.1) $
1,095.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.4
0.2
0.2
—
—
—
—
—
—
—
—
(8.7)
(0.1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
33.2
7.4
—
9.3
0.5
—
—
—
—
—
—
—
(79.2)
424.4
(367.4)
—
—
—
—
—
—
—
33.2
7.4
—
9.3
(78.7)
424.4
(367.5)
—
(78.5)
(78.5)
— $ —
160.3
$
1.6
— $ — $
2,857.3
$
(1,673.8) $
(139.6) $
1,045.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.5
0.2
—
—
—
—
—
—
—
—
—
(8.9)
(0.1)
—
—
—
—
—
—
—
—
0.1
—
—
—
—
—
—
—
—
—
—
—
—
—
37.9
13.0
10.3
0.7
(7.6)
—
—
—
—
—
—
—
(107.6)
(42.0)
523.0
(533.9)
—
—
—
—
—
—
—
—
—
0.2
43.5
37.9
13.0
10.3
(106.9)
(49.6)
523.0
(534.0)
0.2
43.5
— $ —
153.1
$
1.5
0.1
$ — $
2,911.6
$
(1,834.3) $
(95.9) $
982.9
The accompanying notes are an integral part of the Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Equity-based compensation expense
Deferred income taxes
Amortization of deferred financing costs, debt premium and debt discount, net
Net loss on extinguishments of long-term debt
Loss from equity investments
Gain on remeasurement of equity investment
Mark-to-market (gain) loss on interest rate cap agreements
Other
Changes in assets and liabilities:
Accounts receivable
Merchandise inventory
Other assets
Accounts payable-trade
Other current liabilities
Long-term liabilities
Net cash provided by operating activities
Cash flows used in investing activities:
Capital expenditures
Premium payments on interest rate cap agreements
Acquisition of business, net of cash acquired
Net cash used in investing activities
Cash flows used in financing activities:
Proceeds from borrowings under revolving credit facility
Repayments of borrowings under revolving credit facility
Repayments of long-term debt
Proceeds from issuance of long-term debt
Payments to extinguish long-term debt
Net change in other long-term obligation
Payments of debt financing costs
Net change in accounts payable-inventory financing
Effective portion of interest rate cap agreements
Proceeds from stock option exercises
Proceeds from Coworker Stock Purchase Plan
Repurchases of common stock
Payment of incentive compensation plan withholding taxes
Dividends
Principal payments under capital lease obligations
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents – beginning of period
Cash and cash equivalents – end of period
Supplementary disclosure of cash flow information:
Interest paid
Taxes paid, net
Years Ended December 31,
2017
2016
2015
$
523.0
$
424.4
$
403.1
260.9
43.7
(172.7)
5.2
57.4
—
—
(0.5)
0.4
(128.4)
8.5
(116.4)
231.5
51.4
13.7
777.7
(81.1)
—
—
(81.1)
1,560.7
(1,560.7)
(14.9)
2,083.0
(2,121.3)
(3.8)
(9.6)
(84.0)
0.4
13.0
10.3
(534.0)
(49.6)
(106.9)
(1.3)
(818.7)
2.6
(119.5)
263.7
254.5
39.2
(97.2)
6.5
2.1
—
—
(2.6)
0.4
(179.9)
(68.5)
(50.1)
225.1
80.2
(30.1)
604.0
(63.5)
(2.4)
—
(65.9)
338.8
(338.8)
(20.6)
1,483.0
(1,490.4)
15.7
(5.9)
143.6
—
7.4
9.3
(367.4)
—
(78.7)
(0.6)
(304.6)
(7.4)
226.1
37.6
144.2
$
263.7
$
227.4
31.2
(54.5)
6.4
24.3
11.2
(98.1)
2.1
0.3
(342.6)
(31.5)
(71.2)
100.5
47.5
21.4
277.5
(90.1)
(0.5)
(263.8)
(354.4)
314.5
(314.5)
(32.8)
525.0
(525.3)
—
(6.8)
95.9
—
2.4
8.7
(241.3)
0.6
(52.9)
—
(226.5)
(3.5)
(306.9)
344.5
37.6
(148.5) $
(275.7) $
(144.3) $
(329.2) $
(154.6)
(300.2)
$
$
$
The accompanying notes are an integral part of the Consolidated Financial Statements.
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1.
Description of Business and Summary of Significant Accounting Policies
Description of Business
CDW Corporation (“Parent”) is a Fortune 500 company with multi-national capabilities and a leading provider of
integrated information technology (“IT”) solutions to small, medium and large business, government, education and
healthcare customers in the United States (“US”), the United Kingdom (“UK”) and Canada. The Company’s offerings
range from discrete hardware and software products to integrated IT solutions such as mobility, security, data center
optimization, cloud computing, virtualization and collaboration.
Throughout this report, the terms “the Company” and “CDW” refer to Parent and its 100% owned subsidiaries.
Parent has two 100% owned subsidiaries, CDW LLC and CDW Finance Corporation. CDW LLC is an Illinois limited
liability company that, together with its 100% owned subsidiaries, holds all material assets and conducts all business
activities and operations of the Company. CDW Finance Corporation is a Delaware corporation formed for the sole
purpose of acting as co-issuer of certain debt obligations as described in Note 19 (Supplemental Guarantor Information)
and does not hold any material assets or engage in any business activities or operations.
In August 2015, the Company completed the acquisition of Kelway TopCo Limited (“Kelway”), a UK-based IT solutions
provider with global offerings by purchasing the remaining 65% of its outstanding common stock, which increased the
Company’s ownership interest from 35% to 100% and provided the Company control. In 2016 Kelway was rebranded
CDW UK.
Basis of Presentation
The Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted
in the United States of America (“GAAP”) and the rules and regulations of the US Securities and Exchange Commission
(“SEC”).
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Parent and its 100% owned subsidiaries. All intercompany
transactions and accounts are eliminated in consolidation.
Use of Estimates
The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make use
of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenue and
expenses during the reported periods. The Company bases its estimates on historical experience and on various other
assumptions that management believes are reasonable under the circumstances, the results of which form the basis for
making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results could differ from those estimates.
Business Combinations
The Company accounts for all business combinations using the acquisition method of accounting, which allocates the
fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on
their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and
liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management
makes significant estimates and assumptions. The Company may utilize third-party valuation specialists to assist the
Company in the allocation. Initial purchase price allocations are subject to revision within the measurement period, not
to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business
combinations are expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents include all deposits in banks and short-term (original maturities of three months or less at the
time of purchase), highly liquid investments that are readily convertible to known amounts of cash and are so near maturity
that there is insignificant risk of changes in value due to interest rate changes.
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Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and typically do not bear interest. The Company provides
allowances for doubtful accounts related to accounts receivable for estimated losses resulting from the inability of its
customers to make required payments. The Company takes into consideration the overall quality of the receivable portfolio
along with specifically-identified customer risks in establishing the allowance.
Merchandise Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is determined using a weighted-average cost method.
Price protection is recorded when earned as a reduction to the cost of inventory. The Company decreases the value of
inventory for estimated obsolescence equal to the difference between the cost of inventory and the net realizable value,
based upon an aging analysis of the inventory on hand, specifically known inventory-related risks, and assumptions about
future demand and market conditions.
Miscellaneous Receivables
Miscellaneous receivables primarily consist of amounts due from vendors. The Company receives incentives from vendors
related to cooperative advertising, volume rebates, bid programs, price protection and other programs. These incentives
generally relate to written vendor agreements with specified performance requirements and are recorded as adjustments
to Cost of sales or Merchandise inventory, depending on the nature of the incentive.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. The Company calculates depreciation expense
using the straight-line method over the estimated useful lives of the assets. Property and equipment are reviewed annually
to determine whether there is any impairment. Determination of recoverability is based on an estimate of undiscounted
future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds
its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount
over its fair value. Leasehold improvements are amortized over the shorter of their estimated useful lives or the initial
lease term. Expenditures for major renewals and improvements that extend the useful life of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. The estimated useful lives of
property and equipment are as follows:
Classification
Machinery and equipment
Building and leasehold improvements
Computer and data processing equipment
Computer software
Furniture and fixtures
Estimated
Useful Lives
5 to 10 years
5 to 25 years
3 to 5 years
3 to 5 years
5 to 10 years
The Company has asset retirement obligations associated with commitments to return property subject to the terms of
operating leases to its original condition upon lease termination. At December 31, 2017 and 2016, the Company’s asset
retirement liability was less than $2 million and $1 million, respectively.
Equity Investments
If the Company is not required to consolidate its investment in another entity because it does not have control, the Company
uses the equity method if it (i) can exercise significant influence over the other entity and (ii) holds common stock of the
other entity. Under the equity method, investments are carried at cost, plus or minus the Company’s share of equity in
the increases and decreases in the investee’s net assets after the date of acquisition and adjustments for basis differences.
The Company’s share of the income or loss of equity method investees is included in Other income (expense), net in the
Consolidated Statements of Operations.
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
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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. The Company uses a range of 2.0-3.5% long-term assumed consolidated annual Net sales growth rate for periods
after the terminal year.
Under the market approach, the Company utilizes valuation multiples derived from publicly available information for
guideline companies to provide an indication of how much a knowledgeable investor in the marketplace would be willing
to pay for a company. The valuation multiples are applied to the reporting units.
Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and
assumptions, including Net sales growth rates, gross profit margins, operating margins, discount rates and future market
conditions, among others. Any changes in the judgments, estimates or assumptions used could produce significantly
different results.
Intangible Assets
Intangible assets with determinable lives are amortized on a straight-line basis over their respective estimated useful
lives. The cost of computer software developed or obtained for internal use is capitalized and amortized on a straight-
line basis over the estimated useful life of the software. Intangible assets are reviewed for impairment when events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual
disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss
is recorded for the excess of the asset’s carrying amount over its fair value. In addition, each quarter, the Company
evaluates whether events and circumstances warrant a revision to the remaining estimated useful life of each of these
intangible assets. If the Company were to determine that a change to the remaining estimated useful life of an intangible
asset was necessary, then the remaining carrying amount of the intangible asset would be amortized prospectively over
that revised remaining useful life.
The following table shows estimated useful lives of definite-lived intangible assets:
Classification
Customer relationships and contracts
Trade name
Internally developed software
Other
Deferred Financing Costs
Estimated
Useful Lives
3 to 14 years
generally 20 years
3 to 5 years
1 to 10 years
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
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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. The gain or loss on the derivative instruments is reported as a component
of Accumulated other comprehensive loss until reclassified to Interest expense in the same period the hedge transaction
affects earnings.
Fair Value Measurements
Fair value is defined under GAAP as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. A fair value hierarchy has been established for
valuation inputs to prioritize the inputs into three levels based on the extent to which inputs used in measuring fair value
are observable in the market. Each fair value measurement is reported in one of the three levels which is determined by
the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1 – observable inputs such as quoted prices for identical instruments traded in active markets.
Level 2 – inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active and model-based valuation techniques for which all significant assumptions
are observable in the market or can be corroborated by observable market data for substantially the full term of the assets
or liabilities.
Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market
participants would use in pricing the asset or liability. The fair values are therefore determined using model-based
techniques that include option pricing models, discounted cash flow models and similar techniques.
Accumulated Other Comprehensive Loss
The components of Accumulated other comprehensive loss included in Stockholders’ equity are as follows:
(in millions)
Foreign currency translation
Unrealized gain from hedge accounting
Accumulated other comprehensive loss
Revenue Recognition
Years Ended December 31,
2017
2016
2015
$ (96.1) $ (139.6) $ (61.1)
—
$ (95.9) $ (139.6) $ (61.1)
0.2
—
The Company is a primary distribution channel for a large group of vendors and suppliers, including original equipment
manufacturers (“OEMs”), software publishers, wholesale distributors and cloud providers. The Company records revenue
from sales transactions when title and risk of loss are passed to the customer, there is persuasive evidence of an arrangement
for sale, delivery has occurred and/or services have been rendered, the sales price is fixed or determinable, and collectability
is reasonably assured. The Company’s shipping terms typically specify F.O.B. destination, at which time title and risk
of loss have passed to the customer.
Revenues from the sales of hardware products and software licenses are generally recognized on a gross basis with the
selling price to the customer recorded as sales and the acquisition cost of the product recorded as cost of sales. These
items can be delivered to customers in a variety of ways, including (i) as physical product shipped from the Company’s
warehouse, (ii) via drop-shipment by the vendor or supplier, or (iii) via electronic delivery for software licenses. At the
time of sale, the Company records an estimate for sales returns and allowances based on historical experience. The
Company’s vendor partners warrant most of the products the Company sells.
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, thereby increasing efficiency and reducing
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costs. The Company recognizes revenue for drop-shipment arrangements on a gross basis upon delivery to the customer
with contract terms that typically specify F.O.B. destination.
Revenue from professional services is either recognized as provided for services billed at an hourly rate, recognized using
a percentage of completion model for fixed fee project work or recognized using a proportional performance model for
services provided at a fixed fee. Revenues for cloud computing solutions including Software as a Service (“SaaS”) and
Infrastructure as a Service (“IaaS”) arrangements with one time invoicing to the customer are recognized at the time of
invoice. Revenues for data center services such as managed and remote managed services, server co-location, internet
connectivity, data backup and storage, and SaaS and IaaS arrangements where the customer is invoiced over time are
recognized over the period service is provided.
The Company also sells certain products for which it acts as an agent. Products in this category include the sale of third-
party services, warranties, software assurance (“SA”) and third-party hosted SaaS and IaaS arrangements. SA is a product
that allows customers to upgrade, at no additional cost, to the latest technology if new applications are introduced during
the period that the SA is in effect. These sales do not meet the criteria for gross sales recognition, and thus are recognized
on a net basis at the time of sale. Under Net sales recognition, the cost paid to the vendor or third-party service provider
is recorded as a reduction to sales, resulting in Net sales being equal to the gross profit on the transaction.
The Company’s larger customers are offered the opportunity by certain of its vendors to purchase software licenses and
SA under enterprise agreements (“EAs”). Under EAs, customers are considered to be compliant with applicable license
requirements for the ensuing year, regardless of changes to their employee base. Customers are charged an annual true-
up fee for changes in the number of users over the year. With most EAs, the Company’s vendors will transfer the license
and bill the customer directly, paying resellers such as the Company 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.
In certain instances, the Company bills the customer directly under an EA and accounts for the individual items sold
based on the nature of the item. The Company’s vendors typically dictate how the EA will be sold to the customer.
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 separate
unit of accounting, total arrangement consideration is allocated based upon the relative selling prices of each element.
The allocated arrangement consideration is recognized as revenue in accordance with the principles described above.
Relative selling prices are determined by using vendor specific objective evidence (“VSOE”) if it exists. Otherwise,
selling prices are determined using third-party evidence (“TPE”). If neither VSOE or TPE is available, the Company uses
its best estimate of selling prices.
The Company records freight billed to its customers as Net sales and the related freight costs as a Cost of sales.
Deferred revenue includes (i) payments received from customers in advance of providing the product or performing
services and (ii) amounts deferred if other conditions of revenue recognition have not been met.
The Company performs an analysis of the estimated number of days of sales in-transit to customers at the end of each
period based on a weighted-average analysis of commercial delivery terms that includes drop-shipment arrangements.
This analysis is the basis upon which the Company estimates the amount of sales in-transit at the end of the period and
adjusts revenue and the related costs to reflect only what has been received by the customer. Changes in delivery patterns
may result in a different number of business days used in making this adjustment and could have a material impact on
the Company’s revenue recognition for the period.
Sales Taxes
Sales tax amounts collected from customers for remittance to governmental authorities are presented on a net basis in
the Consolidated Statements of Operations.
Advertising
Advertising costs are generally charged to expense in the period incurred. Cooperative reimbursements from vendors are
recorded in the period the related advertising expenditure is incurred. The Company classifies vendor consideration as a
reduction to Cost of sales.
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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. Estimated
forfeiture rates have been developed based upon historical experience.
Interest Expense
Interest expense is recognized in the period incurred at the applicable interest rate in effect.
Foreign Currency Translation
The Company’s functional currency is the US dollar. The functional currency of the Company’s international operating
subsidiaries is generally the same as the corresponding local currency. Assets and liabilities of the international operating
subsidiaries are translated at the spot rate in effect at the applicable reporting date. Revenues and expenses of the
international operating subsidiaries are translated at the average exchange rates in effect during the applicable period.
The resulting foreign currency translation adjustment is recorded as Accumulated other comprehensive loss, which is
reflected as a separate component of Stockholders’ equity.
Income Taxes
Deferred income taxes are provided to reflect the differences between the tax bases of assets and liabilities and their
reported amounts in the Consolidated Financial Statements using enacted tax rates in effect for the year in which the
differences are expected to reverse. The Company performs an evaluation of the realizability of deferred tax assets on a
quarterly basis. This evaluation requires management to make use of estimates and assumptions and considers all positive
and negative evidence and factors, such as the scheduled reversal of temporary differences, the mix of earnings in the
jurisdictions in which the Company operates, and prudent and feasible tax planning strategies.
The Company accounts for unrecognized tax benefits based upon its assessment of whether a tax benefit is more likely
than not to be sustained upon examination by tax authorities. The Company reports a liability for unrecognized tax benefits
resulting from unrecognized tax benefits taken or expected to be taken in a tax return and recognizes interest and penalties,
if any, related to its unrecognized tax benefits in income tax expense.
The Tax Cuts and Jobs Act contains a provision which subjects a US parent of a foreign subsidiary to current US tax on
its global intangible low-tax income (“GILTI”). The GILTI income is eligible for a deduction, which lowers the effective
tax rate to 10.5% for taxable years 2018 through 2025 and 13.125% after 2025. As the Company continues to evaluate
its accounting policy with respect to GILTI, the provisional estimates were reported on the basis that GILTI will be
accounted for as a period cost when incurred. Accordingly, the Company is not providing deferred taxes for basis
differences expected to reverse as GILTI.
2.
Recent Accounting Pronouncements
Accounting for Hedging Activities
In August 2017, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU")
2017-12, Derivatives and Hedging (Topic 815), intending to improve the transparency of information included in the
financial statements by aligning cash flow and fair value hedge accounting with its risk management activities. The ASU
eliminates the requirement to separately measure and report hedge ineffectiveness for cash flow hedges and net investment
hedges, and generally requires the entire change in the fair value of a hedging instrument to be presented in the same
income statement line as the hedged item. The ASU also simplifies certain documentation and assessment requirements,
and will incorporate new disclosure requirements and amendments to existing disclosures. This ASU is effective for the
Company beginning the first quarter of 2019 and allows for early adoption. The Company is currently evaluating the
impact the ASU will have on its Consolidated Financial Statements.
Accounting for Goodwill Impairment
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350). The
amendments in this update eliminate step two of the current two-step process, which requires a hypothetical purchase
price allocation when an impairment is determined to have occurred. This ASU 2017-04 is effective for the Company
beginning in the first quarter of 2020 and allows for early adoption. The Company elected to early adopt this standard
during the third quarter of 2017. The Company will continue to perform the quantitative goodwill impairment evaluation
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by comparing the fair value of each reporting unit to its carrying amount. Under the new standard, if the Company is
required to recognize an impairment charge, the amount of the charge will be measured as the excess of a reporting unit's
carrying amount over its fair value, not to exceed the carrying amount of goodwill. The adoption of this ASU did not
have an impact on the Company's Consolidated Financial Statements.
Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230),
providing guidance for eight specific cash flow issues with the objective of reducing the existing diversity in practice.
Among the updates, this standard requires cash payments for debt extinguishment costs to be classified as cash outflows
from financing activities, which is consistent with the Company's current practice. This ASU is effective for the Company
beginning in the first quarter of 2018 and allows for early adoption. The Company elected to early adopt this standard
during the third quarter of 2017. The adoption of this ASU did not have an impact on the Company's Consolidated
Financial Statements.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. This ASU introduces a new forward-looking approach, based on expected losses, to
estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected
credit losses will require considerations of historical information, current information and reasonable and supportable
forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the
assumptions, models and methods for estimating expected credit losses. This ASU is effective for the Company beginning
in the first quarter of 2020 and allows for early adoption beginning in the first quarter of 2019. The Company is currently
evaluating the impact the ASU will have on its Consolidated Financial Statements.
Accounting for Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), requiring lessees to recognize assets and liabilities
on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and
qualitative information about leasing arrangements. This ASU is effective for the Company beginning in the first quarter
of 2019 and allows for early adoption. Although the Company is currently evaluating the provisions of the ASU to
determine how it will be affected, the primary impact to the Company of the new ASU will be to record assets and
liabilities for current operating leases, which are principally related to the Company’s real estate portfolio.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which, along with
amendments issued in 2015 and 2016, will replace most existing revenue recognition guidance under GAAP and eliminate
industry-specific guidance. The core principle of the new guidance is that an entity should recognize revenue for the
transfer of goods and services equal to an amount it expects to be entitled to receive for those goods and services. The
ASU, as amended, will be effective for the Company beginning in the first quarter of 2018. The new guidance permits
two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or
retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application
(the cumulative catch-up transition method).
The Company established a cross-functional implementation team to analyze the effect of the ASU. The Company utilized
a bottom-up approach to analyze the impact of the standard on its contract portfolio by reviewing the current accounting
policies and practices to identify potential differences that would result from applying the requirements of the new standard
to its revenue contracts. In addition, the Company identified, and is in the process of implementing, appropriate changes
to its business processes, systems and controls to support recognition and disclosure under the new standard. The
implementation team reports its findings and progress of the project to management and the Audit Committee on a frequent
basis.
The Company adopted the guidance on January 1, 2018, and utilized the full retrospective method.
The Company has finalized its accounting policies under the new standard and it has determined:
•
The accounting for bill and hold transactions will result in revenue for certain of those arrangements being
recognized earlier than under current GAAP. This change will not materially impact Net sales or Net income;
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•
•
In certain security software transactions when accompanying third-party delivered software assurance is deemed
to be critical or essential to the core functionality of the software license, the Company has determined that the
software license and the accompanying third-party delivered software assurance are 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 will recognize them on a net basis. The
Company currently recognizes revenue from the software license on a gross basis (i.e., acting as a principal)
and accompanying third-party delivered software assurance on a net basis. This change will reduce both Net
sales and Cost of sales with no impact on reported Gross profit.
The accounting for revenue related to hardware, software (excluding the above) and services will remain
substantially unchanged.
The adoption of the ASU is expected to impact the Company’s results as follows:
December 31, 2017
December 31, 2016
New Revenue
Standard
Adjustment
New Revenue
Standard
Adjustment
As Adjusted
(358.6) $ 14,832.9
$ 2,450.2
0.3
40 bps
As Reported
$ 13,981.9
2,327.2
16.5%
16.6%
As Adjusted
(309.2) $ 13,672.7
2,328.3
1.1
40 bps
17.0%
(in millions)
(except per share amounts)
Net sales
Gross profit
Gross profit margin
Income from operations
Income tax expense
Net income
Net income per common
share
Basic
Diluted
As Reported
$ 15,191.5
2,449.9
16.1%
866.1
(137.3)
523.0
3.37
3.31
$
$
$
$
$
$
$
$
$
$
$
0.4
(0.3)
0.1
$
866.5
(137.6)
523.1
— $
— $
3.37
3.31
819.2
(248.0)
424.4
2.59
2.56
$
$
$
0.8
(0.1)
0.7
$
820.0
(248.1)
425.1
0.01
$
— $
2.60
2.56
As Adjusted
$
2,168.9
423.9
237.5
154.2
3,248.2
35.9
6,958.4
143.5
3.3
183.2
2,288.3
0.3
(28.1)
2.6
35.3
10.1
(0.1)
10.0
(29.1)
0.7
36.0
7.6
December 31, 2017
New Revenue
Standard
Adjustment
As Reported
As Adjusted(1)
As Reported
December 31, 2016
New Revenue
Standard
Adjustment
$
2,320.5
$
8.8
$
2,329.3
$
2,168.6
$
(in millions)
Accounts receivable
Merchandise inventory
Miscellaneous receivables
Prepaid expenses and
other
Total current assets
Other assets
Total assets
Deferred revenue
Income tax payable
Other accrued expenses
Total current liabilities
Total liabilities
449.5
336.5
127.4
3,378.1
40.8
6,956.6
194.0
15.1
180.2
2,514.6
5,973.7
411.5
343.0
168.3
3,396.3
32.7
6,966.7
158.8
16.2
221.8
452.0
234.9
118.9
3,238.1
36.0
6,948.4
172.6
2.6
147.2
2,522.1
2,280.7
(38.0)
6.5
40.9
18.2
(8.1)
10.1
(35.2)
1.1
41.6
7.5
7.5
2.7
(1)
Amounts may not cross-foot due to rounding.
70
Total stockholders’ equity
$
982.9
$
5,981.1
5,902.9
$
985.6
$
1,045.5
$
7.6
2.4
5,910.5
$
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CDW CORPORATION AND SUBSIDIARIES
The adoption of the ASU did not impact cash flow provided by operating activities for the years ended December 31,
2017 and 2016.
3.
Acquisition
On August 1, 2015, the Company completed the acquisition of CDW UK by purchasing the remaining 65% of its
outstanding common stock which increased the Company’s ownership interest from 35% to 100%, and provided the
Company control.
A summary of the total consideration transferred is as follows:
(in millions)
Acquisition-Date Fair Value
Cash
Fair value of CDW common stock(1)
Fair value of previously held equity investment on the date of acquisition(2)
Total consideration
$
$
291.6
33.2
174.9
499.7
(1)
(2)
The Company issued 2 million shares of CDW common stock. The fair value of the common stock was based
on the closing market price on July 31, 2015, adjusted for the lack of marketability as the shares of CDW common
stock issued to certain sellers are subject to a three-year lock up restriction from August 1, 2015. One of the
sellers granted 1 million stock options to certain CDW UK coworkers over his shares of CDW common stock
received in the transaction. The fair value of these stock options was $22 million, which has been accounted for
as post-combination stock-based compensation and is being amortized over the weighted-average requisite
service period of 3.2 years and recorded in Selling and administrative expenses in the Consolidated Statements
of Operations.
As a result of the Company obtaining control over CDW UK, the Company’s previously held 35% equity
investment was remeasured to fair value, resulting in a gain of $98 million included in Gain on remeasurement
of equity investment in the Consolidated Statements of Operations. The fair value of the previously held equity
investment was determined by management with the assistance of a third party valuation firm, based on
information available at the acquisition date.
The unaudited pro forma Consolidated Statements of Operations in the table below summarizes the combined results of
operations of the Company and CDW UK, as if the acquisition had been completed on January 1, 2015, and gives effect
to pro forma events that are factually supportable and directly attributable to the transaction. The unaudited pro forma
results reflect adjustments for equity-based compensation, acquisition and integration costs, incremental intangible asset
amortization based on the fair values of each identifiable intangible asset, which are subject to change within the
measurement period, pre-acquisition equity earnings, the gain on the remeasurement of the Company’s previously held
35% equity method investment, elimination of pre-acquisition intercompany sales transactions and the impacts of certain
other pre-acquisition transactions. Pro forma adjustments were tax-effected at the statutory rates within the applicable
jurisdictions.
This unaudited pro forma information is presented for informational purposes only and may not be indicative of the
historical results of operations that would have been obtained if the acquisition had taken place on January 1, 2015, nor
the results that may be obtained in the future. This unaudited pro forma information does not reflect future synergies,
integration costs or other such costs or savings.
The unaudited pro forma Consolidated Statements of Operations is as follows:
(in millions)
Net sales
Net income
$
$
December 31, 2015
13,507.6
363.7
The unaudited pro forma information above reflects the following adjustments:
(i)
(ii)
Excludes acquisition and integration expenses directly related to the transaction.
Includes additional amortization expense related to the fair value of acquired intangibles.
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(iii)
(iv)
(v)
(vi)
Excludes the gain of resulting from the remeasurement of the Company’s previously held 35% equity investment
to fair value upon the completion of the acquisition.
Excludes the Company’s share of net income/loss from its previously held 35% equity investment prior to the
completion of the acquisition.
Excludes non-cash equity-based compensation related to certain equity awards granted by one of the sellers to
CDW UK coworkers in July 2015 prior to the completion of the acquisition.
Includes additional non-cash equity-based compensation related to equity awards granted to CDW UK coworkers
after the completion of the acquisition.
(vii)
Includes the elimination of inter-company sales transactions prior to the completion of the acquisition.
4.
Miscellaneous Receivables
Miscellaneous receivables consist of the following:
(in millions)
Vendor partner receivables
Other
Total
5.
Property and Equipment
Property and equipment consists of the following:
(in millions)
Building and leasehold improvements
Computer and data processing equipment
Machinery and equipment
Land
Furnitures and fixtures
Construction in progress
Computer software
Property and equipment, gross
Less: accumulated depreciation
Property and equipment, net
December 31,
2017
2016
279.2
57.3
336.5
$
$
186.6
48.3
234.9
December 31,
2017
2016
123.0
116.4
45.6
27.7
22.7
17.9
9.6
362.9
(201.8)
161.1
$
$
120.4
101.7
43.2
27.7
23.8
20.4
10.8
348.0
(184.3)
163.7
$
$
$
$
During 2017, 2016 and 2015, the Company recorded disposals of $23 million, $50 million and $17 million, respectively,
to remove assets that were no longer in use from property and equipment. The Company recorded a pre-tax loss of less
than $1 million for all periods for certain disposed assets that were not fully depreciated.
Depreciation expense for the years ended December 31, 2017, 2016 and 2015 was $40 million, $38 million and $29
million, respectively.
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6.
Goodwill and Other Intangible Assets
Goodwill
The changes in goodwill by reportable segment are as follows:
(in millions)
Balance at December 31, 2014(1)
Foreign currency translation
Acquisition
Balance at December 31, 2015(1)
Foreign currency translation
CDW Advanced Services Allocation(3)
Balance at December 31, 2016(1)
Foreign currency translation
Balances as of December 31, 2017(1)
Corporate
Small
Business(2)
Public
Other(4)
Consolidated
$ 1,045.9
$
185.9
$
911.3
$
—
—
—
—
1,045.9
185.9
—
28.2
1,074.1
—
—
—
185.9
—
—
—
911.3
—
18.3
929.6
—
74.5
(22.4)
305.2
357.3
(45.4)
(46.5)
265.4
24.6
$ 2,217.6
(22.4)
305.2
2,500.4
(45.4)
—
2,455.0
24.6
$ 1,074.1
$
185.9
$
929.6
$
290.0
$ 2,479.6
(1)
(2)
(3)
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.
Amounts have been recast to present Small Business as its own operating and reportable segment.
Effective January 1, 2016, the CDW Advanced Services business is included in the Company's Corporate and
Public segments.
(4)
Other is comprised of Canada and CDW UK operating segments.
With the establishment of Small Business as its own reporting unit, the Company performed a quantitative analysis in
order to allocate Goodwill between Corporate and Small Business. Based on the results of the quantitative analysis
performed as of January 1, 2017, the Company determined that the fair values of Corporate and Small Business reporting
units exceeded their carrying values by 227% and 308%, respectively, and no impairment existed.
December 1, 2017 Impairment Analysis
The Company completed its annual impairment analysis as of December 1, 2017. For the Corporate, Small Business and
UK reporting units, the Company performed a qualitative analysis. The Company determined that it was more-likely-
than-not that the individual fair values of the Corporate, Small Business and UK reporting units exceeded the respective
carrying values and therefore a quantitative impairment analysis was deemed unnecessary. Although uncertainty regarding
the impact of the Referendum on the UK’s Membership of the European Union (“EU”), advising for the exit of the UK
from the EU (referred to as “Brexit”) still exists in the current year, the Company does not believe there to be any additional
risk that would indicate the quantitative analysis performed in the prior year would have a different result. Therefore, a
qualitative analysis was deemed appropriate for the UK reporting unit. The Company performed a quantitative analysis
of the Public and Canada reporting units. Based on the results of the quantitative analysis, the Company determined that
the fair value of the Public and Canada reporting units exceeded their carrying values by 179% and 153%, respectively,
and no impairment existed.
December 1, 2016 Impairment Analysis
The Company completed its annual impairment analysis as of December 1, 2016. For the Corporate (which, as of December
1, 2016, included Small Business), Public and Canada reporting units, the Company performed a qualitative analysis.
The Company determined that it was more-likely-than-not that the individual fair values of the Corporate, Public and
Canada reporting units exceeded the respective carrying values. As a result of this determination, the quantitative
impairment analysis was deemed unnecessary. Due to the substantial uncertainty regarding the impact of Brexit, the
Company performed a quantitative analysis of the CDW UK reporting unit. Based on the results of the quantitative
analysis, the Company determined that the fair value of the CDW UK reporting unit exceeded its carrying value and no
impairment existed.
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Other Intangible Assets
A summary of intangible assets is as follows:
(in millions)
December 31, 2017
Customer relationships and contracts
Trade name
Internally developed software
Other
Total
December 31, 2016
Customer relationships and contracts
Trade name
Internally developed software
Other
Total
Gross
Carrying
Amount
$
2,106.8
$
$
$
422.2
162.6
2.9
2,694.5
$
2,084.6
$
422.1
142.6
6.0
$
2,655.3
$
Accumulated
Amortization
Net Carrying
Amount
(1,490.8) $
(216.3)
(89.6)
(0.8)
(1,797.5) $
616.0
205.9
73.0
2.1
897.0
(1,322.7) $
(195.2)
(77.7)
(4.1)
(1,599.7) $
761.9
226.9
64.9
1.9
1,055.6
During the years ended December 31, 2017 and 2016, the Company recorded disposals of $24 million and $29 million,
respectively, to remove fully amortized internally developed software assets that were no longer in use.
Amortization expense related to intangible assets for the years ended December 31, 2017, 2016 and 2015 was $221
million, $216 million and $199 million, respectively.
Estimated future amortization expense related to intangible assets is as follows:
(in millions)
Years ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total future amortization expense
7.
Inventory Financing Agreements
Estimated Future
Amortization Expense
$
$
219.8
201.4
167.6
72.3
38.4
197.5
897.0
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.
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Amounts included in accounts payable-inventory financing are as follows:
(in millions)
Revolving Loan inventory financing agreement(1)
Other inventory financing agreements(2)
Accounts payable-inventory financing
December 31,
2017
2016
$
$
480.9
17.1
498.0
$
$
558.3
22.1
580.4
(1)
(2)
The Senior Secured Asset-Based Revolving Credit Facility (“Revolving Loan”) 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.
The Company also maintains other inventory financing agreements with financial intermediaries to facilitate
the purchase of inventory from certain vendors. As of December 31, 2017 and 2016, amounts collateralized by
the inventory purchased under these financing agreements and a second lien on the related accounts receivable
were $1 million and $3 million, respectively.
8.
Lease Commitments
The Company is obligated under various non-cancelable operating lease agreements for office facilities that generally
provide for minimum rent payments and a proportionate share of operating expenses and property taxes and include
certain renewal and expansion options. For the years ended December 31, 2017, 2016 and 2015, rent expense under these
lease arrangements was $29 million, $27 million and $25 million, respectively. Capital leases included in property and
equipment are not significant.
Future minimum lease payments under non-cancelable operating leases as of December 31, 2017 are as follows:
(in millions)
Years ending December 31,
2018
2019
2020
2021
2022
Thereafter
$
Future Minimum
Lease Payments
22.1
21.8
21.0
14.5
9.0
43.4
Total future minimum lease payments
$
131.8
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 LIBOR exceeds 1.5% during the agreement period. The interest rate cap agreements are in effect
from January 17, 2017 through December 31, 2018 with a combined notional amount of $1.4 billion. As of December 31,
2017 and 2016, the interest rate cap agreements had a fair value of $5 million and are classified within Other Assets on
the Consolidated Balance Sheets.
The fair value of the Company’s interest rate cap agreements is classified as Level 2 in the fair value hierarchy. The
valuation of the interest rate cap agreements is derived by using a discounted cash flow analysis on the expected cash
receipts that would occur if variable interest rates rise above the strike rates of the caps. This analysis reflects the contractual
terms of the interest rate cap agreements, including the period to maturity, and uses observable market-based inputs,
including LIBOR curves and implied volatilities. The Company also incorporates insignificant credit valuation
adjustments to appropriately reflect the respective counterparty’s nonperformance risk in the fair value measurements.
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The counterparty credit spreads are based on publicly available credit information obtained from a third party credit data
provider. For additional details, see Note 10 (Long-Term Debt).
During the first quarter of 2017, the Company designated the interest rate cap agreements as cash flow hedges. The
effective portion of changes in the fair value of derivatives that qualify as cash flow hedges is recorded in Accumulated
other comprehensive loss and is subsequently reclassified into Interest expense in the period when the hedged forecasted
transaction affects earnings. If a derivative is deemed to be ineffective, the ineffective portion of the change in fair value
of the derivative is recognized directly into earnings. The Company's interest rate cap agreements were deemed effective
during 2017, and the Company expects the derivatives will continue to be effective for the next twelve months. The
Company recorded an insignificant gain, net of tax expense, for the effective portion of the interest rate cap agreements into
Accumulated other comprehensive loss for the year ended December 31, 2017. During 2017, the Company reclassified
an insignificant amount from Accumulated other comprehensive loss into Interest expense. The Company expects to
reclassify $5 million from Accumulated other comprehensive loss into Interest expense during the next twelve months.
Prior to the election of hedge accounting treatment, the Company recognized less than $1 million and $3 million of
Interest income during 2017 and 2016, respectively, in the Company's Consolidated Statement of Operations related to
the changes in the fair value of the interest rate cap agreements.
10.
Long-Term Debt
Long-term debt as of December 31, 2017 is as follows:
(dollars in millions)
Interest Rate
Principal
Unamortized
Discount and
Deferred
Financing Costs
Senior secured asset-based revolving credit facility
—% $
CDW UK revolving credit facility
Senior secured term loan facility (1)
CDW UK term loan
Senior notes due 2023
Senior notes due 2024
Senior notes due 2025
Other long-term obligations
Total debt
Less current maturities
Long-term debt, excluding current maturities
—%
3.7%
1.9%
5.0%
5.5%
5.0%
— $
—
1,468.0
75.7
525.0
575.0
600.0
12.2
3,255.9
(25.5)
3,230.4
$
$
— $
—
(2.0)
(1.4)
(4.5)
(5.2)
(7.3)
—
(20.4)
—
(20.4) $
Total
—
—
1,466.0
74.3
520.5
569.8
592.7
12.2
3,235.5
(25.5)
3,210.0
(1)
The Senior secured term loan facility has a variable interest rate, which has effectively been capped through the
use of an interest rate cap (see Note 9 (Financial Instruments)). The interest rate disclosed represents the variable
interest rate in effect as of year ended December 31, 2017.
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Long-term debt as of December 31, 2016 is as follows:
(dollars in millions)
Interest Rate
Principal
Unamortized
Discount and
Deferred
Financing Costs
Senior secured asset-based revolving credit facility
—% $
CDW UK revolving credit facility
Senior secured term loan facility
CDW UK term loan
Senior notes due 2022
Senior notes due 2023
Senior notes due 2024
Other long-term obligations
Total long-term debt
Less current maturities of long-term debt
Long-term debt, excluding current maturities
—%
3.3%
1.8%
6.0%
5.0%
5.5%
— $
—
1,483.0
69.1
600.0
525.0
575.0
15.7
3,267.8
(18.5)
3,249.3
$
$
— $
—
(14.9)
(1.6)
(5.6)
(5.3)
(6.0)
—
(33.4)
—
(33.4) $
Total
—
—
1,468.1
67.5
594.4
519.7
569.0
15.7
3,234.4
(18.5)
3,215.9
Senior Secured Asset-Based Revolving Credit Facility (“Revolving Loan”)
As of December 31, 2017, the Company had no outstanding borrowings under the Revolving Loan, less than $1 million
of undrawn letters of credit, $454 million reserved for the floorplan sub-facility and a borrowing base of $1.6 billion,
which is based on the amount of eligible inventory and accounts receivable balances as of November 30, 2017. Borrowings
under the Revolving Loan are limited by the borrowing base. As of December 31, 2017, the Company could have borrowed
up to an additional $996 million under the Revolving Loan. Borrowings are also limited by a minimum liquidity condition,
which provides that, if excess cash availability is less than the lower of (i) $125 million and (ii) the greater of (a) 10.0%
of the borrowing base, and (b) $100 million, the lenders are not required to lend additional amounts under the Revolving
Loan unless the consolidated fixed charge coverage ratio, as defined, is at least 1.00 to 1.00.
Borrowings under the Revolving Loan bear interest at a variable interest rate plus an applicable margin. The interest rate
margin is based on one of two indices, either (i) LIBOR or (ii) the Alternate Base Rate (“ABR”), with the ABR being the
greater of (a) the prime rate, (b) the federal funds effective rate plus 50 basis points or (c) the one-month LIBOR plus 1.00%.
The applicable margin varies (1.25% to 1.75% for LIBOR borrowings and 0.25% to 0.75% for ABR borrowings)
depending upon average daily excess cash availability under the agreement evidencing the Revolving Loan.
On March 31, 2017, the Company amended, extended and increased its Revolving Loan to a five-year, $1.5 billion senior
secured asset-based revolving credit facility, with the facility being available to the Company for borrowings, issuance
of letters of credit and floorplan financing. The Revolving Loan matures on March 31, 2022. The Revolving Loan replaces
the Company’s previous revolving loan credit facility that was to mature on June 6, 2019. The Revolving Loan (i) increases
the overall revolving credit facility capacity available to the Company from $1.3 billion to $1.5 billion, (ii) maintains the
maximum aggregate amount of increases that may be made to the revolving credit facility of $300 million, (iii) maintains
the fees on the unused portion of the revolving credit facility at 25 basis points, (iv) makes permanent the 25 basis point
reduction in the applicable interest rate margin that was previously conditioned on meeting certain credit ratings levels,
and (v) maintains the existing inventory floorplan sub-facility. In connection with the amendment of the previous facility,
the Company recorded a loss on extinguishment of long-term debt of $1 million in the Consolidated Statement of
Operations for the year ended December 31, 2017, representing a write-off of a portion of unamortized deferred financing
costs. Fees of $4 million related to the Revolving Loan were capitalized as deferred financing costs and are being amortized
over the five-year term of the facility on a straight-line basis. These deferred financing costs are recorded in Other assets
on the Consolidated Balance Sheets.
Senior Secured Term Loan Facility (“Term Loan”)
On December 31, 2017, the outstanding principal amount of the Term Loan was $1.5 billion, excluding $2 million of
deferred financing costs. On February 28, 2017, the Company amended the Term Loan to reprice the facility, reducing
interest rate margins by 25 basis points. Borrowings under the Term Loan bear interest at either (i) the ABR plus a margin
or (ii) LIBOR plus a margin, payable quarterly on the last day of each March, June, September and December. The margin
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is based upon a net leverage ratio as defined in the agreement governing the Term Loan, which is 1.00% for ABR
borrowings and 2.00% for LIBOR borrowings as of December 31, 2017.
The Term Loan was issued at par. The Term Loan replaced the prior senior secured term loan facility (the “Prior Term
Loan Facility”) that had an outstanding aggregate principal amount of $1.5 billion. The Company is required to pay
quarterly principal installments equal to 0.25% of the original principal amount of the Prior Term Loan Facility, with the
remaining principal amount payable on the maturity date of August 17, 2023, which was retained from the Prior Term
Loan Facility. In connection with this refinancing, the Company recorded a loss on extinguishment of long-term debt of
$14 million in the Consolidated Statement of Operations for the year ended December 31, 2017. This loss represented
the write-off of a portion of the unamortized deferred financing costs of $5 million and unamortized discount related to
the Prior Term Loan Facility of $9 million. In connection with the issuance of the Term Loan, the Company incurred and
recorded $2 million in deferred financing fees, which are recorded as a reduction to the debt and presented in the above
table as of December 31, 2017.
CDW UK Term Loan
On August 1, 2016, the Company entered into a new five-year £56 million ($76 million at December 31, 2017) aggregate
principal amount term loan facility (“CDW UK Term Loan”), which replaced the prior senior secured term loan facility
(the “Prior CDW UK Term Loan Facility”) that had an outstanding principal amount of £56 million. Fees of $1 million
were capitalized as deferred financing costs and are being amortized over the term of the loan on a straight-line basis.
Commencing during the quarter ending September 30, 2018, the Company is required to make annual principal
installments of £5 million ($7 million at December 31, 2017), with the remaining principal amount payable on the maturity
date of August 1, 2021. Borrowings under the CDW UK Term Loan bear interest at LIBOR plus a margin, payable
quarterly on the last day of each March, June, September and December. As of December 31, 2017, an interest rate
of 1.92% was in effect, which represents LIBOR plus a 1.40% margin.
In connection with this refinancing, the Prior CDW UK Term Loan Facility was amended to include both the CDW UK
Term Loan and a £50 million ($68 million at December 31, 2017) revolving credit facility (the “CDW UK Revolving
Credit Facility”). As of December 31, 2017, the Company had no borrowings from the CDW UK Revolving Credit
Facility.
6.0% Senior Notes due 2022 (“2022 Senior Notes”)
On March 2, 2017, the proceeds from the issuance of the 2025 Senior Notes, discussed below, along with cash on hand
and proceeds from Revolving Loan borrowings, were deposited with the trustee to redeem all of the remaining $600
million aggregate principal amount of the 2022 Senior Notes at a redemption price of 106.182% of the principal amount
redeemed, plus accrued and unpaid interest through the date of redemption. The redemption date was April 2, 2017. On
the same date, the indenture governing the 2022 Senior Notes was satisfied and discharged. In connection with this
redemption, the Company recorded a loss on extinguishment of long-term debt of $43 million in the Consolidated
Statement of Operations for the year ended December 31, 2017. This loss represents $37 million in redemption premium
and $6 million for the write-off of the remaining deferred financing costs related to the 2022 Senior Notes.
5.0% Senior Notes due 2023 (“2023 Senior Notes”)
At December 31, 2017, the outstanding principal amount of the 2023 Senior Notes was $525 million. The 2023 Notes
will mature on September 1, 2023 and bear interest rate of 5.0% per annum, payable semi-annually on March 1 and
September 1 of each year.
5.5% Senior Notes due 2024 (“2024 Senior Notes”)
At December 31, 2017, the outstanding principal amount of the 2024 Senior Notes was $575 million. The 2024 Senior
Notes will mature on December 1, 2024 and bear interest at a rate of 5.5% per annum, payable semi-annually on June 1
and December 1 of each year.
5.0% Senior Notes due 2025 (“2025 Senior Notes”)
On March 2, 2017, the Company completed the issuance of $600 million aggregate principal amount of 2025 Senior
Notes at par. In connection with the issuance of the 2025 Senior Notes, the Company incurred and recorded $7 million
in deferred financing fees, which is recorded as a reduction to the debt and presented in the above table as of December 31,
2017.
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At December 31, 2017, the outstanding principal amount of the 2025 Senior Notes was $600 million. The 2025 Senior
Notes will mature on September 1, 2025 and bear interest at a rate of 5.0% per annum, payable semi-annually on March
1 and September 1 of each year.
Debt Guarantors, Covenants and Restrictions
CDW LLC is the borrower under the Term Loan and Revolving Loan. CDW LLC and CDW Finance Corporation are
the co-issuers of the 2023, 2024 and 2025 Senior Notes (“Senior Notes”). The obligations under the Term Loan, the
Revolving Loan and the Senior Notes are guaranteed by Parent and each of CDW LLC's direct and indirect, wholly
owned, US subsidiaries (the “Guarantors”).
The Revolving Loan is collateralized by a first priority interest in inventory (excluding inventory collateralized under
the inventory floorplan arrangements as described in Note 7 (Inventory Financing Agreements)), deposits, and accounts
receivable, and a second priority interest in substantially all US assets.
The Term Loan is collateralized by a second priority interest in substantially all inventory (excluding inventory
collateralized under the inventory floorplan arrangements as described in Note 7 (Inventory Financing Agreements)),
deposits, and accounts receivable, and by a first priority interest in substantially all other U.S. assets.
As of December 31, 2017, the Company remained in compliance with the covenants under its various credit agreements.
The Term Loan contains negative covenants that, among other things, place restrictions and limitations on the ability of
the Guarantors to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other indebtedness,
make distributions or other restricted payments, create liens, make equity or debt investments, make acquisitions, engage
in mergers or consolidations or engage in certain transactions with affiliates. As of December 31, 2017, the amount of
CDW’s restricted payment capacity under the Term Loan was $1.2 billion. However, the Company is separately permitted
to make restricted payments, so long as the total net leverage ratio is less than 3.25:1.00 on a pro forma basis. The total
net leverage ratio was 2.62:1.00 as of December 31, 2017.
Each of the Senior Notes indentures contain negative covenants that, among other things, place restrictions and limitations
on the ability of the Guarantors to enter into sale and lease-back transactions, incur additional secured indebtedness and
create liens. The indenture governing each of the Senior Notes do not contain any financial covenants.
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, 2017, the amount of restricted payment
capacity under the CDW UK Term Loan was £73 million ($98 million at December 31, 2017).
Long-Term Debt Maturities
A summary of Long-term debt maturities is as follows:
(in millions)
Years ending December 31,
2018
2019
2020
2021
2022
Thereafter
Fair Value
$
Total
25.5
25.7
25.9
70.3
14.9
3,093.6
$ 3,255.9
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 Loan approximate fair value if there are outstanding borrowings. The approximate fair values and
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related carrying values of the Company's long-term debt, including current maturities and excluding unamortized discount
and unamortized deferred financing costs, were as follows:
(in millions)
Fair value
Carrying value
11.
Income Taxes
December 31,
2017
2016
$
3,366.5
$
3,255.9
3,334.8
3,267.8
On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. The Tax Cuts and Jobs Act changes several
aspects of US federal tax law including: reducing the US corporate income tax rate from 35% to 21% beginning on
January 1, 2018; establishing a territorial tax system, which includes a one-time tax on the deemed mandatory repatriation
of the Company’s international operations’ unremitted earnings which have not been subject to US tax; imposing a
minimum US tax on foreign earnings; providing for the immediate expensing of certain qualified property; and changing
the tax treatment of performance based executive compensation and certain employee fringe benefits. US GAAP requires
the income tax effects of the Tax Cuts and Jobs Act to be accounted for in the period of enactment.
As of December 31, 2017, the Company has not completed its accounting for the income tax effects of the Tax Cuts and
Jobs Act; however, it has recorded provisional amounts for the impact of revaluing the deferred tax assets and liabilities,
the deemed mandatory repatriation tax on the Company’s international operations’ unremitted earnings which have not
been subject to US tax and the state income tax effects related to the change in federal tax law.
The Company recorded an income tax benefit of $96 million to reflect the impact of revaluing US deferred tax assets
and liabilities to 21%, which is the rate the Company expects the deferred tax assets and liabilities to reverse. The Company
has recorded additional federal income tax expense of $20 million to reflect the deemed mandatory repatriation tax on
the Company’s international operations’ unremitted earnings which have not been subject to US tax. The mandatory
repatriation tax generated excess foreign tax credits of approximately $14 million, which are available for carryforward.
The Company does not expect to utilize the foreign tax credits carryforwards prior to their expiration and it has recorded
a $14 million valuation allowance against the foreign tax carryforwards. The Company has recorded additional tax
expense of less than $1 million for the state income tax impact of the Tax Cuts and Jobs Act.
As the Company completes its analysis and refines its calculations of the federal and state income tax impact of the Tax
Cuts and Jobs Act, it may need to adjust the measurement of the deferred tax assets and liabilities, update the historical
earnings of its UK and Canadian operations which will impact the mandatory repatriation tax, foreign tax credit utilization,
carryforwards and valuation allowance, and adjust the state income tax expense.
Income before income taxes was taxed under the following jurisdictions:
(in millions)
Domestic
Foreign
Total
Years Ended December 31,
2017
2016
2015
$
$
607.1
53.2
660.3
$
$
635.5
36.9
672.4
$
$
626.4
20.6
647.0
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Components of Income tax expense (benefit) consist of the following:
(in millions)
Current:
Federal
State
Foreign
Total current
Deferred:
Domestic
Foreign
Total deferred
Income tax expense
Years Ended December 31,
2017
2016
2015
$
$
258.9
29.8
21.3
310.0
(168.0)
(4.7)
(172.7)
137.3
$
$
295.7
34.9
16.8
347.4
(90.5)
(8.9)
(99.4)
248.0
$
$
258.5
28.6
10.1
297.2
(48.5)
(4.8)
(53.3)
243.9
The reconciliation between the statutory tax rate expressed as a percentage of income before income taxes and the effective
tax rate is as follows:
(dollars in millions)
Statutory federal income tax rate
State taxes, net of federal effect(1)
Excess tax benefit of equity awards
Effect of rates different than statutory
Foreign withholding tax
Effect of UK tax rate change on deferred
taxes
Effect of US Tax Cuts and Jobs Act on
Deferred Taxes and Mandatory
Repatriation Tax
Other
Effective tax rate
Years Ended December 31,
2017
2016
2015
$
231.1
35.0% $
235.4
35.0% $
226.4
35.0%
18.3
(36.2)
(6.3)
1.0
2.8
(5.5)
(1.0)
0.2
17.8
(1.6)
(4.5)
0.8
2.6
(0.2)
(0.7)
0.1
16.5
—
(1.9)
3.3
2.6
—
(0.3)
0.5
—
—
(1.5)
(0.2)
(4.0)
(0.6)
(75.5)
4.9
(11.4)
0.7
—
1.6
—
0.3
—
3.6
—
0.5
$
137.3
20.8% $
248.0
36.9% $
243.9
37.7%
(1)
The impact of state taxes on excess tax benefits of equity awards and the US Tax Cuts and Jobs Act are presented
on the respective separate lines in the effective tax rate reconciliation.
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The tax effect of temporary differences that give rise to the net deferred income tax liabilities is presented below:
(in millions)
Deferred tax assets:
Equity compensation plans
Payroll and benefits
Deferred interest
Net operating loss and credit carryforwards, net
Rent
Accounts receivable
Other
Trade credits
Total deferred tax assets
Deferred tax liabilities:
Software and intangibles
Deferred income
International investments
Property and equipment
Other
Total deferred tax liabilities
Deferred tax asset valuation allowance
Net deferred tax liabilities
December 31,
2017
2016
$
18.7
$
8.0
6.8
28.1
7.4
5.4
8.0
1.5
29.2
22.7
13.9
12.7
11.0
8.3
6.2
0.6
83.9
104.6
194.5
337.4
18.6
19.2
20.4
12.0
264.7
15.5
58.3
31.3
30.3
15.3
472.6
1.2
$
196.3
$
369.2
The Company has state and international income tax net operating losses of $29 million, which will expire at various
dates from 2025 through 2032 and state and international tax credit carryforwards of $28 million, which expire at various
dates from 2019 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. As the Company continues to evaluate
the Tax Cuts and Jobs Act, the Company has made a provisional determination that it is indefinitely reinvested in its UK
business, and therefore will not provide for any deferred US taxes on the earnings of the UK business. The Company has
also made a provisional determination that it is not permanently reinvested in its Canadian business and therefore has
recognized deferred tax liabilities of $3 million as of December 31, 2017 related to withholding taxes on earnings of its
Canadian business.
In the ordinary course of business, the Company is subject to review by domestic and foreign taxing authorities, including
the Internal Revenue Service (“IRS”). In general, the Company is no longer subject to audit by the IRS for tax years
through 2013 and state, local or foreign taxing authorities for tax years through 2012. Various other 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 position, results of
operations or cash flows.
12.
Stockholders’ Equity
Share Repurchase Program
The Company has a share repurchase program under which it may repurchase shares of its common stock in the open
market or through privately negotiated other transactions, depending on share price, market conditions and other factors.
The share repurchase program does not obligate the Company to repurchase any dollar amount or number of shares, and
repurchases may be commenced or suspended from time to time without prior notice.
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During 2017, the Company repurchased 9 million shares of its common stock for $534 million under the previously
announced $750 million share repurchase program.
On August 3, 2017, the Company announced that its Board of Directors authorized a $750 million increase to the
Company’s share repurchase program. As of December 31, 2017, the Company has $858 million remaining under this
program.
Treasury Stock
On December 31, 2017, the Company acquired 109,207 shares of its common stock, which are held as treasury stock.
The shares were acquired in satisfaction of withholding taxes on behalf of employees under the Performance Share Awards
(“PSAs”) program. Refer to Note 13 (Equity-Based Compensation) for additional information on the PSAs.
13.
Equity-Based Compensation
Equity-based compensation expense, which is recorded in Selling and administrative expenses in the Consolidated
Statements of Operations is as follows:
(in millions)
Equity-based compensation expense
Income tax benefit (1)
Equity-based compensation expense (net of tax)
Years Ended December 31,
2017
2016
2015
$
$
43.7
(15.3)
28.4
$
$
39.2
(13.3)
25.9
$
$
31.2
(10.9)
20.3
(1)
Represents equity-based compensation tax expense at the statutory tax rates. This line does not include any
excess tax benefits associated with equity awards separately disclosed in Note 11 (Income Taxes).
The total unrecognized compensation cost related to nonvested awards was $32 million at December 31, 2017 and is
expected to be recognized over a weighted-average period of 1.6 years.
2013 Long-Term Incentive Plan
The 2013 Long-Term Incentive Plan (“2013 LTIP”) provides for the grant of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock, restricted stock units, bonus stock and performance awards. The
maximum aggregate number of shares that may be issued under the 2013 LTIP is 15,500,000 shares of the Company’s
common stock, in addition to the 3,798,508 shares of restricted stock granted in exchange for unvested Class B Common
Units in connection with the Company’s IPO. As of December 31, 2017, 6,416,547 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 10 years and generally vest ratably over three years. To estimate the fair value
of options granted, the Company uses the Black-Scholes option pricing model. The weighted-average assumptions used
to value the stock options granted were as follows:
Grant date fair value
Volatility (1)
Risk-free rate (2)
Expected dividend yield
Expected term (in years) (3)
$
Years Ended December 31,
2017
2016
2015
$
12.27
22.00%
2.08%
1.09%
6.0
$
8.55
25.00%
1.47%
1.08%
6.0
11.13
30.00%
1.75%
0.72%
6.0
(1)
Based upon an assessment of the two-year and five-year historical volatility and implied volatility for the
Company’s selected peer group, adjusted for the Company’s leverage.
(2)
Based on a composite US Treasury rate.
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(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, 2017 was as follows:
Outstanding at January 1, 2017
Options
Granted
Forfeited/Expired
Exercised(1)
Outstanding at December 31, 2017
Vested and exercisable at December 31, 2017
Expected to vest at December 31, 2017
Number of
Options
Weighted-
Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
(years)
Aggregate
Intrinsic Value
(millions)
3,781,051
$
1,213,299
(59,834)
(476,520)
4,457,996
2,372,046
2,056,814
$
$
$
29.36
58.97
45.76
27.37
37.41
25.90
50.44
7.21
5.97
8.61
$
$
$
143.0
103.4
39.2
(1)
The total intrinsic value of stock options exercised during the years ended December 31, 2017, 2016 and 2015
was $17 million, $7 million and $2 million, respectively.
Restricted Stock Units (“RSUs”)
Restricted stock units represent the right to receive unrestricted shares of the Company’s stock at the time of vesting.
RSUs generally cliff-vest at the end of four years. The fair value of RSUs is equal to the closing price of the Company’s
common stock on date of grant.
RSU activity for the year ended December 31, 2017 was as follows:
Nonvested at January 1, 2017
Granted (1)
Vested (2)
Forfeited
Nonvested at December 31, 2017
Number of Units
Weighted-Average
Grant-Date Fair
Value
1,179,488
$
25,493
(1,032,821)
(41,091)
131,069
$
19.52
58.90
17.77
23.00
40.11
(1)
(2)
The weighted-average grant date fair value of RSUs granted during the years ended December 31, 2017, 2016
and 2015 was $58.90, $39.82 and $36.24, respectively.
The aggregate fair value of RSUs that vested during the years ended December 31, 2017, 2016 and 2015 was
$18 million, $1 million and $1 million, respectively.
Performance Share Units (“PSUs”)
Performance share units represent the right to receive unrestricted shares of the Company’s stock at the time of vesting.
PSUs are granted under the 2013 LTIP which cliff-vest at the end of three years. The percentage of PSUs that shall vest
will range from 0% to 200% of the number of PSUs granted based on the Company’s performance against a cumulative
adjusted free cash flow measure and cumulative non-GAAP net income per diluted share measure over a three-year
performance period.
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PSU activity for the year ended December 31, 2017 was as follows:
Nonvested at January 1, 2017
Granted (1)
Attainment Adjustment (2)
Vested (3)
Forfeited
Nonvested at December 31, 2017
Number of Units
Weighted-Average
Grant-Date Fair
Value
363,947
$
254,451
361,880
(530,569)
(30,736)
418,973
$
38.92
59.00
24.40
37.84
47.28
50.75
(1)
(2)
(3)
The weighted-average grant date fair value of PSUs granted during the years ended December 31, 2017, 2016
and 2015 was $59.00, $39.91 and $37.83, respectively.
During the year ended December 31, 2017, the attainment on PSUs vested at December 31, 2016 was adjusted
to reflect actual performance. The weighted-average grant date fair value of PSUs included in the attainment
adjustment is $24.40.
The aggregate fair value of PSUs that vested during the years ended December 31, 2017 and 2016 was $20
million and $9 million, respectively. No PSUs vested during the year ended December 31, 2015.
Performance Share Awards (“PSAs”)
Performance share awards represent the right to receive unrestricted shares of the Company’s stock at the time of vesting.
PSAs are granted under the 2013 LTIP which cliff-vest at the end of three years. The percentage of PSAs that shall vest
will range from 0% to 200% of the number of PSAs granted based on the Company’s performance against a cumulative
adjusted free cash flow measure and cumulative non-GAAP net income per diluted share measure over a three-year
performance period.
PSA activity for the year ended December 31, 2017 was as follows:
Nonvested at January 1, 2017
Granted (1)
Vested (2)
Forfeited
Nonvested at December 31, 2017
Number of Units
Weighted-Average
Grant-Date Fair
Value
246,012
$
2,714
(121,266)
(4,993)
122,467
$
38.96
—
37.79
39.79
40.08
(1)
The weighted-average grant date fair value of PSAs granted during the year ended December 31, 2017 was zero
as the units granted consisted of only dividends on previously granted units. The weighted-average grant date
fair value of PSAs granted during the years ended December 31, 2016 and 2015 was $40.06 and $37.79,
respectively.
(2)
The aggregate fair value of PSAs that vested during the year ended December 31, 2017 was $5 million. No
PSAs vested during the years ended December 31, 2016 and 2015.
Restricted Stock (“RSAs”)
In connection with the IPO, the Company issued restricted shares of the Company’s common stock to former stockholders
of CDW Holdings. These shares are subject to any vesting provisions previously applicable to the restrictions associated
with the stock of CDW Holdings. Class B Common Unit holders received 3,798,508 shares of restricted stock with
respect to Class B Common Units that had not yet vested at the time of the issuance.
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RSA activity for the year ended December 31, 2017 was as follows:
Nonvested at January 1, 2017
Granted
Vested(1)
Forfeited
Nonvested at December 31, 2017
Number of Units
Weighted-Average
Grant-Date Fair
Value
26,052
$
—
(25,398)
(654)
— $
17.00
—
17.00
17.00
—
(1)
The aggregate fair value of restricted stock that vested during the years ended December 31, 2017, 2016 and
2015 was less than $1 million, $1 million and $3 million, respectively.
Equity Awards Granted by Seller of CDW UK
The Company issued 1,634,809 shares of CDW common stock as part of the consideration transferred to certain sellers
for the acquisition of CDW UK. One of the sellers granted 608,706 stock options to certain CDW UK coworkers over
his shares of CDW common stock received in this transaction. The options are not dilutive for purposes of calculating
diluted weighted-average shares outstanding as the underlying shares were issued as part of the consideration transferred
and are included within basic weighted-average shares outstanding since the acquisition date. The weighted average grant
date fair value of the stock options was $22 million or $35.93 per option. The grant date fair value of the options was
determined by calculating the fair value of the common stock that was issued which will eventually settle these options.
The exercise price of these stock options is $0.01. The fair value of these stock options has been accounted for as post-
combination stock-based compensation, as service is required for the coworkers to retain the awards, and is being amortized
over the weighted-average requisite service period. Options that are forfeited prior to vesting will not be available for
future option issuances and will revert as consideration to the seller. For further information regarding the acquisition,
see Note 3 (Acquisition).
14.
Earnings Per Share
The numerator for both basic and diluted earnings per share is Net income. The denominator for basic earnings per share
is the weighted-average shares outstanding during the period.
A reconciliation of basic weighted-average shares outstanding to diluted weighted-average shares outstanding is as
follows:
(in millions)
Basic weighted-average shares outstanding
Effect of dilutive securities (1)
Diluted weighted-average shares outstanding (2)
Years Ended December 31,
2017
2016
2015
155.4
2.8
158.2
163.6
2.4
166.0
170.3
1.5
171.8
(1)
(2)
The dilutive effect of outstanding stock options, restricted stock units, restricted stock, performance share units
and Coworker Stock Purchase Plan units is reflected in the diluted weighted-average shares outstanding using
the treasury stock method.
There were less than 1 million potential common shares excluded from diluted weighted-average shares
outstanding for the years ended December 31, 2017, 2016 and 2015, respectively, as their inclusion would have
had an anti-dilutive effect.
15.
Coworker Retirement and Other Compensation Benefits
Profit Sharing Plan and Other Savings Plans
The Company has a profit sharing plan that includes a salary reduction feature established under the Internal Revenue
Code Section 401(k) covering substantially all coworkers in the US. In addition, coworkers outside the US participate
in other savings plans. Company contributions to the profit sharing and other savings plans are made in cash and determined
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at the discretion of the Board of Directors. For the years ended December 31, 2017, 2016 and 2015, the amounts expensed
for these plans were $20 million, $23 million and $20 million, respectively.
Coworker Stock Purchase Plan
The Company has a Coworker Stock Purchase Plan (the “CSPP”) that provides the opportunity for eligible coworkers
to acquire shares of the Company’s common stock at a 5% discount from the closing market price on the final day of the
offering period. There is no compensation expense associated with the CSPP.
Restricted Debt Unit Plan
On March 10, 2010, the Company established the Restricted Debt Unit Plan (the “RDU Plan”), an unfunded nonqualified
deferred compensation plan. Compensation expense related to the RDU Plan was $2 million, $2 million and $5 million
for the years ended December 31, 2017, 2016 and 2015, respectively. On September 15, 2017, the Company settled the
RDU Plan. The total payment made on September 15, 2017 was $31 million, which settled the obligation in full.
16.
Commitments and Contingencies
The Company is party to various legal proceedings that arise in the ordinary course of its business, which include
commercial, intellectual property, employment, tort and other litigation matters. The Company is also subject to audit by
federal, state, international, national, provincial and local authorities, and by various partners, group purchasing
organizations and customers, including government agencies, relating to purchases and sales under various contracts. In
addition, the Company is subject to indemnification claims under various contracts. From time to time, certain customers
of the Company file voluntary petitions for reorganization or liquidation under the US bankruptcy laws or similar laws
of the jurisdictions for the Company’s business activities outside of the US. In such cases, certain pre-petition payments
received by the Company could be considered preference items and subject to return to the bankruptcy administrator.
As of December 31, 2017, the Company does not believe that there is a reasonable possibility that any material loss
exceeding the amounts already recognized for these proceedings and matters, if any, has been incurred. However, the
ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company’s financial
condition and results of operations could be adversely affected in any particular period by the unfavorable resolution of
one or more of these proceedings or matters.
On October 29, 2015, the Company learned of an investigation by the SEC of the Company’s vendor partner program
incentives. On May 19, 2017, the SEC Staff informed the Company that the SEC has concluded its investigation and
does not intend to recommend an enforcement action. The investigation did not have any impact on the Company’s
financial condition or result of operations other than customary costs related to the Company’s cooperation with the
investigation.
17.
Related Party Transactions
The Company held a 35% non-controlling interest in CDW UK until August 1, 2015 when the Company purchased the
remaining 65% of its outstanding common stock. The Company recorded $10 million in Net sales to CDW UK during
the normal course of business in 2015 prior to the acquisition of CDW UK.
On November 30, 2015, the Company completed a public offering of 9.2 million shares of its common stock by certain
selling stockholders, which included 1.2 million shares sold by the selling stockholders to the underwriters pursuant to
the grant of an option that was exercised in full. The Company did not receive any proceeds from the sale of these shares.
Upon completion of this offering, the Company purchased from the underwriters 1.0 million of the shares of its common
stock that were subject to the offering at a price per share equal to the price paid by the underwriters to the selling
stockholders in the offering.
On August 18, 2015, the Company completed a public offering of approximately 12.9 million shares of its common stock
by certain selling stockholders, which included 1.7 million shares sold by the selling stockholders to the underwriters
pursuant to the grant of an option that was exercised in full. The Company did not receive any proceeds from the sale of
these shares. Upon completion of this offering, the Company purchased from the underwriters 2.3 million of the shares
of its common stock that were subject to the offering at a price per share equal to the price paid by the underwriters to
the selling stockholders in the offering.
On May 22, 2015, the Company completed a public offering of 11.5 million shares of its common stock by certain selling
stockholders, which included 1.5 million shares sold by the selling stockholders to the underwriters pursuant to the grant
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CDW CORPORATION AND SUBSIDIARIES
of an option that was exercised in full. The Company did not receive any proceeds from the sale of these shares. On
May 17, 2015, the Company entered into a share repurchase agreement with certain selling stockholders affiliated with
Madison Dearborn and Providence Equity pursuant to which it repurchased 2.0 million shares of its common stock from
such selling stockholders. This share repurchase was effected in a private, non-underwritten transaction for $36.60 per
share, which was equal to the per share price paid by the underwriters to the selling stockholders in connection with the
public offering completed on May 22, 2015.
18.
Segment Information
The Company’s segment information is presented in accordance with a “management approach,” which designates the
internal reporting used by the Chief Operating Decision-Maker for deciding how to allocate resources and for assessing
performance.
The Company has three reportable segments: Corporate, which is comprised primarily of private sector business
customers with more than 250 employees in the US, Small Business, primarily servicing private sector business customers
with up to 250 employees in the US, and Public, which is comprised of government agencies and education and healthcare
institutions in the US. The Company has two other operating segments: CDW Canada and CDW UK, both of which do
not meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category (“Other”).
Effective January 1, 2016, CDW Advanced Services is no longer an operating segment. Its results have been allocated
to the Corporate, Small Business and Public segments to align the Company's financial reporting with the manner in
which the Chief Operating Decision-Maker assesses performance and makes resource allocation decisions. Segment
information reported in prior periods has been reclassified to conform to the current period presentation.
The Company has centralized logistics and headquarters functions that provide services to the segments. The logistics
function includes purchasing, distribution and fulfillment services to support the Corporate, Small Business and Public
segments. As a result, costs and intercompany charges associated with the logistics function are fully allocated to both
of these segments based on a percent of Net sales. The centralized headquarters function provides services in areas such
as accounting, information technology, marketing, legal and coworker services. Headquarters’ function costs that are not
allocated to the segments are included under the heading of “Headquarters” in the tables below.
The Company allocates resources to and evaluates performance of its segments based on Net sales, Income from operations
and Adjusted EBITDA, a non-GAAP measure as defined in the Company’s credit agreements. However, the Company
has concluded that Income from operations is the more useful measure in terms of discussion of operating results, as it
is a GAAP measure.
Segment information for Total assets and capital expenditures is not presented, as such information is not used in measuring
segment performance or allocating resources between segments.
Selected Segment Financial Information
Information regarding the Company’s segments for the years ended December 31, 2017, 2016 and 2015 is as follows:
(in millions)
2017:
Net sales
Income (loss) from operations
Depreciation and amortization expense
2016:
Net sales
Income (loss) from operations
Depreciation and amortization expense
2015:
Net sales
Income (loss) from operations
Depreciation and amortization expense
Corporate (1)
Small
Business (1)
Public
Other
Headquarters
Total
$ 6,347.0
487.0
(83.1)
$ 1,246.5
74.4
(20.7)
$ 6,037.5
374.0
(44.8)
$ 1,560.5
57.9
(30.9)
$ 5,889.8
453.6
(82.9)
$ 1,140.1
68.9
(20.6)
$ 5,589.4
368.0
(44.7)
$ 1,362.6
43.6
(32.1)
$ 5,878.7
432.5
(82.6)
$ 1,089.6
68.3
(20.6)
$ 5,183.6
328.6
(44.7)
$
836.8
27.1
(16.2)
88
$
$
$
— $15,191.5
866.1
(260.9)
(127.2)
(81.4)
— $13,981.9
819.2
(254.5)
(114.9)
(74.2)
— $12,988.7
742.0
(227.4)
(114.5)
(63.3)
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CDW CORPORATION AND SUBSIDIARIES
(1)
Amounts have been recast to present Small Business as its own operating and reportable segment.
Geographic Areas and Revenue Mix
The Company did not have Net sales to individual countries outside of the US exceeding 10% of the Company’s total
Net sales in 2017, 2016 or 2015. The Company did not have long-lived assets located in individual countries outside of
the US exceeding 10% of the Company’s total long-lived assets as of December 31, 2017 or 2016.
The following table presents Net sales by major category for the years ended December 31, 2017, 2016 and 2015.
Categories are based upon internal classifications.
Year Ended
December 31, 2017
Year Ended
December 31, 2016 (1)
Year Ended
December 31, 2015 (1)
Dollars in
Millions
Percentage
of Total Net
Sales
Dollars in
Millions
Percentage
of Total Net
Sales
Dollars in
Millions
Percentage
of Total Net
Sales
3,490.9
2,042.9
1,159.4
1,076.9
1,071.5
3,100.3
11,941.9
2,540.1
611.3
98.2
23.1% $
13.4
7.6
7.1
7.1
20.4
78.7
16.7
4.0
0.6
2,921.6
1,958.2
1,050.0
962.1
1,053.1
3,042.6
10,987.6
2,389.3
575.1
29.9
20.9% $
14.0
7.5
6.9
7.5
21.8
78.6
17.1
4.1
0.2
2,537.3
1,915.0
965.6
853.8
1,067.2
2,950.5
10,289.4
2,152.3
467.7
79.3
19.5%
14.7
7.4
6.6
8.2
22.7
79.1
16.6
3.6
0.7
$
15,191.5
100.0% $
13,981.9
100.0% $
12,988.7
100.0%
Notebooks/Mobile Devices $
Netcomm Products
Desktops
Video
Enterprise and Data
Storage (Including Drives)
Other Hardware
Total Hardware
Software
Services(2)
Other (3)
Total Net sales
(1)
(2)
Amounts have been reclassified for changes in individual product classifications to conform to the presentation
for the year ended December 31, 2017.
Certain software and services revenue are recorded on a net basis for accounting purposes, so 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 and certain commission revenue.
19.
Supplemental Guarantor Information
The 2023 Senior Notes, the 2024 Senior Notes and the 2025 Senior Notes are, and, prior to being redeemed in full, the
2022 Senior Notes were, guaranteed by the Parent and each of CDW LLC’s direct and indirect, 100% owned, domestic
subsidiaries (the “Guarantor Subsidiaries”). All guarantees by the Parent and the Guarantor Subsidiaries are and were
joint and several, and full and unconditional; provided that guarantees by the Guarantor Subsidiaries (i) are subject to
certain customary release provisions contained in the indentures governing the 2023 Senior Notes, the 2024 Senior Notes
and the 2025 Senior Notes and (ii) were subject to certain customary release provisions contained in the indenture
governing the 2022 Senior Notes until such indenture was satisfied and discharged during 2017. CDW LLC's 100%
owned foreign subsidiaries, CDW International Holdings Limited, which is comprised of CDW UK and CDW Canada
(together the “Non-Guarantor Subsidiaries”), do not guarantee the debt obligations. CDW LLC and CDW Finance
Corporation, as co-issuers, are 100% owned by Parent and each of the Guarantor Subsidiaries and the Non-Guarantor
Subsidiaries are, directly or indirectly, 100% owned by CDW LLC.
The following tables set forth Condensed Consolidating Balance Sheets as of December 31, 2017 and 2016, Consolidating
Statements of Operations for the years ended December 31, 2017, 2016 and 2015, Condensed Consolidating Statements
of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015, and Condensed Consolidating
Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015, in accordance with Rule 3-10 of
Regulation S-X. The consolidating financial information includes the accounts of CDW Corporation (the “Parent
Guarantor”), which has no independent assets or operations, the accounts of CDW LLC (the “Subsidiary Issuer”), the
combined accounts of the Guarantor Subsidiaries, the combined accounts of the Non-Guarantor Subsidiaries, and the
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accounts of CDW Finance Corporation (the “Co-Issuer”) for the periods indicated. The information was prepared on the
same basis as the Company’s Consolidated Financial Statements.
Condensed Consolidating Balance Sheet
December 31, 2017
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
(in millions)
Assets
Current assets:
Cash and cash equivalents
$
— $
113.7
$
— $
32.4
$ — $
Accounts receivable, net
Merchandise inventory
Miscellaneous receivables
Prepaid expenses and other
Total current assets
Property and equipment, net
Goodwill
Other intangible assets, net
Other assets
Investment in and advances to
subsidiaries
Total Assets
Liabilities and Stockholders’
Equity
Current liabilities:
—
—
—
—
—
—
—
—
1.7
—
—
103.9
18.0
235.6
95.0
751.8
280.1
30.7
2,007.7
375.7
205.0
61.4
2,649.8
43.5
1,439.0
424.5
217.3
981.2
3,063.5
—
312.8
73.8
27.6
48.0
494.6
22.6
288.8
192.4
2.6
—
—
—
—
—
—
—
—
—
—
—
$
982.9
$ 4,456.7
$ 4,774.1
$
1,001.0
$ — $
(1.9) $
—
144.2
2,320.5
—
—
—
(1.9)
—
—
—
(211.5)
449.5
336.5
127.4
3,378.1
161.1
2,479.6
897.0
40.8
(4,044.7)
—
(4,258.1) $ 6,956.6
Accounts payable-trade
$
— $
42.5
$ 1,112.1
$
165.0
$ — $
(1.9) $ 1,317.7
Accounts payable-
inventory financing
Current maturities of long-
term debt
Deferred revenue
Accrued expenses
Total current liabilities
—
—
—
—
—
1.0
480.9
14.9
—
173.3
231.7
3.8
104.5
222.3
16.1
6.8
89.5
83.8
1,923.6
361.2
Long-term liabilities:
Debt
Deferred income taxes
Other liabilities
Total long-term
liabilities
Total stockholders’ equity
Total Liabilities and
Stockholders’ Equity
— 3,134.2
—
—
66.5
43.1
8.3
100.1
4.6
— 3,243.8
113.0
982.9
981.2
2,737.5
67.5
31.4
214.9
313.8
326.0
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1.9)
—
(1.7)
(209.8)
498.0
25.5
194.0
479.4
2,514.6
3,210.0
196.3
52.8
(211.5)
3,459.1
(4,044.7)
982.9
$
982.9
$ 4,456.7
$ 4,774.1
$
1,001.0
$ — $
(4,258.1) $ 6,956.6
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CDW CORPORATION AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
December 31, 2016
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
(in millions)
Assets
Current assets:
Cash and cash equivalents
$
— $
222.7
$
3.1
$
37.9
$ — $
— $
263.7
Accounts receivable, net
Merchandise inventory
Miscellaneous receivables
Prepaid expenses and other
Total current assets
Property and equipment, net
Goodwill
Other intangible assets, net
Other assets
Investment in and advances to
subsidiaries
Total Assets
Liabilities and Stockholders’
Equity
Current liabilities:
—
—
—
—
—
—
—
—
3.2
—
—
92.6
14.3
329.6
105.6
751.8
291.5
19.4
1,904.9
390.6
130.1
69.0
2,497.7
49.3
1,439.0
565.1
248.2
1,042.3
3,026.5
—
263.7
61.4
12.2
35.6
410.8
8.8
264.2
199.0
1.5
—
—
—
—
—
—
—
—
—
—
—
$ 1,045.5
$ 4,524.4
$ 4,799.3
$
884.3
$ — $
—
—
—
—
—
—
—
—
(236.3)
2,168.6
452.0
234.9
118.9
3,238.1
163.7
2,455.0
1,055.6
36.0
(4,068.8)
—
(4,305.1) $ 6,948.4
Accounts payable-trade
$
— $
25.9
$
895.3
$
151.7
$ — $
— $ 1,072.9
Accounts payable-
inventory financing
Current maturities of long-
term debt
Deferred revenue
Accrued expenses
Total current liabilities
—
—
—
—
—
1.2
559.5
14.9
—
173.9
215.9
3.6
100.8
214.8
19.7
—
71.8
47.7
1,774.0
290.9
Long-term liabilities:
Debt
Deferred income taxes
Other liabilities
Total long-term
liabilities
Total stockholders’ equity
Total Liabilities and
Stockholders’ Equity
— 3,136.3
—
—
99.1
30.8
12.1
205.4
3.6
— 3,266.2
221.1
1,045.5
1,042.3
2,804.2
67.5
67.9
235.7
371.1
222.3
—
—
—
—
—
—
—
—
—
—
—
—
—
(0.1)
(0.1)
—
(3.2)
(233.0)
580.4
18.5
172.6
436.3
2,280.7
3,215.9
369.2
37.1
(236.2)
3,622.2
(4,068.8)
1,045.5
$ 1,045.5
$ 4,524.4
$ 4,799.3
$
884.3
$ — $
(4,305.1) $ 6,948.4
91
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
(in millions)
Net sales
Cost of sales
Gross profit
Selling and administrative
expenses
Advertising expense
Income (loss) from operations
Interest (expense) income, net
Net loss on extinguishments of
long-term debt
Other income (expense), net
Income (loss) before income taxes
Consolidating Statement of Operations
Year Ended December 31, 2017
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$ — $
— $ 13,631.0
$
1,560.5
$ — $
—
—
—
—
—
—
—
—
—
— 11,436.1
—
2,194.9
1,305.5
255.0
127.2
1,093.1
189.8
—
(127.2)
(148.3)
(57.4)
(0.1)
(333.0)
149.9
166.4
935.4
4.1
—
0.7
940.2
(269.7)
670.5
—
7.3
57.9
(6.3)
—
1.5
53.1
(16.6)
36.5
—
— $ 15,191.5
— 12,741.6
—
—
—
—
—
—
—
—
—
—
(1,230.9)
2,449.9
1,410.1
173.7
866.1
(150.5)
(57.4)
2.1
660.3
(137.3)
523.0
—
—
—
—
—
—
—
—
—
—
—
—
—
Income tax (expense) benefit
(0.9)
Income (loss) before equity in
earnings of subsidiaries
(0.9)
(183.1)
Equity in earnings of subsidiaries
523.9
707.0
Net income
$ 523.0
$
523.9
$
670.5
$
36.5
$ — $ (1,230.9) $
523.0
92
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
(in millions)
Net sales
Cost of sales
Gross profit
Selling and administrative
expenses
Advertising expense
Income (loss) from operations
Interest (expense) income, net
Net loss on extinguishments of
long-term debt
Other income, net
Income (loss) before income taxes
Income tax (expense) benefit
Income (loss) before equity in
earnings of subsidiaries
Consolidating Statement of Operations
Year Ended December 31, 2016
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$ — $
— $ 12,619.3
$
1,362.6
$ — $
—
—
—
—
—
—
—
—
—
—
—
— 10,514.4
—
2,104.9
1,140.3
222.3
114.8
1,057.4
172.9
—
(114.8)
(145.8)
(2.1)
0.2
(262.5)
79.9
(182.6)
607.0
157.2
890.3
6.7
—
1.0
898.0
(319.9)
578.1
—
5.7
43.7
(7.4)
—
0.6
36.9
(8.0)
28.9
—
—
—
—
—
—
—
—
—
—
—
—
—
— $ 13,981.9
— 11,654.7
—
—
—
—
—
—
—
—
—
—
(1,031.4)
2,327.2
1,345.1
162.9
819.2
(146.5)
(2.1)
1.8
672.4
(248.0)
424.4
—
Equity in earnings of subsidiaries
424.4
Net income
$ 424.4
$
424.4
$
578.1
$
28.9
$ — $ (1,031.4) $
424.4
93
Table of Contents
(in millions)
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Advertising expense
Income (loss) from operations
Interest (expense) income, net
Net loss on extinguishments of
long-term debt
Management fee
Gain on remeasurement of equity
investment
Other (expense) income, net
Income (loss) before income taxes
Income tax (expense) benefit
Income (loss) before equity in
earnings of subsidiaries
CDW CORPORATION AND SUBSIDIARIES
Consolidating Statement of Operations
Year Ended December 31, 2015
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$
— $
— $ 12,151.2
$
837.5
$ — $
—
—
—
—
—
—
—
—
—
—
—
—
—
— 10,158.6
—
114.5
—
(114.5)
(158.3)
(24.3)
4.2
—
(11.1)
(304.0)
103.3
(200.7)
603.8
1,992.6
1,020.9
143.2
828.5
2.3
—
—
—
1.6
832.4
(307.2)
525.2
—
714.3
123.2
90.6
4.6
28.0
(3.5)
—
(4.2)
98.1
0.2
118.6
(40.0)
78.6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $ 12,988.7
— 10,872.9
—
—
—
—
—
—
—
—
—
—
—
—
(1,006.9)
2,115.8
1,226.0
147.8
742.0
(159.5)
(24.3)
—
98.1
(9.3)
647.0
(243.9)
403.1
—
Equity in earnings of subsidiaries
403.1
Net income
$ 403.1
$
403.1
$
525.2
$
78.6
$ — $
(1,006.9) $
403.1
94
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2017
(in millions)
Comprehensive income
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$ 566.7
$
567.6
$
670.5
$
80.0
$ — $
(1,318.1) $
566.7
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2016
(in millions)
Comprehensive income (loss)
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$ 345.9
$
345.9
$
578.1
$
(49.6) $ — $
(874.4) $
345.9
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2015
(in millions)
Comprehensive income
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$ 358.6
$
358.6
$
525.2
$
34.1
$ — $
(917.9) $
358.6
95
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
(in millions)
Net cash provided by (used in)
operating activities
Cash flows used in investing
activities:
Capital expenditures
Net cash used in investing activities
Cash flows (used in) provided by:
financing activities:
Proceeds from borrowings under
revolving credit facility
Repayments of borrowings under
revolving credit facility
Repayments of long-term debt
Proceeds from issuance of long-
term debt
Payments to extinguish long-
term debt
Net change in other long-term
obligation
Payment of debt financing costs
Net change in accounts payable-
inventory financing
Effective portion of interest rate
cap agreements
Proceeds from stock option
exercises
Proceeds from Coworker stock
purchase plan
Repurchases of common stock
Payment of incentive
compensation plan withholding
taxes
Dividends
Principal payments under capital
lease obligations
Repayment of intercompany loan
Distributions and advances from
(to) affiliates
Net cash (used in) provided by
financing activities
Effect of exchange rate changes on
cash and cash equivalents
Net decrease in cash and cash
equivalents
Cash and cash equivalents –
beginning of period
Cash and cash equivalents – end of
period
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2017
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$
0.6
$
(71.1) $
788.5
$
52.3
$ — $
7.4
$
777.7
—
—
(55.2)
(55.2)
(6.3)
(6.3)
(19.6)
(19.6)
— 1,501.5
— (1,501.5)
—
(14.9)
— 2,083.0
— (2,121.3)
—
—
—
—
—
—
(534.0)
(49.6)
(106.9)
—
—
689.9
(0.6)
—
—
—
—
(9.6)
(0.2)
0.4
13.0
10.3
—
—
—
—
—
56.6
17.3
—
(109.0)
222.7
—
—
—
—
—
(3.8)
—
59.2
(59.2)
—
—
—
—
—
(78.4)
(5.4)
—
—
—
—
—
—
—
—
—
—
—
—
(0.2)
34.3
(1.1)
(34.3)
(737.2)
—
(785.3)
(40.8)
—
(3.1)
3.1
2.6
(5.5)
37.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(9.3)
(81.1)
(81.1)
1,560.7
(1,560.7)
(14.9)
2,083.0
(2,121.3)
(3.8)
(9.6)
(84.0)
0.4
13.0
10.3
(534.0)
(49.6)
(106.9)
(1.3)
—
—
(9.3)
(818.7)
—
2.6
(1.9)
(119.5)
—
263.7
$ — $
113.7
$
— $
32.4
$ — $
(1.9) $
144.2
96
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2016
(in millions)
Net cash provided by (used in)
operating activities
Cash flows used in investing
activities:
Capital expenditures
Premium payments on interest
rate cap agreements
Net cash used in investing activities
Cash flows (used in) provided by
financing activities:
Proceeds from borrowings
under revolving credit facility
Repayments of borrowings
under revolving credit facility
Repayments of long-term debt
Proceeds from issuance of
long-term debt
Payments to extinguish long-
term debt
Net change in other long-term
obligation
Payment of debt financing
costs
Net change in accounts
payable - inventory financing
Proceeds from stock option
exercises
Proceeds from Coworker Stock
Purchase Plan
Repurchases of common stock
Dividends
Principal payments under
capital lease obligations
Repayment of intercompany
loan
Distributions and advances
from (to) affiliates
Net cash (used in) provided by
financing activities
Effect of exchange rate changes on
cash and cash equivalents
Net increase in cash and cash
equivalents
Cash and cash equivalents—
beginning of period
Cash and cash equivalents—end of
period
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$ — $ (158.5) $
695.5
$
56.1
$ — $
10.9
$
604.0
—
—
—
—
—
—
(50.9)
(2.4)
(53.3)
329.6
(329.6)
(15.2)
— 1,483.0
— (1,490.4)
—
—
—
—
—
(367.4)
(78.7)
—
—
—
(4.5)
1.5
7.4
9.3
—
—
—
—
(7.6)
—
(7.6)
—
—
—
—
—
15.7
—
131.0
—
—
—
—
1.0
40.4
(5.0)
—
(5.0)
9.2
(9.2)
(5.4)
—
—
—
(1.4)
11.1
—
—
—
—
(1.6)
(40.4)
446.1
398.3
(872.9)
—
—
—
—
—
389.4
(684.8)
(37.7)
—
177.6
45.1
—
3.1
—
(7.4)
6.0
31.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
28.5
28.5
—
(63.5)
(2.4)
(65.9)
338.8
(338.8)
(20.6)
1,483.0
(1,490.4)
15.7
(5.9)
143.6
7.4
9.3
(367.4)
(78.7)
(0.6)
—
—
(304.6)
(7.4)
39.4
226.1
(39.4)
37.6
$ — $
222.7
$
3.1
$
37.9
$ — $
— $
263.7
97
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2015
(in millions)
Net cash provided (used in) by
operating activities
Cash flows from investing
activities:
Capital expenditures
Premium payments on interest
rate cap agreements
Acquisition of business, net of
cash acquired
Net cash used in investing activities
Cash flows from financing
activities:
Proceeds from borrowings
under revolving credit facility
Repayments of borrowings
under revolving credit facility
Repayments of long-term debt
Proceeds from issuance of
long-term debt
Payments to extinguish long-
term debt
Payment of debt financing
costs
Net change in accounts
payable-inventory financing
Proceeds from stock option
exercises
Proceeds from Coworker stock
purchase plan
Payment of incentive
compensation plan
withholding taxes
Dividends
Distributions and advances
from (to) affiliates
Net cash (used in) provided by
financing activities
Effect of exchange rate changes on
cash and cash equivalents
Net (decrease) increase in cash and
cash equivalents
Cash and cash equivalents –
beginning of period
Cash and cash equivalents – end of
period
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$
0.5
$
(18.1) $
350.0
$
27.9
$ — $
(82.8) $
277.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(52.9)
(75.4)
(11.6)
(0.5)
—
(3.1)
—
—
(75.9)
—
(11.6)
(263.8)
(266.9)
314.5
(314.5)
(15.4)
525.0
(525.3)
(6.8)
—
2.4
8.7
—
0.6
—
—
—
—
—
—
—
—
—
(17.4)
—
—
—
96.1
(0.2)
—
—
—
—
—
—
—
—
—
—
293.7
(196.5)
(434.5)
267.4
(0.5)
(207.3)
(338.4)
249.8
—
—
—
—
(301.3)
346.4
—
—
—
(3.5)
7.3
24.6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
69.9
69.9
—
(90.1)
(0.5)
(263.8)
(354.4)
314.5
(314.5)
(32.8)
525.0
(525.3)
(6.8)
95.9
2.4
8.7
(241.3)
0.6
(52.9)
—
(226.5)
(3.5)
(12.9)
(306.9)
(26.5)
344.5
$ — $
45.1
$
— $
31.9
$ — $
(39.4) $
37.6
98
Repurchases of common stock
(241.3)
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
20.
Selected Quarterly Financial Results (unaudited)
(in millions, except per-share amounts)
Net Sales:
Corporate
Small Business
Public:
Government
Education
Healthcare
Total Public
Other
Net sales
Gross profit
Income from operations
Net income(2)
Basic(3)
Diluted(3)
Year Ended December 31, 2017(1)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
1,476.3
$
1,630.7
$
1,598.5
$
1,641.4
298.7
321.5
311.5
314.8
386.9
397.1
392.5
1,176.5
373.2
3,324.7
552.6
169.8
57.6
0.36
0.35
$
$
543.9
712.9
417.3
1,674.1
368.1
3,994.4
641.1
231.1
141.0
0.90
0.89
$
$
606.7
700.7
425.5
1,732.9
391.0
4,033.9
642.0
243.7
129.2
0.84
0.83
$
$
630.0
400.8
423.3
1,454.1
428.3
3,838.6
614.4
221.6
195.2
1.28
1.26
$
$
Cash dividends declared per common share
$
0.1600
$
0.1600
$
0.1600
$
0.2100
(in millions, except per-share amounts)
Net Sales:
Corporate(4)
Small Business(4)
Public:
Government
Education
Healthcare
Total Public
Other
Net sales
Gross profit
Income from operations
Net income
Basic(3)
Diluted(3)
Year Ended December 31, 2016(1)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
1,414.9
$
1,490.8
$
1,466.4
$
1,517.7
277.4
288.4
282.5
291.8
339.9
341.0
388.5
1,069.4
355.0
3,116.7
524.5
161.0
77.8
0.47
0.46
$
$
456.6
640.0
450.4
1,547.0
338.4
3,664.6
610.5
223.5
117.5
0.71
0.70
$
$
537.5
671.4
431.7
1,640.6
318.7
3,708.2
614.3
237.5
125.9
0.78
0.76
$
$
529.6
365.9
436.8
1,332.3
350.5
3,492.4
577.9
197.2
103.2
0.64
0.63
$
$
Cash dividends declared per common share
$
0.1075
$
0.1075
$
0.1075
$
0.1600
(1)
(2)
Sum of quarters may not agree to reported yearly totals due to rounding.
The fourth quarter of 2017 includes the benefit of the Tax Cuts and Jobs Act enacted during 2017. For information
regarding the Tax Cuts and Jobs Act, see Note 11 (Income Taxes).
99
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
(3)
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.
(4)
Amounts have been recast to present Small Business as its own operating and reportable segment.
100
Table of Contents
21.
Subsequent Events
CDW CORPORATION AND SUBSIDIARIES
On February 7, 2018, the Company announced that its Board of Directors has declared a quarterly cash dividend of $0.21
per common share to be paid on March 12, 2018 to all stockholders of record as of the close of business on February 26,
2018.
101
Table of Contents
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2017, 2016 and 2015
(in millions)
Allowance for doubtful accounts:
Year Ended December 31, 2017
Year Ended December 31, 2016
Year Ended December 31, 2015
Reserve for sales returns:
Year Ended December 31, 2017
Year Ended December 31, 2016
Year Ended December 31, 2015
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Deductions
Balance at
End of
Period
$
$
$
$
5.9
6.0
5.7
6.8
4.9
5.1
$
$
2.1
2.0
4.2
40.6
38.1
34.4
(1.8) $
(2.1)
(3.9)
(41.0) $
(36.2)
(34.6)
6.2
5.9
6.0
6.4
6.8
4.9
102
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule
13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the
period covered by this report. Based on such evaluation, the Company’s management, including the Company’s Chief Executive
Officer and Chief Financial Officer, has concluded that, as of the end of such period, the Company’s disclosure controls and
procedures were effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act, and that information is accumulated and
communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely discussions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined
in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation
and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31,
2017. Management based this assessment on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in “Internal Control — Integrated Framework (2013 framework).”
Based on its assessment, management concluded that, as of December 31, 2017, the Company’s internal control over
financial reporting is effective.
Ernst & Young LLP, independent registered public accounting firm, has audited the Consolidated Financial Statements
of the Company and the Company’s internal control over financial reporting and has included their reports herein.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2017
that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of CDW Corporation and subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited CDW Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2017, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, CDW Corporation and subsidiaries (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, and 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, 2017, and the related notes and the financial statement schedule listed in the Index at Item 15 (a) (2) and our
report dated February 28, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
February 28, 2018
104
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Item 9B. Other Information
None.
105
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Item 10. Directors, Executive Officers and Corporate Governance
PART III
We have adopted The CDW Way Code, our code of business conduct and ethics, that is applicable to all of our coworkers
and directors. Additionally, within The CDW Way Code is a Financial Integrity Code of Ethics that sets forth an even higher
standard applicable to our executives, officers, members of our internal disclosure committee and all managers and above in our
finance department. A copy of this code is available on our website at www.cdw.com. If we make any substantive amendments
to this code or grant any waiver from a provision to our chief executive officer, principal financial officer or principal accounting
officer, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K.
See Part I - “Executive Officers” for information about our executive officers, which is incorporated by reference in this
Item 10. Other information required under this Item 10 is incorporated herein by reference to the 2018 Proxy Statement.
Item 11. Executive Compensation
Information required under this Item 11 is incorporated herein by reference to the 2018 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required under this Item 12 is incorporated herein by reference to the 2018 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required under this Item 13 is incorporated herein by reference to the 2018 Proxy Statement.
Item 14. Principal Accountant Fees and Services
Information required under this Item 14 is incorporated herein by reference to the 2018 Proxy Statement.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
Financial Statements and Schedules
The following documents are filed as part of this report:
(1)
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules:
Schedule II – Valuation and Qualifying Accounts
Page
57
58
59
60
61
62
63
Page
102
All other schedules are omitted since the required information is not present or is not present in amounts sufficient
to require submission of the schedule, or because the information required is included in the Consolidated
Financial Statements or notes thereto.
(b)
Exhibits
Exhibit
Number
3.1
3.1.1
3.2
3.3
3.4
3.5
3.6
3.7
Description
Fifth Amended and Restated Certificate of Incorporation of CDW Corporation, previously filed as Exhibit
3.1 with CDW Corporation’s Amendment No. 2 to Form S-1 filed on June 14, 2013 (Reg. No. 333-187472)
and incorporated herein by reference.
Certificate of Amendment to Fifth Amended and Restated Certificate of Incorporation of CDW Corporation,
previously filed as Exhibit 3.1 with CDW Corporation’s Form 8-K filed on May 19, 2016 and incorporated
herein by reference.
Amended and Restated By-Laws of CDW Corporation, previously filed as Exhibit 3.2 with CDW
Corporation’s Form 10-Q filed on August 4, 2016 and incorporated herein by reference.
Articles of Organization of CDW LLC, previously filed as Exhibit 3.3 with CDW Corporation’s Form S-4
filed on September 7, 2010 (Reg. No. 333-169258) and incorporated herein by reference.
Amended and Restated Limited Liability Company Agreement of CDW LLC, previously filed as Exhibit 3.4
with CDW Corporation’s Form S-4 filed on September 7, 2010 (Reg. No. 333-169258) and incorporated
herein by reference.
Certificate of Incorporation of CDW Finance Corporation, previously filed as Exhibit 3.5 with CDW
Corporation’s Form S-4 filed on September 7, 2010 (Reg. No. 333-169258) and incorporated herein by
reference.
Amended and Restated By-Laws of CDW Finance Corporation, previously filed as Exhibit 3.1 with CDW
Corporation’s Form 10-Q filed on May 8, 2015 and incorporated herein by reference.
Articles of Organization of CDW Technologies LLC (formerly CDW Technologies, Inc.), previously filed as
Exhibit 3.7 with CDW Corporation’s Form 10-K filed on February 25, 2016 and incorporated herein by
reference.
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Exhibit
Number
3.8
3.9
3.10
3.11
3.12
3.13
3.14
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
Description
Operating Agreement of CDW Technologies LLC (formerly CDW Technologies, Inc.), previously filed as
Exhibit 3.8 with CDW Corporation’s Form 10-K filed on February 25, 2016 and incorporated herein by
reference.
Articles of Organization of CDW Direct, LLC, previously filed as Exhibit 3.9 with CDW Corporation’s
Form S-4 filed on September 7, 2010 (Reg. No. 333-169258) and incorporated herein by reference.
Amended and Restated Limited Liability Company Agreement of CDW Direct, LLC, previously filed as
Exhibit 3.10 with CDW Corporation’s Form S-4 filed on September 7, 2010 (Reg. No. 333-169258) and
incorporated herein by reference.
Articles of Organization of CDW Government LLC, previously filed as Exhibit 3.11 with CDW
Corporation’s Form S-4 filed on September 7, 2010 (Reg. No. 333-169258) and incorporated herein by
reference.
Amended and Restated Limited Liability Company Agreement of CDW Government LLC, previously filed
as Exhibit 3.12 with CDW Corporation’s Form S-4 filed on September 7, 2010 (Reg. No. 333-169258) and
incorporated herein by reference.
Articles of Incorporation of CDW Logistics, Inc., previously filed as Exhibit 3.13 with CDW Corporation’s
Form S-4 filed on September 7, 2010 (Reg. No. 333-169258) and incorporated herein by reference.
Amended and Restated By-Laws of CDW Logistics, Inc., previously filed as Exhibit 3.14 with CDW
Corporation’s Form S-3 filed on July 31, 2014 (Reg. No. 333-197744) and incorporated herein by reference.
Specimen Common Stock Certificate, previously filed as Exhibit 4.1 with CDW Corporation’s Amendment
No. 3 to Form S-1 filed on June 25, 2013 (Reg. No. 333-187472) and incorporated herein by reference.
Second Supplemental Indenture, dated as of March 3, 2015, by and among CDW LLC, CDW Finance
Corporation, the guarantors party thereto and U.S. Bank National Association, as trustee, previously filed as
Exhibit 4.2 with CDW Corporation’s Form 8-K filed on March 3, 2015 and incorporated herein by reference.
Form of 5% Note (included as Exhibit A to Exhibit 4.2), previously filed as Exhibit 4.2 with CDW
Corporation’s Form 8-K filed on March 3, 2015 and incorporated herein by reference.
Base Indenture, dated as of December 1, 2014, by and among CDW LLC, CDW Finance Corporation, the
guarantors party thereto and U.S. Bank National Association as trustee, previously filed as Exhibit 4.1 with
CDW Corporation’s Form 8-K filed on December 1, 2014 and incorporated herein by reference.
First Supplemental Indenture, dated as of December 1, 2014, by and among CDW LLC, CDW Finance
Corporation, the guarantors party thereto and U.S. Bank National Association as trustee, previously filed as
Exhibit 4.2 with CDW Corporation’s Form 8-K filed on December 1, 2014 and incorporated herein by
reference.
Form of 5.5% Senior Note (included as Exhibit B to Exhibit 4.7), previously filed as Exhibit 4.3 with CDW
Corporation’s Form 8-K filed on December 1, 2014 and incorporated herein by reference.
Third Supplemental Indenture, dated as of March 2, 2017, by and among CDW LLC, CDW Finance
Corporation, the guarantors party thereto and U.S. Bank National Association, as trustee, previously filed as
Exhibit 4.2 with CDW Corporation’s Form 8-K filed on March 2, 2017 and incorporated herein by reference.
Form of 5.0% Senior Note (included as Exhibit A to Exhibit 4.7), previously filed as Exhibit 4.3 with CDW
Corporation’s Form 8-K filed on March 2, 2017 and incorporated herein by reference.
Second Amended and Restated Revolving Loan Credit Agreement, dated March 31, 2017, by and among
CDW LLC, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Wells Fargo
Commercial Distribution Finance, LLC, as floorplan funding agent, and the joint lead arrangers, joint
bookrunners, co-collateral agents, co-syndication agents and co-documentation agents party thereto,
previously filed as Exhibit 10.1 with CDW Corporation’s Form 8-K filed on March 31, 2017 and
incorporated herein by reference.
108
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Exhibit
Number
10.2
10.3
10.4
10.5§
10.6§
10.7§
10.8§
10.9§
10.10§
10.11§
10.12§
10.13§
10.14§
10.15§
10.16§
Description
Amended and Restated Term Loan Agreement, dated as of August 17, 2016, by and among CDW LLC, the
lenders from time to time party thereto, Barclays Bank PLC, as administrative agent and collateral agent, and
the joint lead arrangers, joint bookrunners, syndication agent and co-documentation agents party thereto,
previously filed as Exhibit 10.1 with CDW Corporation’s Form 8-K filed on August 18, 2016 and
incorporated herein by reference.
First Amendment to Amended and Restated Term Loan Agreement, dated as of February 28, 2017, among
CDW, the lenders party thereto, Barclays Bank PLC, as administrative agent and collateral agent, and the
other loan parties party thereto, previously filed as Exhibit 10.1 with CDW Corporation’s Form 8-K filed on
March 2, 2017 and incorporated herein by reference.
Second Amended and Restated Guarantee and Collateral Agreement, dated April 29, 2013, by and among
CDW LLC, the guarantors party thereto and Barclays Bank PLC, as collateral agent, previously filed as
Exhibit 10.2 with CDW Corporation’s Form 8-K filed on May 1, 2013 and incorporated herein by reference.
Amended and Restated Compensation Protection Agreement, dated as of March 10, 2016, by and among
CDW Corporation, CDW LLC and Thomas E. Richards, previously filed as Exhibit 10.1 with CDW
Corporation’s Form 8-K filed on March 14, 2016 and incorporated herein by reference.
Form of Compensation Protection Agreement (executive officers other than Thomas E. Richards), previously
filed as Exhibit 10.2 with CDW Corporation’s Form 8-K filed on March 14, 2016 and incorporated herein by
reference.
Form of Noncompetition Agreement under the Compensation Protection Agreement, previously filed as
Exhibit 10.3 with CDW Corporation’s Form 8-K filed on March 14, 2016 and incorporated herein by
reference.
Letter Agreement, dated as of September 13, 2011, by and between CDW Direct, LLC and Christina M.
Corley, previously filed as Exhibit 10.31 with CDW Corporation’s Form 10-K filed on March 9, 2012 and
incorporated herein by reference.
Form of Indemnification Agreement by and between CDW Corporation and its directors and officers,
previously filed as Exhibit 10.32 with CDW Corporation’s Amendment No. 2 to Form S-1 filed on June 14,
2013 (Reg. No. 333-187472) and incorporated herein by reference.
CDW Corporation Amended and Restated 2013 Senior Management Incentive Plan, previously filed as
Exhibit 10.1 with CDW Corporation’s Form 10-Q filed on May 5, 2016 and incorporated herein by
reference.
Amended and Restated 2013 Long-Term Incentive Plan of CDW Corporation, previously filed as Exhibit
10.1 with CDW Corporation’s Form 8-K filed on May 19, 2016 and incorporated herein by reference.
Amended and Restated CDW Corporation Coworker Stock Purchase Plan, previously filed as Exhibit 10.1
with CDW Corporation’s Form 10-Q filed on November 3, 2016 and incorporated herein by reference.
Form of CDW Corporation Option Award Notice and Stock Option Agreement (executive officers),
previously filed as Exhibit 10.37 with CDW Corporation’s Amendment No. 2 to Form S-1 filed on June 14,
2013 (Reg. No. 333-187472) and incorporated herein by reference.
Form of CDW Corporation Option Award Notice and Stock Option Agreement (other than executive
officers), previously filed as Exhibit 10.38 with CDW Corporation’s Amendment No. 2 to Form S-1 filed on
June 14, 2013 (Reg. No. 333-187472) and incorporated herein by reference.
Form of CDW Corporation Restricted Stock Award Notice and Restricted Stock Award Agreement
(executive officers), previously filed as Exhibit 10.12 with CDW Corporation’s Form 10-Q filed on August
12, 2013 and incorporated herein by reference.
Form of CDW Corporation Restricted Stock Award Notice and Restricted Stock Award Agreement (other
than executive officers), previously filed as Exhibit 10.13 with CDW Corporation’s Form 10-Q filed on
August 12, 2013 and incorporate herein by reference.
10.17§
CDW Amended and Restated Restricted Debt Unit Plan, previously filed as Exhibit 10.3 with CDW
Corporation’s Form 10-Q filed on November 7, 2013 and incorporated herein by reference.
109
Table of Contents
Exhibit
Number
10.18§
10.19§
10.20§
10.21§
10.22§,*
10.23§
10.24§,*
10.25§
10.26§
10.27§
Description
Amendment to CDW Amended and Restated Restricted Debt Unit Plan, previously filed as Exhibit 10.1 with
CDW Corporation’s Form 10-Q filed on November 2, 2017 and incorporated herein by reference.
Form of CDW Restricted Debt Unit Grant Notice and Agreement (executive officers), previously filed as
Exhibit 10.23 with CDW Corporation’s Form S-4 filed on September 7, 2010 (Reg. No. 333-169258) and
incorporated herein by reference.
Form of CDW Restricted Debt Unit Grant Notice and Agreement (other than executive officers), previously
filed as Exhibit 10.24 with CDW Corporation’s Form S-4 filed on September 7, 2010 (Reg. No. 333-169258)
and incorporated herein by reference.
Form of Stock Option Agreement (executive officers) under the CDW Corporation Amended and Restated
2013 Long-Term Incentive Plan, previously filed as Exhibit 10.1 with CDW Corporation’s Form 10-K filed
on March 1, 2017 and incorporated herein by reference.
Form of Stock Option Agreement (other than executive officers) under the CDW Corporation Amended and
Restated 2013 Long-Term Incentive Plan.
Form of Performance Share Unit Award Agreement (executive officers) under the CDW Corporation
Amended and Restated 2013 Long-Term Incentive Plan, previously filed as Exhibit 10.1 with CDW
Corporation’s Form 10-K filed on March 1, 2017 and incorporated herein by reference.
Form of Performance Share Unit Award Agreement (other than executive officers) under the CDW
Corporation Amended and Restated 2013 Long-Term Incentive Plan.
Form of Performance Share Award Agreement (executive officers) under the CDW Corporation Amended
and Restated 2013 Long-Term Incentive Plan, previously filed as Exhibit 10.1 with CDW Corporation’s
Form 10-K filed on March 1, 2017 and incorporated herein by reference.
Form of Non-Employee Director Restricted Stock Unit Award Agreement under the CDW Corporation 2013
Long-Term Incentive Plan, previously filed as Exhibit 10.6 with CDW Corporation’s Form 10-Q filed on
May 12, 2014 and incorporated herein by reference.
Letter of Understanding, dated as of October 9, 2017, by and among CDW Corporation, CDW LLC and Ann
E. Ziegler, previously filed as Exhibit 10.2 with CDW Corporation’s Form 10-Q filed on November 2, 2017
and incorporated herein by reference.
10.28§,*
Letter Agreement, dated as of February 12, 2018, by and between CDW Limited and Collin B. Kebo.
12.1*
21.1*
23.1*
31.1*
31.2*
Computation of ratio of earnings to fixed charges.
List of subsidiaries.
Consent of Ernst & Young LLP.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities
Exchange Act of 1934.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities
Exchange Act of 1934.
32.1**
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350.
32.2**
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350.
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
110
Table of Contents
Exhibit
Number
101.LAB*
Description
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
________________
*
**
§
Filed herewith
These items are furnished and not filed.
A management contract or compensatory arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation
S-K.
111
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Item 16. Form 10-K Summary
None.
112
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date:
February 28, 2018
CDW CORPORATION
By:
/s/ Thomas E. Richards
Thomas E. Richards
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
113
Table of Contents
Signature
Title
Date
/s/ Thomas E. Richards
Thomas E. Richards
Chairman, President and Chief Executive Officer
(principal executive officer) and Director
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
/s/ Collin B. Kebo
Collin B. Kebo
Senior Vice President and Chief Financial Officer
(principal financial officer)
/s/ Neil B. Fairfield
Neil B. Fairfield
Vice President, Controller and Chief Accounting Officer
(principal accounting officer)
/s/ Virginia C. Addicott
Director
Virginia C. Addicott
/s/ Steven W. Alesio
Director
Steven W. Alesio
/s/ Barry K. Allen
Director
Barry K. Allen
/s/ James A. Bell
James A. Bell
Director
/s/ Benjamin D. Chereskin Director
Benjamin D. Chereskin
/s/ Lynda M. Clarizio
Director
Lynda M. Clarizio
/s/ Paul J. Finnegan
Paul J. Finnegan
/s/ David W. Nelms
David W. Nelms
Director
Director
/s/ Joseph R. Swedish
Joseph R. Swedish
Director
/s/ Donna F. Zarcone
Donna F. Zarcone
Director
114
Company Information
Principal Location
CDW Corporation
75 Tri-State International
Lincolnshire, IL 60069
(847) 465-6000
Auditors
Ernst & Young LLP
155 North Wacker Drive
Chicago, IL 60606-1787
Annual Meeting
The 2018 Annual Meeting of Shareholders will be held on
Wednesday, May 23 at 7:30 a.m. CDT, at CDW Center located
at 200 Tri-State International in Lincolnshire, Ill.
Common Stock Listing
The company’s common stock is listed on Nasdaq under
the trading symbol CDW
Transfer Agent, Registrar and Dividend Disbursing Agent
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
Email: web.queries@computershare.com
Telephone: (800) 736-3001 (toll free)
(781) 575-3100 (toll number)
Investor Relations Contact
Sari L. Macrie
Vice President, Investor Relations
(847) 968-0238
investorrelations@cdw.com
Upon written request to Investor Relations, we will provide,
free of charge, a copy of our Form 10-K for the fiscal year
ended December 31, 2017.
CDW’s Annual Report, Form 10-K, Form 10-Q, proxy
statement and other filings with the Securities and
Exchange Commission, can be accessed on
investor.cdw.com under SEC filings.
Media Relations Contact
Sara Granack
Vice President, Corporate Communications & Reputation
(847) 419-7411
saragra@cdw.com
Forward-Looking Statements
Statements in this annual report that are not statements of
historical fact are forward-looking statements within the meaning
of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, including without limitation statements
regarding the future financial performance of CDW. These
statements involve risks and uncertainties that could cause
actual results to differ materially from those described in such
statements. These risks and uncertainties include, among others,
the risk factors identified from time to time in CDW Corporation’s
Forms 10-K, Forms 10-Q and other reports and filings with the
Securities and Exchange Commission. Although CDW believes that
the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations
will prove to have been correct. CDW undertakes no obligation to
update or revise any forward-looking statement, whether as a
result of new information, future events or otherwise, except as
required by law.
Use of Non-GAAP Financial Measures
Earnings before interest, taxes and depreciation and amortization
(“EBITDA”), Adjusted EBITDA, Adjusted EBITDA margin, Non-GAAP
income before income taxes, Non-GAAP net income, Non-GAAP
net income per diluted share, Organic net sales growth (defined as
net sales excluding the impact of current period acquisitions) and
Organic net sales growth on a constant currency basis (defined
as organic net sales growth excluding the impact of currency
translation on organic sales compared to the prior period) are not
based on generally accepted accounting principles in the United
States (“non-GAAP”). CDW believes these non-GAAP financial
measures provide helpful information with respect to CDW’s
operating performance and cash flows, including its ability to meet
its future debt service, capital expenditures and working capital
requirements. CDW also believes that adjusted EBITDA provides
helpful information as it is the primary measure used in certain key
covenants and definitions contained in CDW’s credit agreements.
A reconciliation of each non-GAAP financial measure to the
applicable most comparable GAAP financial measure is included
on CDW’s investor relations website at http://investor.cdw.com/
financials.cfm. Non-GAAP measures used by CDW may differ from
similar measures used by other companies, even when similar
terms are used to identify such measures.
CDW CORPORATION
CDW Corporation
75 Tri-State International
Lincolnshire, IL 60069