IT.
2018 ANNUAL REPORT
CDW is stronger and
our prospects are as
promising as at any time
in our 35-year history.
FINANCIAL PERFORMANCE
Net Sales ($B)
Net Sales Compound Annual
Growth Rate (CAGR)
9 %
r C
a
R
G
A
Y e
-
5
$13.7
$13.0
$16.2
$14.8
$12.1
$10.8
Adjusted EBITDA* ($MM)
Margin (%)
Adjusted EBITDA Compound
Annual Growth Rate
$1,302
$1,186
R
G
A
0 %
r C
a
1
e
Y
-
5
$1,118
$1,019
$907
$809
7.5%
7.5%
7.8%
8.2%
8.0%
8.0%
2013
2014
2015
2016
2017
2018
2013
2014
2015
2016
201 7
2018
Non-GAAP Net Income* ($MM)
GAAP Net Income ($MM)
Non-GAAP Net Income per Diluted Share* ($)
Non-GAAP Net Income per Diluted Share
Compound Annual Growth Rate (%)
$794
$643
R
G
A
%
r C
3
a
2
e
Y
-
5
$570
$606
$523
$504
$410
$403
$425
$314
$133
$1.83
$245
$2.37
$2.93
$3.43
$3.83
$5.17
U.S. IT Spending Growth1
CDW Net Sales Compound Annual Growth Rate
1.8x
9.5%
1.6x
7.5%
4.8%
5.3%
2013
2014
2015
2016
2017
2018
2006-2018
2009-2018
Note: Prior period information for 2016 and 2017 has been adjusted
to reflect the full retrospective adoption of ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
* 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, 12/21/18
Balanced Performance:
All Six Customer
Sales Channels over
$1 Billion
$1.7B
$2.3B
$1.9B
2018 Net Sales – $16.2 B
Corporate (>250 employees)
Small Businesses (<250 employees)
Government (Federal, State and Local)
Education (K-12, Higher Ed)
$6.8B
$2.1B
$1.4B
Healthcare
Other (Canada, U.K.)
CDW’s integrated technology
solutions and services helped
more than 250,000 business,
government, education
and healthcare customers
throughout the United States,
the United Kingdom and
Canada navigate an increasingly
complex IT landscape and
optimize the return on their
technology investment.
CEO LETTER
Dear Fellow Stakeholders,
It is a privilege to write to you for the
first time to report on CDW’s 2018
financial and strategic performance and
to share our intentions looking forward.
CDW is stronger and our prospects
are as promising as at any time in our
35-year history. In 2018, we profitably
gained market share delivering on
our perennial objective to outperform
technology sector growth by a
meaningful amount. We produced
a record $16.2 billion in net sales, an
increase of 9.2 percent in constant
currency. An evolving product mix,
productivity improvements, disciplined
expense management and forward-
looking investment in our Bold Forward
strategic plan translated this growth
into a 9.8 percent increase in adjusted
EBITDA. A benefit from the Tax Cuts
and Jobs Act amplified operating
earnings, and share repurchases further
contributed to non-GAAP earnings per
share which increased 35.1 percent.
The Customer at the Center
In 2018, CDW’s integrated technology
solutions and services helped more
than 250,000 business, government,
education and healthcare customers
throughout the United States, the
United Kingdom and Canada navigate
an increasingly complex IT landscape
and optimize the return on their
technology investment.
2018 results reflect the power of
our business model, CDW’s high-
performance culture embodied in
the commitment and skillsets of our
coworkers, and the strategic vision,
collaboration and leadership of our
management team. CDW’s value
proposition is to advance the objectives
of our customers by optimizing their
limited technology resources to achieve
their respective goals. We support this
through broad, deep and experienced
capabilities and comprehensive,
unbiased orchestration of technology.
CDW’s consistent record of success is
rooted in our ability to evolve and be
even more relevant to customers as
technology advances and becomes more
essential to organizations throughout
market segments that we serve.
Technology has always and will continue
to progress. CDW has been the reliable
constant by being a continually evolving
and improving organization. We have
maintained a steadfast focus on our
customers and earned our industry-
leading position in partnership with more
than 1,000 brands offering more than
100,000 products. CDW’s commitment
to ensure our customers’ success has
been our distinguishing quality since our
founding on Michael Krasny’s kitchen
table with a classified advertisement
of a 512K memory personal computer
in 1984. This is the essence of our
customer-centric, three-part strategy.
It is, at heart, why We Get IT!
Proven Strategy
Our growth strategy has three
foundational pillars—each is integral
to our profitably delivering integrated
technology solutions that our
customers want and need. We
see these pillars as three booster
engines—all are interconnected and
involve individual and collaborative
efforts in the successful execution
of our forward-looking mission.
CDW’s consistent record of success is rooted in our ability to evolve and be
even more relevant to customers as technology advances and becomes more
essential to organizations throughout market segments that we serve.
Christine A. Leahy
President and Chief Executive Officer
The first engine drives continuous sales
and sales productivity gains, which
facilitates our repeatable acquisition,
retention and growth of customers and
market share. Productivity improvements
and expense management fuel our ability
to invest in profitable growth and provide
value to our customers and partners and
opportunity for our coworkers. During
2018, sales productivity investments
included the expansion of ServiceTrack,
CDW U.K.’s award-winning online supply
chain management portal, to U.S.-based
multinational customers; enhancement
of our eCommerce platform; expansion of
CDW’s Residency Program for new sales
representatives and our “graduate level”
sales training initiative; and the rollout of
a propensity modeling tool that uses data
analytics and CDW proprietary data to
identify what customers are most likely
to need and further benefit from.
We expanded our local presence in the
U.S. to more than 26 major metropolitan
locations with the opening of a new sales
and service delivery office in Nashville,
Tennessee. We also drove partner
productivity through investments in
automated partner processes, including
the launch of a new Partner Portal.
CDW CORPORATION 1
Repeatedly achieving above-market growth requires capabilities for delivering
the solutions customers need today and will need out on the horizon.
Being Ever-Vital
Our rigorous strategic planning process
guides our effective evolution with the
technology landscape while delivering
market-leading profitable growth. It also
facilitates our being increasingly vital to
our customers.
Our current Bold Forward three-year
strategic plan is designed to continue
and to elevate our consistent record of
success. Using similar processes and
frameworks as our prior plans, Bold
Forward is fueled by CDW’s broad and
deep understanding of technology
industry dynamics relevant for our
customers, including our unique
institutional knowledge. With appreciation
for CDW’s heritage as the market leader
in providing technology solutions and
services, our coworkers are committed
to and passionate about pursuing
emerging technology frontiers in the
service of our customers and partners.
Market-leading technology is no longer
an option or simply a potential strategic
consideration—it has become and will
remain vital to our customers’ success.
The reality of needing to objectively
evaluate and integrate technology
investments is at the essence of our value
proposition for our customers. CDW’s
strategic investments are prioritized
to ensure that as technology and our
customers’ needs evolve, we remain
well-equipped to support our customers
through every phase of the technology
lifecycle: evaluate, design, access,
implement, adopt, manage, enhance,
renew.... Through this process, we
develop “stickiness” and deep customer
loyalty that drives profitable growth.
A recent example of Bold Forward’s
success is our early 2019 acquisition
of Scalar Decisions Inc., a Canadian
integrated technology solutions
provider. Scalar expands our CDW
Canada solutions and services portfolio,
extends our solutions presence across
Canada and enhances the value that we
deliver to our customers. As with our
Our rigorous strategic planning process guides our effective evolution with
the technology landscape while delivering market-leading profitable growth.
It also facilitates our being increasingly vital to our customers.
Proven Ability to Evolve with the Market
2020
HARDWARE AND SOFTWARE
DISCRETE PRODUCTS
HIGHLY INTEGRATED AND INTERCONNECTED
TECHNOLOGY ECOSYSTEM
2017
2000
2008
2010
2013
• Desktops
• Notebooks
• Printers
• Software Asset
Management
• Storage
• Servers
• Tablets
• Network
• Private and Public Cloud
• Mobility
• Data Center
• Security
• Virtualization
• Collaboration
• Converged Infrastructure
• Automation/Orchestration
• Hybrid/Multi-Cloud
• Anything as a Service (XaaS)
• Software-Defined Anything (SDx)
• Advisory and Architectural Services
• Advanced Managed Services
PRODUCTS
INTEGRATED SOLUTIONS
FUTURE
I
S
G
N
R
E
F
F
O
F
O
Y
T
X
E
L
P
M
O
C
I
These, among other investments,
contributed to net sales per coworker
increasing at nearly double the rate of
coworker additions.
Repeatedly achieving above-market
growth requires capabilities for delivering
the solutions customers need today and
will need out on the horizon. Our second
and third strategic boosters address
these objectives. Designed to ensure
we remain relevant to customers and
partners, investments in these engines
strategically focus on enhancing and
expanding our solutions and services
capabilities. One way we accomplish
this is by adding highly-skilled technical
coworkers. At year-end 2018, our
technical organization included more
than 2,500 coworkers, reflecting an
increase of nearly 50 percent over
five years.
CDW’s methodical addition of new
and emerging OEM partners keeps
our portfolio optimally relevant and
provides new levers for growth,
while adding value for our customers,
opportunity for our coworkers and
returns for our shareholders. In 2018,
we added more than 80 partners,
with nearly half delivering cloud-
based, security and advanced data
center solutions. We also launched
two CDW branded service solutions:
CDW Technology Support, which
provides warranty support service;
and CDW Managed Collaboration
Anywhere, which allows customers to
access fully-managed collaboration
tools across any platform from
anywhere with maximum flexibility
to scale. Services was one of our
fastest growing categories in 2018.
2 CDW CORPORATION
successful 2015 acquisition of CDW U.K.,
Scalar’s culture is strongly aligned with
CDW’s, having an exceptional focus on
and commitment to customer objectives
and coworker fulfillment.
Commitment to Shareholders and
to All CDW Stakeholders
Our strategic plan encompasses
performance and capital allocation
priorities that are designed to deliver
compelling returns to investors both in
the near-term and over the long-term.
2018’s strong cash flows enabled us to
return a record of more than $650 million
to shareholders by means of share
repurchases and dividends. Reflecting
confidence in our performance, strategy
and outlook, the Board of Directors
approved a 40 percent increase in our
annual cash dividend and an incremental
and record $1 billion authorization for
share repurchases.
We will never take for granted our
reputation with our customers,
coworkers, partners, shareholders and
communities where we employ, live and
have impact—a reputation that has been
built over 35 years through relentless
commitment, dedication, hard work,
philanthropic contributions and complete
integrity. I assure you that every single
day during my time as the leader of
your Company and as your fellow
stakeholder, CDW will continue to never
allow for complacency regarding our
business performance or anything less
than the full commitment to serving our
customers and enhancing the value of our
shareholders’ investments and the lives
An Advantaged Business Model
Vendor
partner
value
CDW
Intimate knowledge
of IT environment
and landscape
Customer
value
of our stakeholders. The means will be
as important and non-negotiable as the
ends. This is my commitment to you.
Thank You
This letter would not be complete
without recognizing my predecessor,
mentor and friend, Thomas E. Richards.
Tom served and led CDW for nine years
with passion, discipline and heart. Under
Tom’s leadership, CDW consistently
delivered market-leading performance–
accordingly, another commitment
I have made is to also serve in a manner
that will ultimately leave CDW a
meaningfully better organization.
I would also like to recognize the
commitment, dedication and
performance of our more than
9,000 coworkers throughout
2018 and exhort you to embrace,
as you have throughout your careers
and CDW’s history, welcoming the
challenge of attaining even greater
success in 2019. Individually and
collectively YOU are CDW...YOU
are CDW’s evergreen competitive
advantage...the manner with which
We will never take for granted our reputation with our customers, coworkers,
partners, shareholders, and communities where we employ, live and have impact—
a reputation that has been built over 35 years through relentless commitment,
dedication, hard work, philanthropic contributions and complete integrity.
CDW sits between customers and vendor
partners, creating unique value for both:
Customers get access to a broad selection
of multi-branded solutions and deeply
technical resources, including highly-skilled,
extensively certified specialists and
engineers. CDW is an extension of its
customers’ IT staffs.
Partners get access to CDW’s more than
250,000 customers and augment their
product offerings with a wide range of
value-added IT and distribution services.
CDW is an extension of its partners’ sales
and marketing resources.
you continue to serve our customers
and our partners will be the determining
factor for CDW’s future. It is truly
an honor to lead such a capable and
committed team.
Thank you customers, partners and
shareholders for entrusting your
businesses and your hard-earned
and valuable assets to our care and
to our commitment to achieve and
exceed your objectives for growth.
I am confident that our thoughtful
strategy, ample resources, leading
marketplace position and vigorous
dedication will once again deliver
meaningfully above-market profitable
growth in 2019. I look forward with
resolve and enthusiasm to next
year’s report.
As I regularly conclude my
communication with CDW
coworkers, Bring IT!
Christine A. Leahy
President and Chief Executive Officer
April 10, 2019
CDW CORPORATION 3
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, 2018
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 every Interactive Data File required to be submitted 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 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:
Large accelerated filer
Non-accelerated filer
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 29, 2018, the last business day of the registrant's
most recently completed second fiscal quarter, was $12,094.3 million, based on the per share closing sale price of $80.79 on that date.
As of February 22, 2019, there were 147,059,195 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 2019 annual meeting of stockholders to be held on May 21, 2019, which will be filed with the Securities
and Exchange Commission on or before April 30, 2019, 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, 2018
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
21
23
27
51
52
97
97
99
100
100
100
100
100
101
106
107
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"), the United Kingdom ("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 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 $1 trillion in sales in 2018. We believe our addressable markets in the US, UK and
Canada represent more than $325 billion in annual sales. These are highly fragmented markets served by thousands of IT resellers
and solutions providers. For the year ended December 31, 2018, we estimate that our total Net sales of $16 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.
We have three reportable segments, Corporate, Small Business and Public. Our Corporate segment primarily serves US
private sector business customers with more than 250 employees. Our Small Business segment primarily serves US private sector
business customers with up to 250 employees. Our Public segment is comprised of government agencies and education and
4
Table of Contents
healthcare institutions in the US. We also have two other operating segments: CDW UK and CDW Canada, each of which do not
meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category ("Other").
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 2018. Net sales to customers in the UK and Canada combined generated $1.9 billion in 2018. We believe this diversity of
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.
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, Splunk, Varidesk, Veeam and Viptela. 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 2018, 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, Microsoft and Palo Alto Networks, 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, 2018. Purchases from our three largest wholesale distributors, Ingram Micro, SYNNEX and Tech Data, were each approximately
10% of total US purchases in 2018.
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 represented
approximately 50% of total consolidated Net sales in 2018, of which approximately 25% relate to electronic delivery for software
licenses.
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.
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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 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. 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 2018 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
this, 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 products, encompassing both on and off-
premise solutions, enables us to provide well-integrated solutions, including converged and hyper-converged
infrastructure, physical and virtualized servers, software defined automation and orchestration solutions, storage and
energy-efficient power and cooling.
Digital Workspace: We build end-to-end solutions 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. We utilize collaboration solutions to unite applications via 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.
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•
•
•
Security: We assess our customers' security needs and provide them with risk mitigation tools and services. Product
design, architecture and implementation can take the form of hardware, software or Software as a Service. These tools
and services are provided 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, security roadmaps and healthchecks.
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 our customers. 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:
2018
Years Ended December 31,
2017(1)(2)
2016(1)(2)
Dollars in
Millions
Percentage
of Total
Net Sales
Dollars in
Millions
Percentage
of Total
Net Sales
Dollars in
Millions
Percentage
of Total
Net Sales
Notebooks/Mobile Devices
$ 4,053.6
25.0% $ 3,519.8
23.7% $
2,942.9
Netcomm Products
Desktops
Video
Enterprise and Data Storage
(Including Drives)
Other Hardware
Total Hardware
Software(3)
Services(3)
Other(4)
Total Net sales
2,119.8
1,318.2
1,185.6
1,099.2
3,306.0
13,082.4
2,347.0
697.3
113.8
13.1
8.1
7.3
6.8
20.3
80.6
14.4
4.3
0.7
2,040.3
1,207.0
1,078.4
1,087.3
3,027.6
11,960.4
2,156.9
602.7
112.9
13.8
8.1
7.3
7.3
20.4
80.6
14.5
4.1
0.8
1,957.0
1,087.7
963.0
1,073.9
2,891.5
10,916.0
2,072.3
564.2
120.2
$ 16,240.5
100.0% $ 14,832.9
100.0% $ 13,672.7
21.5%
14.3
8.0
7.0
7.9
21.1
79.8
15.2
4.1
0.9
100.0%
(1)
(2)
(3)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of ASU 2014-09, Revenue from Contracts with
Customers, as amended ("Topic 606").
Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the
year ended December 31, 2018.
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.
(4)
Includes items such as delivery charges to customers.
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Our Internal Capabilities
Our Coworkers
As of December 31, 2018, we employed 9,019 coworkers with approximately 7,200 coworkers in the US, 1,300 in the
UK and 500 in Canada. Approximately two thirds of our coworkers at year-end 2018 were customer facing. Over 50% of our Net
sales are generated by account managers who have greater than seven years of tenure with CDW. 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, UK and Canada 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"). In 2013, CDW Corporation completed a second IPO of its common stock. After the IPO,
through secondary offerings and fund distributions, Madison Dearborn and Providence Equity liquidated their ownership positions.
In 2015, we acquired control of 100% of UK-based IT solutions provider, Kelway TopCo Limited ("Kelway"). Rebranded
CDW UK in 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.
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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 and the subsequent notice delivered by the UK to the EU of the UK's withdrawal (referred to as "Brexit").
Negotiations to determine the terms of the withdrawal, including the terms of trade between the UK and the EU, are ongoing.
Although the full effects of Brexit are uncertain and will be dependent on the outcome of such negotiations, potential adverse
consequences of Brexit include global market uncertainty, volatility in currency exchange rates, greater restrictions on imports
and exports between the UK and EU countries and increased regulatory complexities, each of which 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 and our other customers that do business with 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 or temporary shutdowns of government operations), shifts in budget priorities or
reductions in revenue levels could cause our public sector customers or our other customers that do business with impacted public
sector customers to reduce or delay their purchases or to terminate or not renew their contracts with us, which could adversely
affect our business, results of operations or cash flows. Additionally, such adverse change in government spending policies, shifts
in budget priorities or reductions in revenue levels could impact cash collections from contracts with our other customers that do
business with impacted public sector customers, which could adversely affect our business, results of operations or cash flows.
Our business depends on our vendor partner relationships and the availability of their products.
Our solutions portfolio includes products from OEMs, software publishers and cloud providers. We are authorized by
these 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 or a change in the terms 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.
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
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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.
We purchase the products included in our solutions portfolio both directly from our vendor partners and from wholesale
distributors. Although we purchase from a diverse vendor base, in 2018, 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 2018 consolidated Net
sales. Sales of products manufactured by Cisco and HP Inc. represented approximately 25% of our 2018 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, 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 Software as a Service ("SaaS"), Infrastructure as a Service
("IaaS") and Platform as a Service ("PaaS"); Device as a Service ("DaaS"); the Internet of Things ("IoT"); and Artificial Intelligence.
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, a lack of acceptance of innovations by our customers or delays in technology spending by our
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. 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 if 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
retailers (including their e-commerce activities), such as Office Depot and Staples.
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We expect the competitive landscape to continue to evolve as new technologies and consumption models are developed,
such as cloud-based and other "as a service" 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
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 from
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 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 risks
from breaches in security, including those from human error, negligence or mismanagement or from illegal or fraudulent acts,
such as cyberattacks. The evolving nature of threats to data security, in light of new and sophisticated methods used by criminals
and cyberterrorists, including computer viruses, malware, phishing, misrepresentation, social engineering and forgery, make it
increasingly challenging to anticipate and adequately mitigate these risks.
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
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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, the Medicare and Medicaid Anti-Kickback Statute or similar laws of the jurisdictions
for our business activities outside of the US) or security clearance and confidentiality requirements 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 or failures 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 or 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 and provide increasingly complex services and solutions, 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 our 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.
If we are unable to attract, develop, engage and retain key personnel, our relationships with our vendor partners and
customers and our ability to expand our offerings of value-added services and solutions could be adversely affected. Moreover,
if we are unable to continue to train our sales, services and technical personnel effectively to meet the rapidly changing technology
needs of our customers, the overall quality and efficiency of such personnel could decrease. 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.
Our business depends on the timely supply of products in order to meet the demands of our customers. Manufacturing
interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, significant labor disputes
such as strikes, natural disasters or other adverse occurrences affecting any of our suppliers' facilities, could disrupt our supply
chain. Suppliers may also fail to accurately forecast customer demand, or may be unable to manufacture sufficient quantities of
product to meet customer demand, resulting in the reduced supply of product available to us.
Our supply chain is also exposed to risks related to international operations. 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 related to international operations that could cause disruptions to our supply
chain include:
•
•
•
•
the imposition of additional trade law provisions or regulations, including the adoption or expansion of trade restrictions;
the imposition of additional duties, tariffs and other charges on imports and exports, including any resulting retaliatory
tariffs or charges and any reductions in the production of products subject to such tariffs and charges;
foreign currency fluctuations; and
restrictions on the transfer of funds.
We cannot predict whether the countries in which the products we sell, or any components of those products, are purchased
or manufactured 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, 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 (including those that may result from an increase in fuel or personnel costs), 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 or receive 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. This risk is heightened during periods of global or industry-specific economic downturn or uncertainty,
during periods of rising interest rates or, in the case of public sector customers, during periods of budget constraints. Significant
failures of customers to timely pay all amounts due to us could adversely affect our business, results of operations or cash flows.
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
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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
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 or to manage supply chain interruptions. If we purchase inventory in anticipation of customer
demand that does not materialize, or if customers reduce or delay orders, we would be exposed to an increased risk of 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
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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.
We also are subject to proceedings, investigations and audits by federal, state, international, national, provincial and local
authorities, including as a result 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 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 federal, state, provincial, local and foreign laws and regulations in a
number of areas, including labor and employment, advertising, e-commerce, tax, trade, import and export requirements, economic
and trade sanctions, anti-corruption, data privacy requirements (including those under the European Union General Data Protection
Regulation), anti-competition, environmental and 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. Furthermore, these laws and regulations 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, 2018, we had $3.2 billion of total long-term debt
outstanding, as defined by GAAP, and $429 million of obligations outstanding under our inventory financing agreements, and the
ability to borrow an additional $1.1 billion under our senior secured asset-based revolving credit loan facility (the "Revolving
Loan") and an additional £50 million ($64 million at December 31, 2018) under our CDW UK revolving credit facility. Our
substantial indebtedness could have important consequences, including the following:
•
•
•
•
•
•
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;
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•
•
increasing our vulnerability to both general and industry-specific adverse economic conditions; and
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:
•
•
•
•
•
•
•
•
•
•
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;
pledge our assets as collateral;
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:
•
•
•
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 $1.1 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, 2018 was $1.8 billion and, therefore, did not restrict our ability to borrow under our Revolving Loan as of
that date.
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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)
$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 on
terms that are favorable to us or at all, 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.
•
•
•
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, 2018, we had $1.1 billion 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 $393
million of reserves related to our floorplan sub-facility) and an additional £50 million ($64 million at December 31, 2018) 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, 2018, 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
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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.
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:
•
•
•
•
•
•
•
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:
•
•
•
•
•
•
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 until the 2021 annual meeting of stockholders, 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.
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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
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 $0.295 per share per quarter,
or $1.18 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, 2018, we owned or leased a total of 2.2 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.
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As of December 31, 2018, 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.
Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers
The following table lists the name, age as of February 27, 2019 and positions of each executive officer of the Company.
Name
Christine A. Leahy
Thomas E. Richards
Jill M. Billhorn
Mark C. Chong
Elizabeth H. Connelly
Christina M. Corley
Age Position
54 President and Chief Executive Officer and member of our Board of Directors since January 2019;
Chief Revenue Officer from July 2017 to December 2018; Senior Vice President - International, Chief
Legal Officer, and Corporate Secretary from May 2016 to July 2017; Senior Vice President, General
Counsel and Corporate Secretary from January 2007 to May 2016.
64 Executive Chairman of our Board of Directors since January 2019; President and Chief Executive
Officer from October 2011 to December 2018; Chairman of the Board of Directors from January 2013
to December 2018.
57 Senior Vice President, Corporate Sales since January 2019; Vice President, Strategic Solution Sales
of CDW Direct, LLC from January 2018 to December 2018; Vice President, East Region of CDW
Direct, LLC from August 2015 to January 2018; Vice President - Small Business of CDW Direct, LLC
from August 2010 to August 2015.
48 Senior Vice President of Strategy and Marketing since November 2016; Partner, Bain & Company
from January 2010 to September 2016 and Principal from September 2007 to December 2009.
54 Chief Human Resources Officer and Senior Vice President, Coworker Services since December 2018;
Managing Director and Head, Commercial Bank Healthcare, Higher Education and Not-for-Profit
Banking at J.P. Morgan Chase & Company from March 2012 to December 2018.
51 Chief Operating Officer since January 2019; Senior Vice President, Commercial and International
Markets from July 2017 to December 2018; Senior Vice President, Corporate Sales from September
2011 to July 2017.
Douglas E. Eckrote
54 Senior Vice President, Small Business Sales and eCommerce since August 2016; Senior Vice President,
Strategic Solutions and Services from November 2009 to August 2016.
Collin B. Kebo
52 Senior Vice President and Chief Financial Officer since January 2018; Vice President, Financial
Planning and Analysis from December 2008 to December 2017; Chief Financial Officer - International
from May 2016 to December 2017.
Robert F. Kirby
53 Senior Vice President, Public Sales since July 2018; Vice President, Federal and State and Local Sales
of CDW Government LLC from June 2011 to August 2018.
Frederick J. Kulevich
53 Senior Vice President, General Counsel and Corporate Secretary since October 2017; Vice President
and Deputy General Counsel from May 2016 to October 2017; Vice President and Assistant General
Counsel from May 2014 to May 2016; Senior Director, Ethics and Compliance from July 2006 to May
2014.
Christina V. Rother
55 Senior Vice President, Integrated Technology Solutions since July 2018; Senior Vice President, Public
and Advanced Technology Sales from September 2011 to July 2018.
Jonathan J. Stevens
Matthew A. Troka
49 Senior Vice President, Operations and Chief Information Officer since November 2009.
48 Senior Vice President, Product and Partner Management since March 2011.
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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."
Holders
As of February 22, 2019, there were 19 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, 2019, we announced that our Board of Directors declared a quarterly cash dividend on our common stock
of $0.295 per share. The dividend will be paid on March 12, 2019 to all stockholders of record as of the close of business on
February 25, 2019.
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 9
(Long-Term Debt) to the accompanying Consolidated Financial Statements.
Issuer Purchases of Equity Securities
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 through privately negotiated or other
transactions, depending on share price, market conditions and other factors. On February 7, 2019, we announced that our Board
of Directors authorized a $1.0 billion increase to our share repurchase program.
Information relating to the Company's purchases of its common stock during the quarter ended December 31, 2018 is as
follows:
Period
Total Number of
Shares Purchased (in
millions)
Average Price Paid per
Share
Total Number of
Shares Purchased as
Part of a Publicly
Announced Program
(in millions)
Maximum Dollar
Value of Shares that
May Yet be Purchased
Under the Program(1)
(in millions)
October 1 through October 31, 2018
November 1 through November 30, 2018
December 1 through December 31, 2018
Total
$
$
$
1.1
1.1
1.1
3.3
83.58
89.22
89.24
$
$
$
1.1
1.1
1.1
3.3
532.4
433.4
335.8
(1)
The amounts presented in this column are the remaining total authorized value to be spent after each month's repurchases.
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 December 31, 2013 through and including the market close on December 31,
21
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2018, with the cumulative total return for the same time period of the same amount invested in the S&P MidCap 400 index and
a peer group index. Our peer group index for 2018 consists of the following companies: Anixter International, Inc., Arrow
Electronics, Inc., Avnet, Inc., CGI Group Inc., Cognizant Technology Solutions Corporation, DXC Technology Company, Genuine
Parts Company, Henry Schein, Inc., Insight Enterprises, Inc., LKQ Corporation, Patterson Companies, Inc., SYNNEX Corporation,
Tech Data 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; (vi) similar EBITDA margins; (vii)
comparable percentage of international sales; (viii) frequently identified as a peer by the other peer companies or Institutional
Shareholder Services Inc.; or (ix) identified by the Company as a competitor.
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
December 31,
2013
December 31,
2014
December 31,
2015
December 31,
2016
December 31,
2017
December 31,
2018
$
$
$
100
100
100
$
$
$
152
108
109
$
$
$
183
104
107
$
$
$
229
124
133
$
$
$
308
142
151
$
$
$
364
124
127
Recent Sales of Unregistered Securities
None.
22
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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, 2018 and 2017 and for the years ended
December 31, 2018, 2017 and 2016 from our Consolidated Financial Statements and related notes included elsewhere in this
report. The selected financial data as of December 31, 2016, 2015 and 2014 and for the years ended December 31, 2015 and 2014
have been derived from our Consolidated Financial Statements as of and for those periods and are not included in this report.
23
Table of Contents
(dollars in millions, except per share amounts)
Statement of Operations Data:
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Advertising expense
Operating income
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
2018
Years Ended December 31,
2016(1)
2015(2)
2017(1)
2014
$ 16,240.5
$ 14,832.9
$ 13,672.7
$ 12,988.7
$ 12,074.5
13,533.6
12,382.7
11,344.4
10,872.9
10,153.2
2,706.9
1,537.1
182.5
987.3
(148.6)
—
—
1.8
840.5
(197.5)
643.0
4.26
4.19
$
$
$
2,450.2
1,410.0
2,328.3
1,345.4
2,115.8
1,226.0
1,921.3
1,110.3
173.7
866.5
(150.5)
(57.4)
—
2.1
660.7
(137.6)
523.1
3.37
3.31
$
$
$
162.9
820.0
(146.5)
(2.1)
—
1.8
673.2
(248.1)
425.1
2.60
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
$
$
$
$
$
$
Cash dividends declared per common share
$ 0.9250
$ 0.6900
$ 0.4825
$ 0.3100
$ 0.1950
Balance Sheet Data (at period end):
Cash and cash equivalents
Working capital
Total assets
Total debt and capitalized lease obligations(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
$
205.8
993.7
7,167.7
3,209.1
975.2
$
144.2
874.2
6,966.7
3,236.7
985.6
$
263.7
959.9
6,958.4
3,236.6
1,047.9
$
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
$
86.1
$
81.1
$
63.5
$
90.1
16.7%
16.5%
17.0%
16.3%
$ 1,254.7
$ 1,072.1
$ 1,074.2
$ 1,033.9
1,302.2
794.3
1,186.0
605.9
1,118.1
569.7
1,018.5
503.5
$
905.9
(86.1)
(754.8)
$
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)
(1)
(2)
(3)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
Includes the impact of consolidating five months of CDW UK's financial results for the year ended December 31, 2015.
Excludes borrowings of $429 million, $498 million, $580 million, $440 million and $332 million as of December 31,
2018, 2017, 2016, 2015 and 2014, respectively, under our inventory financing agreements. We do not include these
24
Table of Contents
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.
(4)
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 (the
"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 9
(Long-Term Debt) to the accompanying Consolidated Financial Statements.
The following unaudited table sets forth reconciliations of Net income to EBITDA and Adjusted EBITDA for the periods
presented:
(in millions)
Net income
Depreciation and amortization
Income tax expense
Interest expense, net
EBITDA
Non-cash equity-based compensation
Net loss on extinguishments of long-term debt(3)
Gain on remeasurement of equity investment(4)
Other adjustments(5)
Adjusted EBITDA
2018
Years Ended December 31,
2016(1)
2017(1)
2015(2)
2014
$
643.0
$
523.1
$
425.1
$ 403.1
$ 244.9
265.6
197.5
148.6
260.9
137.6
150.5
254.5
248.1
146.5
227.4
243.9
159.5
1,254.7
1,072.1
1,074.2
1,033.9
40.7
—
—
6.8
43.7
57.4
—
12.8
39.2
2.1
—
2.6
31.2
24.3
(98.1)
27.2
207.9
142.8
197.3
792.9
16.4
90.7
—
7.0
$ 1,302.2
$ 1,186.0
$ 1,118.1
$1,018.5
$ 907.0
(1)
(2)
(3)
(4)
(5)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
Includes the impact of consolidating five months of CDW UK's financial results for the year ended December
31, 2015.
During the years ended December 31, 2017, 2016, 2015 and 2014, 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 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.
Includes other expenses such as payroll taxes on equity-based compensation for the years ended December 31,
2018 and 2017, expenses related to the acquisition of Scalar Decisions Inc. incurred during 2018, integration
expenses related to CDW UK during 2017, and the reinstatement of prior year unclaimed property balances as
a result of a retroactive Illinois state law change enacted during 2017. The year ended December 31, 2016
includes our share of the settlement payments received from the Dynamic Random Access Memory class actions
lawsuits and the favorable resolution of a local sales tax matter, offset by integration expenses related to CDW
25
Table of Contents
UK and expenses related to the consolidation of office locations north of Chicago. The year ended December
31, 2015 includes our 35% share of CDW UK's net loss, which entails 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.
The years ended December 31, 2015 and 2014 also includes certain historical retention costs, expenses related
to litigation matters, secondary-offering-related expenses and expenses related to the consolidation of office
locations north of Chicago.
(5)
Non-GAAP net income excludes, among other things, charges related to the amortization of acquisition-related intangible
assets, equity-based compensation and the associated tax benefits, 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(3)
Equity-based compensation
Net loss on extinguishments of long-term debt
Gain on remeasurement of equity investment(4)
Other adjustments(5)
Aggregate adjustment for income taxes(6)
Non-GAAP net income
2018
Years Ended December 31,
2016(1)
2015(2)
2017(1)
2014
$ 643.0
$ 523.1
$ 425.1
$ 403.1
$ 244.9
182.7
40.7
—
—
185.1
43.7
57.4
—
187.2
39.2
2.1
—
5.9
(78.0)
$ 794.3
11.5
(214.9)
$ 605.9
1.9
(85.8)
$ 569.7
173.9
31.2
24.3
(98.1)
33.9
(64.8)
$ 503.5
161.2
16.4
90.7
—
(0.3)
(103.0)
$ 409.9
(1)
(2)
(3)
(4)
(5)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
Includes the impact of consolidating five months for the year ended December 31, 2015 of CDW UK's financial
results.
Includes amortization expense for acquisition-related intangible assets, primarily customer relationships,
customer contracts and trade names.
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.
Includes other expenses such as payroll taxes on equity-based compensation for the years ended December 31,
2018 and 2017, expenses related to the acquisition of Scalar Decisions Inc. incurred during 2018, integration
expenses related to CDW UK during 2017, and the reinstatement of prior year unclaimed property balances as
a result of a retroactive Illinois state law change enacted during 2017. The year ended December 31, 2016
includes our share of the settlement payments received from the Dynamic Random Access Memory class actions
lawsuits and the favorable resolution of a local sales tax matter, offset by integration expenses related to CDW
UK and expenses related to the consolidation of office locations north of Chicago. The year ended December
31, 2015 includes our 35% share of CDW UK's net loss, which entails 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.
The years ended December 31, 2015 and 2014 include secondary-offering-related expenses and expenses related
to the consolidation of office locations north of Chicago.
26
Table of Contents
(6)
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
Years Ended December 31,
2018
2017
2016
2015
2014
$ 229.3
$ 297.7
$ 230.4
$ 165.2
$ 268.0
25.0%
36.0%
36.0%
38.0%
39.0%
(57.3)
(107.2)
(82.9)
(62.8)
(104.5)
0.5
(19.1)
(1.9)
—
(0.2)
1.3
(36.2)
(75.5)
—
2.7
(1.5)
(1.8)
—
—
0.4
(4.0)
—
—
3.3
(1.3)
—
—
—
—
1.5
Total aggregate adjustment for income taxes
$ (78.0)
$(214.9)
$ (85.8)
$ (64.8)
$(103.0)
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.
We have three reportable segments, Corporate, Small Business and Public. Our Corporate segment primarily serves US
private sector business customers with more than 250 employees. Our Small Business segment primarily serves US 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: CDW UK and Canada, 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
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 are 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.
Effective January 1, 2018, we adopted the requirements of ASU 2014-09, Revenue from Contracts with Customers, as
amended ("Topic 606"), utilizing the full retrospective method. Prior period amounts have been adjusted accordingly.
27
Table of Contents
Trends and Key Factors Affecting our Financial Performance
We believe the following key factors may have a meaningful impact on our business performance, influencing our ability
to generate sales and achieve our targeted financial and operating results:
•
•
•
General economic conditions are a key factor affecting our 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.
Additionally, changes in trade policy and product constraints from suppliers could have an adverse impact on our business.
There continues to be substantial uncertainty regarding the impact of 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.
Changes in spending policies, budget priorities and funding levels are a key factor influencing the purchasing levels of
government, healthcare and education customers. A prolonged partial shutdown of the US Government could have an
adverse impact to our sales to Government customers and sales to our other customers that do business with the areas of
the US Government affected by a partial shutdown. Additionally, a prolonged partial shutdown could impact cash
collections from contracts with customers who do business with areas of the US Government affected by a partial shutdown.
Technology trends drive customer purchasing behaviors in the market. Current technology trends are focused on delivering
greater flexibility and efficiency, as well as designing IT securely. These trends are driving customer adoption of solutions
such as those delivered via cloud, software defined architectures and hybrid on-premise and off-premise combinations,
as well as the evolution of the IT consumption model to more "as-a-service" offerings, including Device-as-a-Service
("DaaS") and managed services.
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.
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 (the "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 Long-Term Debt and Financing Arrangements within Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 9 (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."
28
Table of Contents
The results of certain key business metrics are as follows:
(dollars in millions)
Net sales
Gross profit
Operating income
Net income
Non-GAAP net income
Adjusted EBITDA
Average daily sales(2)
Net debt(3)
Cash conversion cycle (in days)(4)
Years Ended December 31,
2017(1)
2016(1)
2018
$
16,240.5
$
14,832.9
$
13,672.7
2,706.9
2,450.2
2,328.3
987.3
643.0
794.3
1,302.2
63.9
3,002.8
19
866.5
523.1
605.9
1,186.0
58.4
3,091.3
19
820.0
425.1
569.7
1,118.1
53.8
2,970.7
19
(1)
(2)
(3)
(4)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
There were 254 selling days for each of the years ended December 31, 2018, 2017 and 2016.
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.
29
Table of Contents
Results of Operations
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
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
Operating income
Interest expense, net
Net loss on extinguishments of long-term debt
Other income, net
Income before income taxes
Income tax expense
Net income
Years Ended December 31,
2018
2017(1)
Dollars in
Millions
Percentage of
Net Sales
Dollars in
Millions
Percentage of
Net Sales
$ 16,240.5
100.0% $ 14,832.9
100.0%
13,533.6
2,706.9
1,537.1
182.5
987.3
(148.6)
—
1.8
840.5
(197.5)
643.0
$
83.3
16.7
9.5
1.1
6.1
(0.9)
—
—
5.2
(1.2)
4.0% $
12,382.7
2,450.2
1,410.0
173.7
866.5
(150.5)
(57.4)
2.1
660.7
(137.6)
523.1
83.5
16.5
9.5
1.2
5.8
(1.0)
(0.4)
—
4.5
(0.9)
3.5%
(1)
Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.
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
Small Business
Public:
Government
Education
Healthcare
Total Public
Other
Total Net sales
Years Ended December 31,
2018
2017(1)
Net Sales
Percentage
of Total
Net Sales
Net Sales
Percentage
of Total
Net Sales
Dollar
Change
Percent
Change(2)
$
6,842.5
42.1% $
6,172.8
41.6% $
669.7
10.8%
1,359.6
8.4
1,220.5
8.2
139.1
11.4
2,097.3
2,327.4
1,730.0
6,154.7
1,883.7
12.9
14.3
10.7
37.9
11.6
2,109.8
2,184.5
1,612.2
5,906.5
1,533.1
14.2
14.7
10.9
39.8
10.4
(12.5)
142.9
117.8
248.2
(0.6)
6.5
7.3
4.2
350.6
22.9
$ 16,240.5
100.0% $ 14,832.9
100.0% $
1,407.6
9.5%
(1)
(2)
Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.
There were 254 selling days for each of the years ended December 31, 2018 and 2017.
Total Net sales for the year ended December 31, 2018 increased $1,408 million, or 9.5%, to $16,241 million, compared
to $14,833 million for the year ended December 31, 2017. Excluding the impact of foreign currency fluctuations, constant currency
Net sales growth was 9.2%.
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For the year ended December 31, 2018, sales growth was driven by ongoing focus on client device refresh, the underlying
demand for solutions and strong growth from our international operations.
Corporate segment Net sales for the year ended December 31, 2018 increased $670 million, or 10.8%, compared to the
year ended December 31, 2017. Growth was primarily driven by client device refresh, as well as continued success helping
customers with solutions, including data center and software.
Small Business segment Net sales for the year ended December 31, 2018 increased by $139 million, or 11.4%, between
periods. Sales growth was primarily driven by client device refresh.
Public segment Net sales for the year ended December 31, 2018 increased $248 million, or 4.2%, compared to the year
ended December 31, 2017. Education Net sales increased 6.5%, primarily driven by continued success addressing client device
and networking needs for both K-12 and Higher Education customers. Net sales in Healthcare increased 7.3%, primarily driven
by performance in client devices and video as customers moved forward on refresh projects. Net sales to Government customers
were flat compared to the prior year. Federal Net sales were lower due to the prior year success of meeting the Department of
Defense mandate to move to new client devices with stronger security features. Federal Net sales were nearly fully offset by the
success of executing against contracts to State and Local government customers, including meeting public safety needs.
Net sales in Other, which is comprised of results from our UK and Canadian operations, for the year ended December 31,
2018 increased $351 million, or 22.9%, compared to the year ended December 31, 2017. Both operations had strong growth in
local currency as we continued to take share in the local markets. In addition, UK growth was driven in part by increased sales
from referrals for US-based customers. The impact of foreign currency exchange increased Other sales growth by approximately
270 basis points, primarily due to the favorable translation of the British pound to US dollar.
Gross profit
Gross profit increased $257 million, or 10.5%, to $2,707 million for the year ended December 31, 2018, compared to
$2,450 million for the year ended December 31, 2017. As a percentage of Net sales, Gross profit margin increased 20 basis points
to 16.7% for the year ended December 31, 2018. Gross profit margin was impacted by an increase in the mix of revenue recognized
on a net basis, such as Software as a Service and warranties, as well as improved product margin. This was partially offset by year-
over-year Net sales growth out-pacing the year-over-year growth rate in partner funding.
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, revenue recognized on a net basis,
pricing strategies, market conditions and other factors.
Selling and administrative expenses
Selling and administrative expenses increased $127 million, or 9.0%, to $1,537 million for the year ended December 31,
2018, compared to $1,410 million for the year ended December 31, 2017. The increase was driven by higher sales payroll expenses,
including sales commissions, primarily due to higher Gross profit dollars and higher coworker costs due to higher attainment of
performance-based compensation.
As a percentage of total Net sales, Selling and administrative expenses remained flat at 9.5% for the year ended December
31, 2018.
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Operating income
Operating income 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,
2018
2017(1)
Dollars in
Millions
Operating
Margin
Dollars in
Millions
Operating
Margin
Percent Change
in Operating
Income
$
$
536.9
95.7
410.8
82.2
(138.3)
987.3
7.8% $
7.0
6.7
4.4
nm*
6.1% $
487.9
74.3
374.4
57.1
(127.2)
866.5
7.9%
10.0%
6.1
6.3
3.7
nm*
5.8%
28.8
9.7
43.9
8.7
13.9%
Segments:(2)
Corporate
Small Business
Public
Other(3)
Headquarters(4)
Total Operating income
* Not meaningful
(1)
(2)
(3)
Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.
Segment operating income 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.
Includes the financial results for our other operating segments, CDW UK and CDW Canada, which do not meet the
reportable segment quantitative thresholds.
(4)
Includes Headquarters function costs that are not allocated to the segments.
Operating income was $987 million for the year ended December 31, 2018, an increase of $120 million, or 13.9%,
compared to $867 million for the year ended December 31, 2017. Operating income increased primarily due to higher Gross profit
dollars, partially offset by higher sales payroll expenses and higher coworker costs due to higher attainment on performance-based
compensation. Total operating margin percentage increased 30 basis points to 6.1% for the year ended December 31, 2018, from
5.8% for the year ended December 31, 2017. The increase was primarily due to Gross profit margin expansion driven by a higher
mix into revenue recognized on a net basis, as well as improved product margin. Lower intangible asset amortization and equity-
based compensation expense and the associated payroll taxes as a percentage of Net sales, which do not trend in line with sales
movement, also had a favorable impact on the operating margin percentage. This was partially offset by higher attainment on
performance-based compensation expense as a percentage of Net sales.
Corporate segment Operating income was $537 million for the year ended December 31, 2018, an increase of $49 million,
or 10.0%, compared to $488 million for the year ended December 31, 2017. Corporate segment Operating income increased
primarily due to higher Gross profit dollars driven by higher sales, partially offset by higher sales payroll expenses. Corporate
segment operating margin percentage decreased 10 basis points to 7.8% for the year ended December 31, 2018, from 7.9% for
the year ended December 31, 2017. The decrease was driven by higher attainment on performance-based compensation expense
as a percentage of Net sales.
Small Business segment Operating income was $96 million for the year ended December 31, 2018, an increase of $22
million, or 28.8%, compared to $74 million for the year ended December 31, 2017. Small Business segment Operating income
increased primarily due to higher Gross profit dollars. Small Business segment operating margin percentage increased 90 basis
points to 7.0% for the year ended December 31, 2018, from 6.1% for the year ended December 31, 2017. This increase in operating
margin percentage was primarily driven by a higher mix into revenue recognized on a net basis and the benefit of lower sales
payroll expenses as a percentage of Net sales. This was partially offset by higher attainment on performance-based compensation
expense as a percentage of Net sales.
Public segment Operating income was $411 million for the year ended December 31, 2018, an increase of $37 million,
or 9.7%, compared to $374 million for the year ended December 31, 2017. Public segment Operating income increased primarily
due to higher Gross profit dollars, partially offset by higher sales payroll expenses. Public segment operating margin percentage
increased 40 basis points to 6.7% for the year ended December 31, 2018, from 6.3% for the year ended December 31, 2017. This
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increase in operating margin percentage was primarily driven by a higher mix into revenue recognized on a net basis, partially
offset by higher performance-based compensation expense as a percentage of Net sales.
Other Operating income was $82 million for the year ended December 31, 2018, an increase of $25 million, or 43.9%,
compared to $57 million for the year ended December 31, 2017. Other Operating income increased primarily due to higher Gross
profit dollars, partially offset by higher sales payroll expenses. Foreign exchange translation also had a favorable impact on
Operating income. Other operating margin percentage increased 70 basis points to 4.4% for the year ended December 31, 2018,
from 3.7% for the year ended December 31, 2017. This increase was primarily due to lower sales payroll expenses and lower
intangible asset amortization as a percentage of Net sales, which does not trend in line with sales movement.
Net loss on extinguishments of long-term debt
For information regarding our debt, see Note 9 (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.
Net loss on extinguishments of long-term debt are as follows:
Month of Extinguishment
Debt Instrument
Amount Extinguished
Loss Recognized
February 2017
Senior Secured Term Loan Facility
$
1,483.0
$
March 2017
March 2017
Senior Notes due 2022
Senior Secured Asset-based Revolving Credit Facility
Total Loss Recognized
600.0
—
$
(13.7)
(42.5) (1)
(1.2)
(57.4)
(in millions)
(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 fees 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 changed several
aspects of US federal tax law including: reducing the US corporate income tax rate from 35.0% to 21.0% beginning on January
1, 2018; applying a one-time tax on the deemed mandatory repatriation of the Company's unremitted foreign earnings which have
not been subject to US tax; imposing a minimum US tax on foreign earnings; providing for the immediate expensing of certain
qualified property; and changing the tax treatment of performance-based executive compensation and certain employee fringe
benefits.
The SEC issued Staff Accounting Bulletin 118 allowing for provisional amounts to be recorded during a measurement
period not to exceed one year. During the year ended December 31, 2017, the Company recorded provisional amounts for the
impact of revaluing deferred tax assets and liabilities, the deemed mandatory repatriation tax on the Company's unremitted foreign
earnings and the state income tax effects from the changes in federal tax law. The Company adjusted the US federal and state
provisional amounts during 2018, recording a net tax benefit of $2 million. The adjustment was primarily driven by the rate
differential on adjustments to temporary book-tax differences made in finalizing the 2017 federal income tax return and finalizing
the deemed mandatory repatriation tax on the Company's unremitted foreign earnings.
Income tax expense was $198 million in 2018, compared to $138 million in 2017. The effective income tax rate, expressed
by calculating income tax expense as a percentage of Income before income taxes, was 23.5% and 20.8% for 2018 and 2017,
respectively.
For 2018, the effective tax rate differed from the US federal statutory rate primarily due to state income taxes, partially
offset by excess tax benefits on equity compensation. 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. The 2018 effective tax rate was higher than 2017 primarily due
to the benefits recorded in 2017 for the Tax Cuts and Jobs Act and excess tax benefits, which exceeded the benefit in 2018 from
the lower federal income rate in 2018 and partially offset by a higher state income taxes.
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Table of Contents
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, 2018 and 2017 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 the associated tax benefits, integration
expenses, and gains and losses from the extinguishment of long-term debt. 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
9 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
Non-GAAP net income
Non-GAAP net income was $794 million for the year ended December 31, 2018, an increase of $188 million, or 31.1%,
compared to $606 million for the year ended December 31, 2017.
(in millions)
GAAP (as reported)
Amortization of intangibles(3)
Equity-based compensation
Net loss on extinguishments of long-term debt
Tax Cuts and Jobs Act(4)
Other adjustments(5)
Non-GAAP
Year Ended December 31, 2018
Year Ended December 31, 2017(1)
Income
before
income
taxes
$
840.5
182.7
40.7
—
—
5.9
$ 1,069.8
Income tax
expense(2)
Net income
Income
before
income
taxes
$ (197.5) $
(45.7)
(29.2)
—
(1.9)
(1.2)
$ (275.5) $
643.0
$
660.7
137.0
11.5
—
(1.9)
4.7
185.1
43.7
57.4
—
11.5
794.3
$
958.4
Income tax
expense(2)
Net income
$ (137.6) $
(66.6)
(51.9)
(20.7)
(75.5)
(0.2)
$ (352.5) $
523.1
118.5
(8.2)
36.7
(75.5)
11.3
605.9
(1)
(2)
(3)
(4)
Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.
Income tax on non-GAAP adjustments includes excess tax benefits associated with equity compensation. Additionally,
2018 includes the impact of global intangible low tax income ("GILTI") on equity-based compensation and amortization
of intangibles.
Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer
contracts and trade names.
2018 is comprised of adjustments to the provisional amounts recorded to finalize the US federal and state impact of
revaluing deferred tax assets and liabilities and mandatory repatriation tax due to the completion of the 2017 US federal
34
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and state tax returns.
(5)
Includes other expenses such as payroll taxes on equity-based compensation for the year ended December 31, 2018 and
2017, expenses related to the acquisition of Scalar Decisions Inc. incurred during 2018, integration expenses related to
CDW UK during 2017, the reinstatement of prior year unclaimed property balances in 2017 and tax benefits due to state
law changes for the year ended December 31, 2017.
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Adjusted EBITDA
Adjusted EBITDA was $1,302 million for the year ended December 31, 2018, an increase of $116 million, or 9.8%,
compared to $1,186 million for the year ended December 31, 2017. As a percentage of Net sales, Adjusted EBITDA was 8.0%
for each of the years ended December 31, 2018 and 2017.
(in millions)
Net income
Depreciation and amortization
Income tax expense
Interest expense, net
EBITDA
Adjustments:
2018
$
643.0
265.6
197.5
148.6
Years Ended December 31,
Percentage of
Net Sales
2017(1)
4.0%
$
523.1
260.9
137.6
150.5
Percentage of
Net Sales
3.5%
1,254.7
7.7%
1,072.1
7.2%
Equity-based compensation
Net loss on extinguishments of long-term debt
Other adjustments(2)
Total adjustments
40.7
—
6.8
47.5
43.7
57.4
12.8
113.9
Adjusted EBITDA
$
1,302.2
8.0%
$
1,186.0
8.0%
(1)
(2)
Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.
Includes other expenses such as payroll taxes on equity-based compensation and our share of net income from our equity
investment during the years ended December 31, 2018 and 2017, expenses related to the acquisition of Scalar Decisions
Inc. incurred during 2018, integration expenses related to CDW UK during 2017, and the reinstatement of prior year
unclaimed property balances as a result of a retroactive Illinois state law change enacted during 2017. Also includes
historical retention costs during the year ended December 31, 2017.
Consolidated Net sales growth on a constant currency basis
Consolidated Net sales increased $1,408 million, or 9.5%, to $16,241 million for the year ended December 31, 2018,
compared to $14,833 million for the year ended December 31, 2017. Consolidated Net sales on a constant currency basis, which
excludes the impact of foreign currency translation, increased $1,374 million, or 9.2%.
(in millions)
Net sales, as reported
Foreign currency translation(3)
Consolidated Net sales, on a constant currency basis
Years Ended December 31,
2018
16,240.5
—
16,240.5
$
$
2017(1)
14,832.9
34.1
14,867.0
$
$
% Change
Average Daily
% Change(2)
9.5%
9.5%
9.2%
9.2%
(1)
(2)
(3)
Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.
There were 254 selling days for each of the years ended December 31, 2018 and 2017.
Represents the effect of translating the prior year results of CDW UK and CDW Canada at the average exchange rates
applicable in the current year.
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Table of Contents
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
Operating income
Interest expense, net
Net loss on extinguishments of long-term debt
Other income, net
Income before income taxes
Income tax expense
Net income
Years Ended December 31,
2017(1)
2016(1)
Dollars in
Millions
Percentage of
Net Sales
Dollars in
Millions
Percentage of
Net Sales
$
14,832.9
100.0% $
13,672.7
100.0%
12,382.7
2,450.2
1,410.0
173.7
866.5
(150.5)
(57.4)
2.1
660.7
(137.6)
523.1
$
83.5
16.5
9.5
1.2
5.8
(1.0)
(0.4)
—
4.5
(0.9)
3.5% $
11,344.4
2,328.3
1,345.4
162.9
820.0
(146.5)
(2.1)
1.8
673.2
(248.1)
425.1
83.0
17.0
9.8
1.2
6.0
(1.1)
—
—
4.9
(1.8)
3.1%
(1)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
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Table of Contents
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
Small Business
Public:
Government
Education
Healthcare
Total Public
Other
Total Net sales
Years Ended December 31,
2017(1)
2016(1)
Net Sales
Percentage
of Total
Net sales
Net Sales
Percentage
of Total
Net Sales
Dollar
Change
Percent
Change (2)
$
6,172.8
41.6% $
5,734.9
41.9% $
437.9
1,220.5
8.2
1,118.1
8.2
102.4
2,109.8
2,184.5
1,612.2
5,906.5
1,533.1
14.2
14.7
10.9
39.8
10.4
1,813.6
1,994.4
1,669.4
5,477.4
1,342.3
13.3
14.6
12.2
40.1
9.8
296.2
190.1
(57.2)
429.1
190.8
7.6%
9.1
16.3
9.5
(3.4)
7.8
14.2
$ 14,832.9
100.0% $ 13,672.7
100.0% $
1,160.2
8.5%
(1)
(2)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
There were 254 selling days for each of the years ended December 31, 2017 and 2016.
Total Net sales in 2017 increased $1,160 million, or 8.5%, to $14,833 million, compared to $13,673 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 $1,188 million, or 8.7%, to $14,833 million, compared to $13,645 million for the year ended
December 31, 2016.
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 2017, 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 $438 million, or 7.6%, 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 $102 million, or 9.1%, compared to 2016. Sales growth was
primarily driven by customer refresh of client devices and video.
Public segment Net sales in 2017 increased $429 million, or 7.8%, 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 3.4%, reflecting continued customer uncertainty related to reimbursements and
funding.
Net sales in Other for 2017 increased $191 million, or 14.2%, compared to 2016. Other is comprised of results from our
UK and Canadian operations. Both operations had strong growth in local currency as we continued to take share in the local
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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 $122 million, or 5.2%, to $2,450 million in 2017, compared to $2,328 million in 2016. As a
percentage of Net sales, Gross profit decreased 50 basis points to 16.5% in 2017, down from 17.0% 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, revenue recognized on a net basis,
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 expenses, including sales commissions, primarily due to higher Gross
profit, as well as higher coworker costs 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 9.5% in 2017, down
from 9.8% in 2016.
Operating income
Operating income 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(1)
2016(1)
Dollars in
Millions
Operating
Margin
Dollars in
Millions
Operating
Margin
Percent Change
in Operating
Income
$
$
487.9
74.3
374.4
57.1
(127.2)
866.5
7.9% $
6.1
6.3
3.7
nm*
5.8% $
453.5
69.1
367.7
44.6
(114.9)
820.0
7.9%
6.2
6.7
3.3
nm*
6.0%
7.6%
7.4
1.8
28.2
10.7
5.7%
Segments: (2)
Corporate
Small Business
Public
Other(3)
Headquarters(4)
Total Operating income
* Not meaningful
(1)
(2)
(3)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
Segment operating income 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.
Includes the financial results for our other operating segments, CDW UK and CDW Canada, which do not meet the
reportable segment quantitative thresholds.
(4)
Includes Headquarters function costs that are not allocated to the segments.
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Operating income was $867 million in 2017, an increase of $47 million, or 5.7%, compared to $820 million in 2016.
Although Operating income increased, total operating margin percentage decreased 20 basis points to 5.8% in 2017, from 6.0%
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 Operating income was $488 million in 2017, an increase of $34 million, or 7.6%, compared to $454
million in 2016. Corporate segment operating margin remained flat at 7.9% for 2017 and 2016. Although Operating income
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 Operating income was $74 million in 2017, an increase of $5 million, or 7.4%, compared to $69
million in 2016. Operating income increased due to an increase in sales volume, while operating margin decreased 10 basis points
to 6.1% for 2017. The decrease in operating margin percentage reflects higher hardware sales and an ongoing competitive
marketplace, which were offset by lower sales payroll expenses.
Public segment Operating income was $374 million in 2017, an increase of $6 million, or 1.8%, compared to $368 million
in 2016. Public segment operating margin decreased 40 basis points to 6.3% in 2017, from 6.7% 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 Operating income was $57 million in 2017, an increase of $12 million, or 28.2%, compared to $45 million in 2016.
Other Operating income increased primarily due to higher sales volumes and Gross profit as we continued to take share in the
local markets. Other operating margin percentage increased 40 basis points to 3.7% in 2017, from 3.3% in 2016. This increase
was primarily driven by a decline in intangible asset amortization expense as a percentage of Net sales.
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.
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Net loss on extinguishments of long-term debt
For information regarding our debt, see Note 9 (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
$
1,483.0
$
March 2017
March 2017
Senior Notes due 2022
Senior Secured Asset-based Revolving Credit Facility
Total Loss Recognized
600.0
—
For the Year Ended December 31, 2016
August 2016
Senior Secured Term Loan Facility
$
1,490.4
Total Loss Recognized
$
$
$
(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 changed 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.
Income tax expense was $138 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.
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 under the Tax Cuts and Jobs Act, 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 under the Tax Cuts and Jobs Act. 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
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31, 2017 and 2016 below. See the "Non-GAAP Financial Measure Reconciliations" section included above for the years ended
December 31, 2018 and 2017 for all Non-GAAP measure definitions.
Non-GAAP net income
Non-GAAP net income was $606 million for the year ended December 31, 2017, an increase of $36 million, or 6.3%,
compared to $570 million for the year ended December 31, 2016.
(in millions)
GAAP (as reported)
Amortization of intangibles(2)
Equity-based compensation
Net loss on extinguishments of long-term debt
Tax Cuts and Jobs Act
Other adjustments(3)
Non-GAAP
Year Ended December 31, 2017(1)
Year Ended December 31, 2016(1)
Income
before
income
taxes
$
660.7
185.1
43.7
57.4
—
11.5
Income tax
expense
Net income
Income
before
income
taxes
$ (137.6) $
(66.6)
(51.9)
(20.7)
(75.5)
(0.2)
523.1
$
673.2
118.5
(8.2)
36.7
(75.5)
11.3
187.2
39.2
2.1
—
1.9
Income tax
expense
Net income
$ (248.1) $
(67.4)
(15.9)
(0.8)
—
(1.7)
425.1
119.8
23.3
1.3
—
0.2
$
958.4
$ (352.5) $
605.9
$
903.6
$ (333.9) $
569.7
(1)
(2)
(3)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer
contracts and trade names.
Includes other expenses such as payroll taxes on equity-based compensation and tax benefits due to state law changes
for the year ended December 31, 2017 and 2016, integration expenses related to CDW UK, and the reinstatement of prior
year unclaimed property balances as a result of a retroactive Illinois state law change enacted in the third quarter of 2017.
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Adjusted EBITDA
Adjusted EBITDA was $1,186 million for the year ended December 31, 2017, an increase of $68 million, or 6.1%,
compared to $1,118 million for the year ended December 31, 2016. As a percentage of Net sales, Adjusted EBITDA was 8.0% and
8.2% for the years ended December 31, 2017 and 2016, respectively.
(in millions)
Net income
Depreciation and amortization
Income tax expense
Interest expense, net
EBITDA
Adjustments:
Equity-based compensation
Net loss on extinguishments of long-term debt
Other adjustments(2)
Total adjustments
Adjusted EBITDA
Years Ended December 31,
2017(1)
Percentage of
Net Sales
2016(1)
3.5%
$
523.1
260.9
137.6
150.5
425.1
254.5
248.1
146.5
Percentage of
Net Sales
3.1%
1,072.1
7.2%
1,074.2
7.9%
43.7
57.4
12.8
113.9
1,186.0
39.2
2.1
2.6
43.9
8.0%
$
1,118.1
8.2%
$
$
(1)
(2)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
Primarily includes expenses related to payroll taxes on equity-based compensation, our share of net income from our
equity investment, 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. Also comprised of integration expenses related to CDW UK and the reinstatement of prior year unclaimed
property balances as a result of a retroactive Illinois state law change enacted during 2017.
Consolidated Net sales growth on a constant currency basis
Consolidated Net sales increased $1,160 million, or 8.5%, to $14,833 million for the year ended December 31, 2017,
compared to $13,673 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 $1,188 million, or 8.7%, to $14,833 million for the year ended
December 31, 2017, compared to $13,645 million for the year ended December 31, 2016.
(in millions)
Net sales, as reported
Foreign currency translation(3)
Consolidated Net sales, on a constant currency basis
Years Ended December 31,
2017(1)
14,832.9
—
14,832.9
$
$
2016(1)
% Change
Average Daily %
Change (2)
$
$
13,672.7
(28.1)
13,644.6
8.5%
8.7%
8.5%
8.7%
(1)
(2)
(3)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
There were 254 selling days for each of the years ended December 31, 2017 and 2016.
Represents the effect of translating the prior year results of CDW UK and CDW Canada at the average exchange rates
applicable in the current year.
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,
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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. As of December 31,
2018, we also have $1.1 billion of availability for borrowings under our senior secured asset-based revolving credit facility and
an additional £50 million ($64 million at December 31, 2018) 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 and Financing Arrangements
As of December 31, 2018, we had total indebtedness of $3.2 billion, of which $1.5 billion was secured indebtedness. At
December 31, 2018, 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 $1.5 billion at December 31, 2018. The
amount of restricted payment capacity for the CDW UK term loan was $163 million.
For additional details regarding our debt and refinancing activities, refer to Note 9 (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 5 (Inventory Financing Agreements) to the accompanying Consolidated Financial
Statements.
Share Repurchase Program
During 2018, we repurchased 6.3 million shares of our common stock for $522 million under the previously announced
share repurchase program. On February 7, 2019, we announced that our Board of Directors authorized a $1.0 billion increase to
our share repurchase 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."
Dividends
Dividend Amount
$0.210
$0.210
$0.210
$0.295
$0.925
Declaration Date
February 7, 2018
May 2, 2018
August 2, 2018
October 31, 2018
Record Date
February 26, 2018
May 25, 2018
August 24, 2018
November 26, 2018
Payment Date
March 12, 2018
June 11, 2018
September 10, 2018
December 10, 2018
On February 7, 2019, we announced that our Board of Directors declared a quarterly cash dividend on our common stock
of $0.295 per share. The dividend will be paid on March 12, 2019 to all stockholders of record as of the close of business on
February 25, 2019.
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
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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,
2018
2017
2016
$
$
905.9
(86.1)
$
777.7
(81.1)
604.0
(65.9)
(67.4)
(687.4)
(754.8)
(84.0)
(734.7)
(818.7)
143.6
(448.2)
(304.6)
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
(3.4)
61.6
$
2.6
(119.5) $
(7.4)
226.1
$
Operating Activities
Cash flows from operating activities are as follows:
(in millions)
Net income
Adjustments for the impact of non-cash items(2)
Net income adjusted for the impact of non-cash items(3)
Changes in assets and liabilities:
Accounts receivable(4)
Merchandise inventory(5)
Accounts payable-trade(6)
Other(7)
Years Ended December 31,
2018
2017(1)
Change
$
643.0
$
523.1
$
261.1
904.1
(365.1)
(46.8)
271.2
142.5
194.4
717.5
(136.8)
16.9
231.5
(51.4)
777.7
$
119.9
66.7
186.6
(228.3)
(63.7)
39.7
193.9
128.2
Net cash provided by operating activities
$
905.9
$
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.
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, partially offset by
higher sales payroll.
The change in Accounts receivable is primarily due to increased sales volume in 2018 compared to 2017 and longer
payment cycles for certain Public segment customers.
The change in Merchandise inventory is primarily due to growth in business and timing of shipments to customers in
2018, as well as lower inventory levels at the end of 2017.
The change in Accounts payable-trade is due to increased sales in 2018 and the timing of inventory purchases.
The change in Other is driven by improved collection performance of our receivables from vendors, higher accrued
compensation expense in 2018 and the settlement of our Restricted Debt Unit Plan liability in 2017.
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(in millions)
Net income
Adjustments for the impact of non-cash items(2)
Net income adjusted for the impact of non-cash items(3)
Changes in assets and liabilities:
Accounts receivable(4)
Merchandise inventory(5)
Accounts payable-trade
Other(6)
Years Ended December 31,
2017(1)
2016(1)
Change
$
523.1
$
425.1
$
194.4
717.5
(136.8)
16.9
231.5
(51.4)
777.7
$
202.9
628.0
(178.9)
(68.0)
225.1
(2.2)
604.0
$
98.0
(8.5)
89.5
42.1
84.9
6.4
(49.2)
173.7
Net cash provided by operating activities
$
(1)
(2)
(3)
(4)
(5)
(6)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
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 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 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)(2)
Days of supply in inventory (DIO)(3)
Days of purchases outstanding (DPO)(4)
Cash conversion cycle
2018
December 31,
2017(1)
2016(1)
56
13
(50)
19
53
13
(47)
19
52
13
(46)
19
(1)
(2)
(3)
(4)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
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, 2018 and 2017. The increase in DSO was primarily driven by
higher Net sales and related Accounts receivable recognized on a net basis such as SaaS, software assurance and warranties and
longer payment cycles for certain Public segment customers. The third-party 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
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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. DPO was also impacted by the timing
of inventory purchases.
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 recognized on a net basis 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.
Investing Activities
Net cash used in investing activities increased $5 million in 2018 compared to 2017. The increase in cash used primarily
related to improvements to our information technology systems.
Net cash used in investing activities increased $15 million in 2017 compared to 2016. The increase in cash used was
primarily related to improvements to our information technology systems.
Financing Activities
Net cash used in financing activities decreased $64 million in 2018 compared to 2017. The decrease was primarily driven
by 2017 payments to extinguish long-term debt which did not repeat in 2018, an increase in stock options exercised and lower
incentive compensation plan withholding taxes, partially offset by an increase in dividends paid.
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 in financing activities of $228
million and by share repurchases during 2017, which resulted in an increase in cash used in financing activities of $167 million.
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 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.
Contractual Obligations
We have future obligations under various contracts relating to debt and interest payments, operating leases and asset
retirement obligations. Our estimated future payments, based on undiscounted amounts, under contractual obligations that existed
as of December 31, 2018, 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
2019
2020-2021
2022-2023
$
1,738.6
$
77.7
$
153.7
$
1,507.2
$
68.8
656.3
764.8
810.0
264.7
10.7
8.2
26.3
31.6
30.0
29.7
—
60.6
52.5
63.3
60.0
49.7
—
—
577.5
63.3
60.0
36.7
1.0
2024 &
Thereafter
—
—
—
606.6
660.0
148.6
9.7
$
4,313.9
$
203.5
$
439.8
$
2,245.7
$
1,424.9
(1)
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, 2018. Excluded from these amounts
are the amortization of debt issuance and other costs related to indebtedness.
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(2)
(3)
(4)
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.
Represents future cash tax payments for the one-time mandatory repatriation tax on the earnings of international operations
previously deferred for US tax purposes, 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. 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 15 (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, liabilities, revenues and expenses, as well as related
disclosure of contingent assets and liabilities in the Consolidated Financial Statements and accompanying notes. We base our
estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.
Historically, we have not made significant changes to the methods for determining these estimates as our actual results have not
differed materially from our 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 under different assumptions,
judgments or conditions. We have reviewed our critical accounting policies with the Audit Committee of our Board of Directors.
Critical accounting policies and estimates are those that are most important to the portrayal of our financial condition
and results of operations, and which require us to make our most difficult and subjective judgments, often as a result of the need
to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting
policies and estimates addressed below. For more information related to significant accounting policies used in the preparation of
our Consolidated Financial Statements, see Note 1 (Description of Business and Summary of Significant Accounting Policies) to
the accompanying Consolidated Financial Statements.
Revenue Recognition
We sell some of our products and services as part of bundled contract arrangements containing multiple deliverables,
which may include a combination of different products and services. Significant judgment may be required when determining
whether products and services are considered distinct performance obligations that should be accounted for separately versus
together.
For each deliverable that represents a distinct performance obligation, total arrangement consideration is allocated based
upon the standalone selling prices of each performance obligation. Judgment is required to determine the standalone selling price
for each distinct performance obligation. For certain performance obligations, we will use a combination of methods to estimate
the standalone selling price based on recent transactions. When evidence from recent transactions is not available to confirm that
the prices are representative of the standalone selling price, an expected cost plus a margin approach is used.
Additional judgment is required in determining whether we are the principal, and report revenues on a gross basis, or
agent, and report revenues on a net basis. We evaluate the following indicators amongst others when determining whether we are
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acting as a principal in the transaction and recording revenue on a gross basis: (i) we are primarily responsible for fulfilling the
promise to provide the specified goods or service, (ii) we have inventory risk before the specified good or service has been
transferred to a customer or after transfer of control to the customer and (iii) we have discretion in establishing the price for the
specified good or service. If the terms of a transaction do not indicate we are acting as a principal in the transaction, then we are
acting as an agent in the transaction and the associated revenues are recognized on a net basis.
The nature of our contracts give rise to variable consideration in the form of sales returns and allowances. We estimate
variable consideration at the most likely amount to which we are expected to be entitled. The estimates of variable consideration
and determination of whether to include estimated amounts in the transaction price are based on an assessment of our anticipated
performance and all information that is reasonably available.
We generally recognize revenue on the sale of hardware and software products upon delivery to the customer. As a result,
we perform an analysis to estimate the amount of Net sales in-transit at the end of the period and adjust revenue and the related
costs to reflect only what has been delivered to the customer. This analysis requires judgment whereby we perform an analysis
of the estimated number of days of sales in-transit to customers at the end of each reporting period based on a weighted-average
analysis of commercial delivery terms that include drop-shipment arrangements. Changes in delivery patterns may result in a
different number of business days estimated to make this adjustment.
Vendor Programs
We receive incentives from certain vendors related to cooperative advertising, 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 Merchandise inventory, depending on the nature of the
incentive. We record vendor partner receivables 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.
We also record reserves for vendor partner receivables for estimated losses due to vendors' inability to pay or rejections
by vendors of claims. In estimating the required allowance, we take into consideration collections performance and the aging of
the incentive receivables, as well as specific vendor circumstances.
Goodwill
Goodwill is allocated to reporting units expected to benefit from the business combination. Goodwill is not amortized
but is subject to periodic testing for impairment at the reporting unit level on an annual basis each December 1, or more frequently
if events or changes in circumstances indicate that the asset may be impaired. These events or circumstances could include a
significant change in the business climate, legal factors, operating performance indicators, competition or sale or disposition of a
significant portion of a reporting unit.
We may elect to utilize a qualitative assessment to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying value. As part of our qualitative assessment, judgment is required in weighing the effect of
various positive and negative factors that may affect the fair value. We consider various factors, including the excess of fair value
over carrying value from the last quantitative test, macroeconomic conditions, industry and market considerations, the projected
financial performance and actual financial performance compared to prior year projected financial performance, as well as other
factors.
If we elect to bypass the qualitative assessment, or if indicators of impairment exist, a quantitative impairment test is
performed. As part of the quantitative assessment, application of the goodwill impairment test requires judgment, including the
identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units,
and determination of the fair value of each reporting unit. Fair value of a reporting unit is determined by using a weighted
combination of an income approach and a market approach, as this combination is considered the most indicative of our fair value
in an orderly transaction between market participants. This analysis requires significant judgments, including estimation of future
cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of
the useful life over which cash flows will occur, determination of our weighted average cost of capital, future market conditions
and profitability of future business strategies. The estimates used to calculate the fair value of a reporting unit change from year
to year based on operating results, market conditions and other factors. Changes in these estimates and assumptions could materially
affect the determination of fair value and goodwill impairment for each reporting unit. However, our past estimates of fair value
would not have been materially different when revised to include subsequent years' actual results.
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Intangible Assets
Intangible assets include customer relationships, trade names, internally developed software and other intangibles.
Intangible assets are amortized on a straight-line basis over the estimated useful life of the asset and reviewed for impairment
when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The valuation
and classification of these assets and the assignment of useful lives involve significant judgment and the use of estimates. The
valuation, classification and assignment of useful lives were derived using market inputs, historic experience and third-party
guidance.
Income Taxes
The determination of our provision for income taxes and evaluating our tax positions requires significant judgment, the
use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes primarily reflects a
combination of income earned and taxed in the various U.S. federal and state, as well as foreign, jurisdictions. Our annual effective
tax rate is based on our income, the jurisdiction(s) in which the income is earned and subjected to taxation, the tax laws in those
various jurisdictions which can be affected by tax law changes, increases or decreases in permanent differences between book and
tax items, and accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances.
We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that
the position becomes uncertain based upon one of the following: (1) the tax position is not "more likely than not" to be sustained,
(2) the tax position is "more likely than not" to be sustained, but for a lesser amount, or (3) the tax position is "more likely than
not" to be sustained, but not in the financial period in which the tax position was originally taken. Reserves related to tax accruals
and valuations allowances related to deferred tax assets can be impacted by changes in tax law in the relevant jurisdiction(s) and
our future taxable income levels in the relevant jurisdiction(s) with respect to valuation allowances.
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 19 (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, 2018, we have interest rate cap agreements in effect with a combined notional amount of $1.4 billion.
For additional details, see Note 8 (Financial Instruments) 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 British pound and the Canadian dollar,
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, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Page
53
54
55
56
57
58
59
52
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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 the Financial Statements
We have audited the accompanying consolidated balance sheets of CDW Corporation and subsidiaries (the Company) as of
December 31, 2018, and 2017, the related statements of consolidated statements of operations, comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial
statement schedule listed in the Index at Item 15(a) (2) (collectively referred to as the "consolidated financial statements"). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2018, in conformity with US generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated February 27, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2011.
Chicago, Illinois
February 27, 2019
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CDW CORPORATION AND SUBSIDIARIES
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 $7.0 and $6.2, 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
Contract liabilities
Accrued expenses and other current liabilities:
Compensation
Advertising
Sales and 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; 147.7 and 153.1 shares issued, respectively
Less: treasury stock, $0.01 par value, 0.0 and 0.1 shares held, respectively
Outstanding common stock, $0.01 par value, 147.7 and 153.0 shares outstanding, respectively
Paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders' equity
December 31,
2018
2017
(as adjusted)
$
205.8
$
2,671.2
454.3
316.4
149.1
3,796.8
156.1
2,462.8
712.2
39.8
144.2
2,329.3
411.5
343.0
168.3
3,396.3
161.1
2,479.6
897.0
32.7
$
$
7,167.7
$
6,966.7
1,577.1
$
1,317.7
429.3
25.3
178.3
186.4
119.2
55.5
232.0
2,803.1
3,183.3
141.9
64.2
3,389.4
—
1.5
—
1.5
2,996.9
(1,892.6)
(130.6)
975.2
498.0
25.5
158.8
129.5
89.2
60.0
243.4
2,522.1
3,210.0
196.3
52.7
3,459.0
—
1.5
—
1.5
2,911.6
(1,831.6)
(95.9)
985.6
Total Liabilities and Stockholders' Equity
$
7,167.7
$
6,966.7
The accompanying notes are an integral part of the Consolidated Financial Statements.
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CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per-share amounts)
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Advertising expense
Operating income
Interest expense, net
Net loss on extinguishments of long-term debt
Other income, 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
Year Ended December 31,
2018
2017
2016
$16,240.5
13,533.6
2,706.9
1,537.1
182.5
987.3
(148.6)
—
1.8
840.5
(197.5)
643.0
$
(as adjusted)
$14,832.9
12,382.7
2,450.2
1,410.0
173.7
866.5
(150.5)
(57.4)
2.1
660.7
(137.6)
523.1
$
(as adjusted)
$ 13,672.7
11,344.4
2,328.3
1,345.4
162.9
820.0
(146.5)
(2.1)
1.8
673.2
(248.1)
425.1
$
$
$
4.26
4.19
$
$
3.37
3.31
$
$
2.60
2.56
150.9
153.6
155.4
158.2
163.6
166.0
$ 0.9250
$ 0.6900
$ 0.4825
The accompanying notes are an integral part of the Consolidated Financial Statements.
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CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Net income
Other comprehensive (loss) income:
Unrealized loss from hedge accounting, net of tax
Reclassification of hedge accounting gain to net income, net of tax
Foreign currency translation, net of tax
Other comprehensive (loss) income:
Comprehensive income
Year Ended December 31,
2018
2017
2016
(as adjusted)
(as adjusted)
$
643.0
$
523.1
$
425.1
(5.9)
3.9
(32.7)
(34.7)
608.3
$
(0.1)
0.3
43.7
43.9
$
567.0
$
—
—
(78.7)
(78.7)
346.4
The accompanying notes are an integral part of the Consolidated Financial Statements.
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CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions)
Preferred Stock
Common Stock
Treasury Stock
Balance as of
December 31, 2015 (as reported)
Adjustment
upon adoption of ASC 606
Balance as of
December 31, 2015 (as adjusted)
Net income
Common stock issued for equity-
based compensation
Equity-based compensation expense
Stock option exercises
Coworker Stock Purchase Plan
Repurchases of common stock
Dividends paid
Foreign currency translation
Balance as of
December 31, 2016 (as adjusted)
Net income
Equity-based compensation expense
Stock option exercises
Coworker Stock Purchase Plan
Repurchases of common stock
Dividends paid
Incentive compensation plan stock
withheld for taxes
Foreign currency translation
Unrealized gain from hedge
accounting
Balance as of
December 31, 2017 (as adjusted)
Net income
Equity-based compensation expense
Stock option exercises
Coworker Stock Purchase Plan
Repurchases of common stock
Dividends paid
Incentive compensation plan stock
withheld for taxes
Foreign currency translation
Unrealized loss from hedge
accounting
Balance as of
December 31, 2018
Shares
Amount
Shares
Amount
Shares
Amount
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
— $ — 168.2
$
1.7
— $ — $2,806.9
$
(1,651.6) $
(61.1) $
1,095.9
—
—
—
—
—
—
—
—
—
—
—
1.7
—
—
—
—
—
—
—
— 168.2
—
0.2
—
0.4
0.2
—
—
—
—
—
—
—
—
(8.7)
(0.1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.9
—
1.9
— 2,806.9
(1,649.7)
(61.1)
—
—
—
—
—
—
—
—
—
—
33.2
7.4
9.3
—
0.5
—
425.1
—
—
—
—
(367.4)
(79.2)
—
—
—
—
—
—
—
—
(78.7)
1,097.8
425.1
—
33.2
7.4
9.3
(367.5)
(78.7)
(78.7)
— $ — 160.3
$
1.6
— $ — $2,857.3
$
(1,671.2) $
(139.8) $
1,047.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.5
0.2
—
—
—
—
(8.9)
(0.1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.1
—
—
—
—
—
—
—
—
—
—
—
—
37.9
13.0
10.3
—
0.7
523.1
—
—
—
(533.9)
(107.6)
(7.6)
(42.0)
—
—
—
—
—
—
—
—
—
—
—
43.7
0.2
— $ — 153.1
$
1.5
0.1
$ — $2,911.6
$
(1,831.6) $
(95.9) $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.8
0.1
(6.3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(0.1)
—
—
—
—
—
—
—
—
—
—
—
—
36.5
28.6
11.8
—
0.8
7.6
—
—
643.0
—
—
—
(522.3)
(140.2)
(41.5)
—
—
—
—
—
—
—
—
—
(32.7)
523.1
37.9
13.0
10.3
(534.0)
(106.9)
(49.6)
43.7
0.2
985.6
643.0
36.5
28.6
11.8
(522.3)
(139.4)
(33.9)
(32.7)
(2.0)
(2.0)
— $ — 147.7
$
1.5
— $ — $2,996.9
$
(1,892.6) $
(130.6) $
975.2
The accompanying notes are an integral part of the Consolidated Financial Statements.
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Table of Contents
CDW CORPORATION AND SUBSIDIARIES
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
Net loss on extinguishments of long-term debt
Other
Changes in assets and liabilities:
Accounts receivable
Merchandise inventory
Other assets
Accounts payable-trade
Other liabilities
Net cash provided by 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 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 accounts payable-inventory financing
Repurchases of common stock
Payment of incentive compensation plan withholding taxes
Dividends
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) 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,
2018
2017
2016
(as adjusted)
(as adjusted)
$
643.0
$
523.1
$
425.1
265.6
40.7
(56.1)
—
10.9
(365.1)
(46.8)
25.2
271.2
117.3
905.9
(86.1)
—
(86.1)
686.7
(686.7)
(21.6)
—
—
(67.4)
(522.3)
(33.9)
(139.4)
29.8
(754.8)
(3.4)
61.6
144.2
260.9
43.7
(172.7)
57.4
5.0
(136.8)
16.9
(117.8)
231.5
66.5
777.7
(81.1)
—
(81.1)
1,560.7
(1,560.7)
(14.9)
2,083.0
(2,121.3)
(84.0)
(534.0)
(49.6)
(106.9)
9.0
(818.7)
2.6
(119.5)
263.7
205.8
$
144.2
$
254.5
39.2
(97.2)
2.1
4.3
(178.9)
(68.0)
(51.8)
225.1
49.6
604.0
(63.5)
(2.4)
(65.9)
338.8
(338.8)
(20.6)
1,483.0
(1,490.4)
143.6
(367.4)
—
(78.7)
25.9
(304.6)
(7.4)
226.1
37.6
263.7
(148.8) $
(261.2) $
(148.5) $
(275.7) $
(144.3)
(329.2)
$
$
$
The accompanying notes are an integral part of the Consolidated Financial Statements.
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Description of Business and Summary of Significant Accounting Policies
Description of Business
CDW Corporation ("Parent") is a Fortune 500 company with multi-national capabilities and a leading provider of
integrated information technology ("IT") solutions to small, medium and large business, government, education and
healthcare customers in the United States ("US"), the United Kingdom ("UK") and Canada. The Company's offerings
range from discrete hardware and software products to integrated IT solutions such as mobility, security, data center
optimization, cloud computing, virtualization and collaboration.
Throughout this report, the terms "the Company" and "CDW" refer to Parent and its 100% owned subsidiaries.
Parent has two 100% owned subsidiaries, CDW LLC and CDW Finance Corporation. CDW LLC is an Illinois limited
liability company that, together with its 100% owned subsidiaries, holds all material assets and conducts all business
activities and operations of the Company. CDW Finance Corporation is a Delaware corporation formed for the sole
purpose of acting as co-issuer of certain debt obligations as described in Note 17 (Supplemental Guarantor Information)
and does not hold any material assets or engage in any business activities or operations.
Basis of Presentation
The Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted
in the United States of America ("GAAP") and the rules and regulations of the US Securities and Exchange Commission
("SEC").
Effective January 1, 2018, the Company adopted the requirements of ASU 2014-09, Revenue from Contracts with
Customers, as amended ("Topic 606") utilizing the full retrospective method. Prior period amounts have been adjusted
accordingly.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Parent and its 100% owned subsidiaries. All intercompany
transactions and accounts are eliminated in consolidation.
Use of Estimates
The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make use
of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenue and
expenses during the reported periods. The Company bases its estimates on historical experience and on various other
assumptions that management believes are reasonable under the circumstances, the results of which form the basis for
making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results could differ from those estimates.
Business Combinations
The Company accounts for all business combinations using the acquisition method of accounting, which allocates the
fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on
their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and
liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management
makes significant estimates and assumptions. The Company may utilize third-party valuation specialists to assist the
Company in the allocation. Initial purchase price allocations are subject to revision within the measurement period, not
to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business
combinations are expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents include all deposits in banks and short-term (original maturities of three months or less at the
time of purchase), highly liquid investments that are readily convertible to known amounts of cash and are so near maturity
that there is insignificant risk of changes in value due to interest rate changes.
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Accounts Receivable
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Trade accounts receivable are recorded at the invoiced amount and typically do not bear interest. The Company provides
allowances for doubtful accounts related to accounts receivable for estimated losses resulting from the inability of its
customers to make required payments. The Company takes into consideration the overall quality of the receivable portfolio
along with specifically-identified customer risks in establishing the allowance.
Merchandise Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is determined using a weighted-average cost method.
Price protection is recorded when earned as a reduction to the cost of inventory. The Company decreases the value of
inventory for estimated obsolescence equal to the difference between the cost of inventory and the net realizable value,
based upon an aging analysis of the inventory on hand, specifically known inventory-related risks and assumptions about
future demand and market conditions.
Miscellaneous Receivables
Miscellaneous receivables primarily consist of amounts due from vendors. The Company receives incentives from vendors
related to cooperative advertising, volume rebates, bid programs, price protection and other programs. These incentives
generally relate to written vendor agreements with specified performance requirements and are recorded as adjustments
to Cost of sales or Merchandise inventory, depending on the nature of the incentive.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. The Company calculates depreciation expense
using the straight-line method over the estimated useful lives of the assets. Property and equipment are reviewed annually
to determine whether there is any impairment. Determination of recoverability is based on an estimate of undiscounted
future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds
its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset's carrying amount
over its fair value. Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining
lease term. Expenditures for major renewals and improvements that extend the useful life of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. The estimated useful lives of
property and equipment are as follows:
Classification
Machinery and equipment
Building and leasehold improvements
Computer and data processing equipment
Computer software
Furniture and fixtures
Goodwill
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 performs an evaluation of goodwill, utilizing either a qualitative or quantitative impairment test. A
qualitative assessment is performed at least on an annual basis to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying value. The Company performs a quantitative impairment test for
each reporting unit every three years, or more frequently if circumstances indicate a potential impairment. The annual
test for impairment is conducted as of December 1. The Company's reporting units included in the assessment of potential
goodwill impairment are the same as its operating segments. Goodwill is not amortized but is subject to periodic testing
for impairment at the reporting unit level.
Under a qualitative assessment, the most recent quantitative assessment is used to determine if it is more- likely-than-
not that the reporting unit's goodwill is impaired. As part of this qualitative assessment, the Company assesses relevant
events and circumstances including macroeconomic conditions, industry and market conditions, cost factors, overall
financial performance, changes in share price and entity-specific events to determine if there is an indication of impairment.
Under a quantitative assessment, goodwill impairment is identified by comparing the fair value of a reporting unit to its
carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered
impaired and an impairment charge is recognized in an amount equal to that excess, not to exceed the carrying amount
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of goodwill. Fair value of a reporting unit is determined by using a weighted combination of an income approach (75%)
and a market approach (25%), as this combination is considered the most indicative of the Company's fair value in an
orderly transaction between market participants.
Under the income approach, the Company determines fair value based on estimated future cash flows of a reporting unit,
discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting
unit and the rate of return an outside investor would expect to earn. The estimated future cash flows of each reporting
unit are based on internally generated forecasts for the remainder of the respective reporting period and the next five
years.
Under the market approach, the Company utilizes valuation multiples derived from publicly available information for
guideline companies to provide an indication of how much a knowledgeable investor in the marketplace would be willing
to pay for a company. The valuation multiples are applied to the reporting units.
Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and
assumptions, including Net sales growth rates, gross profit margins, operating margins, discount rates and future market
conditions, among others. Any changes in the judgments, estimates or assumptions used could produce significantly
different results.
Intangible Assets
Intangible assets with determinable lives are amortized on a straight-line basis over their respective estimated useful
lives. The cost of computer software developed or obtained for internal use is capitalized and amortized on a straight-
line basis over the estimated useful life of the software. Intangible assets are reviewed for impairment when events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual
disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss
is recorded for the excess of the asset's carrying amount over its fair value. In addition, each quarter, the Company
evaluates whether events and circumstances warrant a revision to the remaining estimated useful life of each of these
intangible assets. If the Company were to determine that a change to the remaining estimated useful life of an intangible
asset was necessary, then the remaining carrying amount of the intangible asset would be amortized prospectively over
that revised remaining useful life.
The following table shows estimated useful lives of definite-lived intangible assets:
Classification
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
method or straight-line method, as applicable. The Company classifies deferred financing costs as a direct deduction
from the carrying value of the Long-term debt liability on the Consolidated Balance Sheets, except for deferred financing
costs associated with revolving credit facilities which are presented as an asset, within Other assets on the Consolidated
Balance Sheets.
Derivative Instruments
The Company has interest rate cap agreements for the purpose of hedging its exposure to fluctuations in interest rates.
The interest rate cap agreements are designated as cash flow hedges of interest rate risk and recorded at fair value in
Other assets on the Consolidated Balance Sheets. Changes in fair value of the derivative instruments, along with the
change in the fair value of the hedged item, are reported as a component of Accumulated other comprehensive loss until
reclassified to Interest expense in the same period the hedge transaction affects earnings.
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Fair Value Measurements
Fair value is defined under GAAP as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. A fair value hierarchy has been established for
valuation inputs to prioritize the inputs into three levels based on the extent to which inputs used in measuring fair value
are observable in the market. Each fair value measurement is reported in one of the three levels which is determined by
the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1 – observable inputs such as quoted prices for identical instruments traded in active markets.
Level 2 – inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active and model-based valuation techniques for which all significant assumptions
are observable in the market or can be corroborated by observable market data for substantially the full term of the assets
or liabilities.
Level 3 – inputs are generally unobservable and typically reflect management's estimates of assumptions that market
participants would use in pricing the asset or liability. The fair values are therefore determined using model-based
techniques that include option pricing models, discounted cash flow models and similar techniques.
Revenue Recognition
The Company is a primary distribution channel for a large group of vendors and suppliers, including original equipment
manufacturers ("OEMs"), software publishers and wholesale distributors.
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties
are identified, payment terms are established, the contract has commercial substance and collectability of consideration
is probable. The Company evaluates the following indicators amongst others when determining whether it is acting as a
principal in the transaction and recording revenue on a gross basis: (i) the Company is primarily responsible for fulfilling
the promise to provide the specified goods or service, (ii) the Company has inventory risk before the specified good or
service has been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion
in establishing the price for the specified good or service. If the terms of a transaction do not indicate the Company is
acting as a principal in the transaction, then the Company is acting as an agent in the transaction and the associated
revenues are recognized on a net basis.
The Company recognizes revenue once control has passed to the customer. The following indicators are evaluated in
determining when control has passed to the customer: (i) the Company has a right to payment for the product or service,
(ii) the customer has legal title to the product, (iii) the Company has transferred physical possession of the product to the
customer, (iv) the customer has the significant risk and rewards of ownership of the product and (v) the customer has
accepted the product. The Company's products can be delivered to customers in a variety of ways, including (i) as physical
product shipped from the Company's warehouse, (ii) via drop-shipment by the vendor or supplier or (iii) via electronic
delivery of keys for software licenses. The Company's shipping terms typically allow for the Company to recognize
revenue when the product reaches the customer's location.
The Company leverages drop-shipment arrangements with many of its vendors and suppliers to deliver products to its
customers without having to physically hold the inventory at its warehouses. The Company is the principal in the
transaction and recognizes revenue for drop-shipment arrangements on a gross basis.
Revenue Recognition for Hardware
Revenues from sales of hardware products are recognized on a gross basis as the Company is acting as a principal in
these transactions, with the selling price to the customer recorded as Net sales and the acquisition cost of the product
recorded as Cost of sales. The Company recognizes revenue from these transactions when control has passed to the
customer, which is usually upon delivery of the product to the customer.
In some instances, the customer agrees to buy the product from the Company but requests delivery at a later date, commonly
known as bill-and-hold arrangements. For these transactions, the Company deems that control passes to the customer
when the product is ready for delivery. The Company views products ready for delivery when the customer has a signed
agreement, significant risk and rewards for the products, the ability to direct the assets, the products have been set aside
specifically for the customer, cannot be redirected to another customer and for customer orders that include configuration
services, when such services have been completed.
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The Company's vendor partners warrant most of the products the Company sells. These manufacturer warranties are
assurance-type warranties and are not considered separate performance obligations. The warranties are not sold separately
and only provide assurance that products will conform with the manufacturer's specifications. In some transactions, a
third-party will provide the customer with an extended warranty. These extended warranties are sold separately and
provide the customer with a service in addition to assurance that the product will function as expected. The Company
considers these warranties to be separate performance obligations from the underlying product. For warranties, the
Company is arranging for those services to be provided by the third-party and therefore is acting as an agent in the
transaction and records revenue on a net basis at the point of sale.
The Company sells cloud computing solutions which include Infrastructure as a Service ("IaaS"). IaaS solutions utilize
third-party partners to enable customers to access data center functionality in a cloud-based solution, including storage,
computing and networking. The Company recognizes revenue for cloud computing solutions for arrangements with one-
time invoicing to the customer at the time of invoice on a net basis as the Company is acting as an agent in the transaction.
For monthly subscription-based arrangements, the Company is acting as an agent in the transaction and recognizes revenue
as it invoices the customer for its monthly usage on a net basis.
Revenue Recognition for Software
Revenues from most software license sales are recognized as a single performance obligation on a gross basis as the
Company is acting as a principal in these transactions at the point the software license is delivered to the customer.
Generally, software licenses are sold with accompanying third-party delivered software assurance, which is a product
that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during
the period that the software assurance is in effect. The Company evaluates whether the software assurance is a separate
performance obligation by assessing if the third-party delivered software assurance is critical or essential to the core
functionality of the software itself. This involves considering if the software provides its original intended functionality
to the customer without the updates, if the customer would ascribe a higher value to the upgrades versus the up-front
deliverable, if the customer would expect frequent intelligence updates to the software (such as updates that maintain the
original functionality), and if the customer chooses to not delay or always install upgrades. If the Company determines
that the accompanying third-party delivered software assurance is critical or essential to the core functionality of the
software license, the software license and the accompanying third-party delivered software assurance are recognized as
a single performance obligation. The value of the product is primarily the accompanying support delivered by a third-
party and therefore the Company is acting as an agent in these transactions and recognizes them on a net basis at the point
the associated software license is delivered to the customer. For software licenses where the accompanying third-party
delivered software assurance is not critical or essential to the core functionality, the software assurance is recognized as
a separate performance obligation, with the associated revenue recognized on a net basis at the point the related software
license is delivered to the customer. For additional details regarding the accounting for bundled arrangements, see
"Revenue Recognition for Bundled Arrangements" below.
The Company sells cloud computing solutions which include Software as a Service ("SaaS"). SaaS solutions utilize third-
party partners to offer the Company's customers access to software in the cloud that enhances office productivity, provides
security or assists in collaboration. The Company recognizes revenue for cloud computing solutions for arrangements
with one-time invoicing to the customer at the time of invoice on a net basis as the Company is acting as an agent in the
transaction. For monthly subscription-based arrangements, the Company is acting as an agent in the transaction and
recognizes revenue as it invoices the customer for its monthly usage on a net basis.
The Company's customers are offered the opportunity by certain of its vendors to purchase software licenses and software
assurance under enterprise agreements ("EAs"). For most EA transactions, the Company's obligation to the customer is
that of a distributor or sales agent of the services, where all obligations for providing the services to customers are passed
to the Company's vendors. The Company's performance obligations are satisfied at the time of the sale. In other EA
transactions, the Company is responsible for fulfilling the promised services to the customer and providing remedy or
refund for work if the customer is not satisfied with the delivered services, has inventory risk in the arrangement and has
full control to set the price for the customer. With most EAs, the Company's vendors will transfer the license and invoice
the customer directly, paying resellers an agency fee or commission on these sales. The Company records these fees as
a component of Net sales as earned and there is no corresponding Cost of sales amount.
Revenue Recognition for Services
The Company provides professional services, which include project managers and consultants recommending, designing
and implementing IT solutions. Revenue from professional services is recognized either on a time and materials basis or
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proportionally as costs are incurred for fixed fee project work. Revenue is recognized on a gross basis each month as
work is performed and the Company transfers those services.
Revenues from the sale of data center services, such as managed and remote managed services, server co-location, internet
connectivity and data backup and storage provided by the Company, are recognized over the period the service is provided.
Most hosting and managed service obligations are based on the quantity and pricing parameters established in the
agreement. As the customer receives the benefit of the service each month, the Company recognizes the respective revenue
on a gross basis as the Company is acting as a principal in the transaction. Additionally, the Company's managed services
team provides project support to customers that are billed on a fixed fee basis. The Company is acting as the principal
in the transaction and recognizes revenue on a gross basis based on the total number of hours incurred for the period over
the total expected hours for the project. Total expected hours to complete the project is updated for each period and best
represents the transfer of control of the service to the customer.
Revenue Recognition for Bundled Arrangements
The Company also sells some of its products and services as part of bundled contract arrangements containing multiple
deliverables, which may include a combination of products and services. For each deliverable that represents a distinct
performance obligation, total arrangement consideration is allocated based upon the standalone selling prices of each
performance obligation. The Company excludes amounts collected on behalf of third-parties, such as sales taxes, when
determining the transaction price. For certain performance obligations, the Company will use a combination of methods
to estimate the standalone selling price. When evidence from recent transactions is not available to confirm that the prices
are representative of the standalone selling price, an expected cost plus a margin approach is used.
Sales In-Transit
The Company performs an analysis of the estimated number of days of sales in-transit to customers at the end of each
reporting period based on a weighted-average analysis of commercial delivery terms that include drop-shipment
arrangements. This analysis is the basis upon which the Company estimates the amount of Net sales in-transit at the end
of the period and adjusts revenue and the related costs to reflect only what has been delivered to the customer. Changes
in delivery patterns may result in a different number of business days estimated to make this adjustment.
Freight Costs
The Company records freight billed to its customers as Net sales and the related freight costs as Cost of sales when the
underlying product revenue is recognized. For freight not billed to its customers, the Company records the freight costs
as Cost of sales. The Company's typical shipping terms result in shipping being performed before the customer obtains
control of the product. The Company considers shipping to be a fulfillment activity and not a separate performance
obligation.
Other
The nature of the Company's contracts give rise to variable consideration in the form of sales returns and allowances.
The Company estimates variable consideration at the most likely amount to which it is expected to be entitled. This
estimated amount is included in the transaction price to the extent it is probable that a significant reversal of cumulative
revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The
estimates of variable consideration and determination of whether to include estimated amounts in the transaction price
are based on an assessment of the Company's anticipated performance and all information that is reasonably available.
At the time of sale, the Company records an estimate for sales returns and allowances and an associated right of return
asset based on historical experience.
When a contract results in revenue being recognized in excess of the amount the Company has the right to invoice to the
customer, a contract asset is recorded on the balance sheet. Contract assets are comprised primarily of professional services
with fixed fee arrangements.
Contract liabilities consist of payments received from customers, or such consideration that is contractually due, in
advance of providing the product or performing services. Contract liabilities are comprised primarily of professional
services with fixed fee arrangements, bill-and-hold transactions where control has not passed to the customer and certain
governmental contracts.
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Trade accounts receivable are recorded at the point of sale (or in accordance with the Statement of Work for services)
for the total amount payable by the customer to the Company for sale of goods. Taxes to be collected from the customer
as part of the sale are included in Accounts receivable.
Any incremental direct costs of obtaining a contract, primarily sales commissions, are deferred on the Consolidated
Balance Sheets and amortized over the period of contract performance.
The Company typically does not enter into long-term contracts. The Company has elected to use the practical expedient
for its performance obligations table to show only those contracts that are longer than 12 months at the time of contract
inception and those contracts that are non-cancelable. Additionally, for certain governmental contracts where there are
annual renewals, the Company has excluded these contracts since there is only a one-year legal obligation. Typically, the
only contracts that are longer than 12 months in duration are related to the Company's managed services business.
The Company requests payments for its products and services at the point of sale. The Company generally does not enter
into any long-term financing arrangements or payment plans with customers or contracts with customers that have non-
cash consideration.
Sales Taxes
Sales tax amounts collected from customers for remittance to governmental authorities are presented on a net basis in
the Consolidated Statements of Operations.
Advertising
Advertising costs are generally charged to expense in the period incurred. Cooperative reimbursements from vendors are
recorded in the period the related advertising expenditure is incurred. The Company classifies vendor consideration as a
reduction to Cost of sales.
Equity-Based Compensation
The Company measures all equity-based payments using a fair-value-based method and records compensation expense
over the requisite service period using the straight-line method in its Consolidated Financial Statements. The expense
calculation includes estimated forfeiture rates which have been developed based upon historical experience.
Interest Expense
Interest expense is recognized in the period incurred at the applicable interest rate in effect.
Foreign Currency Translation
The Company's functional currency is the US dollar. The functional currency of the Company's international operating
subsidiaries is generally the same as the corresponding local currency. Assets and liabilities of the international operating
subsidiaries are translated at the spot rate in effect at the applicable reporting date. Revenues and expenses of the
international operating subsidiaries are translated at the average exchange rates in effect during the applicable period.
The resulting foreign currency translation adjustment is recorded as Accumulated other comprehensive loss, which is
reflected as a separate component of Stockholders' equity.
Income Taxes
Deferred income taxes are provided to reflect the differences between the tax bases of assets and liabilities and their
reported amounts in the Consolidated Financial Statements using enacted tax rates in effect for the year in which the
differences are expected to reverse. The Company performs an evaluation of the realizability of deferred tax assets on a
quarterly basis. This evaluation requires management to make use of estimates and assumptions and considers all positive
and negative evidence and factors, such as the scheduled reversal of temporary differences, the mix of earnings in the
jurisdictions in which the Company operates, and prudent and feasible tax planning strategies.
The Company accounts for unrecognized tax benefits based upon its assessment of whether a tax benefit is more likely
than not to be sustained upon examination by tax authorities. The Company reports a liability for unrecognized tax benefits
resulting from unrecognized tax benefits taken or expected to be taken in a tax return and recognizes interest and penalties,
if any, related to its unrecognized tax benefits in income tax expense.
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The Tax Cuts and Jobs Act contains a provision which subjects a US parent of a foreign subsidiary to current US tax on
its global intangible low-tax income (“GILTI”). The GILTI income is eligible for a deduction, which lowers the effective
tax rate to 10.5% for taxable years 2018 through 2025 and 13.125% after 2025. The Company will report the tax impact
of GILTI as a period cost when incurred. Accordingly, the Company is not providing deferred taxes for basis differences
expected to reverse as GILTI.
2.
Recent Accounting Pronouncements
Accounting for Hedging Activities
In August 2017, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU")
2017-12, Derivatives and Hedging (Topic 815), intending to improve the transparency of information included in the
financial statements by aligning cash flow and fair value hedge accounting with its risk management activities. The ASU
eliminates the requirement to separately measure and report hedge ineffectiveness for cash flow hedges and net investment
hedges, and generally requires the entire change in the fair value of a hedging instrument to be presented in the same
income statement line as the hedged item. The ASU also simplifies certain documentation and assessment requirements
and will incorporate new disclosure requirements and amendments to existing disclosures. The Company elected to early
adopt this standard during the fourth quarter of 2018. The adoption of this ASU did not have an impact on the Company's
Consolidated Financial Statements.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. This ASU introduces a new forward-looking approach, based on expected losses, to
estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected
credit losses will require considerations of historical information, current information and reasonable and supportable
forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the
assumptions, models and methods for estimating expected credit losses. This ASU is effective for the Company beginning
in the first quarter of 2020 and allows for early adoption beginning in the first quarter of 2019. The Company is currently
evaluating the impact the ASU will have on its Consolidated Financial Statements.
Accounting for Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which, together with amendments issued during
2018, requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by
long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. This
ASU is effective for the Company beginning in the first quarter of 2019 and allows for early adoption. Entities are required
to use the modified retrospective approach, with the option of applying the requirements of the standard either (1)
retrospectively to each prior comparative reporting period presented or (2) retrospectively at the beginning of the period
of adoption.
The Company established a cross-functional implementation team to analyze the effect of the ASU. The Company utilized
a combination of a bottom-up and top-down approach to identify and analyze its lease portfolio. The analysis included
reviewing all forms of leases, performing a completeness assessment over the lease population, assessing the policy
elections offered by the standard and evaluating its business processes and internal controls to meet the ASU's accounting,
reporting and disclosure requirements. The Company adopted the standard on January 1, 2019 and applied it at the
beginning of the period of adoption. Therefore, upon adoption, financial information and disclosures are not updated for
comparative reporting periods under the new standard. Additionally, the Company has elected the transition package of
practical expedients upon adoption which, among other things, allows an entity to not reassess the historical lease
classification.
The adoption of the standard impacts the Company's Consolidated Balance Sheet. The adoption of the standard results
in the recognition of right-of-use assets and additional lease liabilities of approximately $81 million as of January 1, 2019,
mainly related to operating leases for the Company's real estate portfolio. Along with the recognition of right-of-use
assets and lease liabilities, the Company will be providing new disclosures for its leasing activities. The Company does
not expect the adoption of the standard to impact the Consolidated Statements of Operations or the Consolidated Statements
of Cash Flows. In addition, the standard will not have an impact on the Company's liquidity or debt covenant compliance
under its current agreements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 1, 2018, the Company adopted Topic 606 and utilized the full retrospective method.
The adoption of Topic 606 impacted the Company's results as follows:
(in millions)
(except per share amounts)
Net sales
Gross profit
Gross 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
December 31, 2017(1)
New Revenue
Standard
Adjustment
December 31, 2016(1)
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%
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
$
$
$
$
(1)
Amounts may not foot or cross-foot due to rounding.
The adoption of Topic 606 impacted the Company's Consolidated Balance Sheet as follows:
December 31, 2017(1)
New Revenue
Standard
Adjustment
As Reported
December 31, 2016(1)
As Adjusted
As Reported
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
Other accrued expenses
Income tax payable
Total current liabilities
Total liabilities
449.5
336.5
127.4
3,378.1
40.8
6,956.6
194.0
180.2
15.1
2,514.6
5,973.7
(38.0)
6.5
40.9
18.2
(8.1)
10.1
(35.2)
41.6
1.1
7.5
7.5
2.7
411.5
343.0
168.3
3,396.3
32.7
6,966.7
158.8
221.8
16.2
452.0
234.9
118.9
3,238.1
36.0
6,948.4
172.6
147.2
2.6
2,522.1
2,280.7
5,981.1
5,902.9
$
985.6
$
1,045.5
$
As Adjusted
$
2,168.9
423.9
237.5
154.2
3,248.2
35.9
6,958.4
143.5
183.2
3.3
2,288.3
5,910.5
1,047.9
$
0.3
(28.1)
2.6
35.3
10.1
(0.1)
10.0
(29.1)
36.0
0.7
7.6
7.6
2.4
Total stockholders' equity
$
982.9
$
(1)
Amounts may not foot or cross-foot due to rounding.
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3.
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
Construction in progress
Computer software
Furniture and fixtures
Property and equipment, gross
Less: accumulated depreciation
Property and equipment, net
December 31,
2018
2017
$
$
129.1
105.4
44.1
27.7
24.5
22.2
18.9
371.9
(215.8)
156.1
$
$
123.0
116.4
45.6
27.7
17.9
9.6
22.7
362.9
(201.8)
161.1
During 2018, 2017 and 2016, the Company recorded disposals of $25 million, $23 million and $50 million, respectively,
to remove from Property and equipment, gross assets that were no longer in use.
Depreciation expense for the years ended December 31, 2018, 2017, and 2016 was $42 million, $40 million and $38
million, respectively.
4.
Goodwill and Other Intangible Assets
Goodwill
The changes in goodwill by reportable segment are as follows:
(in millions)
Balance at December 31, 2016(2)
Foreign currency translation
Balances as of December 31, 2017(2)
Foreign currency translation
Balances as of December 31, 2018(2)
Corporate
1,074.1
—
1,074.1
—
Small
Business
185.9
—
185.9
—
Public
Other(1)
Consolidated
929.6
—
929.6
—
265.4
24.6
290.0
(16.8)
273.2
2,455.0
24.6
2,479.6
(16.8)
$ 2,462.8
$ 1,074.1
$
185.9
$
929.6
$
(1)
(2)
Other is comprised of CDW UK and Canada reporting units.
Goodwill is net of accumulated impairment losses of $1,571 million, $354 million and $28 million related to
the Corporate, Public and Other segments, respectively.
December 1, 2018 Impairment Analysis
The Company completed its annual impairment analysis as of December 1, 2018. For all reporting units, the Company
performed a qualitative analysis. The Company determined that it was more-likely-than-not that the individual fair values
of all reporting units exceeded the respective carrying values. As a result of this determination, the quantitative impairment
analysis was not performed. There continues to be substantial uncertainty regarding the economic impact of the
Referendum on the UK's Membership of the European Union ("EU") advising for the exit of the UK from the EU and
the subsequent notice delivered by the UK to the EU of the UK's withdrawal (referred to as "Brexit"). Negotiations to
determine the terms of the withdrawal, including the terms of trade between the UK and EU, are ongoing. The Company
evaluated these facts when considering its qualitative analysis of the UK reporting unit and concluded it was more-likely-
than-not that the fair value of the UK reporting unit exceeds its carrying value.
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 1, 2017 Impairment Analysis
The Company completed its annual impairment analysis as of December 1, 2017. For the Corporate, Small Business and
UK reporting units, the Company performed a qualitative analysis. The Company determined that it was more-likely-
than-not that the individual fair values of the Corporate, Small Business and UK reporting units exceeded the respective
carrying values and therefore a quantitative impairment analysis was deemed unnecessary. The Company performed a
quantitative analysis of the Public and Canada reporting units. Based on the results of the quantitative analysis, the
Company determined that the fair value of the Public and Canada reporting units exceeded their carrying values by 179%
and 153%, respectively, and no impairment existed.
Other Intangible Assets
A summary of intangible assets is as follows:
(in millions)
December 31, 2018
Customer relationships and contracts
Trade name
Internally developed software
Other
Total
December 31, 2017
Customer relationships and contracts
Trade name
Internally developed software
Other
Total
Gross
Carrying
Amount
$
2,071.0
$
$
$
422.1
205.8
3.7
2,702.6
$
2,106.8
$
422.2
162.6
2.9
$
2,694.5
$
Accumulated
Amortization
Net Carrying
Amount
(1,625.5) $
(237.3)
(125.4)
(2.2)
(1,990.4) $
(1,490.8) $
(216.3)
(89.6)
(0.8)
(1,797.5) $
445.5
184.8
80.4
1.5
712.2
616.0
205.9
73.0
2.1
897.0
During the years ended December 31, 2018, 2017 and 2016, the Company recorded disposals of $26 million, $24 million
and $29 million, respectively, to remove fully amortized intangible assets that were no longer in use.
Amortization expense related to intangible assets for the years ended December 31, 2018, 2017 and 2016 was $223
million, $221 million and $216 million, respectively.
Estimated future amortization expense related to intangible assets is as follows:
(in millions)
Years ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total future amortization expense
69
Estimated Future
Amortization Expense
$
$
215.9
182.2
85.1
37.4
37.4
154.2
712.2
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.
Inventory Financing Agreements
The Company has entered into agreements with certain financial intermediaries to facilitate the purchase of inventory
from various suppliers under certain terms and conditions, as described below. These amounts are classified separately
as Accounts payable-inventory financing on the Consolidated Balance Sheets. The Company does not incur any interest
expense associated with these agreements as balances are paid when they are due.
Amounts included in accounts payable-inventory financing are as follows:
(in millions)
Revolving Loan inventory financing agreement(1)
Other inventory financing agreements
Accounts payable-inventory financing
December 31,
2018
2017
$
$
406.3
23.0
429.3
$
$
480.9
17.1
498.0
(1)
The Senior Secured Asset-Based Revolving Credit Facility includes an inventory floorplan sub-facility that
enables the Company to maintain an inventory financing agreement with a financial intermediary to facilitate
the purchase of inventory from certain vendors on more favorable terms than offered directly by the vendors.
6.
Contract Liabilities and Remaining Performance Obligations
The Company's contract liabilities consist of payments received from customers, or such consideration that is contractually
due, in advance of providing the product or performing services. The Company's contract liabilities are reported in a net
position on a contract-by-contract basis at the end of each reporting period. As of December 31, 2018 and December 31,
2017, the contract liability balance was $178 million and $159 million, respectively. For the year ended December 31,
2018 and 2017, the Company recognized revenue of $123 million and $113 million, respectively, related to its contract
liabilities.
A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as,
the performance obligation is satisfied. For more information regarding the Company's performance obligations, see Note
1 (Description of Business and Summary of Significant Accounting Policies). The following table represents the total
transaction price for the remaining performance obligations as of December 31, 2018 related to non-cancelable contracts
longer than 12 months in duration that is expected to be recognized over future periods.
(in millions)
Within 1 Year
Years 1-2
Years 2-3
Thereafter
Remaining performance obligations
$
37.8
$
23.7
$
5.4
$
0.4
7.
Lease Commitments
The Company is obligated under various non-cancelable operating lease agreements for office facilities that generally
provide for minimum rent payments and a proportionate share of operating expenses and property taxes and include
certain renewal and expansion options. For the years ended December 31, 2018, 2017 and 2016, rent expense under these
lease arrangements was $30 million, $29 million and $27 million, respectively.
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments under non-cancelable operating leases as of December 31, 2018 are as follows:
(in millions)
Years ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total future minimum lease payments
8.
Financial Instruments
Future Minimum
Lease Payments
$
$
29.7
27.0
22.7
19.5
17.2
148.6
264.7
The Company's indebtedness creates interest rate risk on its variable-rate debt. The Company uses derivative financial
instruments to manage its exposure to interest rate risk. The Company does not hold or issue derivative financial
instruments for trading or speculative purposes.
The Company has interest rate cap agreements that entitle it to payments from the counterparty of the amount, if any, by
which three-month LIBOR exceeds the strike rates of the caps during the agreement period in exchange for an upfront
premium. During 2018, the Company entered into interest rate cap agreements with a combined notional value of $1.6
billion resulting in premiums paid to the counterparties of $15 million. As of December 31, 2018 and December 31, 2017,
the Company had the following interest rate cap agreements for which the fair values are classified within Other assets
on the Consolidated Balance Sheets:
Notional Value
(in millions)
$
1,400.0
1,400.0
Effective Date
Maturity Date
December 31, 2018
December 31, 2017
Fair Value
(in millions)
Fair Value
(in millions)
January 17, 2017
December 31, 2018
$
— $
December 31, 2018
December 31, 2020
200.0
December 31, 2020
December 31, 2022
10.6
1.5
12.1
$
$
5.4
—
—
5.4
The fair value of the Company's interest rate cap agreements is classified as Level 2 in the fair value hierarchy. The
valuation of the interest rate cap agreements is derived by using a discounted cash flow analysis on the expected cash
receipts that would occur if variable interest rates rise above the strike rates of the caps. This analysis reflects the contractual
terms of the interest rate cap agreements, including the period to maturity, and uses observable market-based inputs,
including LIBOR curves and implied volatilities. The Company also incorporates insignificant credit valuation
adjustments to appropriately reflect the respective counterparty's nonperformance risk in the fair value measurements.
The counterparty credit spreads are based on publicly available credit information obtained from a third-party credit data
provider. For additional details, see Note 9 (Long-Term Debt).
The interest rate cap agreements are designated as cash flow hedges. The changes in the fair value of derivatives that
qualify as cash flow hedges are recorded in Accumulated other comprehensive loss and are subsequently reclassified into
Interest expense in the period when the hedged forecasted transaction affects earnings. The Company recorded a $2
million loss and an insignificant gain, net of tax, into Accumulated other comprehensive loss for the years ended December
31, 2018 and 2017, respectively. During 2018 and 2017, the Company reclassified $5 million and an insignificant amount,
respectively, from Accumulated other comprehensive loss to earnings within Interest expense, net on the Consolidated
Statement of Operations. The Company expects to reclassify $4 million from Accumulated other comprehensive loss
into Interest expense, net during the next 12 months.
Prior to the election of hedge accounting treatment during the first quarter of 2017, the Company recognized less than $1
million of Interest income in the Company's Consolidated Statement of Operations related to the changes in the fair value
of the interest rate cap agreements.
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9.
Long-Term Debt
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions)
Maturities
Interest Rate
Amount
Interest Rate
Amount
As of December 31, 2018
As of December 31, 2017
Credit Facilities
CDW UK revolving credit facility(1)
Senior secured asset-based revolving
credit facility
Total credit facilities
Term Loans
CDW UK term loan(1)
Senior secured term loan facility
Total term loans
Unsecured Senior Notes
Senior notes due 2023
Senior notes due 2024
Senior notes due 2025
Total unsecured senior notes
Other long-term obligations
Unamortized deferred financing fees
Current maturities of long-term debt
Total long-term debt
July 2021
March 2022
—% $
—%
—
—
—
—% $
—%
—
—
—
August 2021
August 2023
September 2023
December 2024
September 2025
2.3%
4.1%
5.0%
5.5%
5.0%
65.0
1,453.2
1,518.2
525.0
575.0
600.0
1,700.0
8.3
(17.9)
(25.3)
3,183.3
$
1.9%
3.7%
5.0%
5.5%
5.0%
75.7
1,468.0
1,543.7
525.0
575.0
600.0
1,700.0
12.2
(20.4)
(25.5)
3,210.0
$
(1)
British pound-denominated debt facilities.
As of December 31, 2018, the Company is in compliance with the covenants under the various credit agreements and
indentures.
Credit Facilities
The Company has a variable rate CDW UK revolving credit facility that is denominated in British pounds. As of December
31, 2018, the Company could have borrowed up to an additional £50 million ($64 million at December 31, 2018) under
the CDW UK revolving credit facility.
The Company also has a variable rate senior secured asset-based revolving credit facility (the "Revolving Loan") that is
denominated in US dollars. The Revolving Loan is used by the Company for borrowings, issuances of letters of credit
and floorplan financing. The Revolving Loan has less than $1 million of undrawn letters of credit, $393 million reserved
for the floorplan sub-facility and a borrowing base of $1.8 billion which is based on the amount of eligible inventory and
accounts receivable balances as of November 30, 2018. As of December 31, 2018, the Company could have borrowed
up to an additional $1.1 billion under the Revolving Loan.
The Revolving Loan is collateralized by a first priority interest in inventory (excluding inventory to the extent collateralized
under the inventory financing arrangements as described in Note 5 (Inventory Financing Agreements)), deposits, and
accounts receivable, and a second priority interest in substantially all US assets.
Term Loans
The CDW UK term loan agreement has a variable interest rate. The Company is required to make annual principal
installments of £5 million ($6 million at December 31, 2018), with the remaining principal amount due at the maturity
date.
The CDW UK term loan agreement imposes restrictions on CDW UK's ability to transfer funds to the Company through
the payment of dividends, repayment of intercompany loans, advances or subordinated debt that require, among other
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
things, the maintenance of a minimum net leverage ratio. As of December 31, 2018, the amount of restricted payment
capacity under the CDW UK term loan was £128 million ($163 million at December 31, 2018).
The senior secured term loan facility (the "Term Loan") has a variable interest rate, which has effectively been capped
through the use of interest rate caps (see Note 8 (Financial Instruments)). The interest rate disclosed in the table above
represents the variable interest rates in effect for 2018 and 2017, respectively. The Company is required to pay quarterly
principal installments of $4 million with the remaining principal amount due at the maturity date. As of December 31,
2018, the amount of CDW's restricted payment capacity under the Term Loan was $1.5 billion.
The Term Loan is collateralized by a second priority interest in substantially all inventory (excluding inventory to the
extent collateralized under the inventory financing arrangements as described in Note 5 (Inventory Financing
Agreements)), deposits and accounts receivable, and by a first priority interest in substantially all other US assets.
Senior Notes
The senior notes have a fixed interest rate, which is paid semi-annually.
Debt Issuances and Extinguishments
On April 3, 2018, the Company amended the Term Loan, reducing interest margins by 25 basis points. Borrowings under
the Term Loan continue to bear interest at a variable rate.
During 2017, the Company amended, extended and increased its prior revolving loan (the "Prior Revolving Loan") and
recorded a loss on extinguishment of long-term debt of $1 million in the Consolidated Statement of Operations,
representing a write-off of a portion of unamortized deferred financing costs. Fees of $4 million related to the Prior
Revolving Loan were capitalized as deferred financing fees and are being amortized over the five-year term of the facility
on a straight-line basis. These deferred financing fees are recorded in the Other assets line on the Consolidated Balance
Sheets.
During 2017, the Company amended its prior $1.5 billion senior secured term loan facility (the "Prior Term Loan Facility")
and recorded a loss on extinguishment of long-term debt of $14 million in the Consolidated Statement of Operations.
This loss represented the write-off of a portion of the unamortized deferred financing fees of $5 million and unamortized
discount related to the Prior Term Loan Facility of $9 million. In connection with the issuance of the Term Loan, the
Company incurred and recorded $2 million in deferred financing fees.
During 2017, the Company completed the issuance of the 2025 Senior Notes at par. The proceeds from the issuance of
the 2025 Senior Notes along with cash on hand and proceeds from Revolving Loan borrowings were deposited to redeem
all of the then remaining $600 million aggregate principal amount of the 2022 Senior Notes. In connection with this
redemption, the Company recorded a loss on extinguishment of long-term debt of $43 million in the Consolidated
Statement of Operations for the year ended December 31, 2017. This loss represents $37 million in redemption premium
and $6 million for the write-off of the remaining deferred financing fees related to the 2022 Senior Notes.
Total Debt Maturities
A summary of total debt maturities is as follows:
(in millions)
Years ending December 31,
2019
2020
2021
2022
2023
Thereafter
Fair Value
Total
25.3
25.5
67.2
14.9
1,918.6
1,175.0
3,226.5
$
$
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
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
dealer quotes for identical liabilities in markets that are not considered active. The Senior Notes, Term Loan and CDW
UK term loan are classified as Level 2 within the fair value hierarchy. The carrying value of the Revolving Loan and
CDW UK revolving credit facility approximate fair value if there are outstanding borrowings. The approximate fair values
and related carrying values of the Company's long-term debt, including current maturities and excluding unamortized
discount and unamortized deferred financing costs, were as follows:
(in millions)
Fair value
Carrying value
10.
Income Taxes
December 31,
2018
2017
$
3,145.8
$
3,226.5
3,366.5
3,255.9
On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. The Tax Cuts and Jobs Act changed several
aspects of US federal tax law including: reducing the US corporate income tax rate from 35.0% to 21.0% beginning on
January 1, 2018; applying a one-time tax on the deemed mandatory repatriation of the Company's unremitted foreign
earnings which have not been subject to US tax; imposing a minimum US tax on foreign earnings; providing for the
immediate expensing of certain qualified property; and changing the tax treatment of performance-based executive
compensation and certain employee fringe benefits.
The SEC issued Staff Accounting Bulletin 118 allowing for provisional amounts to be recorded during a measurement
period not to exceed one year. During the year ended December 31, 2017, the Company recorded provisional amounts
for the impact of revaluing deferred tax assets and liabilities, the deemed mandatory repatriation tax on the Company's
unremitted foreign earnings and the state income tax effects from the changes in federal tax law during the year. The
Company adjusted the US federal and state provisional amounts during 2018, recording a net tax benefit of $2 million.
The adjustment was primarily driven by the rate differential on adjustments to temporary book-tax differences made in
finalizing the 2017 federal income tax return and finalizing the deemed mandatory repatriation tax on the Company's
unremitted foreign earnings.
Income before income taxes was taxed under the following jurisdictions:
(in millions)
Domestic
Foreign
Total
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
Year Ended December 31,
2018
2017
2016
(as adjusted)
608.3
$
52.4
660.7
$
(as adjusted)
635.5
$
37.7
673.2
$
762.3
78.2
840.5
Year Ended December 31,
2017
2016
2018
(as adjusted)
(as adjusted)
192.6
43.3
17.7
253.6
(52.7)
(3.4)
(56.1)
197.5
$
$
258.9
29.8
21.3
310.0
(167.6)
(4.8)
(172.4)
137.6
$
$
295.6
34.9
16.8
347.3
(90.5)
(8.7)
(99.2)
248.1
$
$
$
$
The reconciliation between the statutory tax rate expressed as a percentage of income before income taxes and the effective
tax rate is as follows:
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions)
2018
Year Ended December 31,
2017
(as adjusted)
2016
(as adjusted)
Statutory federal income tax rate
State taxes, net of federal effect
Excess tax benefit of equity awards
Effect of rates different than statutory
Tax on foreign earnings
Effect of UK tax rate change on deferred
taxes
Effect of US Tax Cuts and Jobs Act on
deferred taxes and repatriation tax
Other
Effective tax rate
$
176.5
21.0% $
231.1
35.0% $
235.5
35.0%
31.1
(19.7)
0.6
2.8
—
(1.9)
8.1
3.7
(2.3)
0.1
0.3
—
(0.2)
0.9
18.3
(36.2)
(6.3)
1.0
2.8
(5.5)
(1.0)
0.1
17.7
(1.6)
(4.6)
0.8
2.6
(0.2)
(0.7)
0.1
—
—
(1.5)
(0.2)
(75.5)
5.2
(11.4)
0.8
—
1.8
—
0.3
$
197.5
23.5% $
137.6
20.8% $
248.1
36.9%
The tax effect of temporary differences that give rise to net deferred income tax liabilities is presented below:
(in millions)
Deferred tax assets:
Equity compensation plans
Payroll and benefits
Deferred interest
Net operating loss and credit carryforwards, net
Rent
Accounts receivable
Other
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,
2018
2017
$
17.7
$
18.7
9.3
—
23.8
7.5
6.5
10.0
74.8
8.0
6.8
28.1
7.4
5.4
9.5
83.9
148.6
194.5
—
19.2
20.0
11.7
199.5
17.2
18.6
19.2
20.4
12.0
264.7
15.5
$
141.9
$
196.3
The Company has state and international income tax net operating losses of $11 million, which will expire at various
dates from 2026 through 2032 and state and international tax credit carryforwards of $25 million, which expire at various
dates from 2021 through 2027.
Due to the nature of the CDW UK acquisition, the Company has provided US income taxes of $19 million on the excess
of the financial reporting value of the investment over the corresponding tax basis. The Company is indefinitely reinvested
in its UK business, and therefore will not provide for any US deferred taxes on the earnings of the UK business. The
Company is not permanently reinvested in its Canadian business and therefore has recognized deferred tax liabilities of
$3 million as of December 31, 2018 related to withholding taxes on earnings of its Canadian business.
In the ordinary course of business, the Company is subject to review by domestic and foreign taxing authorities, including
the Internal Revenue Service ("IRS"). In general, the Company is no longer subject to audit by the IRS for tax years
through 2014 and state, local or foreign taxing authorities for tax years through 2013. Various taxing authorities are in
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the process of auditing income tax returns of the Company and its subsidiaries. The Company does not anticipate that
any adjustments from the audits would have a material impact on its consolidated financial position, results of operations
or cash flows.
Changes in the Company's unrecognized tax benefits at December 31, 2018, 2017 and 2016 were as follows:
(in millions)
Balance as of January 1, 2018
Additions for tax positions related to current year
Balance as of December 31, 2018
Year Ended December 31,
2018
2017
2016
$
$
— $
15.1
15.1
$
— $
—
— $
—
—
—
As of December 31, 2018, the Company had $15 million of unrecognized tax benefits that, if recognized, would have
decreased income taxes and the corresponding effective income tax rate and increased net earnings. The impact of
recognizing these tax benefits, net of the federal income tax benefit related to unrecognized state income tax benefits,
would be approximately $12 million.
11.
Stockholders' Equity
Share Repurchase Program
The Company has a share repurchase program under which it may repurchase shares of its common stock in the open
market or through privately negotiated other transactions, depending on share price, market conditions and other factors.
The share repurchase program does not obligate the Company to repurchase any dollar amount or number of shares, and
repurchases may be commenced or suspended from time to time without prior notice.
During 2018, the Company repurchased 6.3 million shares of its common stock for $522 million. These repurchases
occurred under the program announced on August 3, 2017, by which the Board of Directors authorized a $750 million
increase to the Company's share repurchase program. As of December 31, 2018, the Company has $336 million remaining
under this program.
12.
Equity-Based Compensation
Equity-based compensation expense, which is recorded in Selling and administrative expenses in the Consolidated
Statements of Operations is as follows:
(in millions)
Equity-based compensation expense
Income tax benefit(1)
Equity-based compensation expense (net of tax)
Year Ended December 31,
2018
2017
2016
$
$
40.7
(9.9)
30.8
$
$
43.7
(15.3)
28.4
$
$
39.2
(13.3)
25.9
(1)
Represents equity-based compensation tax expense at the statutory tax rates. Excess tax benefits associated with
equity awards are excluded from this disclosure and separately disclosed in Note 10 (Income Taxes).
The total unrecognized compensation cost related to nonvested awards was $36 million at December 31, 2018 and is
expected to be recognized over a weighted-average period of 1.7 years.
2013 Long-Term Incentive Plan
The 2013 Long-Term Incentive Plan ("2013 LTIP") provides for the grant of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock, restricted stock units, bonus stock and performance awards. The
maximum aggregate number of shares that may be issued under the 2013 LTIP is 15,500,000 shares of the Company's
common stock, in addition to the 3,798,508 shares of restricted stock granted in exchange for unvested Class B Common
Units in connection with the Company's IPO. As of December 31, 2018, 4,978,336 shares were available for issuance
under the 2013 LTIP, which was approved by the Company's pre-IPO shareholders. Authorized but unissued shares are
reserved for issuance in connection with equity-based awards.
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Stock Options
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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)
$
Year Ended December 31,
2018
2017
2016
$
14.80
20.00%
2.75%
1.14%
6.0
$
12.27
22.00%
2.08%
1.09%
6.0
8.55
25.00%
1.47%
1.08%
6.0
(1)
(2)
(3)
Based upon an assessment of the two-year and five-year historical and implied volatility for the Company's
selected peer group, adjusted for the Company's leverage.
Based on a composite US Treasury rate.
Calculated using the simplified method, which defines the expected term as the average of the option's contractual
term and the option's weighted-average vesting period. The Company utilizes this method as it has limited
historical stock option data that is sufficient to derive a reasonable estimate of the expected stock option term.
Stock option activity for the year ended December 31, 2018 was as follows:
Outstanding at January 1, 2018
Options
Granted
Forfeited/Expired
Exercised(1)
Outstanding at December 31, 2018
Vested and exercisable at December 31, 2018
Expected to vest after December 31, 2018
Number of
Options
Weighted-
Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
(years)
Aggregate
Intrinsic Value
(millions)
4,457,996
$
1,021,398
(63,372)
(935,250)
4,480,772
2,423,693
2,031,401
$
$
$
37.41
73.85
59.85
30.59
46.82
32.67
63.43
7.04
5.79
8.52
$
$
$
153.5
117.3
35.9
(1)
The total intrinsic value of stock options exercised during the years ended December 31, 2018, 2017 and 2016
was $47 million, $17 million and $7 million, respectively.
Restricted Stock Units ("RSUs")
Restricted stock units represent the right to receive unrestricted shares of the Company's stock at the time of vesting.
RSUs generally cliff-vest at the end of four years. The fair value of RSUs is equal to the closing price of the Company's
common stock on date of grant.
RSU activity for the year ended December 31, 2018 was as follows:
Nonvested at January 1, 2018
Granted (1)
Vested (2)
Forfeited
Nonvested at December 31, 2018
77
Number of Units
Weighted-Average
Grant-Date Fair
Value
131,069
$
177,525
(26,886)
(21,535)
260,173
$
40.11
73.95
60.18
60.25
59.56
Table of Contents
(1)
(2)
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted-average grant date fair value of RSUs granted during the years ended December 31, 2018, 2017
and 2016 was $73.95, $58.90 and $39.82, respectively.
The aggregate fair value of RSUs that vested during the years ended December 31, 2018, 2017 and 2016 was
$2 million, $18 million and $1 million, respectively.
Performance Share Units ("PSUs")
Performance share units represent the right to receive unrestricted shares of the Company's stock at the time of vesting.
PSUs are granted under the 2013 LTIP which cliff-vest at the end of three years. The percentage of PSUs that shall vest
will range from 0% to 200% of the number of PSUs granted based on the Company's performance against a cumulative
adjusted free cash flow measure and cumulative non-GAAP net income per diluted share measure over a three-year
performance period.
PSU activity for the year ended December 31, 2018 was as follows:
Nonvested at January 1, 2018
Granted (1)
Attainment Adjustment (2)
Vested (3)
Forfeited
Nonvested at December 31, 2018
Number of Units
Weighted-Average
Grant-Date Fair
Value
418,973
$
204,890
154,234
(334,255)
(22,005)
421,837
$
50.75
73.74
37.84
39.92
59.87
65.85
(1)
(2)
(3)
The weighted-average grant date fair value of PSUs granted during the years ended December 31, 2018, 2017
and 2016 was $73.74, $59.00 and $39.91, respectively.
During the year ended December 31, 2018, the attainment on PSUs vested at December 31, 2017 was adjusted
to reflect actual performance. The weighted-average grant date fair value of PSUs included in the attainment
adjustment is $37.84.
The aggregate fair value of PSUs that vested during the years ended December 31, 2018, 2017 and 2016 was
$13 million, $20 million and $9 million, respectively.
Performance Share Awards ("PSAs")
Performance share awards represent the right to receive unrestricted shares of the Company's stock at the time of vesting.
PSAs are granted under the 2013 LTIP which cliff-vest at the end of three years. The percentage of PSAs that shall vest
will range from 0% to 200% of the number of PSAs granted based on the Company's performance against a cumulative
adjusted free cash flow measure and cumulative non-GAAP net income per diluted share measure over a three-year
performance period.
PSA activity for the year ended December 31, 2018 was as follows:
Nonvested at January 1, 2018
Granted (1)
Attainment Adjustment (2)
Vested (3)
Forfeited
Nonvested at December 31, 2018
78
Number of Units
Weighted-Average
Grant-Date Fair
Value
122,467
$
1,279
111,565
(227,298)
(8,013)
— $
40.08
—
37.79
40.12
39.79
—
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
(2)
(3)
The weighted-average grant date fair value of PSAs granted during the year ended December 31, 2018 and 2017
was zero as the units granted consisted of only dividends on previously granted units. The weighted-average
grant date fair value of PSAs granted during the year ended December 31, 2016 was $40.06.
During the year ended December 31, 2018, the attainment on PSAs vested at December 31, 2017 was adjusted
to reflect actual performance. The weighted-average grant date fair value of PSAs included in the attainment
adjustment is $37.79.
The aggregate fair value of PSAs that vested during the years ended December 31, 2018 and 2017 was $9 million
and $5 million, respectively. No PSAs vested during the year ended December 31, 2016.
Equity Awards Granted by Seller of CDW UK
During 2018, 456,613 stock options granted by one of the sellers of CDW UK to certain CDW UK coworkers as part of
the Company's acquisition of CDW UK vested. These equity awards had a weighted-average grant-date fair value of
$35.93 per option. In connection with the exercise of such options, the seller of CDW UK distributed shares of common
stock to each participant and withheld the number of shares of common stock equal to the respective tax withholding for
each participant. The seller of CDW UK then transferred such withheld shares to the Company to satisfy the tax withholding
for participants. The Company was required to pay withholding taxes of $19 million to Her Majesty's Revenue and
Customs taxing authority related to the exercise of these options. This amount is reported as a financing activity in the
Consolidated Statement of Cash Flows and as an increase to Accumulated Deficit in the Consolidated Statement of
Stockholders' Equity for the year ended December 31, 2018.
13.
Earnings Per Share
The numerator for both basic and diluted earnings per share is Net income. The denominator for basic earnings per share
is the weighted-average shares outstanding during the period.
A reconciliation of basic weighted-average shares outstanding to diluted weighted-average shares outstanding is as
follows:
(in millions)
Basic weighted-average shares outstanding
Effect of dilutive securities (1)
Diluted weighted-average shares outstanding (2)
Year Ended December 31,
2018
2017
2016
150.9
2.7
153.6
155.4
2.8
158.2
163.6
2.4
166.0
(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 fewer than 0.2 million potential common shares excluded from diluted weighted-average shares
outstanding for the years ended December 31, 2018, 2017 and 2016, respectively, as their inclusion would have
had an anti-dilutive effect.
14.
Coworker Retirement and Other Compensation Benefits
Profit Sharing Plan and Other Savings Plans
The Company has a profit sharing plan that includes a salary reduction feature established under the Internal Revenue
Code Section 401(k) covering substantially all coworkers in the US. In addition, coworkers outside the US participate
in other savings plans. Company contributions to the profit sharing and other savings plans are made in cash and determined
at the discretion of the Board of Directors. For the years ended December 31, 2018, 2017 and 2016, the amounts expensed
for these plans were $34 million, $20 million and $23 million, respectively.
Coworker Stock Purchase Plan
The Company has a Coworker Stock Purchase Plan (the "CSPP") that provides the opportunity for eligible coworkers to
acquire shares of the Company's common stock at a 5% discount from the closing market price on the final day of the
offering period. There is no compensation expense associated with the CSPP.
79
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15.
Commitments and Contingencies
The Company is party to various legal proceedings that arise in the ordinary course of its business, which include
commercial, intellectual property, employment, tort and other litigation matters. The Company is also subject to audit by
federal, state, international, national, provincial and local authorities, and by various partners, group purchasing
organizations and customers, including government agencies, relating to purchases and sales under various contracts. In
addition, the Company is subject to indemnification claims under various contracts. From time to time, certain customers
of the Company file voluntary petitions for reorganization or liquidation under the US bankruptcy laws or similar laws
of the jurisdictions for the Company's business activities outside of the US. In such cases, certain pre-petition payments
received by the Company could be considered preference items and subject to return to the bankruptcy administrator.
As of December 31, 2018, the Company does not believe that there is a reasonable possibility that any material loss
exceeding the amounts already recognized for these proceedings and matters, if any, has been incurred. However, the
ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company's financial
condition and results of operations could be adversely affected in any particular period by the unfavorable resolution of
one or more of these proceedings or matters.
16.
Segment Information
The Company's segment information is presented in accordance with a "management approach," which designates the
internal reporting used by the Chief Operating Decision-Maker for deciding how to allocate resources and for assessing
performance.
The Company has three reportable segments: Corporate, which is comprised primarily of private sector business
customers with more than 250 employees in the US, Small Business, primarily servicing private sector business customers
with up to 250 employees in the US, and Public, which is comprised of government agencies and education and healthcare
institutions in the US. The Company has two other operating segments: CDW UK and CDW Canada, both of which do
not meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category ("Other").
The Company has centralized logistics and headquarters functions that provide services to the segments. The logistics
function includes purchasing, distribution and fulfillment services to support the Corporate, Small Business and Public
segments. As a result, costs and intercompany charges associated with the logistics function are fully allocated to both
of these segments based on a percent of Net sales. The centralized headquarters function provides services in areas such
as accounting, information technology, marketing, legal and coworker services. Headquarters function costs that are not
allocated to the segments are included under the heading of "Headquarters" in the tables below.
The Company allocates resources to and evaluates performance of its segments based on Net sales, Operating income
and Adjusted EBITDA, a non-GAAP measure as defined in the Company's credit agreements. However, the Company
has concluded that Operating income is the more useful measure in terms of discussion of operating results, as it is a
GAAP measure.
Segment information for Total assets and capital expenditures is not presented, as such information is not used in measuring
segment performance or allocating resources between segments.
80
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Selected Segment Financial Information
Information about the Company's segments for the years ended December 31, 2018, 2017 and 2016 are as follows:
(in millions)
2018:
Net sales
Operating income (loss)
Depreciation and amortization expense
2017(1):
Net sales
Operating income (loss)
Depreciation and amortization expense
2016(1):
Net sales
Operating income (loss)
Depreciation and amortization expense
Corporate
Small
Business
Public
Other
Headquarters
Total
$ 6,842.5
536.9
$ 1,359.6
95.7
$ 6,154.7
410.8
$ 1,883.7
82.2
$
— $ 16,240.5
987.3
(138.3)
(81.7)
(20.8)
(45.4)
(31.8)
(85.9)
(265.6)
$ 6,172.8
487.9
(83.1)
$ 1,220.5
74.3
(20.7)
$ 5,906.5
374.4
(44.8)
$ 1,533.1
57.1
(30.9)
$ 5,734.9
453.5
(82.9)
$ 1,118.1
69.1
(20.6)
$ 5,477.4
367.7
(44.7)
$ 1,342.3
44.6
(32.1)
$
$
— $ 14,832.9
866.5
(260.9)
(127.2)
(81.4)
— $ 13,672.7
820.0
(254.5)
(114.9)
(74.2)
(1)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Geographic Areas and Revenue Mix
Year Ended December 31, 2018
Geography(1)
United States
Rest of World
Total Net sales
Major Product and Services
Hardware
Software
Services
Other(2)
Total Net sales
Sales by Channel
Corporate
Small Business
Government
Education
Healthcare
Other
Total Net sales
Corporate
Small Business
Public
Other
Total
$
$
6,834.4
8.1
6,842.5
$
1,359.6
—
1,359.6
$
6,154.7
—
6,154.7
$
30.9
1,852.8
1,883.7
14,379.6
1,860.9
16,240.5
5,455.6
982.3
337.3
67.3
1,135.8
174.5
28.2
21.1
4,998.9
1,492.1
976.4
162.8
16.6
213.8
169.0
8.8
13,082.4
2,347.0
697.3
113.8
6,842.5
1,359.6
6,154.7
1,883.7
16,240.5
6,842.5
—
—
—
—
—
—
1,359.6
—
—
—
—
—
—
2,097.3
2,327.4
1,730.0
—
6,842.5
1,359.6
6,154.7
—
—
—
—
—
1,883.7
1,883.7
6,842.5
1,359.6
2,097.3
2,327.4
1,730.0
1,883.7
16,240.5
Timing of Revenue Recognition
Transferred at a point in time where
CDW is principal
Transferred at a point in time where
CDW is agent
Transferred over time where CDW is
principal
6,256.5
1,281.3
5,758.6
1,687.6
14,984.0
389.1
196.9
69.4
8.9
211.5
184.6
49.8
146.3
719.8
536.7
Total Net sales
$
6,842.5
$
1,359.6
$
6,154.7
$
1,883.7
$
16,240.5
(1)
Net sales by geography is generally based on the ship-to address with the exception of certain services that may
be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the
bill-to address.
(2)
Includes items such as delivery charges to customers.
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2017(1)
Geography(2)
United States
Rest of World
Total Net sales
Major Product and Services
Hardware
Software
Services
Other(3)
Total Net sales
Sales by Channel
Corporate
Small Business
Government
Education
Healthcare
Other
Total Net sales
Corporate
Small Business
Public
Other
Total
$
$
6,167.4
5.4
6,172.8
$
1,220.5
—
1,220.5
$
5,906.5
—
5,906.5
$
25.5
1,507.6
1,533.1
13,319.9
1,513.0
14,832.9
4,871.6
918.5
316.2
66.5
1,012.5
163.1
24.5
20.4
4,846.5
1,229.8
908.3
133.5
18.2
167.0
128.5
7.8
11,960.4
2,156.9
602.7
112.9
6,172.8
1,220.5
5,906.5
1,533.1
14,832.9
6,172.8
—
—
—
—
—
—
1,220.5
—
—
—
—
—
2,109.8
2,184.5
1,612.2
—
6,172.8
1,220.5
5,906.5
—
—
—
—
—
1,533.1
1,533.1
6,172.8
1,220.5
2,109.8
2,184.5
1,612.2
1,533.1
14,832.9
Timing of Revenue Recognition
Transferred at a point in time where
CDW is principal
Transferred at a point in time where
CDW is agent
Transferred over time where CDW is
principal
5,640.9
1,152.5
5,559.4
1,375.7
13,728.5
344.2
187.7
59.4
8.6
184.1
163.0
27.9
129.5
615.6
488.8
Total Net sales
$
6,172.8
$
1,220.5
$
5,906.5
$
1,533.1
$
14,832.9
(1)
(2)
Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.
Net sales by geography is generally based on the ship-to address with the exception of certain services that may
be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the
bill-to address.
(3)
Includes items such as delivery charges to customers.
83
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2016(1)
Geography(2)
United States
Rest of World
Total Net sales
Major Product and Services
Hardware
Software
Services
Other(3)
Total Net sales
Sales by Channel
Corporate
Small Business
Government
Education
Healthcare
Other
Total Net sales
Corporate
Small Business
Public
Other
Total
$
$
5,594.6
140.3
5,734.9
$
1,118.1
—
1,118.1
$
5,477.4
—
5,477.4
$
28.2
1,314.1
1,342.3
12,218.3
1,454.4
13,672.7
4,495.6
876.3
291.5
71.5
908.3
165.0
24.1
20.7
4,481.2
1,030.9
855.4
119.6
21.2
175.6
129.0
6.8
10,916.0
2,072.3
564.2
120.2
5,734.9
1,118.1
5,477.4
1,342.3
13,672.7
5,734.9
—
—
—
—
—
—
1,118.1
—
—
—
—
—
—
1,813.6
1,994.4
1,669.4
—
5,734.9
1,118.1
5,477.4
—
—
—
—
—
1,342.3
1,342.3
5,734.9
1,118.1
1,813.6
1,994.4
1,669.4
1,342.3
13,672.7
Timing of Revenue Recognition
Transferred at a point in time where
CDW is principal
Transferred at a point in time where
CDW is agent
Transferred over time where CDW is
principal
5,279.8
1,061.3
5,182.4
1,201.8
12,725.3
281.4
173.7
46.8
10.0
149.3
145.7
22.5
118.0
500.0
447.4
Total Net sales
$
5,734.9
$
1,118.1
$
5,477.4
$
1,342.3
$
13,672.7
(1)
(2)
Amounts for 2016 have been adjusted to reflect the adoption of Topic 606.
Net sales by geography is generally based on the ship-to address with the exception of certain services that may
be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the
bill-to address.
(3)
Includes items such as delivery charges to customers.
84
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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents Net sales by major category for the years ended December 31, 2018, 2017 and 2016.
Categories are based upon internal classifications.
2018
Year Ended December 31,
2017(1)(2)
2016(1)(2)
Dollars in
Millions
Percentage
of Total Net
Sales
Dollars in
Millions
Percentage
of Total Net
Sales
Dollars in
Millions
Percentage
of Total Net
Sales
4,053.6
2,119.8
1,318.2
1,185.6
1,099.2
3,306.0
13,082.4
2,347.0
697.3
113.8
25.0% $
13.1
8.1
7.3
6.8
20.3
80.6
14.4
4.3
0.7
3,519.8
2,040.3
1,207.0
1,078.4
1,087.3
3,027.6
11,960.4
2,156.9
602.7
112.9
23.7% $
13.8
8.1
7.3
7.3
20.4
80.6
14.5
4.1
0.8
2,942.9
1,957.0
1,087.7
963.0
1,073.9
2,891.5
10,916.0
2,072.3
564.2
120.2
21.5%
14.3
8.0
7.0
7.9
21.1
79.8
15.2
4.1
0.9
$ 16,240.5
100.0% $ 14,832.9
100.0% $ 13,672.7
100.0%
Notebooks/Mobile
Devices
Netcomm Products
Desktops
$
Video
Enterprise and Data
Storage (Including Drives)
Other Hardware
Total Hardware
Software(3)
Services(3)
Other(4)
Total Net sales
(1)
(2)
(3)
Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606.
Amounts have been reclassified for changes in individual product classifications to conform to the presentation
for the year ended December 31, 2018.
Certain software and services revenues are recorded on a net basis for accounting purposes. As a result, the
category percentage of net revenues is not representative of the category percentage of gross profits.
(4)
Includes items such as delivery charges to customers.
17.
Supplemental Guarantor Information
The 2023 Senior Notes, the 2024 Senior Notes and the 2025 Senior Notes are, and, prior to being redeemed in full, the
2022 Senior Notes were, guaranteed by the Parent and each of CDW LLC's direct and indirect, 100% owned, domestic
subsidiaries (the "Guarantor Subsidiaries"). All guarantees by the Parent and the Guarantor Subsidiaries are and were
joint and several, and full and unconditional; provided that guarantees by the Guarantor Subsidiaries (i) are subject to
certain customary release provisions contained in the indentures governing the 2023 Senior Notes, the 2024 Senior Notes
and the 2025 Senior Notes and (ii) were subject to certain customary release provisions contained in the indenture
governing the 2022 Senior Notes until such indenture was satisfied and discharged during 2017. CDW LLC's 100%
owned foreign subsidiaries, CDW International Holdings Limited, which is comprised of CDW UK and CDW Canada
(together the "Non-Guarantor Subsidiaries"), do not guarantee the debt obligations. CDW LLC and CDW Finance
Corporation, as co-issuers, are 100% owned by Parent and each of the Guarantor Subsidiaries and the Non-Guarantor
Subsidiaries are, directly or indirectly, 100% owned by CDW LLC.
The following tables set forth Condensed Consolidating Balance Sheets as of December 31, 2018 and 2017, Consolidating
Statements of Operations for the years ended December 31, 2018, 2017 and 2016, Condensed Consolidating Statements
of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016, and Condensed Consolidating
Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016, in accordance with Rule 3-10 of
Regulation S-X. The consolidating financial information includes the accounts of CDW Corporation (the "Parent
Guarantor"), which has no independent assets or operations, the accounts of CDW LLC (the "Subsidiary Issuer"), the
combined accounts of the Guarantor Subsidiaries, the combined accounts of the Non-Guarantor Subsidiaries, and the
accounts of CDW Finance Corporation (the "Co-Issuer") for the periods indicated. The information was prepared on the
same basis as the Company's Consolidated Financial Statements.
85
Table of Contents
(in millions)
Assets
Current assets:
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet
December 31, 2018
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
Cash and cash equivalents
$
— $
176.0
$
— $
46.7
$ — $
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:
—
—
—
—
—
—
—
—
1.4
—
—
110.6
17.1
303.7
82.3
751.8
252.5
49.8
2,331.2
387.4
187.7
93.8
3,000.1
52.0
1,437.8
300.0
9.6
973.8
3,028.9
—
340.0
66.9
18.1
38.2
509.9
21.8
273.2
159.7
140.2
—
—
—
—
—
—
—
—
—
—
—
$
975.2
$ 4,469.0
$ 4,799.5
$
1,104.8
$ — $
(16.9) $
—
205.8
2,671.2
—
—
—
(16.9)
—
—
—
(161.2)
454.3
316.4
149.1
3,796.8
156.1
2,462.8
712.2
39.8
(4,002.7)
—
(4,180.8) $ 7,167.7
Accounts payable-trade
$
— $
39.2
$ 1,387.9
$
166.9
$ — $
(16.9) $ 1,577.1
Accounts payable-
inventory financing
Current maturities of long-
term debt
Contract liabilities
Accrued expenses and
other current liabilities
Total current liabilities
Long-term liabilities:
Debt
Deferred income taxes
Other liabilities
Total long-term
liabilities
Total stockholders' equity
Total Liabilities and
Stockholders' Equity
—
—
—
—
—
0.2
14.9
—
217.6
271.9
— 3,121.3
—
—
55.9
46.1
— 3,223.3
406.1
4.0
95.6
306.7
2,200.3
4.3
60.5
5.7
70.5
975.2
973.8
2,528.7
23.0
6.4
82.7
68.8
347.8
57.7
26.9
172.2
256.8
500.2
—
—
—
—
—
—
—
—
—
—
—
—
—
429.3
25.3
178.3
—
(16.9)
593.1
2,803.1
—
(1.4)
(159.8)
3,183.3
141.9
64.2
(161.2)
3,389.4
(4,002.7)
975.2
$
975.2
$ 4,469.0
$ 4,799.5
$
1,104.8
$ — $
(4,180.8) $ 7,167.7
86
Table of Contents
(in millions)
Assets
Current assets:
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet
December 31, 2017
(as adjusted)
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
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
2,015.7
354.6
211.1
100.4
2,681.8
43.5
1,439.0
424.5
209.3
983.9
3,066.1
—
313.6
56.9
28.0
49.9
480.8
22.6
288.8
192.4
2.6
—
—
—
—
—
—
—
—
—
—
—
$
985.6
$ 4,459.3
$ 4,798.1
$
987.2
$ — $
(1.9) $
—
144.2
2,329.3
—
—
—
(1.9)
—
—
—
(211.6)
411.5
343.0
168.3
3,396.3
161.1
2,479.6
897.0
32.7
(4,050.0)
—
(4,263.5) $ 6,966.7
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
Contract liabilities
Accrued expenses and
other current liabilities
Total current liabilities
Long-term liabilities:
Debt
Deferred income taxes
Other liabilities
Total long-term
liabilities
Total stockholders' equity
Total Liabilities and
Stockholders' Equity
—
—
—
—
—
1.0
14.9
—
173.3
231.7
— 3,134.2
—
—
66.5
43.0
480.9
3.8
87.5
262.0
1,946.3
8.3
100.1
4.7
— 3,243.7
113.1
985.6
983.9
2,738.7
16.1
6.8
71.3
86.8
346.0
67.5
31.4
214.9
313.8
327.4
—
—
—
—
—
—
—
—
—
—
—
—
—
498.0
25.5
158.8
—
(1.9)
522.1
2,522.1
—
(1.7)
(209.9)
3,210.0
196.3
52.7
(211.6)
3,459.0
(4,050.0)
985.6
$
985.6
$ 4,459.3
$ 4,798.1
$
987.2
$ — $
(4,263.5) $ 6,966.7
87
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidating Statement of Operations
Year Ended December 31, 2018
(in millions)
Net sales
Cost of sales
Gross profit
Selling and administrative
expenses
Advertising expense
Operating income (loss)
Interest (expense) income, net
Other income (expense), net
Income (loss) before income taxes
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$ — $
— $ 14,356.8
$
1,883.7
$ — $
—
—
—
—
—
—
—
—
— 11,962.7
—
2,394.1
1,570.9
312.8
138.3
—
(138.3)
(146.7)
(0.2)
(285.2)
67.0
1,176.8
173.9
1,043.4
3.5
0.7
1,047.6
(249.8)
797.8
—
222.0
8.6
82.2
(5.4)
1.3
78.1
(14.3)
63.8
—
— $ 16,240.5
— 13,533.6
—
—
—
—
—
—
—
—
—
(1,505.0)
2,706.9
1,537.1
182.5
987.3
(148.6)
1.8
840.5
(197.5)
643.0
—
—
—
—
—
—
—
—
—
—
—
—
Income tax (expense) benefit
(0.4)
Income (loss) before equity in
earnings of subsidiaries
(0.4)
(218.2)
Equity in earnings of subsidiaries
643.4
861.6
Net income
$ 643.0
$
643.4
$
797.8
$
63.8
$ — $ (1,505.0) $
643.0
88
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions)
Net sales
Cost of sales
Gross profit
Selling and administrative
expenses
Advertising expense
Operating income (loss)
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
(as adjusted)
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$ — $
— $ 13,299.8
$
1,533.1
$ — $
—
—
—
—
—
—
—
—
—
— 11,103.5
—
2,196.3
1,279.2
253.9
127.2
1,093.3
189.5
—
(127.2)
(148.3)
(57.4)
(0.1)
(333.0)
149.9
166.4
936.6
4.1
—
0.7
941.4
(270.2)
671.2
—
7.3
57.1
(6.3)
—
1.5
52.3
(16.4)
35.9
—
— $ 14,832.9
— 12,382.7
—
—
—
—
—
—
—
—
—
—
(1,231.1)
2,450.2
1,410.0
173.7
866.5
(150.5)
(57.4)
2.1
660.7
(137.6)
523.1
—
—
—
—
—
—
—
—
—
—
—
—
—
Income tax (expense) benefit
(0.9)
Income (loss) before equity in
earnings of subsidiaries
(0.9)
(183.1)
Equity in earnings of subsidiaries
524.0
707.1
Net income
$ 523.1
$
524.0
$
671.2
$
35.9
$ — $ (1,231.1) $
523.1
89
Table of Contents
(in millions)
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Advertising expense
Operating income (loss)
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
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidating Statement of Operations
Year Ended December 31, 2016
(as adjusted)
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$
— $
— $ 12,330.4
$
1,342.3
$ — $
—
—
—
—
—
—
—
—
—
—
—
— 10,225.5
1,118.9
—
114.9
—
(114.9)
(145.8)
(2.1)
0.2
(262.6)
79.8
(182.8)
607.9
2,104.9
1,057.4
157.2
890.3
6.7
—
1.0
898.0
(319.8)
578.2
—
223.4
173.1
5.7
44.6
(7.4)
—
0.6
37.8
(8.1)
29.7
—
—
—
—
—
—
—
—
—
—
—
—
—
— $ 13,672.7
— 11,344.4
—
—
—
—
—
—
—
—
—
—
(1,033.0)
2,328.3
1,345.4
162.9
820.0
(146.5)
(2.1)
1.8
673.2
(248.1)
425.1
—
Equity in earnings of subsidiaries
425.1
Net income
$ 425.1
$
425.1
$
578.2
$
29.7
$ — $
(1,033.0) $
425.1
90
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2018
(in millions)
Comprehensive income
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$ 608.3
$
608.7
$
797.8
$
31.1
$ — $
(1,437.6) $
608.3
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2017
(as adjusted)
(in millions)
Comprehensive income
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$ 567.0
$
567.9
$
671.2
$
79.6
$ — $
(1,318.7) $
567.0
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2016
(as adjusted)
(in millions)
Comprehensive income (loss)
Parent
Guarantor
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
$ 346.4
$
346.4
$
578.2
$
(49.0) $ — $
(875.6) $
346.4
91
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2018
Repurchases of common stock
(522.3)
(in millions)
Net cash provided by (used in)
operating activities
Cash flows from investing activities:
Capital expenditures
Net cash used in investing activities
Cash flows (used in) provided by:
financing activities:
Proceeds from borrowings under
revolving credit facilities
Repayments of borrowings under
revolving credit facilities
Repayments of long-term debt
Net change in accounts payable-
inventory financing
Payment of incentive
compensation plan withholding
taxes
Dividends
Repayment of intercompany loan
Other
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
$ — $
(85.7) $ 1,073.6
$
75.0
$ — $
(157.0) $
905.9
—
—
—
—
—
—
(33.9)
(139.4)
—
—
(40.8)
(40.8)
(34.5)
(34.5)
(10.8)
(10.8)
640.0
(640.0)
(14.9)
(0.8)
—
—
—
—
34.6
—
—
—
(74.7)
—
—
—
47.5
(4.4)
46.7
(46.7)
(6.7)
8.1
—
—
—
(47.5)
(0.4)
695.6
169.9
(1,007.5)
—
—
—
—
—
188.8
(1,039.1)
(46.5)
—
62.3
113.7
—
—
—
(3.4)
14.3
32.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(86.1)
(86.1)
686.7
(686.7)
(21.6)
(67.4)
(522.3)
(33.9)
(139.4)
—
29.8
142.0
—
142.0
(754.8)
—
(3.4)
(15.0)
61.6
(1.9)
144.2
$ — $
176.0
$
— $
46.7
$ — $
(16.9) $
205.8
92
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2017
(as adjusted)
(in millions)
Net cash provided by (used in)
operating activities
Cash flows from 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 accounts payable-
inventory financing
Repurchases of common stock
Payment of incentive
compensation plan withholding
taxes
Dividends
Repayment of intercompany
loan
Other
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
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)
—
—
—
—
—
(0.2)
—
(78.4)
—
—
(534.0)
(49.6)
(106.9)
—
—
689.9
(0.6)
—
—
—
—
—
—
14.1
56.6
17.3
—
—
—
34.3
(4.0)
—
(109.0)
(3.1)
222.7
3.1
(737.2)
—
(785.3)
(40.8)
59.2
(59.2)
—
—
—
(5.4)
—
—
—
(34.3)
(1.1)
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)
(84.0)
(534.0)
(49.6)
(106.9)
—
9.0
—
(9.3)
(818.7)
—
2.6
(1.9)
(119.5)
—
263.7
$ — $
113.7
$
— $
32.4
$ — $
(1.9) $
144.2
93
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2016
(as adjusted)
(in millions)
Net cash provided by (used in)
operating activities
Cash flows from 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 accounts payable-
inventory financing
Repurchases of common stock
Dividends
Repayment of intercompany
loan
Other
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)
—
—
1.5
—
—
—
12.2
(7.6)
—
(7.6)
—
—
—
—
—
131.0
—
—
40.4
16.7
(5.0)
—
(5.0)
9.2
(9.2)
(5.4)
—
—
11.1
—
—
(40.4)
(3.0)
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)
143.6
(367.4)
(78.7)
—
25.9
—
(304.6)
(7.4)
39.4
226.1
(39.4)
37.6
$ — $
222.7
$
3.1
$
37.9
$ — $
— $
263.7
94
Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18.
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
Operating income
Net income
Basic(1)
Diluted(1)
Year Ended December 31, 2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
1,565.8
$
1,733.8
$
1,706.5
$
1,836.4
327.6
329.5
340.0
362.5
418.5
397.2
414.3
1,230.0
483.0
3,606.4
603.9
204.1
127.0
0.83
0.82
493.5
712.1
429.8
1,635.4
487.4
4,186.1
695.6
265.5
173.0
1.14
1.12
639.3
793.1
442.7
1,875.1
451.6
4,373.2
713.6
274.8
183.7
1.22
1.20
546.0
425.0
443.2
1,414.2
461.7
4,074.8
693.8
242.9
159.3
1.07
1.05
Cash dividends declared per common share
$
0.210
$
0.210
$
0.210
$
0.295
(in millions, except per-share amounts)
Net Sales:
Corporate
Small Business
Public:
Government
Education
Healthcare
Total Public
Other
Net sales
Gross profit
Operating income
Net income
Basic(1)
Diluted(1)
Year Ended December 31, 2017(2)(3)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
1,440.6
$
1,580.1
$
1,552.8
$
1,599.3
292.0
315.0
305.4
308.1
374.6
393.2
385.9
1,153.7
369.7
3,256.0
553.5
170.7
58.2
0.36
0.36
523.4
704.9
404.5
1,632.8
363.8
3,891.7
640.8
230.8
140.9
0.90
0.89
591.9
691.3
410.7
1,693.9
381.1
3,933.2
642.2
244.0
129.3
0.84
0.83
619.9
395.2
411.0
1,426.1
418.6
3,752.1
613.7
221.1
194.8
1.28
1.25
Cash dividends declared per common share
$
0.160
$
0.160
$
0.160
$
0.210
(1)
(2)
(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.
Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.
Sum of quarters may not agree to reported yearly totals due to rounding.
95
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19.
Subsequent Events
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 11, 2019, the Company announced its agreement to acquire Scalar Decisions Inc., a leading technology
solutions provider in Canada. The acquisition closed on February 1, 2019.
On February 7, 2019, the Company announced that its Board of Directors authorized a $1.0 billion increase to its previously
announced share repurchase program.
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SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2018, 2017 and 2016
(in millions)
Allowance for doubtful accounts:
Year Ended December 31, 2018
Year Ended December 31, 2017
Year Ended December 31, 2016
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Deductions
Balance at
End of
Period
$
$
6.2
5.9
6.0
$
2.0
2.1
2.0
(1.2) $
(1.8)
(2.1)
7.0
6.2
5.9
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,
2018. 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, 2018, 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, 2018
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, 2018, 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, 2018, 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, 2018 and 2017, 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, 2018, and the related notes and the financial statement schedule listed in the Index at Item 15 (a) (2) and our
report dated February 27, 2019 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 27, 2019
98
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Item 9B. Other Information
None.
99
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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. A copy of The CDW Way Code is available on our website at www.cdw.com. 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. We intend to disclose any substantive
amendments to, or waivers from, The CDW Way Code by posting such information on our website or by filing a Form 8-K, in
each case to the extent such disclosure is required by the rules of the SEC or Nasdaq.
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 our definitive proxy statement for
our 2019 annual meeting of stockholders on May 21, 2019 ("2019 Proxy Statement"), which we will file with the SEC on or before
April 30, 2019.
Item 11. Executive Compensation
Information required under this Item 11 is incorporated herein by reference to the 2019 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 2019 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 2019 Proxy Statement.
Item 14. Principal Accountant Fees and Services
Information required under this Item 14 is incorporated herein by reference to the 2019 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, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules:
Schedule II – Valuation and Qualifying Accounts
Page
53
54
55
56
57
58
59
Page
97
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
3.1.2
3.2
3.3
3.4
3.5
3.6
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.
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 25, 2018 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.
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Exhibit
Number
3.7
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
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.
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.
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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 Amendment to Amended and Restated Term Loan Agreement, dated as of April 3, 2018, among
CDW LLC, 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 10-Q
filed on May 3, 2018 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.
Amended and Restated Compensation Protection Agreement, dated as of December 18, 2018, 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 December 20, 2018 and incorporated herein by reference.
Amended and Restated Compensation Protection Agreement, dated as of December 18, 2018, by and among
CDW Corporation, CDW LLC and Christine A. Leahy, previously filed as Exhibit 10.2 with CDW
Corporation’s Form 8-K filed on December 20, 2018 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.
103
Table of Contents
Exhibit
Number
10.17§
10.18§
10.19§
10.20§
10.21§
10.22§
10.23§
10.24§
10.25§*
10.26§
21.1*
23.1*
31.1*
31.2*
Description
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.
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, previously filed as Exhibit 10.22 with CDW Corporation’s Form
10-K filed on March 1, 2018 and incorporated herein by reference.
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, previously filed as Exhibit 10.24 with
CDW Corporation’s Form 10-K filed on March 1, 2018 and incorporated herein by reference.
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
Amended and Restated 2013 Long-Term Incentive Plan.
Letter Agreement, dated as of February 12, 2018, by and between CDW Limited and Collin B. Kebo,
previously filed as Exhibit 10.28 with CDW Corporation’s Form 10-K filed on March 1, 2018 and
incorporated herein by reference.
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
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
104
Table of Contents
Exhibit
Number
101.PRE*
Description
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.
105
Table of Contents
Item 16. Form 10-K Summary
None.
106
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 27, 2019
CDW CORPORATION
By:
/s/ Christine A. Leahy
Christine A. Leahy
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.
107
Table of Contents
Signature
Title
Date
/s/ Christine A. Leahy
Christine A. Leahy
President and Chief Executive Officer
(principal executive officer) and Director
/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)
February 27, 2019
February 27, 2019
February 27, 2019
/s/ Thomas E. Richards
Executive Chairman of the Board
February 27, 2019
Thomas E. Richards
/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
108
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
GOVERNANCE AND LEADERSHIP
Board of Directors
Thomas E. Richards
Executive Chairman, and
Former Chief Executive Officer,
CDW
Christine A. Leahy
President and Chief Executive Officer,
CDW
Virginia C. Addicott
President and Chief Executive Officer,
FedEx Custom Critical
Steven W. Alesio
Former Chairman and
Chief Executive Officer,
Dun & Bradstreet Corporation
Barry K. Allen
Operating Partner,
Providence Equity Partners L.L.C.;
President,
Allen Enterprises, LLC
James A. Bell
Retired Executive Vice President,
The Boeing Company
Benjamin D. Chereskin
President,
Profile Capital Management LLC
Lynda M. Clarizio
Former Executive Vice President,
Strategic Initiatives,
The Nielsen Company (U.S.), LLC
Paul J. Finnegan
Co-Chief Executive Officer,
Madison Dearborn Partners, LLC
David W. Nelms
Retired Chairman and
Chief Executive Officer,
Discover Financial Services, Inc.
Joseph R. Swedish
Senior Advisor, and Retired Chairman,
President and Chief Executive Officer,
Anthem, Inc.
Donna F. Zarcone
President and Chief Executive Officer,
The Economic Club of Chicago
Executive Committee
Christine A. Leahy
President and Chief Executive Officer
Christina M. Corley
Chief Operating Officer
Jill M. Billhorn
Senior Vice President—Corporate Sales
Mark C. Chong
Senior Vice President—Strategy
and Marketing
Elizabeth H. Connelly
Chief Human Resources Officer
and Senior Vice President—
Coworker Services
Douglas E. Eckrote
Senior Vice President—Small Business
Sales and eCommerce
Collin B. Kebo
Senior Vice President and
Chief Financial Officer
Robert F. Kirby
Senior Vice President—Public Sales
Frederick J. Kulevich
Senior Vice President, General Counsel
and Corporate Secretary
Christina V. Rother
Senior Vice President— Integrated
Technology Solutions
Jonathan J. Stevens
Senior Vice President—Operations
and Chief Information Officer
Matthew A. Troka
Senior Vice President—Product
and Partner Management
4 CDW CORPORATION
CDW CORPORATION
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 2019 Annual Meeting of Shareholders will be held on
Tuesday, May 21 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
Beth Coronelli
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, 2018.
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 federal securities laws, including without limitation
statements regarding the future financial performance of CDW.
These statements involve risks and uncertainties that may cause
actual results to differ materially from those described in such
statements. Important factors that could cause actual results
to differ materially from CDW’s expectations, or cautionary
statements, are disclosed under the section entitled “Risk
Factors” included in CDW’s Annual Report on Form 10-K for
the year ended December 31, 2018 (the “Form 10-K”). Refer
to page 3 of the Form 10-K for additional information. CDW
undertakes no obligation to publicly update or revise any
forward-looking statement 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 net income and Non-GAAP net income per diluted share
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
the underlying operating performance of CDW’s business, as
they remove the impact of items that management believes are
not reflective of underlying operating performance. Additionally,
Adjusted EBITDA is a measure in the credit agreement governing
CDW’s senior secured term loan facility. A reconciliation of
Adjusted EBITDA to net income is included on page 25 of the
Form 10-K, and a reconciliation of non-GAAP net income
(which is divided by fully diluted, weighted-average common
shares outstanding of 153.6 million in 2018, 158.2 million in 2017,
166.0 million in 2016, 171.8 million in 2015, 172.8 million in 2014
and 158.7 million in 2013 to arrive at non-GAAP net income per
diluted share for those periods) to net income is included on
page 26 of the Form 10-K. Reconciliations for these financial
measures are also included on the investor relations section of the
company website at www.cdw.com. 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.
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CDW CORPORATION
CDW Corporation
75 Tri-State International
Lincolnshire, IL 60069