Table of Contents

As filed with the Securities and Exchange Commission on June 14, 2013

Registration No. 333-187472

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 2

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

CDW CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware		5961		26-0273989
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Number)		(I.R.S. Employer Identification No.)

 

 

200 N. Milwaukee Avenue

Vernon Hills, Illinois 60061

Telephone: (847) 465-6000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Christine A. Leahy

Senior Vice President, General Counsel and Corporate Secretary

CDW Corporation

200 N. Milwaukee Avenue

Vernon Hills, Illinois 60061

Telephone: (847) 465-6000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

James S. Rowe Kirkland & Ellis LLP 300 N. LaSalle Chicago, Illinois 60654 Telephone: (312) 862-2000		Robert F. Wall, Esq. Brian M. Schafer, Esq. Winston & Strawn LLP 35 W. Wacker Drive Chicago, Illinois 60601 Telephone: (312) 558-5600

Approximate date of commencement of proposed sale of the securities to the public:

As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer ¨ Non-accelerated filer x (Do not check if a smaller reporting company)		Accelerated filer ¨ Smaller reporting company ¨

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered		Amount to be registered(1)		Estimated maximum offering price per share(2)		Proposed maximum aggregate offering price(2)(3)		Amount of registration fee(3)(4)
Common Stock, par value $0.01 per share		32,085,000		$23.00		$737,955,000		$100,658

 

(1)

Includes 4,185,000 additional shares of common stock that the underwriters have the option to purchase.

(2)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(3)

Includes the offering price of any additional shares of common stock that the underwriters have the option to purchase.

(4)

$68,200 was previously paid in connection with the initial filing of this Registration Statement.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

---

Table of Contents

The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell, and neither we nor the selling stockholders are soliciting an offer to buy, these securities in any state where the offer or sale is not permitted.

 

Subject to completion, dated June 14, 2013

Prospectus

27,900,000 shares

 

CDW Corporation

Common stock

This is an initial public offering of shares of common stock of CDW Corporation. We are offering 23,250,000 shares of our common stock. The selling stockholders identified in this prospectus are offering an additional 4,650,000 shares of our common stock. We will not receive any proceeds from the sale of these shares of our common stock by the selling stockholders. The estimated initial public offering price is between $20.00 and $23.00.

Prior to this offering, there has been no public market for our common stock. We have applied to list our common stock on the NASDAQ Global Select Market under the symbol “CDW.”

Investing in our common stock involves a high degree of risk. See “Risk factors” beginning on page 18.

 

		Per share				Total
Initial public offering price		$				$
Underwriting discounts and commissions		$				$
Proceeds to CDW, before expenses		$				$
Proceeds to selling stockholders		$				$

The underwriters have an option to purchase up to 4,185,000 additional shares from the selling stockholders to cover overallotments, if any. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

Delivery of the shares of common stock will be made on or about                     , 2013.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

J.P. Morgan		Barclays		Goldman, Sachs & Co.
Deutsche Bank Securities				Morgan Stanley
Baird				Raymond James

 

William Blair		Needham & Company		Stifel
Loop Capital Markets				The Williams Capital Group, L.P.

                    , 2013

---

Table of Contents

---

Table of Contents

Table of contents

 

		Page
Trademarks and service marks			ii
Prospectus summary			1
Risk factors			18
Forward-looking statements			35
Market, ranking and other industry data			36
Use of proceeds			37
Dividend policy			38
Capitalization			39
Dilution			41
Unaudited pro forma condensed consolidated financial data			43
Selected consolidated financial and operating data			54
Management’s discussion and analysis of financial condition and results of operations			58
Business			101
Management			114
Executive compensation			124
Principal and selling stockholders			151
Certain transactions			154
Description of certain indebtedness			159
Description of capital stock			167
Shares eligible for future sale			172
Certain U.S. federal income and estate tax considerations for non-U.S. holders			175
Underwriting			180
Legal matters			190
Experts			190
Where you can find more information			192
2002-2012 reconciliation			R-1
Index to consolidated financial statements			F-1

 

 

Neither we, the selling stockholders nor the underwriters have authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where such offers and sales are permitted. The information in this prospectus or any free writing prospectus is accurate only as of its date, regardless of its time of delivery or the time of any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

 

i

---

Table of Contents

Trademarks and service marks

This prospectus includes our trademarks such as “CDW,” which are protected under applicable intellectual property laws and are the property of CDW Corporation or its subsidiaries. This prospectus also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ^® or ^TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.

 

ii

---

Table of Contents

 

1

---

Table of Contents

 

2

---

Table of Contents

 

3

---

Table of Contents

 

4

---

Table of Contents

 

5

---

Table of Contents

 

6

---

Table of Contents

 

7

---

Table of Contents

 

8

---

Table of Contents

 

9

---

Table of Contents

 

10

---

Table of Contents

 

11

---

Table of Contents

 

12

---

Table of Contents

 

13

---

Table of Contents

 

14

---

Table of Contents

 

15

---

Table of Contents

 

16

---

Table of Contents

 

17

---

Table of Contents

Risk factors

You should carefully consider each of the following risk factors and all of the other information set forth in this prospectus before deciding to invest in our common stock. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. If any of these risks are realized, the market price of our common stock could decline, and you may lose all or part of your original investment.

Risks related to our business

General economic conditions could negatively affect technology spending by our customers and put downward pressure on prices, which may have an adverse impact on our business, results of operations or cash flows.

Weak economic conditions generally, sustained uncertainty about global economic conditions, skepticism about the resolution of U.S. fiscal cliff negotiations and the implementation of resulting agreements, concerns about future scheduled budgetary cuts and that the U.S. government may reach its debt ceiling in 2013, or a prolonged or further 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, during the economic downturn at the end of 2008 and in 2009, due to a number of factors, including declines in the availability of credit, weakening consumer and business confidence and increased unemployment, we experienced significantly reduced revenue and gross margins when our customers and potential customers reduced their spending on technology and put downward pressure on prices.

Our financial performance could be adversely affected by decreases in spending on technology products and services by our Public segment customers.

Our sales to our Public segment customers are impacted by government spending policies, budget priorities and revenue levels. Although our sales to the federal government are diversified across multiple agencies and departments, they collectively accounted for approximately 10% of 2012 net sales. An adverse change in government spending policies (including budget cuts at the federal level resulting from sequestration), budget priorities or revenue levels could cause our Public segment customers to reduce their purchases or to terminate or not renew their contracts with us, which could adversely affect our business, results of operations or cash flows.

Our business depends on our vendor partner relationships and the availability of their products.

We purchase products for resale from vendor partners, which include OEMs and software publishers, and wholesale distributors. For the year ended December 31, 2012, we purchased approximately 52% of the products we sold directly from vendor partners and the remaining amount from wholesale distributors. We are authorized by vendor partners to sell all or some of their products via direct marketing activities. Our authorization with each vendor partner is subject to specific terms and conditions regarding such things as sales channel restrictions, product return privileges, price protection policies, purchase discounts and vendor partner programs and funding, including purchase rebates, sales volume rebates, purchasing incentives and cooperative advertising reimbursements. However, we do not have any long-term contracts

 

18

---

Table of Contents

with our vendor partners and many of these arrangements are terminable upon notice by either party. A reduction in vendor partner programs or funding or our failure to timely react to changes in vendor partner programs or funding could have an adverse effect on our business, results of operations or cash flows. In addition, a reduction in the amount of credit granted to us by our vendor partners could increase our need for, and the cost of, working capital and could have an adverse effect on our business, results of operations or cash flows, particularly given our substantial indebtedness.

From time to time, vendor partners may terminate or limit our right to sell some or all of their products or change the terms and conditions or reduce or discontinue the incentives that they offer us. For example, there is no assurance that, as our vendor partners continue to sell directly to end users and through resellers, they will not limit or curtail the availability of their products to resellers like us. Any such termination or limitation or the implementation of such changes could have a negative impact on our business, results of operations or cash flows.

Although we purchase from a diverse vendor base, in 2012, products we purchased from distributors Ingram Micro, Tech Data and SYNNEX represented 12%, 10% and 9%, respectively, of our total purchases. In addition, sales of Apple, Cisco, EMC, Hewlett-Packard, Lenovo and Microsoft products comprise a substantial portion of our sales, representing approximately 56% of net sales in 2012. Sales of products manufactured by Hewlett-Packard and Cisco represented approximately 21% and 13%, respectively, of our 2012 net sales. The loss of, or change in business relationship with, any of these or any other key vendor partners, the diminished availability of their products, or backlogs for their products leading to manufacturer allocation, could reduce the supply and increase the cost of products we sell and negatively impact our competitive position.

Additionally, the relocation of key distributors utilized in our purchasing model could increase our need for, and the cost of, working capital and have an adverse effect on our business, results of operations or cash flows. Further, the sale, spin-off or combination of any of our vendor partners and/or certain of their business units, including any such sale to or combination with a vendor with whom we do not currently have a commercial relationship or whose products we do not sell, could have an adverse impact on our business, results of operations or cash flows.

Our sales are dependent on continued innovations in hardware, software and services offerings by our vendor partners and the competitiveness of their offerings, and our ability to partner with new and emerging technology providers.

The technology industry is characterized by rapid innovation and the frequent introduction of new and enhanced hardware, software and services offerings. 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. A decrease in the rate of innovation, or the lack of acceptance of innovations by customers, could have an adverse effect on our business, results of operations or cash flows.

In addition, if we are unable to keep up with changes in technology and new hardware, software and services offerings, for example by providing the appropriate training to our account managers, sales technology specialists and engineers to enable them to effectively sell and deliver such new offerings to customers, our business, results of operations or cash flows could be adversely affected.

 

19

---

Table of Contents

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. 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, 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 Dimension Data, ePlus, Insight Enterprises, PC Connection, PCM, Presidio, Softchoice, World Wide Technology, and many smaller resellers;

 

•

manufacturers who sell directly to customers, such as Dell, Hewlett-Packard and Apple;

 

•

e-tailers, such as Amazon, Newegg, TigerDirect.com and Buy.com;

 

•

large service providers and system integrators, such as IBM, Accenture, Hewlett-Packard and Dell; and

 

•

retailers (including their e-commerce activities), such as Staples, Office Depot and Office Max.

We expect the competitive landscape in which we compete to continue to change 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.

Some of our hardware and software vendor partners sell, and could intensify their efforts to sell, their products directly to our customers. In addition, 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. Moreover, newer, potentially disruptive technologies exist and are being developed that deliver technology solutions as a service, for example, cloud-based solutions, including software as a service (“SaaS”), infrastructure as a service (“IaaS”) and platform as a service (“PaaS”). These technologies could increase the amount of sales directly to customers rather than through resellers like us, or could lead to a reduction in our profitability. If any of these trends becomes more prevalent, it could adversely affect our business, results of operations or cash flows.

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.

 

20

---

Table of Contents

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, Web servers and voice and data networks. 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;

 

•

manage our inventory and accounts receivable;

 

•

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.

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, including computer viruses and malicious hackers, 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 could 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 three customer data centers which may store and transmit both business-critical data and confidential information of our customers. In connection with our services business, our coworkers also have access to our customers’ confidential data and other information. We have privacy and data security policies in place that are designed to prevent security breaches; however, breaches in security could expose us, our customers or other individuals to a risk of public disclosure, loss or misuse of this information, resulting in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, as well as the loss of existing or potential customers and damage to our brand and reputation. In addition, 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 segment 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 segment customers are derived from sales to governmental departments and agencies, educational institutions and healthcare customers, through various contracts and open market sales of products and services. Sales to Public segment customers are highly regulated. Noncompliance with contract provisions, government procurement regulations or other applicable laws or regulations (including but not limited to the False Claims Act and the

 

21

---

Table of Contents

Medicare and Medicaid Anti-Kickback Statute) could result in civil, criminal and administrative liability, including substantial monetary fines or damages, termination of government contracts or other Public segment customer contracts, and suspension, debarment or ineligibility from doing business with the government and other customers in the Public segment. In addition, generally contracts in the Public segment are terminable at any time for convenience of the contracting agency or group purchasing organization or upon default. The effect of any of these possible actions could adversely affect our business, results of operations or cash flows. In addition, the adoption of new or modified procurement regulations and other requirements may increase our compliance costs and reduce our gross margins, which could have a negative effect on our business, results of operations or cash flows.

If we fail to provide high-quality services to our customers, or if our third-party service providers fail to provide high-quality services to our customers, our reputation, business, results of operations or cash flows could be adversely affected.

Our service offerings include field services, managed services, warranties, configuration services, partner services and telecom services. Additionally, we deliver and manage mission critical software, systems and network solutions for our customers. Finally, 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, and 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 and retain key personnel to manage and grow our business, including our key executive, management, sales, services and technical coworkers.

Our future success will depend to a significant extent on the efforts of Thomas E. Richards, our Chairman and Chief Executive Officer, as well as the continued service and support of our other executive officers. Our future success also will depend on our ability to retain our customer-facing coworkers, who have been given critical CDW knowledge regarding, and the opportunity to develop strong relationships with, many of our customers. In addition, as we seek to expand our offerings of value-added services and solutions, our success will even more heavily depend on attracting and retaining highly skilled technology specialists and engineers, for whom the market is extremely competitive.

Our inability to attract, develop and retain key personnel could have an adverse effect on our relationships with our vendor partners and customers and adversely affect our ability to expand our offerings of value-added services and solutions. Moreover, our inability to train our sales, services and technical personnel effectively to meet the rapidly changing technology needs of our customers could cause a decrease in the overall quality and efficiency of such personnel. Such consequences could adversely affect our business, results of operations or cash flows.

The interruption of the flow of products from suppliers could disrupt our supply chain.

A significant portion of the products we sell are manufactured or purchased by our vendor partners outside of the U.S., primarily in Asia. Political, social or economic instability in Asia, or in

 

22

---

Table of Contents

other regions in which our vendor partners purchase or manufacture the products we sell, could cause disruptions in trade, including exports to the U.S. Other events that could also cause disruptions to our supply chain include:

 

•

the imposition of additional trade law provisions or regulations;

•

the imposition of additional duties, tariffs and other charges on imports and exports;

•

foreign currency fluctuations;

•

natural disasters or other adverse occurrences at, or affecting, any of our suppliers’ facilities;

•

restrictions on the transfer of funds;

•

the financial instability or bankruptcy of manufacturers; and

•

significant labor disputes, such as strikes.

We cannot predict whether the countries in which the products we sell are purchased or manufactured, or may be purchased or manufactured in the future, will be subject to new or additional trade restrictions or sanctions imposed by the U.S. or foreign governments, including the likelihood, type or effect of any such restrictions. Trade restrictions, including new or increased tariffs or quotas, embargos, sanctions, safeguards and customs restrictions against the products we sell, as well as foreign labor strikes and work stoppages or boycotts, could increase the cost or reduce the supply of product available to us and adversely affect our business, results of operations or cash flows.

A natural disaster or other adverse occurrence at one of our primary facilities or customer data centers could damage our business.

Substantially all of our corporate, warehouse and distribution functions are located at our Vernon Hills, Illinois facilities and our second distribution center in North Las Vegas, Nevada. 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 the other 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.

We are heavily dependent on commercial delivery services.

We generally ship hardware products to our customers by FedEx, United Parcel Service and other commercial delivery services and invoice customers for delivery charges. If we are unable to pass on to our customers future increases in the cost of commercial delivery services, our profitability could be adversely affected. Additionally, strikes or other service interruptions by such shippers could adversely affect our ability to deliver products on a timely basis.

We are exposed to accounts receivable and inventory risks.

We extend credit to our customers for a significant portion of our net sales, typically on 30-day payment terms. We are subject to the risk that our customers may not pay for the products they have purchased, or may pay at a slower rate than we have historically experienced, the risk of which is heightened during periods of economic downturn or uncertainty or, in the case of Public segment customers, during periods of budget constraints.

 

23

---

Table of Contents

We are also exposed to inventory risks as a result of the rapid technological changes that affect the market and pricing for the products we sell. We seek to minimize our inventory exposure through a variety of inventory management procedures and policies, including our rapid-turn inventory model, as well as vendor price protection and product return programs. However, if we were unable to maintain our rapid-turn inventory model, if there were unforeseen product developments that created more rapid obsolescence or if our vendor partners were to change their terms and conditions, our inventory risks could increase. We also from time to time take advantage of cost savings associated with certain opportunistic bulk inventory purchases offered by our vendor partners or we may decide to carry high inventory levels of certain products that have limited or no return privileges due to customer demand or request. These bulk purchases could increase our exposure to inventory obsolescence.

We could be exposed to additional risks if we make acquisitions or enter into alliances.

We may pursue transactions, including 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, any of which could adversely affect our operations.

In addition, our financial results could be adversely affected by financial adjustments required by 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.

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.

We are exposed to risks from legal proceedings and audits.

We are party to various legal proceedings that arise in the ordinary course of our business, which include commercial, employment, tort and other litigation.

 

24

---

Table of Contents

We are subject to intellectual property infringement claims against us in the ordinary course of our business, either because of the products and services we sell or the business systems and processes we use to sell such products and services, in the form of cease-and-desist letters, licensing inquiries, lawsuits and other communications and demands. In our industry, such intellectual property claims have become more frequent as the complexity of technological products and the intensity of competition in our industry have increased. Increasingly, many of these assertions are brought by non-practicing entities whose principal business model is to secure patent licensing revenue, but we may also be subject to suits from competitors who may seek licensing revenue, lost profits and/or an injunction preventing us from engaging in certain activities, including selling certain products and services.

Because of our significant sales to governmental entities, we also are subject to audits by federal, state and local authorities. 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, 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, current and future litigation, infringement claims, governmental proceedings, audits or indemnification claims could lead to increased costs or interruptions of our normal business operations. Litigation, infringement claims, governmental proceedings, audits or indemnification claims involve uncertainties and the eventual outcome of any litigation, infringement claim, governmental proceeding, audit or indemnification claim could adversely affect our business, results of operations or cash flows.

We have significant deferred cancellation of debt income.

As a result of a 2009 debt modification, we realized $395.5 million of cancellation of debt income (“CODI”). We made an election under Code Section 108(i) to defer this CODI from taxable income, pursuant to which we are also required to defer certain original issue discount (“OID”) deductions as they accrue. As of December 31, 2012, we had already deferred approximately $110.4 million of OID deductions and, on the relevant remaining debt instruments, we have $34.7 million of OID deductions that have yet to be accrued. Starting in 2014 we will be required to include the deferred CODI into taxable income ratably over a five-year period ending in 2018. During this same period we will also be permitted to benefit from our deferred OID deductions. Because we have more CODI than the aggregate of our deferred and unaccrued OID on the relevant remaining debt instruments, we will have a future cash tax liability associated with our significant deferred CODI. We have reflected the associated cash tax liability in our deferred taxes for financial accounting purposes.

All of our deferred CODI will be accelerated into current taxable income if, prior to 2018, we engage in a so-called “impairment transaction” and the gross value of our assets immediately afterward is less than 110% of the sum of our total liabilities and the tax on the net amount of our deferred CODI and OID (the “110% test”) as determined under the applicable Treasury Regulations. An “impairment transaction” is any transaction that impairs our ability to pay the tax on our deferred CODI, and includes dividends or distributions with respect to our equity and charitable contributions, in each case in a manner that is not consistent with our historical practice within the meaning of the applicable Treasury Regulations.

 

25

---

Table of Contents

Prior to 2018, our willingness to pay dividends or make distributions with respect to our equity could be adversely affected if, at the time, we do not meet the 110% test and, as a result, the payment of a dividend or the making of a distribution would accelerate the tax payable with respect to our deferred CODI. We currently believe that, based on our interpretation of applicable Treasury Regulations, the gross value of our assets will exceed 110% of the sum of our total liabilities and the tax on the net amount of our deferred CODI and OID upon the completion of this offering. However, we cannot assure you that this will continue to be true in the future.

The applicable Treasury Regulations relating to the 110% test expire in August 2013. We cannot be certain at this time whether the U.S. Internal Revenue Service (the “IRS”) will extend or make permanent the current regulations, allow such regulations to expire or adopt different regulations. If the IRS adopts different regulations, such regulations may adversely affect our willingness to pay dividends or make distributions with respect to our equity if they would result in the acceleration of the tax payable with respect to our deferred CODI.

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 March 31, 2013, on a pro forma basis after giving effect to the 2013 Term Loan Refinancing, this offering and the application of the net proceeds therefrom as described in “Use of proceeds,” we had $3.3 billion of total long-term debt outstanding and $252.9 million of obligations outstanding under our inventory financing agreements, and the ability to borrow an additional $649.4 million under the ABL 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 the Senior Credit Facilities and the 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;

 

•

limiting our flexibility in planning for, or reacting to, changes in the industry in which we operate;

 

•

placing us at a competitive disadvantage compared to any of our less leveraged competitors;

 

•

increasing our vulnerability to both general and industry-specific adverse economic conditions; and

 

•

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.

 

26

---

Table of Contents

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 in 2013 and subsequent years 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.”

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional debt or equity capital, restructure or refinance our indebtedness, or revise or delay our strategic plan. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or satisfy our capital requirements, or that these actions would be permitted under the terms of our existing or future debt agreements, including the Senior Credit Facilities or the indentures respectively governing the Senior Subordinated Notes, the Senior Secured Notes and the senior notes due 2019 (the “Senior Notes”) (such indentures collectively referred to herein as the “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. The Senior Credit Facilities and the Indentures 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. See “Description of certain indebtedness.” Furthermore, the Sponsors have no obligation to provide us with debt or equity financing.

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 the Senior Credit Facilities could foreclose against the assets securing the borrowings from them and the lenders under the Term Loan 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 the Senior Credit Facilities and the Indentures do not fully prohibit us or our subsidiaries from doing so. To the extent that we incur additional indebtedness or such other obligations, the risks associated with our substantial indebtedness described above, including our possible inability to service our debt, will increase. As of March 31, 2013, we had approximately $649.4 million available for additional borrowing under the ABL Facility after taking into account borrowing base limitations (net of $1.7 million of issued and undrawn letters of credit and $248.9 million of reserves related to our floorplan sub-facility). See “Description of certain indebtedness.”

 

27

---

Table of Contents

Restrictive covenants under the Senior Credit Facilities and the Indentures may adversely affect our operations and liquidity.

The Senior Credit Facilities and the 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;

 

•

create liens;

 

•

merge or consolidate with other companies or transfer all or substantially all of our assets;

 

•

transfer or sell assets, including capital stock of subsidiaries; and

 

•

prepay, repurchase or redeem debt.

As a result of these covenants, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities or finance future operations or capital needs. A breach of any of these covenants or any of the other restrictive covenants would result in a default under the Senior Credit Facilities. Upon the occurrence of an event of default under the 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;

 

•

could require us to apply all of our available cash to repay these borrowings; or

 

•

could prevent us from making payments on the Senior Subordinated Notes;

any of which could result in an event of default under the Indentures.

If we were unable to repay those amounts, the lenders under the 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 the Senior Credit Facilities and the Senior Secured Notes. If the lenders under the Senior Credit Facilities or the holders of the Senior Secured Notes accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay the 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. See “Description of certain indebtedness.”

 

28

---

Table of Contents

In addition, under the ABL Facility, we are permitted to borrow an aggregate amount of up to $900 million; however, our ability to borrow under the ABL Facility 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) 70% 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 March 31, 2013 was $1,009.7 million.

Our ability to borrow under the ABL Facility is also limited by a minimum liquidity condition, which provides that, if excess cash availability is less than the lesser of (i) $90 million or (ii) the greater of (A) 10% of the borrowing base or (B) $60 million, the lenders are not required to lend any additional amounts under the ABL Facility unless the consolidated fixed charge coverage ratio (as defined in the credit agreement for the ABL Facility) is at least 1.0 to 1.0. Moreover, the ABL Facility 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.

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 the Senior Credit Facilities, are at variable rates of interest and expose us to interest rate risk. As of March 31, 2013, on a pro forma basis after giving effect to the 2013 Term Loan Refinancing, we had $1,350.0 million 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 the Term Loan Facility to reduce interest rate volatility, we cannot assure you we will be able to do so in the future on acceptable terms or that such caps or the caps we have in place now will be effective.

Risks related to this offering and ownership of our common stock

An active trading market for our common stock may not develop.

Since 2007 and prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations among us, the selling stockholders and the underwriters, and market conditions, and may not be indicative of the market price of our common stock after this offering. If you purchase shares of our common stock, you may not be able to resell those shares at or above the initial public offering price. We cannot predict the extent to which investor interest in us will lead to the development of an active trading market for our common stock or how liquid that market might become. An active public market for our common stock may not develop or be sustained after this offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you, or at all.

 

29

---

Table of Contents

Our common stock price may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

After this offering, the market price for our common stock is likely to be volatile, in part because our shares have not been traded publicly. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, many of which we cannot control, including those described under “—Risks related to our business” and “—Risks related to our indebtedness” 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 initiate or 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, including the Sponsors;

 

•

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, stockholders have instituted securities class action litigation following 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.

The Sponsors will have the ability to control significant corporate activities after the completion of this offering and their interests may not align with yours.

After the consummation of this offering, the Sponsors will beneficially own approximately 71.8% of our common stock, assuming the underwriters do not exercise their option to purchase additional shares. If the underwriters exercise in full their option to purchase additional shares, the Sponsors will beneficially own approximately 69.4% of our common stock. As a result of their ownership, the Sponsors, so long as they hold a majority of our outstanding common stock, will have the ability to control the outcome of matters submitted to a vote of stockholders and, through our board of directors, the ability to control decisionmaking with respect to our business direction and policies. Matters over which the Sponsors will, directly or indirectly, exercise control following this offering include:

 

•

the election of our board of directors and the appointment and removal of our officers;

 

•

mergers and other business combination transactions, including proposed transactions that would result in our stockholders receiving a premium price for their shares;

 

•

other acquisitions or dispositions of businesses or assets;

 

30

---

Table of Contents

•

incurrence of indebtedness and the issuance of equity securities;

 

•

repurchase of stock and payment of dividends; and

 

•

the issuance of shares to management under our equity incentive plans.

Even if the Sponsors’ ownership of our shares falls below a majority, they may continue to be able to strongly influence or effectively control our decisions. Under our amended and restated certificate of incorporation, the Sponsors and their affiliates do not have any obligation to present to us, and the Sponsors may separately pursue corporate opportunities of which they become aware, even if those opportunities are ones that we would have pursued if granted the opportunity. See “Description of capital stock—Corporate opportunity.”

Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.

Sales of substantial amounts of our common stock in the public market after this offering, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares. Upon completion of this offering, we will have 168,469,728 shares of common stock outstanding. The shares of common stock offered in this offering will be freely tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), except that any shares of our common stock that may be acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, may be sold only in compliance with the limitations described in “Shares eligible for future sale.”

The remaining 140,569,728 shares, representing 83.4% of our total outstanding shares of common stock following this offering, will be “restricted securities” within the meaning of Rule 144 and subject to certain restrictions on resale following the consummation of this offering. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144 or Rule 701, as described in “Shares eligible for future sale.”

We, each of our executive officers and directors, the Sponsors and certain other security holders have agreed, subject to certain exceptions, with the underwriters not to dispose of or hedge any of the shares of common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date that is 180 days after the date of this prospectus (subject to extension in certain circumstances). J.P. Morgan Securities LLC may, in its sole discretion, release any of these shares from these restrictions at any time without notice. See “Underwriting.”

After this offering, subject to any lock-up restrictions described above with respect to certain holders, holders of approximately 132,000,000 shares of our common stock will have the right to require us to register the sales of their shares under the Securities Act, under the terms of an agreement between us and the holders of these securities. See “Shares eligible for future sale—Registration rights” for a more detailed description of these rights.

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.

 

31

---

Table of Contents

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 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, except that any action required or permitted to be taken by our stockholders may be effected by written consent until such time as the Sponsors cease to beneficially own 50% or more of our common stock;

 

•

provide that special meetings of the stockholders can only be called by (i) the chairman or vice chairman of our board of directors, (ii) our chief executive officer, (iii) a majority of our board of directors through a special resolution or (iv) the holders of at least 10% of our common stock until such time as the Sponsors cease to beneficially own 50% or more of our common stock, effected by consent in writing by such stockholders;

 

•

establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and

 

•

provide that our board of directors is expressly authorized to make, alter or repeal our amended and restated bylaws.

Our amended and restated certificate of incorporation also contains a provision that provides us with protections similar to Section 203 of the Delaware General Corporate 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 you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire. For a further discussion of these and other such anti-takeover provisions, see “Description of capital stock—Anti-takeover effects of our amended and restated certificate of incorporation and amended and restated bylaws.”

If you purchase shares of common stock sold in this offering, you will incur immediate and substantial dilution.

If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the amount of $39.47 per share because the assumed initial public offering price of $21.50, which is the midpoint of the price range listed on the cover of this prospectus, is substantially higher than the net tangible book deficit per share of our outstanding common stock. Dilution results from the fact that the initial public offering price per share of the common stock is substantially in excess

 

32

---

Table of Contents

of the book deficit per share of common stock attributable to our existing stockholder for the currently outstanding shares of common stock. In addition, you may also experience additional dilution upon future equity issuances or the exercise of stock options to purchase common stock granted to our coworkers and directors under our equity incentive plans. See “Dilution.”

Conflicts of interest may arise because some of our directors are principals of our largest stockholders.

Paul Finnegan and Robin Selati, who are principals of Madison Dearborn, and Glenn Creamer and Michael Dominguez, who are managing directors of Providence Equity, serve on our board of directors. The Sponsors will continue to hold a majority of our outstanding common stock after giving effect to this offering. The Sponsors and the entities respectively controlled by them may hold equity interests in entities that directly or indirectly compete with us, and companies in which they currently invest may begin competing with us. As a result of these relationships, when conflicts between the interests of Madison Dearborn or Providence Equity, on the one hand, and of other stockholders, on the other hand, arise, these directors may not be disinterested. Although our directors and officers have a duty of loyalty to us under Delaware law and our amended and restated certificate of incorporation, transactions that we enter into in which a director or officer has a conflict of interest are generally permissible so long as (1) the material facts relating to the director’s or officer’s relationship or interest as to the transaction are disclosed to our board of directors and a majority of our disinterested directors approves the transaction, (2) the material facts relating to the director’s or officer’s relationship or interest as to the transaction are disclosed to our stockholders and a majority of our disinterested stockholders approve the transaction or (3) the transaction is otherwise fair to us. Our amended and restated certificate of incorporation also provides that any principal, officer, member, manager and/or employee of a Sponsor or any entity that controls, is controlled by or under common control with a Sponsor (other than us or any company that is controlled by us) or a Sponsor-managed investment fund will not be required to offer any transaction opportunity of which they become aware to us and could take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is offered to them solely in their capacities as our directors.

We cannot assure you that we will pay dividends on our common stock, and our indebtedness and certain tax considerations could limit our ability to pay dividends on our common stock. If we do not 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.

After the completion of this offering, we expect to pay quarterly cash dividends on our common stock, commencing in the fourth quarter of 2013. Any determination to pay dividends in the future 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, including those under the Senior Credit Facilities and the Indentures, any potential indebtedness we may incur, restrictions imposed by applicable law, tax considerations and other factors our board of directors deems relevant. There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence paying dividends. Accordingly, if you purchase shares in this offering and we do not pay dividends in the future, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur. See “—Risks related to our business—We have significant deferred cancellation of debt income” for a discussion of certain tax considerations that could impact our willingness to pay dividends in the future.

 

33

---

Table of Contents

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.

 

34

---

Table of Contents

Forward-looking statements

This prospectus contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact included in this prospectus 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. 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,” “will” and similar terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. These statements are contained in many sections of this prospectus, including those entitled “Prospectus summary,” “Business” and “Management’s discussion and analysis of financial condition and results of operations.” 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 sections entitled “Risk factors” and “Management’s discussion and analysis of financial condition and results of operations” in this prospectus. 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 this prospectus under the heading “Risk factors,” as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus 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 are important to you. 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 prospectus 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.

 

35

---

Table of Contents

Market, ranking and other industry data

This prospectus includes industry data, forecasts and information that we have prepared based, in part, upon data, forecasts and information obtained from independent industry publications and surveys and other information available to us. Some data is also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position are based on market data currently available to us. While we are not aware of any misstatements regarding the industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk factors” in this prospectus. Similarly, we believe our internal research is reliable, even though such research has not been verified by any independent sources.

 

36

---

Table of Contents

Use of proceeds

Based upon an assumed initial public offering price of $21.50 per share, the midpoint of the price range set forth on the cover of this prospectus, we estimate we will receive net proceeds from this offering of approximately $467.4 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.

We intend to use (i) $443.0 million of the net proceeds received by us from this offering to redeem $175.0 million aggregate principal amount of Senior Secured Notes and $239.0 million aggregate principal amount of Senior Subordinated Notes and redemption premia of $14.0 million and $15.0 million, respectively and (ii) $17.9 million of cash on hand or borrowings under the ABL Facility to pay accrued and unpaid interest as outlined below.

On May 31, 2013, we issued a conditional notice of redemption to the holders of the Senior Secured Notes notifying such holders that, subject to the completion of this offering, we will use a portion of the net proceeds received by us from this offering to exercise the right under the “equity clawback” provision in the indenture governing the Senior Secured Notes to redeem $175.0 million aggregate principal amount of Senior Secured Notes at a redemption price of 108.000% plus accrued and unpaid interest thereon to the date of redemption. We will use cash on hand or borrowings under the ABL Facility to pay such accrued and unpaid interest. As of the date of this prospectus, $500.0 million aggregate principal amount of Senior Secured Notes is outstanding. The Senior Secured Notes mature on December 15, 2018 and have an interest rate of 8.00% per annum. See “Description of certain indebtedness.”

We intend to use a portion of the net proceeds received by us from this offering to redeem $239.0 million aggregate principal amount of Senior Subordinated Notes at a redemption price of 106.268% plus accrued and unpaid interest thereon to the date of redemption, using cash on hand or borrowings under the ABL Facility to pay such accrued and unpaid interest. After and subject to the completion of this offering, we intend to issue an irrevocable notice of redemption to the holders of the Senior Subordinated Notes notifying such holders that we will redeem $417.0 million aggregate principal amount of Senior Subordinated Notes, $239.0 million of which will be redeemed using net proceeds from this offering and $178.0 million of which will be redeemed using the Incremental Borrowings. In each case, we will use cash on hand or borrowings under the ABL facility to pay accrued and unpaid interest. As of the date of this prospectus, $571.5 million aggregate principal amount of Senior Subordinated Notes is outstanding. The Senior Subordinated Notes mature on October 12, 2017 and have an interest rate of 12.535% per annum. See “Description of certain indebtedness.”

In connection with this offering, we will terminate the Management Services Agreement. We will use $24.4 million of the net proceeds received by us from this offering to pay a one-time termination fee to affiliates of the Sponsors in connection with the termination of the Management Services Agreement. See “Certain transactions—Management Services Agreement.”

Pending application of the net proceeds as described above, we intend to invest the net proceeds in short-term, investment-grade, interest-bearing securities.

A $1.00 increase or decrease in the assumed initial public offering price of $21.50 per share would increase or decrease the net proceeds we receive from this offering by approximately $22.0 million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. An increase or decrease by 1.0 million shares in the number of shares offered by us would increase or decrease the net proceeds to us by $20.3 million assuming the assumed initial public offering price of $21.50 per share, the midpoint of the price range set forth on the cover of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

37

---

Table of Contents

Dividend policy

After the completion of this offering and assuming an initial public offering price of $21.50 per share, the midpoint of the price range set forth on the cover of this prospectus, we expect to pay a quarterly cash dividend on our common stock of $0.05375 per share, or $0.215 per annum, commencing in the fourth quarter of 2013. The payment of such dividend in the fourth quarter of 2013 and 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. See “Risk factors—Risks related to our business—We have significant deferred cancellation of debt income” for a discussion of certain tax considerations that could impact our willingness to pay dividends in the future. 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. See “Description of certain indebtedness” for further information regarding the restrictions on our subsidiaries’ ability to pay dividends to us and make other distributions to us.

 

38

---

Table of Contents

Capitalization

The following table sets forth our consolidated cash and cash equivalents and capitalization as of March 31, 2013:

 

•

on an actual basis reflecting the reclassification of our Class A common stock and our Class B common stock into a single class of common stock and the subsequent 143.0299613-for-1 stock split of our common stock, both of which were effected on June 6, 2013; and

 

•

on a pro forma as adjusted basis to give effect to (1) the 2013 Term Loan Refinancing, (2) the issuance of 23,250,000 shares of common stock in this offering, (3) our receipt of the estimated net proceeds from the sale of shares of common stock offered by us in this offering at an assumed initial public offering price of $21.50 per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds as described in “Use of proceeds,” (4) the $16.8 million loss on extinguishment for the redemption premium and write-off of unamortized deferred financing costs that will be recognized in connection with the redemption of the Senior Secured Notes using a portion of the proceeds from this offering, (5) the $18.4 million loss on extinguishment for the redemption premium and write-off of unamortized deferred financing costs that will be recognized in connection with the redemption of the Senior Subordinated Notes using a portion of the proceeds from this offering and (6) the $38.6 million of compensation expense related to the acceleration of the expense recognition for certain equity incentive awards that will be recognized in connection with the completion of this offering.

The following table does not reflect the Incremental Borrowings or their intended use, which is described in “Prospectus summary—Recent developments.”

 

39

---

Table of Contents

This information should be read in conjunction with “Use of proceeds,” “Selected consolidated financial and operating data,” “Unaudited pro forma condensed consolidated financial data,” “Management’s discussion and analysis of financial condition and results of operations” and the historical consolidated financial statements and related notes appearing elsewhere in this prospectus.

 

March 31, 2013 (dollars in millions, except share-related amounts)		Actual				Pro forma as adjusted(1)
Cash and cash equivalents		$	147.1			$	169.1
Total debt (including current portion):
ABL Facility due 2016		$	—				—
Term Loan Facility due 2014			408.7				—	(2)
Term Loan Facility due 2017			890.8				—	(2)
Term Loan Facility due 2020			—				1,350.0	(2)
Senior Secured Notes due 2018			500.0				325.0
Senior Notes due 2019			1,305.0	(3)			1,305.0
Senior Subordinated Notes due 2017			571.5				332.5
Total debt (including current portion)			3,676.0	(4)			3,312.5	(4)
Shareholders’ equity:
Preferred stock, par value $0.01 per share; no shares authorized or outstanding on an actual basis; 100,000,000 shares authorized and no shares outstanding on a pro forma as adjusted basis			—				—
Common stock, par value $0.01 per share; 286,059,923 shares authorized and 145,128,068 shares outstanding on an actual basis as adjusted; 1,000,000,000 shares authorized and 168,378,068 shares outstanding on a pro forma as adjusted basis(5)			1.4				1.7
Additional paid-in capital			2,209.2				2,714.9
Accumulated deficit			(2,044.8	)			(2,108.9	)
Accumulated other comprehensive loss			(2.0	)			(2.0	)
Total shareholders’ equity			163.8				605.7
Total capitalization		$	3,839.8			$	3,918.2

(1)

A $1.00 increase or decrease in the assumed initial public offering price of $21.50 per share, the midpoint of the price range set forth on the cover of this prospectus, would result in an approximately $22.0 million increase or decrease in each of cash and cash equivalents, additional paid-in capital, total shareholders’ equity and total capitalization, assuming that the number of shares offered by us set forth on the cover of this prospectus remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Each 1.0 million increase or decrease in the number of shares offered by us would increase or decrease each of cash and cash equivalents, additional paid-in capital, total shareholders’ equity and total capitalization by approximately $20.3 million, assuming the initial public offering price of $21.50 per share, the midpoint of the price range set forth on the cover of this prospectus, remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering.

 

(2)

On April 29, 2013, CDW LLC entered into a new seven-year $1,350.0 million Term Loan Facility. The Term Loan Facility replaces the Prior Term Loan Facility. The amounts disclosed exclude the unamortized discount of $3.4 million.

 

(3)

Excludes the unamortized premium of $4.8 million.

 

(4)

This amount does not include any of the $252.9 million in obligations outstanding under our inventory financing agreements as of March 31, 2013. We include these obligations in current liabilities and not in total debt because we have not in the past

incurred, and in the future do not expect to incur, any interest expense under these agreements. This amount is classified separately as accounts payable–inventory financing on our consolidated balance sheets. For more information, see “Description of certain indebtedness.”

 

(5)

The number of shares of our common stock to be outstanding immediately after the completion of this offering is based on 145,128,068 shares of common stock outstanding on March 31, 2013, plus 23,250,000 shares of common stock to be sold by us in this offering.

 

40

---

Table of Contents

Dilution

If you purchase our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book deficit per share of our common stock after this offering. Dilution results from the fact that the initial public offering price per share of our common stock is substantially in excess of the book deficit per share of common stock attributable to our existing stockholders for the currently outstanding shares of common stock.

Our net tangible book deficit as of March 31, 2013 was $(3,493.1) million, or $(24.07) per share of common stock. Net tangible book deficit per share represents the amount of our total tangible assets (which for the purpose of this calculation represents total assets excluding goodwill, customer relationships, trade names and deferred financing costs) less total liabilities, divided by the number of shares of common stock outstanding.

After giving effect to the sale of the 23,250,000 shares of common stock offered by us in this offering at an assumed initial public offering price of $21.50 per share, the midpoint of the price range set forth on the cover of this prospectus, less estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book deficit as of March 31, 2013 would have been approximately $(3,025.7) million, or $(17.97) per share of common stock. This represents an immediate increase in net tangible book deficit to our existing stockholders of $6.10 per share and an immediate dilution to purchasers in this offering of $39.47 per share. The following table illustrates this pro forma per share dilution in net tangible book deficit to purchasers.

 

Assumed initial public offering price per share		$	21.50
Net tangible book deficit per share as of March 31, 2013			(24.07	)
Increase per share attributable to purchasers in this offering			6.10
Net tangible book deficit per share after giving effect to this offering			(17.97	)
Dilution in net tangible book deficit per share to purchasers in this offering		$	39.47

A $1.00 increase or decrease in the assumed initial public offering price of $21.50 per share, the midpoint of the price range set forth on the cover of this prospectus, would increase or decrease net tangible book deficit by $22.0 million, or $0.13 per share, and would increase or decrease the dilution per share to purchasers in this offering by $0.87, based on the assumptions set forth above.

 

41

---

Table of Contents

The following table summarizes as of March 31, 2013, on an as adjusted basis, the number of shares of common stock purchased, the total consideration paid and the average price per share paid by purchasers in this offering, based upon an assumed initial public offering price of $21.50 per share, the midpoint of the initial public offering price range on the cover page of this prospectus, and before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

		Shares purchased								Total consideration								Average price per share
		Number				Percent				Amount				Percent
Existing stockholders			145,128,068				86.2	%		$	2,146,633,582				81.1	%		$	14.79
New investors			23,250,000				13.8	%			499,875,000				18.9	%			21.50
Total			168,378,068				100	%		$	2,646,508,582				100	%		$	15.72

Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters’ option to purchase additional shares and no exercise of any outstanding options. The sale of 4,650,000 shares of common stock to be sold by the selling stockholders in this offering will reduce the number of shares held by existing stockholders to 140,478,068 shares, or 83.4% of the total number of shares of our common stock outstanding after this offering, and will increase the total number of shares of our common stock held by new investors participating in this offering to 27,900,000 shares, or 16.6% of the total number of shares of our common stock outstanding after this offering. In addition, if the underwriters’ option to purchase additional shares is exercised in full, our existing stockholders would own approximately 80.9% and purchasers in this offering would own approximately 19.1% of the total number of shares of our common stock outstanding after this offering. If the underwriters exercise their option to purchase additional shares in full, the net tangible book deficit per share after this offering would be $(17.54) per share, and the dilution in the net tangible book deficit per share to purchasers in this offering would be $39.04 per share.

The tables and calculations above are based on 168,378,068 shares of common stock outstanding as of March 31, 2013 after giving effect to the sale of 23,250,000 shares of common stock offered by us in this offering and assume no exercise by the underwriters of their option to purchase up to an additional 4,185,000 shares from the selling stockholders. This number excludes an aggregate of 11,700,000 shares of common stock reserved for issuance under our equity incentive plan that we have adopted in connection with this offering, including the shares of common stock underlying the stock options to be issued under such plan to a limited number of holders of B Units of CDW Holdings with a participation threshold in excess of $0.01 in connection with the distribution of shares of common stock held by CDW Holdings, as described in “Certain transactions—Management, board member and sponsor equity arrangements—Unitholders agreement,” and restricted stock units to be granted to certain coworkers in connection with this offering.

 

42

---

Table of Contents

Unaudited pro forma condensed consolidated financial data

The following tables set forth our unaudited pro forma and historical condensed consolidated balance sheet at March 31, 2013 and consolidated statements of operations for the three months ended March 31, 2013 and the year ended December 31, 2012.

The unaudited pro forma condensed consolidated balance sheet at March 31, 2013 gives effect to the following transactions as if each had occurred on March 31, 2013: (i) the 2013 Term Loan Refinancing, and (ii) this offering and the use of proceeds therefrom as set forth under “Use of proceeds.” The unaudited pro forma condensed consolidated balance sheet also includes adjustments for (a) the $16.8 million loss on extinguishment for the redemption premium and write-off of unamortized deferred financing costs that will be recognized in connection with the redemption of the Senior Secured Notes using a portion of the proceeds from this offering, (b) the $18.4 million loss on extinguishment for the redemption premium and write-off of unamortized deferred financing costs that will be recognized in connection with the redemption of the Senior Subordinated Notes using a portion of the proceeds from this offering, and (c) the $38.6 million of compensation expense related to the acceleration of the expense recognition for certain equity incentive awards in connection with the completion of this offering. The effects of the 2012 Debt Transactions and the 2013 Redemption (as defined below) are already reflected on the historical balance sheet at March 31, 2013.

The unaudited pro forma consolidated statements of operations for the three months ended March 31, 2013 and the year ended December 31, 2012 give effect to the following transactions as if each had occurred on January 1, 2012: (i) the February 17, 2012 issuance of $130.0 million aggregate principal amount of Senior Notes (the “2012 Senior Notes Issuance”), (ii) the February 17, 2012 and March 5, 2012 repurchases and March 19, 2012 redemption of an aggregate of $129.0 million principal amount of senior exchange notes due 2015 (the “Senior Notes due 2015”) (the “2012 Senior Notes Repurchases and Redemption”), (iii) the December 21, 2012 redemption of $100.0 million aggregate principal amount of Senior Subordinated Notes (the “2012 Senior Subordinated Notes Redemption” and, together with the 2012 Senior Notes Issuance and the 2012 Senior Notes Repurchases and Redemption, the “2012 Debt Transactions”), (iv) the March 8, 2013 redemption of $50.0 million aggregate principal amount of Senior Subordinated Notes (the “2013 Redemption”), (v) the 2013 Term Loan Refinancing (together with the 2013 Redemption, the “2013 Debt Transactions” and, collectively with the 2012 Debt Transactions, the “2012 and 2013 Debt Transactions”), (vi) the redemption of $175.0 million aggregate principal amount of Senior Secured Notes at a redemption price of 108.000%, (vii) the redemption of $239.0 million aggregate principal amount of Senior Subordinated Notes at a redemption price of 106.268%, (viii) the elimination of the annual $5.0 million management fee paid to the Sponsors that the parties will terminate in connection with the completion of this offering, and (ix) this offering and use of proceeds therefrom as set forth under “Use of proceeds.”

The unaudited pro forma condensed consolidated balance sheet at March 31, 2013 and the unaudited pro forma consolidated statements of operations for the three months ended March 31, 2013 and the year ended December 31, 2012 do not give effect to the Incremental Borrowings or their intended use, as described in “Prospectus summary—Recent developments.”

We are party to the Management Services Agreement with affiliates of the Sponsors pursuant to which they have agreed to provide us with management and consulting services and financial and other advisory services. Pursuant to such agreement, the Sponsors earn an annual advisory

 

43

---

Table of Contents

fee of $5.0 million and reimbursement of out-of-pocket expenses incurred in connection with the provision of such services. In connection with this offering, the parties will terminate the Management Services Agreement, and in connection with such termination we will pay affiliates of the Sponsors a termination fee of $24.4 million.

In connection with this offering, we expect to recognize certain nonrecurring charges which have not been adjusted in the unaudited pro forma consolidated statement of operations, as such charges will not have an ongoing impact on our financial results. These charges include a $24.4 million termination fee related to the Management Services Agreement, compensation expense of $38.6 million related to the acceleration of the expense recognition for certain equity incentive awards upon the completion of this offering, a loss on extinguishment of $16.8 million related to the Senior Secured Notes redemption using a portion of the proceeds from this offering, and a loss on extinguishment of $18.4 million related to the Senior Subordinated Notes redemption using a portion of the proceeds from this offering.

We derived the unaudited pro forma condensed consolidated financial data by applying pro forma adjustments to our consolidated financial statements appearing elsewhere in this prospectus. The adjustments give effect to pro forma events that are (1) directly attributable to the 2012 and 2013 Debt Transactions and this offering, (2) factually supportable and (3) with respect to the unaudited pro forma consolidated statements of operations, expected to have a continuing impact on our financial results. The unaudited pro forma adjustments are based on available information and certain assumptions that we believe are reasonable. These assumptions are subject to change and the effect of any such change could be material. The adjustments necessary to fairly present these unaudited pro forma condensed consolidated financial data are described in the accompanying notes. The unaudited pro forma condensed consolidated financial data should be read in conjunction with the sections of this prospectus entitled “Use of proceeds,” “Capitalization,” “Management’s discussion and analysis of financial condition and results of operations,” and our historical consolidated financial statements and related notes appearing elsewhere in this prospectus. The unaudited pro forma condensed consolidated financial data are for informational purposes only and are not intended to represent or to be indicative of the consolidated results of operations or financial position that we would have reported had the transactions and this offering been completed on the dates indicated and should not be taken as representative of our future consolidated results of operations or financial position.

 

44

---

Table of Contents

CDW Corporation and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Balance Sheet

 

 

March 31, 2013 (in millions)		Historical as reported March 31, 2013				Adjustments related to the 2013 Term Loan Refinancing				Pro forma for the 2013 Term Loan Refinancing				Adjustments related to this offering				Pro forma March 31, 2013
Assets
Current assets:
Cash and cash equivalents		$	147.1			$	39.9(1)			$	187.0			$	(17.9	)(8)		$	169.1
Accounts receivable, net			1,264.5								1,264.5								1,264.5
Merchandise inventory			358.4								358.4								358.4
Miscellaneous receivables			151.5								151.5								151.5
Deferred income taxes			13.1								13.1								13.1
Prepaid expenses and other			51.5								51.5								51.5
Total current assets			1,986.1				39.9				2,026.0				(17.9	)			2,008.1
Property and equipment, net			134.0								134.0								134.0
Goodwill			2,208.5								2,208.5								2,208.5
Other intangible assets, net			1,443.6								1,443.6								1,443.6
Deferred financing costs, net			49.3				(10.6)(5)				43.4				(6.3	)(9)			37.1
							4.7(7)
Other assets			1.2								1.2								1.2
Total assets		$	5,822.7				$34.0			$	5,856.7			$	(24.2	)		$	5,832.5

 

45

---

Table of Contents

		Historical as reported March 31, 2013				Adjustments related to the 2013 Term Loan Refinancing				Pro forma for the 2013 Term Loan Refinancing				Adjustments related to this offering				Pro forma March 31, 2013
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable—trade		$	642.1							$	642.1							$	642.1
Accounts payable—inventory financing			252.9								252.9								252.9
Deferred revenue			66.0								66.0								66.0
Accrued expenses			351.9			$	(4.1)(6)				345.3			$	(56.3	)(10)			288.2
							(2.5)(4)								(0.8	)(12)
Total current liabilities			1,312.9				(6.6)				1,306.3				(57.1	)			1,249.2
Long-term liabilities
Debt			3,680.8				50.5(3)				3,727.9				(239.0	)(11)			3,313.9
							(3.4)(2)								(175.0	)(14)
Deferred income taxes			609.0								609.0				1.4	(13)			610.4
Accrued interest			6.9								6.9				(2.9	)(12)			4.0
Other liabilities			49.3								49.3								49.3
Total long-term liabilities			4,346.0				47.1				4,393.1				(415.5	)			3,977.6
Commitments and contingencies
Shareholders’ equity:
Common Stock			1.4								1.4				0.3	(19)			1.7
Paid-in capital			2,209.2								2,209.2				506.0	(15)			2,714.9
															(0.3	)(19)
Accumulated deficit			(2,044.8	)			(10.6)(5)				(2,051.3	)			(19.2	)(16)			(2,108.9	)
							4.1(6)								(14.9	)(17)
															(23.5	)(18)
Accumulated other comprehensive loss			(2.0	)							(2.0	)							(2.0	)
Total shareholders’ equity			163.8				(6.5)				157.3				448.4				605.7
Total liabilities and shareholders’ equity		$	5,822.7			$	34.0			$	5,856.7			$	(24.2	)		$	5,832.5

 

46

---

Table of Contents

Notes to the unaudited pro forma condensed consolidated balance sheet

 

1)

Reflects the adjustments to cash and cash equivalents for the following (in millions):

 

Proceeds from the Term Loan Facility (see note 3)		$	1,350.0
Repayment of the Prior Term Loan Facility—non-extended loans (see note 3)			(408.7	)
Repayment of the Prior Term Loan Facility—extended loans (see note 3)			(890.8	)
Discount on the Term Loan Facility (see note 2)			(3.4	)
Accrued and unpaid interest on the Prior Term Loan Facility (see note 4)			(2.5	)
Transaction fees and expenses related to the Term Loan Facility (see note 7)			(4.7	)
Net pro forma adjustment to cash and cash equivalents		$	39.9

 

For more information about the 2013 Term Loan Refinancing, please refer to Note 20 to the historical audited consolidated financial statements appearing elsewhere in this prospectus.

 

2)

Reflects the adjustment for the discount on the Term Loan Facility, calculated using the aggregate principal amount of $1,350.0 million and the discount rate of 0.25%.

 

3)

Reflects the adjustment to debt for the proceeds from the Term Loan Facility of $1,350.0 million less repayments totaling $1,299.5 million for the Prior Term Loan Facility (non-extended and extended loans).

 

4)

Reflects the adjustment for accrued and unpaid interest through March 31, 2013 related to the Prior Term Loan Facility.

 

5)

Reflects the write-off of the unamortized deferred financing costs related to the Prior Term Loan Facility.

 

6)

Reflects the adjustment to income taxes payable related to the tax effect of the write-off of the unamortized deferred financing costs related to the Prior Term Loan Facility, calculated using an estimated combined federal and state statutory tax rate of 39%.

 

7)

Reflects the adjustment to deferred financing costs, net to capitalize transaction fees and expenses related to the Term Loan Facility.

 

8)

Reflects the adjustments to cash and cash equivalents for the following (in millions):

 

Net proceeds from this offering (see note 15)		$	467.4
Fee to terminate the Management Services Agreement (see note 17)			(24.4	)
Redemption of the Senior Secured Notes (see note 14)			(189.0	)
Redemption of the Senior Subordinated Notes (see note 11)			(254.0	)
Accrued and unpaid interest related to the Senior Secured Notes redemption (see note 14)			(4.1	)
Accrued and unpaid interest related to the Senior Subordinated Notes redemption (see note 11)			(13.8	)
Net pro forma adjustment to cash and cash equivalents		$	(17.9	)

 

9)

Reflects the write-off of a portion of the unamortized deferred financing costs related to the redemption of the Senior Secured Notes and Senior Subordinated Notes with a portion of the proceeds from this offering.

 

10)

Reflects the adjustments to accrued expenses for the following (in millions):

 

Tax effect of the Management Services Agreement termination fee (see note 17)			$(9.5	)(a)
Tax effect of the acceleration of expense recognition for certain equity incentive awards (see note 18)			(15.1	)(a)
Tax effect of the write-off of the unamortized deferred financing costs (see note 9)			(2.5	)(a)
Tax effect of the redemption premiums (see notes 11 and 14)			(11.3	)(a)
Accrued and unpaid interest related to the Senior Secured Notes redemption (see note 14)			(4.1	)
Accrued and unpaid interest related to the Senior Subordinated Notes redemption (see note 11)			(13.8	)
Net pro forma adjustment to accrued expenses		$	(56.3	)

 

(a)

Adjustment to income taxes payable, calculated using an estimated combined federal and state statutory tax rate of 39%.

 

47

---

Table of Contents

11)

Reflects the redemption of $239.0 million aggregate principal amount of the Senior Subordinated Notes, $13.8 million of accrued and unpaid interest to the date of redemption and a redemption premium of $15.0 million representing 6.268% of the principal amount redeemed.

 

12)

Reflects the adjustment to interest expense and accrued interest payable for the difference between interest expense previously recognized under the effective interest method and actual interest paid related to the redemption of the Senior Subordinated Notes with a portion of the proceeds from this offering.

 

13)

Reflects the adjustment to deferred income taxes related to the tax effect of the interest expense adjustment discussed in note 12, calculated using an estimated combined federal and state statutory tax rate of 39%.

 

14)

Reflects the redemption of $175.0 million aggregate principal amount of the Senior Secured Notes, $4.1 million of accrued and unpaid interest to the date of redemption and a redemption premium of $14.0 million representing 8.0% of the principal amount redeemed.

 

15)

Reflects the adjustments to paid-in capital for the following (in millions):

 

Net proceeds from this offering (see note 8)		$	467.4	(a)
Acceleration of the expense recognition for certain equity incentive awards (see note 18)			38.6
Net pro forma adjustment to paid-in capital		$	506.0

 

(a)

Reflects the issuance of 23,250,000 shares of common stock in this offering at an assumed public offering price of $21.50 per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses of $32.5 million. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.

 

16)

Reflects the adjustments to accumulated deficit for the following debt-related items (in millions):

 

Redemption premium related to the Senior Secured Notes (see note 14)		$	(14.0	)
Redemption premium related to the redemption of the Senior Subordinated Notes (see note 11)			(15.0	)
Tax effect of the redemption premiums (see note 10)			11.3
Interest expense adjustment related to the redemption of the Senior Subordinated Notes (see note 12)			3.7
Tax effect of the Senior Subordinated Notes interest expense adjustment (see note 13)			(1.4	)
Write-off of the unamortized deferred financing costs related to the redemption of the Senior Secured Notes and Senior Subordinated Notes (see note 9)			(6.3	)
Tax effect of the write-off of the unamortized deferred financing costs (see note 10)			2.5
Net pro forma adjustments to accumulated deficit		$	(19.2	)

 

17)

In connection with this offering, the parties will terminate the Management Services Agreement and pay affiliates of the Sponsors a termination fee of $24.4 million (see note 8). Reflects the adjustment to accumulated deficit for the $24.4 million termination fee, net of the tax effect of $9.5 million (see note 10).

 

18)

Reflects the adjustment to accumulated deficit for the $38.6 million of compensation expense related to the acceleration of the expense recognition for certain equity incentive awards upon completion of this offering, net of the tax effect of $15.1 million (see note 10).

 

Compensation expense related to the acceleration of the expense recognition for certain equity awards is calculated as follows:

 

MPK Plan Units outstanding at March 31, 2013			64,121
MPK Plan Units settled from plan inception through March 31, 2013			2,388
MPK Plan Units subject to historical compensation expense			66,509
Grant date fair value per MPK Plan Unit		$	1,000
Grant date fair value of MPK Plan Units subject to historical compensation expense (in millions)			66.5
Expense recognized from plan inception through March 31, 2013 (in millions)			(27.9	)
Compensation expense related to the acceleration of the expense recognition for certain equity incentive awards (in millions)		$	38.6

19)

Reflects the adjustment to common stock for the par value of $0.01 per share for the 23,250,000 shares issued in this offering.

 

48

---

Table of Contents

CDW Corporation and Subsidiaries

Unaudited Pro Forma Consolidated Statement of Operations

 

 

For the three months ended March 31, 2013 (in millions, except per-share amounts)		Historical as reported three months ended March 31, 2013				Adjustments related to the 2012 and 2013 Debt Transactions				Pro forma for the 2012 and 2013 Debt Transactions				Adjustments related to this offering				Pro forma three months ended March 31, 2013
Net sales		$	2,411.7							$	2,411.7							$	2,411.7
Cost of sales			2,009.7								2,009.7								2,009.7
Gross profit			402.0								402.0								402.0
Selling and administrative expenses			251.5								251.5			$	(1.3	)(4)			250.2
Advertising expense			30.4								30.4								30.4
Income from operations			120.1								120.1				1.3				121.4
Interest expense, net			(72.1	)		$	2.3	(1)			(69.8	)			11.1	(5)			(58.7	)
Net loss on extinguishments of long-term debt			(3.9	)			3.9	(2)			—
Other income, net			0.4								0.4								0.4
Income before income taxes			44.5				6.2				50.7				12.4				63.1
Income tax expense			(16.2	)			(2.4	)(3)			(18.6	)			(4.8	)(6)			(23.4	)
Net income		$	28.3			$	3.8			$	32.1			$	7.6			$	39.7
Net income per common share:
Basic		$	0.19															$	0.24	(7)
Diluted		$	0.19															$	0.24	(7)
Weighted average number of common shares outstanding:
Basic			145.2																164.5	(7)
Diluted			146.1																168.2	(7)

 

49

---

Table of Contents

CDW Corporation and Subsidiaries

Unaudited Pro Forma Consolidated Statement of Operations

 

 

For the year ended December 31, 2012 (in millions, except per-share amounts)		Historical as reported year ended December 31, 2012				Adjustments related to the 2012 and 2013 Debt Transactions				Pro forma for 2012 and 2013 Debt Transactions				Adjustments related to this offering				Pro forma year ended December 31, 2012
Net sales		$	10,128.2							$	10,128.2							$	10,128.2
Cost of sales			8,458.6								8,458.6								8,458.6
Gross profit			1,669.6								1,669.6								1,669.6
Selling and administrative expenses			1,029.5								1,029.5			$	(5.0	)(4)			1,024.5
Advertising expense			129.5								129.5								129.5
Income from operations			510.6								510.6				5.0				515.6
Interest expense, net			(307.4)			$	26.7	(1)			(280.7	)			44.4	(5)			(236.3	)
Net loss on extinguishments of long-term debt			(17.2)				17.2	(2)			—								—
Other income, net			0.1								0.1								0.1
Income before income taxes			186.1				43.9				230.0				49.4				279.4
Income tax expense			(67.1)				(17.1	)(3)			(84.2	)			(19.3	)(6)			(103.5	)
Net income		$	119.0			$	26.8			$	145.8			$	30.1			$	175.9
Net income per common share:
Basic		$	0.82															$	1.07	(7)
Diluted		$	0.82															$	1.05	(7)
Weighted average number of common shares outstanding:
Basic			145.1																164.4	(7)
Diluted			145.8																168.1	(7)

 

50

---

Table of Contents

Notes to the unaudited pro forma consolidated statements of operations

 

1)

Reflects the net adjustment to interest expense for the 2012 and 2013 Debt Transactions, calculated as follows:

 

		Stated interest rate		Assumed interest rate				Pro forma interest expense for the three months ended March 31, 2013 (in millions)				Pro forma interest expense for the year ended December 31, 2012 (in millions)
$1,350.0 million Term Loan Facility, based on average balances of $1,343.3 million and $1,334.8 million at December 31, 2012 and March 31, 2013, respectively (a)		1% LIBOR floor plus 2.5% (rate on transaction date of April 29, 2013)			3.6%	(b)		$	12.0			$	48.4
$1,305.0 million Senior Notes		Fixed at 8.5%			8.5%				27.7				110.9
$571.5 million Senior Subordinated Notes		Fixed at 12.535%			12.2%	(b)			17.4				69.7
Amortization of deferred financing costs									0.6				4.5
Pro forma interest expense related to the 2012 and 2013 Debt Transactions									57.7				233.5
Elimination of historical interest expense related to the 2012 and 2013 Debt Transactions									(60.0	)			(260.2	)
Net pro forma adjustment to interest expense								$	(2.3	)		$	(26.7	)

 

(a)

Reflects the required quarterly principal payments of $3.4 million.

 

(b)

Represents the effective interest rate on the original transaction date.

 

For more information about the 2012 and 2013 Debt Transactions, please refer to Notes 7 and 20 to the historical audited consolidated financial statements appearing elsewhere in this prospectus.

 

2)

The net loss on extinguishments of long-term debt included in the historical consolidated financial statements is a direct result of the 2012 and 2013 Debt Transactions and accordingly, such amount is excluded from the unaudited pro forma consolidated statements of operations.

 

3)

Reflects the tax effect of the pro forma adjustments using an estimated combined federal and state statutory tax rate of 39%.

 

4)

Reflects the elimination of $5.0 million of annual management fees paid to the Sponsors. In connection with this offering, the parties will terminate the Management Services Agreement.

 

51

---

Table of Contents

(5)

Reflects the net adjustment to interest expense for the redemptions of the Senior Secured Notes and Senior Subordinated Notes, which are incremental to the pro forma adjustments included in Note 1 above. Amounts are calculated as follows:

 

		Stated interest rate		Assumed interest rate				Pro forma interest expense for the three months ended March 31, 2013 (in millions)				Pro forma interest expense for the year ended December 31, 2012 (in millions)
$325.0 million Senior Secured Notes (a)		Fixed at 8.0%			8.0%			$	6.5			$	26.0
$332.5 million Senior Subordinated Notes (b)		Fixed at 12.535%			12.2%				10.1				40.5
Amortization of deferred financing costs									0.5				2.0
Pro forma interest expense related to the redemptions of the Senior Secured Notes and Senior Subordinated Notes									17.1				68.5
Elimination of historical interest expense related to the Senior Secured Notes redemption									(10.0	)			(40.0	)
Elimination of pro forma interest expense related to the 2012 Senior Subordinated Notes Redemption and 2013 Redemption (c)									(17.4	)			(69.7	)
Elimination of amortization of deferred financing costs									(0.8	)			(3.2	)
Net incremental pro forma adjustment to interest expense								$	(11.1	)		$	(44.4	)

 

(a)

Reflects the principal amount after the redemption of $175.0 million aggregate principal amount of the Senior Secured Notes using a portion of the proceeds from this offering.

 

(b)

Reflects the principal amount after the redemption of $239.0 million aggregate principal amount of the Senior Subordinated Notes using a portion of the proceeds from this offering.

 

(c)

Reflects the pro forma interest expense for the Senior Subordinated Notes included in Note 1 above.

 

(6)

Reflects the tax effect of the pro forma adjustments using an estimated combined federal and state statutory tax rate of 39%.

 

52

---

Table of Contents

7)

Reflects adjustments to outstanding common shares and net income per share as if the 2012 and 2013 Debt Transactions and this offering had occurred on January 1, 2012. The following table sets forth the computation of pro forma basic and diluted net income per common share (in millions, except per-share amounts):

 

		Three months ended March 31, 2013				Year ended December 31, 2012
Pro forma net income		$	39.7			$	175.9
Pro forma weighted-average number of common shares outstanding:
Weighted-average number of existing common shares			145.2				145.1
Weighted-average common shares to be restricted as a result of this offering (a)			(4.0	)			(4.0	)
Shares issued in this offering			23.3				23.3
Pro forma weighted-average number of common shares outstanding - basic			164.5				164.4
Effect of restricted shares (a)			3.7				3.7
Pro forma weighted-average number of common shares outstanding - diluted			168.2				168.1
Pro forma net income per common share:
Basic		$	0.24			$	1.07
Diluted			0.24				1.05

 

(a)

In connection with this offering, CDW Holdings will distribute all of its shares of our common stock to its existing members in accordance with their respective membership interests. Pursuant to the terms of the CDW Holdings limited liability company agreement, common stock received by holders of B Units in connection with the distribution will be subject to any vesting provisions currently applicable to any such holder’s B Units and the shares of common stock that are subject to vesting will be issued in the form of restricted stock.

 

8)

We expect to recognize certain nonrecurring charges directly related to this offering which have not been adjusted in the unaudited pro forma consolidated statements of operations as they will not have a continuing impact on our financial results. These charges include an expense of $24.4 million related to the termination of the Management Services Agreement, $38.6 million of compensation expense related to the acceleration of the expense recognition for certain equity incentive awards upon completion of this offering, and a loss on extinguishment of $35.2 million related to the Senior Secured Notes and Senior Subordinated Notes redemptions using a portion of the proceeds from this offering. As these adjustments are nonrecurring, they are not included in the pro forma adjustments above.

 

53

---

Table of Contents

Selected consolidated financial and operating data

The following table sets forth our selected historical consolidated financial and operating data for the periods ended and as of the dates indicated below. The selected historical consolidated financial and operating data presented below as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 have been derived from the unaudited consolidated financial statements included elsewhere in this prospectus. We have derived the selected historical consolidated financial and operating data presented below as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 from our audited consolidated financial statements and related notes, which are included elsewhere in this prospectus. The selected historical consolidated financial and operating data as of December 31, 2010,

2009 and 2008 and for the years ended December 31, 2009 and 2008 have been derived from our audited consolidated financial statements as of and for those periods, which are not included in this prospectus.

The unaudited pro forma financial data for the three months ended March 31, 2013 and the year ended December 31, 2012 give effect to the transactions described in “Unaudited pro forma condensed consolidated financial data” as if such transactions had occurred on January 1, 2012. The unaudited pro forma financial data are for informational purposes only and are not intended to represent or be indicative of the consolidated results of operations that we would have reported had the foregoing transactions and this offering been completed on the dates indicated, and should not be taken as representative of our future consolidated results of operations.

The selected historical consolidated financial and operating 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,” “Risk factors,” “Use of proceeds,” “Capitalization” and our historical financial statements and related notes appearing elsewhere in this prospectus.

The following are some of the items affecting comparability of the selected historical consolidated financial and operating data for the periods presented:

 

•

During the three months ended March 31, 2013 and 2012 and the years ended December 31, 2012 and 2011, we recorded net losses on extinguishments of long-term debt of $3.9 million, $9.4 million, $17.2 million and $118.9 million, respectively. During the year ended December 31, 2010, we recorded a net gain on extinguishments of long-term debt of $2.0 million. The amounts 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.

 

•

During the years ended December 31, 2009 and 2008, we recorded goodwill impairment charges of $241.8 million and $1,712.0 million, respectively. These impairments were primarily attributable to deterioration in macroeconomic conditions and overall declines in net sales.

 

54

---

Table of Contents

(in millions, except per-share data)		Three months ended  March 31,								Years ended December 31,
		2013				2012				2012				2011				2010				2009				2008
		(unaudited)				(unaudited)
Statement of Operations Data:
Net sales		$	2,411.7			$	2,319.2			$	10,128.2			$	9,602.4			$	8,801.2			$	7,162.6			$	8,071.2
Cost of sales			2,009.7				1,934.6				8,458.6				8,018.9				7,410.4				6,029.7				6,710.2
Gross profit			402.0				384.6				1,669.6				1,583.5				1,390.8				1,132.9				1,361.0
Selling and administrative expenses			251.5				251.6				1,029.5				990.1				932.1				821.1				894.8
Advertising expense			30.4				29.4				129.5				122.7				106.0				101.9				141.3
Goodwill impairment			—				—				—				—				—				241.8				1,712.0
Income (loss) from operations			120.1				103.6				510.6				470.7				352.7				(31.9	)			(1,387.1	)
Interest expense, net			(72.1	)			(78.9	)			(307.4	)			(324.2	)			(391.9	)			(431.7	)			(390.3	)
Net (loss) gain on extinguishments of long-term debt			(3.9	)			(9.4	)			(17.2	)			(118.9	)			2.0				—				—
Other income (expense), net			0.4				(0.2	)			0.1				0.7				0.2				2.4				0.2
Income (loss) before income taxes			44.5				15.1				186.1				28.3				(37.0	)			(461.2	)			(1,777.2	)
Income tax (expense) benefit			(16.2	)			(4.2	)			(67.1	)			(11.2	)			7.8				87.8				12.1
Net income (loss)		$	28.3			$	10.9			$	119.0			$	17.1			$	(29.2	)		$	(373.4	)		$	(1,765.1	)
Net income (loss) per common share
Basic		$	0.19			$	0.08			$	0.82			$	0.12			$	(0.20	)		$	(2.60	)		$	(12.32	)
Diluted		$	0.19			$	0.07			$	0.82			$	0.12			$	(0.20	)		$	(2.60	)		$	(12.32	)
Weighted-average common shares outstanding
Basic			145.2				145.0				145.1				144.8				144.4				143.8				143.3
Diluted			146.1				145.8				145.8				144.9				144.4				143.8				143.3
Pro forma net income per common share(1)
Basic		$	0.24							$	1.07
Diluted		$	0.24							$	1.05
Pro forma weighted-average common shares outstanding(1)
Basic			164.5								164.4
Diluted			168.2								168.1
(dollars in millions)		March 31,								December 31,
		2013				2012				2012				2011				2010				2009				2008
		(unaudited)				(unaudited)
Balance Sheet Data:
Cash and cash equivalents		$	147.1			$	36.5			$	37.9			$	99.9			$	36.6			$	88.0			$	94.4
Working capital			673.2				593.6				666.5				538.1				675.4				923.2				877.6
Total assets			5,822.7				5,740.9				5,720.0				5,967.7				5,943.8				5,976.0				6,276.3
Total debt and capitalized lease obligations(2)			3,680.8				3,871.6				3,771.0				4,066.0				4,290.0				4,621.9				4,633.5
Total shareholders’ equity (deficit)			163.8				10.6				136.5				(7.3	)			(43.5	)			(44.7	)			262.2
Other Financial Data:
Capital expenditures		$	8.8			$	8.3			$	41.4			$	45.7			$	41.5			$	15.6			$	41.1
Depreciation and amortization			52.0				52.5				210.2				204.9				209.4				218.2				218.4
Gross profit as a percentage of net sales			16.7%				16.6%				16.5%				16.5%				15.8%				15.8%				16.9%
Ratio of earnings to fixed charges(3)
(unaudited)			1.6				1.2				1.6				1.1					(a)				(a)				(a)
EBITDA(4)
(unaudited)			168.6				146.5				703.7				557.4				564.3				188.7				(1,168.5	)
Adjusted EBITDA(4)
(unaudited)			178.6				166.4				766.6				717.3				601.8				465.4				570.6
Statement of Cash Flows Data:
Net cash provided by (used in):
Operating activities		$	208.0			$	223.0			$	317.4			$	214.7			$	423.7			$	107.6			$	215.4
Investing activities			(8.8	)			(8.3	)			(41.7	)			(56.0	)			(125.4	)			(82.6	)			(60.3	)
Financing activities			(89.5	)			(278.4	)			(338.0	)			(95.4	)			(350.1	)			(31.9	)			(75.8	)

 

55

---

Table of Contents

(1)

Both pro forma net income per share and pro forma weighted-average common shares outstanding give effect to the reclassification of our Class A common stock and Class B common stock into a single class of common stock and the subsequent 143.0299613-for-1 stock split of our common stock, both of which were effected on June 6, 2013, and the issuance of shares in this offering. In addition, the pro forma presentation does not reflect certain nonrecurring charges directly related to this offering which we expect to recognize, as they will not have an ongoing impact on our financial results. These charges include a $24.4 million termination fee related to termination of the Management Services Agreement, compensation expense of $38.6 million related to the acceleration of the expense recognition for certain equity incentive awards upon the completion of this offering, and a loss on extinguishment of $35.2 million related to the Senior Secured Notes and Senior Subordinated Notes redemptions using a portion of the proceeds from this offering.

 

(2)

Excludes obligations outstanding of $252.9 million, $204.7 million, $249.2 million, $278.7 million, $28.2 million, 25.0 million and 34.1 million, as of March 31, 2013, March 31, 2012, December 31, 2012, December 31, 2011, December 31, 2010, December 31, 2009 and December 31, 2008, respectively, under our inventory financing agreements. We do not include these obligations in total debt because we have not in the past incurred, and in the future do not expect to incur, any interest expense these agreements. For more information, see “Description of certain indebtedness.” These amounts are classified separately as accounts payable–inventory financing on our consolidated balance sheets.

 

(3)

For purposes of calculating the ratio of earnings to fixed charges, earnings consist of earnings before income taxes minus income from equity investment plus fixed charges. Fixed charges consist of interest expensed and the portion of rental expense we believe is representative of the interest component of rental expense.

 

(a)

For the years ended December 31, 2010, 2009 and 2008, earnings available for fixed charges were inadequate to cover fixed charges by $37.0 million, $461.2 million and $1,777.2 million, respectively.

 

(4)

EBITDA is defined as consolidated net income (loss) before interest income (expense), income tax benefit (expense), depreciation, and amortization. Adjusted EBITDA, which is a measure defined in the Senior Credit Facilities, is calculated by adjusting EBITDA for certain items of income and expense including (but not limited to) the following: (a) non-cash equity-based compensation; (b) goodwill impairment charges; (c) sponsor fees; (d) certain consulting fees; (e) debt-related legal and accounting costs; (f) equity investment income and losses; (g) certain severance and retention costs; (h) gains and losses from the early extinguishment of debt; (i) gains and losses from asset dispositions outside the ordinary course of business; and (j) non-recurring, extraordinary or unusual gains or losses or expenses.

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, financial position or cash flows 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 the Company 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 helpful information with respect to our operating performance and cash flows including our ability to meet our future debt service, capital expenditures, and working capital requirements. Adjusted EBITDA also provides helpful information as it is the primary measure used in certain financial covenants contained in the Senior Credit Facilities.

The following unaudited table sets forth reconciliations of GAAP net income (loss) to EBITDA and EBITDA to Adjusted EBITDA for the periods presented:

 

		Three months ended March 31,								Years ended December 31,
(in millions)		2013				2012				2012				2011				2010				2009				2008
Net income (loss)		$	28.3			$	10.9			$	119.0			$	17.1			$	(29.2	)		$	(373.4	)		$	(1,765.1	)
Depreciation and amortization			52.0				52.5				210.2				204.9				209.4				218.2				218.4
Income tax expense (benefit)			16.2				4.2				67.1				11.2				(7.8	)			(87.8	)			(12.1	)
Interest expense, net			72.1				78.9				307.4				324.2				391.9				431.7				390.3
EBITDA			168.6				146.5				703.7				557.4				564.3				188.7				(1,168.5	)
Non-cash equity-based compensation			1.9				5.7				22.1				19.5				11.5				15.9				17.8
Sponsor fees(i)			1.3				1.3				5.0				5.0				5.0				5.0				5.0
Goodwill impairment			—				—				—				—				—				241.8				1,712.0
Consulting and debt-related professional fees			0.1				0.1				0.6				5.1				15.1				14.1				4.3
Net loss (gain) on extinguishments of long-term debt			3.9				9.4				17.2				118.9				(2.0	)			—				—
Other adjustments(ii)			2.8				3.4				18.0				11.4				7.9				(0.1	)			—
Adjusted EBITDA		$	178.6			$	166.4			$	766.6			$	717.3			$	601.8			$	465.4			$	570.6

 

(i)

Reflects historical fees paid to affiliates of the Sponsors under the Management Services Agreement. In connection with this offering, we will terminate the Management Services Agreement. See “Certain transactions—Management Services Agreement.”

 

(ii)

Includes certain retention costs and equity investment income, a litigation loss in the fourth quarter of 2012, certain severance costs in 2009, and a gain related to the sale of the Informacast software and equipment in 2009.

 

56

---

Table of Contents

The following unaudited table sets forth a reconciliation of EBITDA to net cash provided by operating activities for the periods presented:

 

(in millions)		Three months ended March 31,								Years ended December 31,
		2013				2012				2012				2011				2010				2009				2008
EBITDA		$	168.6			$	146.5			$	703.7			$	557.4			$	564.3			$	188.7			$	(1,168.5	)
Depreciation and amortization			(52.0	)			(52.5	)			(210.2	)			(204.9	)			(209.4	)			(218.2	)			(218.4	)
Income tax (expense) benefit			(16.2	)			(4.2	)			(67.1	)			(11.2	)			7.8				87.8				12.1
Interest expense, net			(72.1	)			(78.9	)			(307.4	)			(324.2	)			(391.9	)			(431.7	)			(390.3	)
Net income (loss)			28.3				10.9				119.0				17.1				(29.2	)			(373.4	)			(1,765.1	)
Depreciation and amortization			52.0				52.5				210.2				204.9				209.4				218.2				218.4
Goodwill impairment			—				—				—				—				—				241.8				1,712.0
Equity-based compensation expense			1.9				5.7				22.1				19.5				11.5				15.9				17.8
Amortization of deferred financing costs and debt premium			3.0				5.2				13.6				15.7				18.0				16.2				38.6
Deferred income taxes			(14.1	)			(16.6	)			(56.3	)			(10.2	)			(4.3	)			(94.4	)			(39.9	)
Allowance for doubtful accounts			—				0.4				—				0.4				(1.3	)			(0.2	)			0.4
Realized loss on interest rate swap agreements			—				—				—				2.8				51.5				103.2				18.6
Mark to market loss on interest rate derivatives			—				—				0.9				4.2				4.7				—				—
Net loss (gain) on extinguishments of long-term debt			3.9				9.4				17.2				118.9				(2.0	)			—				—
Net loss (gain) on sale and disposals of assets			—				—				0.1				0.3				0.7				(1.7	)			0.5
Changes in assets and liabilities			133.0				154.8				(9.4	)			(158.3	)			165.3				(18.0	)			14.1
Other non-cash items			—				0.7				—				(0.6	)			(0.6	)			—				—
Net cash provided by operating activities		$	208.0			$	223.0			$	317.4			$	214.7			$	423.7			$	107.6			$	215.4

 

57

---

Table of Contents

Management’s discussion and analysis of financial condition and results of operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section entitled “Selected consolidated financial and operating data” and our historical consolidated financial statements and the related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that are subject to numerous risks and uncertainties, including but not limited to those described in the section entitled “Risk factors.” Actual results may differ materially from those contained in any forward-looking statements.

Overview

CDW is a Fortune 500 company and a leading provider of integrated IT solutions in the U.S. and Canada. We help our customer base of more than 250,000 small, medium and large business, government, education and healthcare customers by delivering critical solutions to their increasingly complex IT needs. Our broad array of offerings range 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 that includes more than 100,000 products from more than 1,000 brands. We provide our products and solutions through sales force and service delivery teams consisting of more than 4,300 coworkers, including over 1,700 field sellers, highly skilled technology specialists and advanced service delivery engineers.

We are a leading U.S. sales channel partner for many OEMs and software publishers, whose products we sell or include in the solutions we offer. We believe we are an important extension of our vendor partners’ sales and marketing capabilities, providing them with a cost-effective way to reach customers and deliver a consistent brand experience through our established end-market coverage and extensive customer access.

We have two reportable segments: Corporate, which is comprised primarily of private sector business customers, and Public, which is comprised of government agencies and education and healthcare institutions. Our Corporate segment is divided into a medium-large business customer channel, primarily serving customers with more than 100 employees, and a small business customer channel, primarily serving customers with up to 100 employees. We also have two other operating segments, CDW Advanced Services and Canada, which do not meet the reportable segment quantitative thresholds and, accordingly, are combined together as “Other.” The CDW Advanced Services business consists primarily of customized engineering services delivered by technology specialists and engineers and managed services that include IaaS offerings. Revenues from the sale of hardware, software, custom configuration and third-party provided services are recorded within our Corporate and Public segments.

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

 

58

---

Table of Contents

needs, we help them manage their software agreements, including warranties and renewals. A significant portion of our advertising and marketing expenses is reimbursed through cooperative advertising reimbursement programs with our vendor partners. These programs are at the discretion of our vendor partners and are typically tied to sales or purchasing volumes or other commitments to be met by us within a specified period of time.

Trends and key factors affecting our financial performance

We believe the following trends may have an important impact on our financial performance:

 

•

An important factor affecting our ability to generate sales and achieve our targeted operating results is the impact of general economic conditions on our customers’ willingness to spend on information technology. While our operating results have improved significantly from the recent financial crisis, beginning in the second quarter of 2012, we began to see customers take a more cautious approach to spending as increased macroeconomic uncertainty impacted decision-making and led to some customers delaying purchases. We expect this trend to continue for the remainder of 2013. Uncertainties related to the potential impacts of federal budget negotiations, potential changes in tax and regulatory policy, weakening consumer and business confidence or increased unemployment could result in reduced or deferred spending by our customers on information technology products and services and increased competitive pricing pressures.

 

•

Our Public segment sales are impacted by government spending policies, budget priorities and revenue levels. An adverse change in any of these factors could cause our Public segment customers to reduce their purchases or to terminate or not renew contracts with us, which could adversely affect our business, results of operations or cash flows. Although our sales to the federal government are diversified across multiple agencies and departments, they collectively accounted for approximately 10%, 10% and 11% of our net sales for the years ended December 31, 2012, 2011 and 2010, respectively.

 

•

We believe that our customers’ transition to more complex technology solutions will continue to be an important growth area for us in the future. However, because the market for technology products and services is highly competitive, our success at capitalizing on this transition will be based on our ability to tailor specific solutions to customer needs, the quality and breadth of our product and service offerings, the knowledge and expertise of our sales force, price, product availability and speed of delivery.

Key business metrics

Our management monitors 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, EBITDA and Adjusted EBITDA, 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. Adjusted EBITDA, a non-GAAP financial measure, also provides helpful information as it is the primary measure used in certain

 

59

---

Table of Contents

financial covenants contained in the Senior Credit Facilities. See “Summary consolidated financial information” for the definition of Adjusted EBITDA and a reconciliation to net income (loss).

The results of certain key business metrics are as follows:

 

		Three months ended March 31,								Years ended December 31,
(dollars in millions)		2013				2012				2012				2011				2010
Net sales		$	2,411.7			$	2,319.2			$	10,128.2			$	9,602.4			$	8,801.2
Gross profit			402.0				384.6				1,669.6				1,583.5				1,390.8
Income from operations			120.1				103.6				510.6				470.7				352.7
Net income (loss)			28.3				10.9				119.0				17.1				(29.2	)
Adjusted EBITDA			178.6				166.4				766.6				717.3				601.8
Average daily sales			38.3				36.2				39.9				37.7				34.7
Net debt (defined as long-term debt plus capital leases minus cash and cash equivalents)			3,533.7				3,835.1				3,733.1				3,966.1				4,253.4
Cash conversion cycle (in days)			23				26				24				28				32

Background and basis of presentation

Corporate and capital structure

On October 12, 2007, CDW Corporation, a then-newly-formed Delaware corporation indirectly controlled by the Sponsors, acquired CDW Corporation, an Illinois corporation (“Target”), in a transaction valued at approximately $7.4 billion (the “Acquisition”). Upon completion of the Acquisition, the outstanding common stock of Target was converted into the right to receive cash, the common stock was delisted and deregistered and Target became a 100% owned subsidiary of CDW Corporation. CDW Corporation is owned directly by CDW Holdings. CDW Holdings is controlled by investment funds affiliated with the Sponsors, certain other co-investors and certain senior management investors. On December 31, 2009, Target merged into CDWC LLC, a limited liability company 100% owned by CDW Corporation with CDWC LLC as the surviving company in the merger. This change had no impact on operations or management. On December 31, 2010, CDWC LLC was renamed CDW LLC. In connection with this offering, CDW Holdings will distribute all of its shares of CDW Corporation common stock to its existing members in accordance with their respective membership interests and pursuant to the terms of CDW Holdings’ limited liability company agreement and unitholders agreement. It is currently contemplated that CDW Holdings will be dissolved shortly following the distribution and the completion of this offering.

Unless otherwise indicated or the context otherwise requires, the terms “we,” “us,” “the Company,” “our,” “CDW” and similar terms refer to CDW Corporation and its 100% owned subsidiaries.

Accompanying financial statements

Throughout management’s discussion and analysis of financial condition and results of operations, data for all periods are derived from our consolidated financial statements included elsewhere in this prospectus, which include:

 

•

Unaudited interim financial statements: the unaudited consolidated financial statements as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 (the “Unaudited Financial Statements”); and

 

60

---

Table of Contents

•

Audited financial statements: the audited consolidated financial statements as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 (the “Audited Financial Statements”).

Results of operations

Three months ended March 31, 2013 compared to three months ended March 31, 2012

The following table presents our results of operations, in dollars and as a percentage of net sales, for the three months ended March 31, 2013 and 2012:

 

		Three months ended March 31, 2013								Three months ended March 31, 2012
		Dollars in millions				Percentage of net sales				Dollars in millions				Percentage of net sales
Net sales		$	2,411.7				100.0	%		$	2,319.2				100.0	%
Cost of sales			2,009.7				83.3				1,934.6				83.4
Gross profit			402.0				16.7				384.6				16.6
Selling and administrative expenses			251.5				10.4				251.6				10.8
Advertising expense			30.4				1.3				29.4				1.3
Income from operations			120.1				5.0				103.6				4.5
Interest expense, net			(72.1	)			(3.0)				(78.9	)			(3.4)
Net loss on extinguishments of long-term debt			(3.9	)			(0.2)				(9.4	)			(0.4)
Other income (expense), net			0.4				—				(0.2	)			—
Income before income taxes			44.5				1.8				15.1				0.7
Income tax expense			(16.2	)			(0.6)				(4.2	)			(0.2)
Net income		$	28.3				1.2	%		$	10.9				0.5	%

Net sales

The following table presents our 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 for the three months ended March 31, 2013 and 2012:

 

		Three months ended March 31, 2013								Three months ended March 31, 2012
(dollars in millions)		Net sales				Percentage of total net sales				Net sales				Percentage of total net sales				Dollar change				Percent change(1)
Corporate		$	1,403.9				58.2	%		$	1,362.8				58.8	%		$	41.1				3.0	%
Public			846.8				35.1				817.6				35.3				29.2				3.6
Other			161.0				6.7				138.8				5.9				22.2				16.0
Total net sales		$	2,411.7				100.0	%		$	2,319.2				100.0	%		$	92.5				4.0	%

 

(1)

There were 63 selling days for the three months ended March 31, 2013, compared to 64 selling days for the three months ended March 31, 2012. On an average daily basis, total net sales increased 5.6%.

 

61

---

Table of Contents

The following table presents our net sales by customer channel for our Corporate and Public segments and the year-over-year dollar and percentage change in net sales for the three months ended March 31, 2013 and 2012:

 

(dollars in millions)		Three months  ended March 31,								Dollar change				Percent change
		2013				2012
Corporate:
Medium / Large		$	1,146.2			$	1,089.6			$	56.6				5.2	%
Small Business			257.7				273.2				(15.5	)			(5.7	)
Total Corporate		$	1,403.9			$	1,362.8			$	41.1				3.0	%
Public:
Government		$	252.3			$	262.6			$	(10.3	)			(3.9	)%
Education			232.2				221.7				10.5				4.8
Healthcare			362.3				333.3				29.0				8.7
Total Public		$	846.8			$	817.6			$	29.2				3.6	%

Total net sales for the three months ended March 31, 2013 increased $92.5 million, or 4.0%, to $2,411.7 million, compared to $2,319.2 million for the three months ended March 31, 2012. There were 63 selling days for the three months ended March 31, 2013, compared to 64 selling days for the three months ended March 31, 2012. On an average daily basis, total net sales increased 5.6%. The increase in total net sales was the result of favorable price/mix changes in hardware, growth in software, a more tenured sales force, and a continued focus on seller productivity across all areas of the organization. Our total net sales growth for the three months ended March 31, 2013 reflected increased sales of software and netcomm products, and unit volume growth in notebooks/mobile devices, partially offset by a decline in sales of desktop computers. Software gains were driven by growth in virtualization, operating systems, security and network management software.

Corporate segment net sales for the three months ended March 31, 2013 increased $41.1 million, or 3.0%, compared to the three months ended March 31, 2012, driven by sales growth in the medium/large customer channel. On an average daily basis, Corporate segment net sales increased 4.6% between periods. Within our Corporate segment, net sales to medium/large customers increased 5.2% between periods due to a more tenured sales force and a continued focus on seller productivity. This increase was led by growth in netcomm products and software. Partially offsetting the growth in the medium/large customer channel was a 5.7% decrease in net sales to small business customers, due to certain of these customers continuing to take a more cautious approach to spending as macroeconomic uncertainty impacted decision-making. This decrease was led by unit volume declines in notebooks/mobile devices.

Public segment net sales for the three months ended March 31, 2013 increased $29.2 million, or 3.6%, between periods, driven by continued strong performance in the healthcare customer channel. On an average daily basis, Public segment net sales increased 5.2% between periods. Net sales to healthcare customers increased $29.0 million, or 8.7%, between periods, led by growth in software, enterprise storage and notebooks/mobile devices. The healthcare customer channel growth was primarily the result of deeper relationships with several group purchasing organizations and increased healthcare industry demand for IT products, as the healthcare industry continued its adoption of electronic medical records and point of care technologies. Net

 

62

---

Table of Contents

sales to government customers decreased $10.3 million, or 3.9%, between periods, as uncertainty related to sequestration and federal government budget negotiations led to reduced or deferred federal government spending on IT products and services during the quarter. The government customer channel net sales decline was led by decreases in sales of desktop computers, netcomm products and servers, partially offset by growth in software. Net sales to education customers increased $10.5 million, or 4.8%, between periods, driven by growth in net sales to K-12 customers, reflecting an increased level of funding certainty for certain of these customers. Partially offsetting the increase in net sales to K-12 customers was a reduction in net sales to higher education customers, reflecting ongoing budget constraints.

Gross profit

Gross profit increased $17.4 million, or 4.5%, to $402.0 million for the three months ended March 31, 2013, compared to $384.6 million for the three months ended March 31, 2012. As a percentage of total net sales, gross profit increased 10 basis points to 16.7% for the three months ended March 31, 2013, up from 16.6% for the three months ended March 31, 2012. Gross profit margin was positively impacted 30 basis points by a higher mix of commission revenue and 10 basis points by higher net sales and gross profit related to professional services. These increases were partially offset by an unfavorable impact of 30 basis points from price/mix changes within product margin. Commission revenue, including agency fees earned on sales of software licenses and software assurance under enterprise agreements, has a positive impact on our gross profit margin, as we record the fee or commission as a component of net sales when earned and there is no corresponding cost of sales.

The gross profit margin may fluctuate based on various factors, including vendor incentive and inventory price protection programs, cooperative advertising funds classified as a reduction of cost of sales, product mix, net service contract revenue, commission revenue, pricing strategies, market conditions, and other factors, any of which could result in changes in gross profit margins.

Selling and administrative expenses

Selling and administrative expenses were $251.5 million for the three months ended March 31, 2013, compared to $251.6 million for the three months ended March 31, 2012, or essentially flat between years. As a percentage of total net sales, selling and administrative expenses decreased 40 basis points to 10.4% in the first quarter of 2013, down from 10.8% in the first quarter of 2012. Sales payroll, including sales commissions and other variable compensation costs, increased $5.3 million, or 4.9%, between years, consistent with higher sales and gross profit. Offsetting the majority of this increase was a reduction in non-cash compensation costs of $3.8 million between years related to our equity-based compensation plans, driven by the vesting period for certain awards being fully satisfied by the end of 2012. Occupancy costs also declined $1.8 million between years, primarily due to a $1.9 million lease termination charge recorded for the three months ended March 31, 2012. Total coworker count decreased by 60 coworkers from 6,839 at March 31, 2012 to 6,779 at March 31, 2013.

Advertising expense

Advertising expense increased $1.0 million, or 3.0%, to $30.4 million for the three months ended March 31, 2013, compared to $29.4 million for the three months ended March 31, 2012. As a

 

63

---

Table of Contents

percentage of total net sales, advertising expense was 1.3% for each of the three months ended March 31, 2013 and 2012. The increase in advertising expense was due to a focus on development of integrated campaigns to advertise our solutions and products which reinforce our reputation as a leading IT solutions provider. We leveraged personalized digital advertising techniques aimed at our target audience; those costs were partially offset by decreases in television advertising expenditures.

Income from operations

The following table presents income (loss) from operations by segment, in dollars and as a percentage of net sales, and the year-over-year percentage change in income (loss) from operations for the three months ended March 31, 2013 and 2012:

 

		Three months ended March 31, 2013								Three months ended March 31, 2012
		Dollars in millions				Operating margin percentage				Dollars in millions				Operating margin percentage				Percent change in income (loss) from operations
Segments:(1)
Corporate		$	94.1				6.7	%		$	84.8				6.2	%			11.0	%
Public			45.6				5.4				42.1				5.2				8.3
Other			6.1				3.8				2.5				1.8				142.9
Headquarters(2)			(25.7	)			nm	*			(25.8	)			nm	*			(0.5	)
Total income from operations		$	120.1				5.0	%		$	103.6				4.5	%			15.9	%

 

*

Not meaningful

 

(1)

Segment income from operations includes the segment’s direct operating income and allocations for Headquarters’ costs, allocations for logistics services, certain inventory adjustments, and volume rebates and cooperative advertising from vendors.

 

(2)

Includes certain Headquarters’ function costs that are not allocated to the segments.

Income from operations was $120.1 million for the three months ended March 31, 2013, an increase of $16.5 million, or 15.9%, compared to $103.6 million for the three months ended March 31, 2012. The results for the three months ended March 31, 2013 were driven by higher net sales and gross profit, partially offset by higher advertising expense. Total operating margin percentage increased 50 basis points to 5.0% for the three months ended March 31, 2013, from 4.5% for the three months ended March 31, 2012. Operating margin percentage benefited from the increase in gross profit margin and the decrease in selling and administrative expenses as a percentage of net sales.

Corporate segment income from operations was $94.1 million for the three months ended March 31, 2013, an increase of $9.3 million, or 11.0%, compared to $84.8 million for the three months ended March 31, 2012. This increase was primarily driven by higher net sales and gross profit margin, partially offset by higher selling and administrative expenses, resulting in a net increase in segment operating income before allocations of $5.5 million for the three months ended March 31, 2013 compared to the same period of 2012. In addition, Corporate segment income from operations benefited from a decrease of $3.3 million in Headquarters’ expense allocations to the Corporate segment on a year-over-year basis.

Public segment income from operations was $45.6 million for the three months ended March 31, 2013, an increase of $3.5 million, or 8.3%, compared to $42.1 million for the three months ended March 31, 2012. The increase reflected higher segment operating income before allocations of $1.4

 

64

---

Table of Contents

million as a result of increased net sales and gross profit dollars, partially offset by higher selling and administrative expenses. In addition, Public segment income from operations benefited from a decrease of $1.6 million in Headquarters’ expense allocations on a year-over-year basis.

Interest expense, net

At March 31, 2013, our outstanding long-term debt totaled $3,680.8 million compared to $3,871.6 million at March 31, 2012. Net interest expense for the three months ended March 31, 2013 was $72.1 million, a decrease of $6.8 million compared to $78.9 million for the three months ended March 31, 2012. Net interest expense decreased $5.3 million due to lower debt balances and lower effective interest rates for the three months ended March 31, 2013 compared to the same period of the prior year as a result of debt repayments and refinancing activities completed during 2012 and 2013. The remaining decrease was primarily attributable to reduced amortization of deferred financing costs for the three months ended March 31, 2013.

Net loss on extinguishments of long-term debt

During the three months ended March 31, 2013, we recorded a net loss on extinguishment of long-term debt of $3.9 million compared to $9.4 million for the same period in 2012.

In March 2013, we redeemed $50.0 million aggregate principal amount of Senior Subordinated Notes for $53.1 million. We recorded a loss on extinguishment of long-term debt of $3.9 million for the three months ended March 31, 2013, representing the difference between the redemption price and the net carrying amount of the purchased debt, adjusted for a portion of the unamortized deferred financing costs.

In February and March 2012, we purchased or redeemed the remaining $129.0 million of Senior Notes due 2015, funded with the issuance of an additional $130.0 million of Senior Notes. As a result, we recorded a loss on extinguishment of long-term debt of $9.4 million, representing the difference between the purchase or redemption price of the Senior Notes due 2015 and the net carrying amount of the purchased debt, adjusted for the remaining unamortized deferred financing costs.

Income tax expense

Income tax expense was $16.2 million for the three months ended March 31, 2013, compared to $4.2 million for the same period of the prior year. The effective income tax rate, expressed by calculating the income tax expense as a percentage of income before income taxes, was 36.4% for the three months ended March 31, 2013, compared to 27.9% for the same period of the prior year. The change in the effective income tax rate between periods was primarily attributable to favorable adjustments to state tax credits that were recorded during the three months ended March 31, 2012, which did not recur during the three months ended March 31, 2013.

Net income

Net income was $28.3 million for the three months ended March 31, 2013, compared to $10.9 million for the three months ended March 31, 2012. The results for the three months ended March 31, 2013 and 2012 included after tax losses on extinguishments of long-term debt of $2.4 million and $5.7 million, respectively. Other significant factors and events causing the net changes between the periods are discussed above.

 

65

---

Table of Contents

Adjusted EBITDA

Adjusted EBITDA was $178.6 million for the three months ended March 31, 2013, an increase of $12.2 million, or 7.3%, compared to $166.4 million for the three months ended March 31, 2012. As a percentage of net sales, Adjusted EBITDA was 7.4% for the three months ended March 31, 2013 compared to 7.2% for the three months ended March 31, 2012.

We have included a reconciliation of EBITDA and Adjusted EBITDA for the three months ended March 31, 2013 and 2012 in the table below. 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 Senior Credit Facilities, means EBITDA adjusted for certain items which are described 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, financial position or cash flows 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 the Company 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 helpful information with respect to our operating performance and cash flows including our ability to meet our future debt service, capital expenditures and working capital requirements. Adjusted EBITDA also provides helpful information as it is the primary measure used in certain financial covenants contained in our Senior Credit Facilities.

 

(in millions)		Three months  ended March 31,
		2013				2012
Net income		$	28.3			$	10.9
Depreciation and amortization			52.0				52.5
Income tax expense			16.2				4.2
Interest expense, net			72.1				78.9
EBITDA			168.6				146.5
Adjustments:
Non-cash equity-based compensation			1.9				5.7
Sponsor fee			1.3				1.3
Consulting and debt-related professional fees			0.1				0.1
Net loss on extinguishments of long-term debt			3.9				9.4
Other adjustments(1)			2.8				3.4
Total adjustments			10.0				19.9
Adjusted EBITDA		$	178.6			$	166.4

 

(1)

Other adjustments primarily include certain retention costs and equity investment income.

 

66

---

Table of Contents

Year ended December 31, 2012 compared to year ended December 31, 2011

The following table presents our results of operations, in dollars and as a percentage of net sales, for the years ended December 31, 2012 and 2011:

 

		Year ended December 31, 2012								Year ended December 31, 2011
		Dollars in millions				Percentage of net sales				Dollars in millions				Percentage of net sales
Net sales		$	10,128.2				100.0%			$	9,602.4				100.0%
Cost of sales			8,458.6				83.5				8,018.9				83.5
Gross profit			1,669.6				16.5				1,583.5				16.5
Selling and administrative expenses			1,029.5				10.2				990.1