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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    

Commission File Number 001-35985
CDW CORPORATION
(Exact name of registrant as specified in its charter) 
Delaware
 
26-0273989
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
75 Tri-State International
Lincolnshire, Illinois
 
60069
(Address of principal executive offices)
 
(Zip Code)
(847) 465-6000
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨  Yes    ý  No
As of October 31, 2016, there were 160,506,730 shares of common stock, $0.01 par value, outstanding.
 


1

Table of Contents

CDW CORPORATION AND SUBSIDIARIES
FORM 10-Q

TABLE OF CONTENTS
 
 
 
Page
PART I
FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II
OTHER INFORMATION
 
Item 1.
Item 1A.  
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
SIGNATURES
Exhibit Index


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Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except per-share amounts)
 
September 30, 2016
 
December 31, 2015
Assets
(unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
118.3

 
$
37.6

Accounts receivable, net of allowance for doubtful accounts of $5.9 and $6.0, respectively
2,019.8

 
2,017.4

Merchandise inventory
451.6

 
393.1

Miscellaneous receivables
269.4

 
198.4

Prepaid expenses and other
138.7

 
144.3

Total current assets
2,997.8

 
2,790.8

Property and equipment, net
162.5

 
175.4

Goodwill
2,467.9

 
2,500.4

Other intangible assets, net
1,110.6

 
1,276.4

Other assets
34.0

 
12.3

Total assets
$
6,772.8

 
$
6,755.3

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable-trade
$
997.7

 
$
866.5

Accounts payable-inventory financing
477.7

 
439.6

Current maturities of long-term debt
18.5

 
27.2

Deferred revenue
180.1

 
151.9

Accrued expenses:
 
 

Compensation
164.8

 
120.4

Interest
17.5

 
25.1

Sales taxes
30.2

 
38.1

Advertising
68.6

 
52.3

Income taxes
12.7

 

Other
159.0

 
166.2

Total current liabilities
2,126.8

 
1,887.3

Long-term liabilities:
 
 
 
Debt
3,222.9

 
3,232.5

Deferred income taxes
393.2

 
469.6

Other liabilities
39.4

 
70.0

Total long-term liabilities
3,655.5

 
3,772.1

Commitments and contingencies (Note 7)

 


Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value, 100.0 shares authorized, no shares issued or outstanding for both periods

 

Common stock, $0.01 par value, 1,000.0 shares authorized; 160.5 and 168.2 shares issued and outstanding, respectively
1.6

 
1.7

Paid-in capital
2,843.6

 
2,806.9

Accumulated deficit
(1,738.9
)
 
(1,651.6
)
Accumulated other comprehensive loss
(115.8
)
 
(61.1
)
Total stockholders’ equity
990.5

 
1,095.9

Total liabilities and stockholders’ equity
$
6,772.8

 
$
6,755.3


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

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Table of Contents

CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per-share amounts)
(unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net sales
 
$
3,708.2

 
$
3,501.1

 
$
10,489.5

 
$
9,570.3

Cost of sales
 
3,093.9

 
2,933.9

 
8,740.2

 
8,012.1

Gross profit
 
614.3

 
567.2

 
1,749.3

 
1,558.2

Selling and administrative expenses
 
334.9

 
321.4

 
1,009.0

 
887.5

Advertising expense
 
41.9

 
41.2

 
118.3

 
108.6

Income from operations
 
237.5

 
204.6

 
622.0

 
562.1

Interest expense, net
 
(37.6
)
 
(38.5
)
 
(112.6
)
 
(121.1
)
Net loss on extinguishments of long-term debt
 
(2.1
)
 

 
(2.1
)
 
(24.3
)
Gain on remeasurement of equity investment
 

 
98.1

 

 
98.1

Other income (expense), net
 
0.4

 
(18.0
)
 
2.3

 
(9.5
)
Income before income taxes
 
198.2

 
246.2

 
509.6

 
505.3

Income tax expense
 
(72.3
)
 
(95.3
)
 
(188.4
)
 
(191.5
)
Net income
 
$
125.9

 
$
150.9

 
$
321.2

 
$
313.8

 
 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.78

 
$
0.89

 
$
1.95

 
$
1.84

Diluted
 
$
0.76

 
$
0.88

 
$
1.93

 
$
1.82

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
162.1

 
169.6

 
164.8

 
170.9

Diluted
 
164.9

 
171.0

 
166.9

 
172.3

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$
0.1075

 
$
0.0675

 
$
0.3225

 
$
0.2025


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


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Table of Contents

CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
125.9

 
$
150.9

 
$
321.2

 
$
313.8

Foreign currency translation (net of tax (expense) benefit of ($0.1) and $0.2 million, and of $0.3 and $0.5 million, respectively)
 
(11.9
)
 
(22.4
)
 
(54.7
)
 
(28.7
)
Other comprehensive loss, net of tax
 
(11.9
)
 
(22.4
)
 
(54.7
)
 
(28.7
)
Comprehensive income
 
$
114.0

 
$
128.5

 
$
266.5

 
$
285.1

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


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Table of Contents

CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in millions)
(unaudited)
 
 
Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive Loss
 
Total
Stockholders’ Equity
Balance as of December 31, 2015
 

 
$

 
168.2

 
$
1.7

 
$
2,806.9

 
$
(1,651.6
)
 
$
(61.1
)
 
$
1,095.9

Net income
 

 

 

 

 

 
321.2

 

 
321.2

Equity-based compensation expense
 

 

 

 

 
23.4

 

 

 
23.4

Stock option exercises
 

 

 
0.3

 

 
6.0

 

 

 
6.0

Coworker Stock Purchase Plan
 

 

 
0.2

 

 
6.9

 

 

 
6.9

Common stock issued for equity-based compensation
 

 

 
0.2

 

 

 

 

 

Repurchases of common stock
 

 

 
(8.4
)
 
(0.1
)
 

 
(355.0
)
 

 
(355.1
)
Dividends
 

 

 

 

 
0.4

 
(53.5
)
 

 
(53.1
)
Foreign currency translation
 

 

 

 

 

 

 
(54.7
)
 
(54.7
)
Balance as of September 30, 2016
 

 
$

 
160.5

 
$
1.6

 
$
2,843.6

 
$
(1,738.9
)
 
$
(115.8
)
 
$
990.5

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


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Table of Contents

CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)

 
 
Nine Months Ended September 30,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net income
 
$
321.2

 
$
313.8

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
190.7

 
165.0

Equity-based compensation expense
 
28.1

 
20.0

Deferred income taxes
 
(74.8
)
 
(32.0
)
Amortization of deferred financing costs, debt premium and debt discount, net
 
4.4

 
4.7

Net loss on extinguishments of long-term debt
 
2.1

 
24.3

Income from equity investment
 

 
11.2

Gain on remeasurement of equity investment
 

 
(98.1
)
Other
 
0.5

 
3.1

Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
(17.9
)
 
(178.4
)
Merchandise inventory
 
(64.6
)
 
(54.8
)
Other assets
 
(101.2
)
 
(101.7
)
Accounts payable-trade
 
141.5

 
226.0

Other current liabilities
 
97.4

 
(17.1
)
Long-term liabilities
 
(28.1
)
 
8.9

Net cash provided by operating activities
 
499.3

 
294.9

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(41.4
)
 
(43.9
)
Premium payments on interest rate cap agreements
 
(2.1
)
 
(0.5
)
Acquisition of business, net of cash acquired
 

 
(263.8
)
Net cash used in investing activities
 
(43.5
)
 
(308.2
)
Cash flows from financing activities:
 
 
 
 
Proceeds from borrowings under revolving credit facility
 
332.1

 
105.0

Repayments of borrowings under revolving credit facility
 
(332.1
)
 
(105.0
)
Repayments of long-term debt
 
(17.0
)
 
(26.1
)
Proceeds from issuance of long-term debt
 
1,483.0

 
525.0

Payments to extinguish long-term debt
 
(1,490.4
)
 
(525.3
)
Net change in other long-term obligation
 
15.7

 

Payments of debt financing costs
 
(5.9
)
 
(6.8
)
Net change in accounts payable-inventory financing
 
39.2

 
22.6

Proceeds from stock option exercises
 
6.0

 
1.7

Excess tax benefits from equity-based compensation
 

 
0.4

Proceeds from Coworker Stock Purchase Plan
 
6.9

 
6.5

Repurchases of common stock
 
(355.0
)
 
(193.3
)
Dividends
 
(53.1
)
 
(34.6
)
Principal payments under capital lease obligations
 
(0.3
)
 

Net cash used in financing activities
 
(370.9
)
 
(229.9
)
Effect of exchange rate changes on cash and cash equivalents
 
(4.2
)
 
(3.8
)
Net increase (decrease) in cash and cash equivalents
 
80.7

 
(247.0
)
Cash and cash equivalents—beginning of period
 
37.6

 
344.5

Cash and cash equivalents—end of period
 
$
118.3

 
$
97.5

Supplementary disclosure of cash flow information:
 
 
 
 
Cash paid for Interest, net
 
$
(117.4
)
 
$
(125.4
)
Cash paid for Income taxes, net
 
$
(234.5
)
 
$
(218.0
)
The accompanying notes are an integral part of the Consolidated Financial Statements.

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Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1.
Description of Business and Summary of Significant Accounting Policies
Description of Business
CDW Corporation (“Parent”) is a Fortune 500 company with multi-national capabilities and a leading provider of integrated information technology (“IT”) solutions to small, medium and large business, government, education and healthcare customers in the United States, Canada and the United Kingdom. The Company's offerings range from discrete hardware and software products to integrated IT solutions such as mobility, security, data center optimization, cloud computing, virtualization and collaboration.
Throughout this report, the terms the “Company” and “CDW” refer to Parent and its 100% owned subsidiaries.
Parent has two 100% owned subsidiaries, CDW LLC and CDW Finance Corporation. CDW LLC is an Illinois limited liability company that, together with its 100% owned subsidiaries, holds all material assets and conducts all business activities and operations of the Company. CDW Finance Corporation is a Delaware corporation formed for the sole purpose of acting as co-issuer of certain debt obligations and does not hold any material assets or engage in any business activities or operations.

On August 1, 2015, the Company completed the acquisition of Kelway TopCo Limited (“Kelway”) by purchasing the remaining 65% of its outstanding common stock, which increased the Company’s ownership interest from 35% to 100%, and provided the Company control. On April 4, 2016, Kelway was rebranded CDW UK. Throughout this report, the term "CDW UK" refers to Kelway. For further details regarding the acquisition, see Note 3 (Acquisition).
Basis of Presentation
The accompanying unaudited interim Consolidated Financial Statements as of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (the “Consolidated Financial Statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 (the “December 31, 2015 Consolidated Financial Statements”). The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in the December 31, 2015 Consolidated Financial Statements. In the opinion of management, the Consolidated Financial Statements contain all adjustments (consisting of a normal, recurring nature) necessary to present fairly the Company's financial position, results of operations, comprehensive income, cash flows and changes in stockholders' equity as of the dates and for the periods indicated. The unaudited results of operations for such interim periods reported are not necessarily indicative of results for the full year.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of Parent and its 100% owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation.
Use of Estimates
The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make use of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
The notes to the Consolidated Financial Statements contained in the December 31, 2015 Consolidated Financial Statements include an additional discussion of the significant accounting policies and estimates used in the preparation of the Company's Consolidated Financial Statements. There have been no material changes to the Company's significant accounting policies and estimates during the nine months ended September 30, 2016.

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Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


2.
Recent Accounting Pronouncements
Classification of Certain Cash Receipts and Cash Payments
In August 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230), providing guidance for eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU 2016-15 is effective for the Company beginning in the first quarter of 2018 and allows for early adoption. The Company is currently evaluating the impact the ASU will have on its Consolidated Financial Statements.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the assumptions, models and methods for estimating expected credit losses. This ASU is effective for the Company beginning in the first quarter of 2020 and allows for early adoption beginning in the first quarter of 2019. The Company is currently evaluating the impact the ASU will have on its Consolidated Financial Statements.
Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, requiring the recognition of the excess tax benefits of stock awards in the provision for income taxes in the income statement when the awards are settled and allowing the Company to repurchase more of an employee's shares for tax withholding purposes than allowed under current guidance, without triggering liability accounting. This ASU also addresses simplifications related to statement of cash flows classification and accounting for forfeitures. This ASU is effective for the Company beginning in the first quarter of 2017 and allows for early adoption. The Company elected to early adopt ASU 2016-09 in the third quarter of 2016, requiring the Company to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. As a result of the adoption of this ASU, the Company recorded a $1.2 million tax benefit in its Consolidated Financial Statements.
Accounting for Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. This ASU is effective for the Company beginning in the first quarter of 2019 and allows for early adoption. Although the Company is currently evaluating the provisions of the ASU to determine how it will be affected, the primary impact of the new ASU will be to record assets and liabilities for current operating leases.
Balance Sheet Classification of Deferred Taxes
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, simplifying the presentation of deferred income taxes by requiring all deferred taxes to be presented as noncurrent in the balance sheet. In the first quarter of 2016, the Company elected to early adopt ASU 2015-17 on a prospective basis. The adoption of this ASU did not have a material impact on the Company's Consolidated Financial Statements.
Simplifying the Measurement of Inventory
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, amending the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value instead of the lower of cost or market value. This ASU is effective for the Company beginning in the first quarter of 2017, allows for early adoption and must be applied prospectively after the date of adoption. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.

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Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), replacing most existing revenue recognition guidance under GAAP and eliminating industry specific guidance. The core principle of the new guidance is that an entity should recognize revenue for the transfer of goods and services equal to an amount it expects to be entitled to receive for those goods and services.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, deferring the effective date by one year.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Gross versus Net), clarifying the principal versus agent guidance in the new revenue recognition standard, by revising the indicators to focus on evidence that the company is a principal.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, reducing the complexity when applying the guidance for identifying performance obligations and clarifying how to determine whether revenue related to a performance obligation for an intellectual property license is recognized over time or at a point in time.
In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, clarifying certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition.
These ASUs are effective for the Company beginning in the first quarter of 2018, allow for early adoption in the first quarter of 2017 and may be applied using either a full retrospective approach or a modified retrospective approach. The Company is currently evaluating the method of adoption and the impact these ASUs will have on its Consolidated Financial Statements.
3.
Acquisition

On August 1, 2015, the Company completed the acquisition of CDW UK by purchasing the remaining 65% of its outstanding common stock, which increased the Company's ownership interest from 35% to 100%, and provided the Company control.
A summary of the total consideration transferred is as follows:
(in millions)
 
Acquisition-Date Fair Value
Cash
 
$
291.6

Fair value of CDW common stock(1)
 
33.2

Fair value of previously held equity investment on the date of acquisition(2)
 
174.9

Total consideration
 
$
499.7

(1)
The Company issued 2 million shares of CDW common stock. The fair value of the common stock was based on the closing market price on July 31, 2015, adjusted for the lack of marketability as the shares of CDW common stock issued to the sellers are subject to a three-year lock up restriction from August 1, 2015. One of the sellers granted 1 million stock options to certain CDW UK coworkers over his shares of CDW common stock received in the transaction. The fair value of these stock options was $22 million, which has been accounted for as post-combination stock-based compensation and is being amortized over the weighted­-average requisite service period of 3.2 years. Compensation expense for these options is included in Selling and administrative expenses in the Consolidated Statements of Operations.
(2)
As a result of the Company obtaining control over CDW UK, the Company’s previously held 35% equity investment was remeasured to fair value, resulting in a gain of $98 million included in Gain on remeasurement of equity investment in the Consolidated Statements of Operations. The fair value of the previously held equity investment was determined by management with the assistance of a third party valuation firm, based on information available as of the acquisition date.

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Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



The recognized amounts of identifiable assets acquired and liabilities assumed, translated using the foreign currency exchange rates on the date of acquisition, are as follows:
(in millions)
 
Acquisition-Date Fair Value(1)
Cash
 
$
27.8

Accounts receivable
 
135.7

Merchandise inventory
 
27.1

Property and equipment, net
 
11.4

Identified intangible assets(2)
 
289.8

Other assets
 
53.5

Total assets acquired
 
545.3

Accounts payable—trade
 
(86.1
)
Deferred revenue
 
(57.2
)
Other liabilities
 
(41.7
)
Deferred tax liabilities
 
(55.1
)
Debt
 
(111.5
)
Total liabilities assumed
 
(351.6
)
Total identifiable net assets
 
193.7

 
 
 
Goodwill
 
306.0

 
 
 
Total purchase price
 
$
499.7

(1)
The fair values assigned to the tangible and intangible assets acquired and liabilities assumed were based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.
(2)
Details of the identified intangible assets are as follows:
(in millions)
Acquisition-Date Fair Value
 
Weighted-Average Amortization Period (in years)
Customer relationships
$
260.8

 
13
Customer contracts
25.9

 
3
Developed technology
1.7

 
2
Trade name
1.4

 
1
Total identified intangible assets
$
289.8

 
 

Goodwill in the amount of $306 million was recognized in the acquisition of CDW UK and is attributable to the business from new customers and the value of the acquired assembled workforce. The goodwill was allocated to the CDW UK operating segment which is included with CDW Canada in an all other category (“Other”). The full amount of goodwill recognized is not deductible for income tax purposes in the United Kingdom.
The unaudited pro forma Consolidated Statements of Operations in the table below summarizes the combined results of operations of the Company and CDW UK, using historical foreign currency exchange rates, as if the acquisition had been completed on January 1, 2015, and gives effect to pro forma events that are factually supportable and directly attributable to the transaction. The unaudited pro forma results reflect adjustments for equity-based compensation, acquisition and integration costs, incremental intangible asset amortization based on the fair values of each identifiable intangible asset, which are subject to change within the measurement period, pre-acquisition equity earnings, the gain on the remeasurement of the Company’s previously held 35% equity method investment, elimination of pre-acquisition intercompany sales

11

Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


transactions and the impacts of certain other pre-acquisition transactions. Pro forma adjustments were tax-effected at the statutory rates within the applicable jurisdictions.
This unaudited pro forma information is presented for informational purposes only and may not be indicative of the historical results of operations that would have been obtained if the acquisition had taken place on January 1, 2015, nor the results that may be obtained in the future. This unaudited pro forma information does not reflect future synergies, integration costs, or other such costs or savings.
The unaudited pro forma Consolidated Statements of Operations for the three and nine months ended September 30, 2015 is as follows:
(in millions)
 
Three months ended
 
Nine months ended
Net sales
 
$
3,585.5

 
$
10,099.2

Net income
 
101.8

 
273.5

The unaudited pro forma information above reflects the following adjustments:
(1)
Excludes acquisition and integration costs directly related to the transaction.
(2)
Includes additional amortization expense related to the fair value of acquired intangibles.
(3)
Excludes the Company's share of net income/loss from its previously held 35% equity investment prior to the completion of the acquisition.
(4)
Includes additional non-cash equity-based compensation related to equity awards granted to CDW UK coworkers after the completion of the acquisition.

12

Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


4.
Inventory Financing Agreements
The Company has entered into agreements with certain financial intermediaries to facilitate the purchase of inventory from various suppliers under certain terms and conditions. These amounts are classified separately as Accounts payable-inventory financing on the Consolidated Balance Sheets. The Company does not incur any interest expense associated with these agreements as balances are paid when they are due. Amounts included in Accounts payable-inventory financing are as follows:
(in millions)
 
September 30,
2016
 
December 31, 2015
Revolving Loan inventory financing agreement(1)
 
$
468.2

 
$
427.0

Other inventory financing agreements(2)
 
9.5

 
12.6

Accounts payable-inventory financing
 
$
477.7

 
$
439.6

(1)
The Senior Secured Asset-Based Revolving Credit Facility (“Revolving Loan”) includes an inventory floorplan sub-facility that enables the Company to maintain an inventory financing agreement with a financial intermediary to facilitate the purchase of inventory from certain vendors on more favorable terms than offered directly by the vendors.
(2)
As of September 30, 2016 and December 31, 2015, amounts owed under other inventory financing agreements of $1 million or less, for both periods, were collateralized by the inventory purchased under these financing agreements and a second lien on the related accounts receivable.
5.
Long-Term Debt
Long-term debt as of September 30, 2016 is as follows:
(dollars in millions)
 
Interest
Rate
 
Principal
 
Unamortized Discount and Deferred Financing Costs
 
Total
Senior secured asset-based revolving credit facility (1)

%
 
$


$


$

CDW UK revolving credit facility(2)
 
%
 

 

 

Senior secured term loan facility

3.00
%
 
1,486.7


(15.5
)

1,471.2

CDW UK term loan
 
1.79
%
 
72.6

 
(0.6
)
 
72.0

Senior notes due 2022

6.0
%
 
600.0


(5.9
)

594.1

Senior notes due 2023

5.0
%
 
525.0


(5.5
)

519.5

Senior notes due 2024

5.5
%
 
575.0


(6.1
)

568.9

Other long-term obligations
 
 
 
15.7

 

 
15.7

Total debt
 
 
 
3,275.0

 
(33.6
)
 
3,241.4

Less current maturities
 
 
 
(18.5
)
 

 
(18.5
)
Long-term debt, excluding current maturities
 
 
 
$
3,256.5

 
$
(33.6
)
 
$
3,222.9


13

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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Long-term debt as of December 31, 2015 is as follows:
(dollars in millions)
 
Interest
Rate
 
Principal
 
Unamortized Discount and Deferred Financing Costs
 
Total
Senior secured asset-based revolving credit facility (1)
 
%
 
$

 
$

 
$

CDW UK revolving credit facility (2)
 
%
 

 

 

Senior secured term loan facility
 
3.25
%
 
1,498.1

 
(6.7
)
 
1,491.4

CDW UK Term Loan
 
1.98
%
 
88.4

 
(0.6
)
 
87.8

Senior notes due 2022
 
6.0
%
 
600.0

 
(6.6
)
 
593.4

Senior notes due 2023
 
5.0
%
 
525.0

 
(6.2
)
 
518.8

Senior notes due 2024
 
5.5
%
 
575.0

 
(6.7
)
 
568.3

Total debt
 
 
 
3,286.5

 
(26.8
)
 
3,259.7

Less current maturities
 
 
 
(27.2
)
 

 
(27.2
)
Long-term debt, excluding current maturities
 
 
 
$
3,259.3

 
$
(26.8
)
 
$
3,232.5

(1)
The Senior Secured Asset-Based Revolving Credit Facility includes an inventory floorplan sub-facility that enables the Company to maintain an inventory financing agreement with a financial intermediary to facilitate the purchase of inventory from certain vendors on more favorable terms than offered directly by the vendors. As of September 30, 2016, the Company had no outstanding borrowings under the Revolving Loan, $1 million of undrawn letters of credit and $446 million reserved related to the floorplan sub-facility. As of September 30, 2016, the borrowing base was $1,584 million based on the amount of eligible inventory and accounts receivable balances as of August 31, 2016. The Company could have borrowed up to an additional $802 million under the Revolving Loan as of September 30, 2016.
(2)
The CDW UK Revolving Credit Facility is a multi-currency revolving credit facility expiring on August 1, 2021, under which CDW UK is permitted to borrow an aggregate amount of £50 million ($65 million as of September 30, 2016).
Debt Covenants
As of September 30, 2016, the Company remained in compliance with the covenants under its various credit agreements, the most restrictive of which is under the credit agreement governing the Senior Secured Term Loan Facility ("Term Loan"). Under the Term Loan, there are restrictions on the ability of CDW to pay dividends, make share repurchases, redeem subordinated debt and engage in certain other transactions. As of September 30, 2016, the amount of CDW’s restricted payment capacity under the Term Loan was $680 million. However, the Company is separately permitted to make restricted payments, so long as the total net leverage ratio is less than 3.25 on a pro forma basis. The total net leverage ratio was 2.9 as of September 30, 2016.
The CDW UK Term Loan Agreement imposes restrictions on CDW UK's ability to transfer funds to the Company through the payment of dividends, intercompany loans, advances or the repayment of subordinated debt that require, among other things, the maintenance of a minimum net leverage ratio. As of September 30, 2016, the amount of CDW UK's restricted payment capacity under the CDW UK Term Loan was $120 million.

14

Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Senior Secured Term Loan Facility (“Term Loan”)
On August 17, 2016, the Company entered into a new seven-year $1,490 million aggregate principal amount senior secured term loan facility ("Term Loan"). The Term Loan was issued at a price that was 99.5% of par, which resulted in a discount of $7 million. Fees of $5 million were capitalized as deferred financing costs and are being amortized over the seven-year term on a straight-line basis. The Term Loan replaced the prior senior secured term loan facility (the “Prior Term Loan Facility”) that had an outstanding aggregate principal amount of $1,490 million. In connection with this refinancing, the Company recorded a loss on extinguishment of long-term debt of $2 million in the Consolidated Statement of Operations for the three months ended September 30, 2016. This loss represented the write-off of a portion of the unamortized deferred financing costs and unamortized discount related to the Prior Term Loan Facility.
The Company is required to pay quarterly principal installments equal to 0.25% of the original principal amount of the Term Loan, with the remaining principal amount payable on the maturity date of August 17, 2023. The quarterly principal installment payments of $4 million commenced during the quarter ended September 30, 2016. At September 30, 2016, the outstanding principal amount of the Term Loan was $1,487 million, excluding $16 million of unamortized discount and deferred financing costs.
Borrowings under the Term Loan bear interest at either (a) the alternate base rate (“ABR”) plus a margin or (b) LIBOR plus a margin; provided that for the purposes of the Term Loan, LIBOR shall not be less than 0.75% per annum at any time (“LIBOR Floor”), payable quarterly on the last day of each March, June, September and December. The margin is based upon a net leverage ratio as defined in the agreement governing the Term Loan which is 1.25% for ABR borrowings and 2.25% for LIBOR borrowings. As of September 30, 2016, an interest rate of 3.0% was in effect, which represents the LIBOR Floor plus a 2.25% margin.
CDW UK Term Loan
On August 1, 2016, the Company entered into a new five-year £56 million ($72 million as of September 30, 2016) aggregate principal amount term loan facility ("CDW UK Term Loan"). The CDW UK Term Loan replaced the prior senior secured term loan facility (the “Prior CDW UK Term Loan Facility”) that had an outstanding aggregate principal amount of £56 million.
The Company is required to pay annual principal installments of £5 million, with the remaining principal amount payable on the maturity date of August 1, 2021. The annual principal installment payments will commence during the quarter ended September 30, 2018. At September 30, 2016, the outstanding principal amount of the CDW UK Term Loan was £56 million, excluding £0.5 million ($0.6 million as of September 30, 2016) of unamortized deferred financing costs.
Borrowings under the CDW UK Term Loan bear interest at LIBOR plus a margin, payable quarterly on the last day of each March, June, September and December. As of September 30, 2016, an interest rate of 1.79% was in effect, which represents LIBOR plus a 0.39% margin.
In connection with this refinancing, the Prior CDW UK Term Loan Facility was amended to include both the CDW UK Term Loan and a £50.0 million revolving credit facility ("CDW UK Revolving Credit Facility"). The CDW UK Revolving Credit Facility replaced the prior £50 million revolving credit facility and expires on August 1, 2021. As of September 30, 2016, there were no outstanding borrowings under the CDW UK Revolving Credit Facility.
Fair Value
The fair values of the 2022, 2023 and 2024 Senior Notes were estimated using quoted market prices for identical liabilities that are traded in over-the-counter secondary markets that are not considered active. The fair value of the Term Loan was estimated using dealer quotes for identical liabilities in markets that are not considered active. Consequently, the Company's long-term debt is classified as Level 2 within the fair value hierarchy. The fair value of the CDW UK Term Loan was estimated using a discounted cash flow analysis based on current incremental borrowing rates for similar arrangements. The approximate fair values and related carrying values of the Company's long-term debt, including current maturities and excluding unamortized discount and unamortized deferred financing costs, were as follows:

15

Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


(in millions)
 
September 30, 2016
 
December 31,
2015
Fair value
 
$
3,376.2

 
$
3,330.4

Carrying value
 
3,275.0

 
3,286.5


Interest Rate Cap Agreements
In order to manage the risk associated with changes in interest rates on borrowings under the Term Loan, the Company maintains interest rate cap agreements. As of September 30, 2016 the interest rate cap agreements had a combined notional amount of $1,400 million and are effective from January 14, 2015 through January 14, 2017. Under these agreements, the Company has the right to receive payments equal to the amount, if any, by which the three-month LIBOR exceeds 2.0% during the agreement period. The fair value of the Company's interest rate cap agreements was less than $1 million as of September 30, 2016 and December 31, 2015.
In connection with the upcoming expiration of the interest rate cap agreements noted above in the first quarter of 2017, during the quarter ended September 30, 2016, the Company entered into eleven additional interest rate cap agreements for a combined notional amount of $1,200 million. Under these agreements, the Company made premium payments totaling $2 million to the counterparties in exchange for the right to receive payments equal to the amount, if any, by which three-month LIBOR exceeds 1.5% during the agreement period. These interest rate cap agreements are effective from January 14, 2017 through December 31, 2018. The fair value of these interest rate cap agreements was $2 million at September 30, 2016.
    
The Company’s interest rate cap agreements have not been designated as cash flow hedges for interest rate risk for GAAP accounting purposes. The interest rate cap agreements are recorded at fair value on the Company’s consolidated balance sheet in Other Assets each period, with changes in fair value recorded directly to interest expense in the Company’s Consolidated Statements of Operations. The fair value of the Company’s interest rate cap agreements is classified as Level 2 in the fair value hierarchy. The valuation of the interest rate cap agreements is derived by using a discounted cash flow analysis on the expected cash receipts that would occur if variable interest rates rise above the strike rates of the caps. This analysis reflects the contractual terms of the interest rate cap agreements, including the period to maturity, and uses observable market-based inputs, including LIBOR curves and implied volatilities. The Company also incorporates insignificant credit valuation adjustments to appropriately reflect the respective counterparty’s nonperformance risk in the fair value measurements. The counterparty credit spreads are based on publicly available credit information obtained from a third party credit data provider.
6.
Earnings per Share
The numerator for both basic and diluted earnings per share is Net income. The denominator for basic earnings per share is the weighted-average shares outstanding during the period. A reconciliation of basic weighted-average shares outstanding to diluted weighted-average shares outstanding is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2016
 
2015
 
2016
 
2015
Basic weighted-average shares outstanding
162.1

 
169.6

 
164.8

 
170.9

Effect of dilutive securities(1)
2.8

 
1.4

 
2.1

 
1.4

Diluted weighted-average shares outstanding(2)
164.9

 
171.0

 
166.9

 
172.3

(1)
The dilutive effect of outstanding stock options, restricted stock units, restricted stock, performance share units and Coworker Stock Purchase Plan units is reflected in the diluted weighted-average shares outstanding using the treasury stock method.

(2)
There were less than 1 million potential common shares excluded from diluted weighted-average shares outstanding for the three and nine months ended September 30, 2016 and 2015, respectively, as their inclusion would have had an anti-dilutive effect.


16

Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


7.
Commitments and Contingencies
The Company is party to various legal proceedings that arise in the ordinary course of its business, which include commercial, intellectual property, employment, tort and other litigation matters. The Company is also subject to audit by federal, state, international, national, provincial and local authorities, and by various partners, group purchasing organizations and customers, including government agencies, relating to purchases and sales under various contracts. In addition, the Company is subject to indemnification claims under various contracts. From time to time, certain customers of the Company file voluntary petitions for reorganization or liquidation under the US bankruptcy laws or similar laws of the jurisdictions for the Company’s business activities outside of the US. In such cases, certain pre-petition payments received by the Company could be considered preference items and subject to return to the bankruptcy administrator.
On October 29, 2015, the Company learned of an investigation by the SEC of the Company’s vendor partner program incentives. The SEC’s investigation is ongoing, and the Company is continuing to cooperate with the SEC in this matter.
As of September 30, 2016, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for these proceedings and matters, if any, has been incurred. However, the ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company's financial condition and results of operations could be adversely affected in any particular period by the unfavorable resolution of one or more of these proceedings or matters.
8.
Segment Information
The Company has two reportable segments: Corporate, which is comprised primarily of private sector business customers in the US, and Public, which is comprised of government agencies and education and healthcare institutions in the US. The Company has two other operating segments: CDW Canada and CDW UK, both of which do not meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category (“Other”). Effective January 1, 2016, CDW Advanced Services is no longer an operating segment. Its results have been allocated to the Corporate and Public segments to align the Company's financial reporting with the manner in which the Chief Operating Decision Maker assesses performance and makes resource allocation decisions. Segment information reported in prior periods has been reclassified to conform to the current period presentation.
Information about the Company’s segments for the three and nine months ended September 30, 2016 and 2015 is as follows:
(in millions)

Corporate

Public

Other

Headquarters

Total
Three Months Ended September 30, 2016:










Net sales

$
1,748.9


$
1,640.6


$
318.7


$


$
3,708.2

Income (loss) from operations(1)

138.0


120.0


10.0


(30.5
)

237.5

Depreciation and amortization expense

(25.8
)

(11.2
)

(7.6
)

(18.5
)

(63.1
)











Three Months Ended September 30, 2015:










Net sales

$
1,764.7


$
1,483.9


$
252.5


$


$
3,501.1

Income (loss) from operations(1)

124.0


104.2


5.0


(28.6
)

204.6

Depreciation and amortization expense

(25.8
)

(11.2
)

(7.5
)

(15.4
)

(59.9
)


17

Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


(in millions)
 
Corporate
 
Public
 
Other
 
Headquarters
 
Total
Nine Months Ended September 30, 2016:
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
5,220.3

 
$
4,257.1

 
$
1,012.1

 
$

 
$
10,489.5

Income (loss) from operations(1)
 
391.4

 
287.0

 
27.4

 
(83.8
)
 
622.0

Depreciation and amortization expense
 
(77.6
)
 
(33.5
)
 
(24.6
)
 
(55.0
)
 
(190.7
)
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015:
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
5,173.6

 
$
3,889.7

 
$
507.0

 
$

 
$
9,570.3

Income (loss) from operations(1)
 
381.5

 
250.6

 
14.2

 
(84.2
)
 
562.1

Depreciation and amortization expense
 
(77.3
)
 
(33.5
)
 
(10.0
)
 
(44.2
)
 
(165.0
)
(1)
Certain costs related to technology specialists have been reclassified between our Corporate and Public segments. Prior periods have been reclassified to conform to the current period presentation.


18

Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


9.
Supplemental Guarantor Information
The 2022 Senior Notes, the 2023 Senior Notes and the 2024 Senior Notes are, and, prior to being redeemed in full, the 2019 Senior Notes were, guaranteed by Parent and each of CDW LLC’s direct and indirect, 100% owned, domestic subsidiaries (the “Guarantor Subsidiaries”). All guarantees by Parent and the Guarantor Subsidiaries are and were joint and several, and full and unconditional; provided that guarantees by the Guarantor Subsidiaries (i) are subject to certain customary release provisions contained in the indentures governing the 2022 Senior Notes, the 2023 Senior Notes and the 2024 Senior Notes and (ii) were subject to certain customary release provisions contained in the indentures governing the 2019 Senior Notes until such indentures were satisfied and discharged in the first quarter of 2015. CDW LLC's 100% owned foreign subsidiaries, CDW International Holdings Limited, which is comprised of CDW UK and Canada (together the “Non-Guarantor Subsidiaries”), do not guarantee the debt obligations. CDW LLC and CDW Finance Corporation, as co-issuers, are 100% owned by Parent and each of the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries are, directly or indirectly, 100% owned by CDW LLC.
The following tables set forth condensed Consolidating Balance Sheets as of September 30, 2016 and December 31, 2015, Consolidating Statements of Operations for the three and nine months ended September 30, 2016 and 2015, condensed Consolidating Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015 and condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2016 and 2015, in accordance with Rule 3-10 of Regulation S-X. The consolidating financial information includes the accounts of CDW Corporation (the “Parent Guarantor”), which has no independent assets or operations, the accounts of CDW LLC (the “Subsidiary Issuer”), the combined accounts of the Guarantor Subsidiaries, the accounts of the Non-Guarantor Subsidiaries, and the accounts of CDW Finance Corporation (the “Co-Issuer”) for the periods indicated. The information was prepared on the same basis as the Consolidated Financial Statements.

19

Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


 
Condensed Consolidating Balance Sheet
September 30, 2016
(in millions)
Parent
Guarantor
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Co-Issuer
 
Consolidating
Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
102.3

 
$

 
$
36.0

 
$

 
$
(20.0
)
 
$
118.3

Accounts receivable, net

 

 
1,816.9

 
202.9

 

 

 
2,019.8

Merchandise inventory

 

 
400.3

 
51.3

 

 

 
451.6

Miscellaneous receivables

 
98.2

 
154.5

 
16.7

 

 

 
269.4

Prepaid expenses and other

 
14.1

 
91.1

 
33.5

 

 

 
138.7

Total current assets

 
214.6

 
2,462.8

 
340.4

 

 
(20.0
)
 
2,997.8

Property and equipment, net

 
104.3

 
48.8

 
9.4

 

 

 
162.5

Goodwill

 
751.8

 
1,439.0

 
277.1

 

 

 
2,467.9

Other intangible assets, net

 
296.0

 
599.9

 
214.7

 

 

 
1,110.6

Other assets
3.3

 
16.3

 
248.1

 
1.5

 

 
(235.2
)
 
34.0

Investment in and advances to subsidiaries
987.2

 
3,105.1

 

 

 

 
(4,092.3
)
 

Total assets
$
990.5

 
$
4,488.1

 
$
4,798.6

 
$
843.1

 
$

 
$
(4,347.5
)
 
$
6,772.8

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable—trade
$

 
$
21.0

 
$
879.4

 
$
117.3

 
$

 
$
(20.0
)
 
$
997.7

Accounts payable—inventory financing

 
1.0

 
469.4

 
7.3

 

 

 
477.7

Current maturities of
long-term debt

 
14.9

 
3.6

 

 

 

 
18.5

Deferred revenue

 

 
114.5

 
65.6

 

 

 
180.1

Accrued expenses

 
192.0

 
218.0

 
42.8

 

 

 
452.8

Total current liabilities

 
228.9

 
1,684.9

 
233.0

 

 
(20.0
)
 
2,126.8

Long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt

 
3,138.8

 
12.2

 
71.9

 

 

 
3,222.9

Deferred income taxes

 
100.6

 
225.7

 
70.2

 

 
(3.3
)
 
393.2

Other liabilities

 
32.6

 
3.5

 
235.2

 

 
(231.9
)
 
39.4

Total long-term liabilities

 
3,272.0

 
241.4

 
377.3

 

 
(235.2
)
 
3,655.5

Total stockholders’ equity
990.5

 
987.2

 
2,872.3

 
232.8

 

 
(4,092.3
)
 
990.5

Total liabilities and stockholders’ equity
$
990.5

 
$
4,488.1

 
$
4,798.6

 
$
843.1

 
$

 
$
(4,347.5
)
 
$
6,772.8




20

Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Condensed Consolidating Balance Sheet
December 31, 2015
(in millions)
Parent
Guarantor
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiary
 
Co-Issuer
 
Consolidating
Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
45.1

 
$

 
$
31.9

 
$

 
$
(39.4
)
 
$
37.6

Accounts receivable, net

 

 
1,788.6

 
228.8

 

 

 
2,017.4

Merchandise inventory

 

 
340.3

 
52.8

 

 

 
393.1

Miscellaneous receivables

 
83.7

 
90.1

 
24.6

 

 

 
198.4

Prepaid expenses and other

 
13.0

 
50.4

 
84.0

 

 
(3.1
)
 
144.3

Total current assets

 
141.8

 
2,269.4

 
422.1

 

 
(42.5
)
 
2,790.8

Property and equipment, net

 
110.0

 
54.1

 
11.3

 

 

 
175.4

Goodwill

 
751.8

 
1,439.0

 
309.6

 

 

 
2,500.4

Other intangible assets, net

 
306.0

 
704.9

 
265.5

 

 

 
1,276.4

Other assets
3.8

 
17.3

 
263.0

 
3.0

 

 
(274.8
)
 
12.3

Investment in and advances to subsidiaries
1,092.1

 
3,302.0

 

 

 

 
(4,394.1
)
 

Total assets
$
1,095.9

 
$
4,628.9

 
$
4,730.4

 
$
1,011.5

 
$

 
$
(4,711.4
)
 
$
6,755.3

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable-trade
$

 
$
31.0

 
$
727.4

 
$
147.5

 
$

 
$
(39.4
)
 
$
866.5

Accounts payable-inventory financing

 

 
428.4

 
11.4

 

 
(0.2
)
 
439.6

Current maturities of long-term debt

 
15.4

 

 
11.8

 

 

 
27.2

Deferred revenue

 

 
77.4

 
74.5

 

 

 
151.9

Accrued expenses

 
156.0

 
190.9

 
58.6

 

 
(3.4
)
 
402.1

Total current liabilities

 
202.4

 
1,424.1

 
303.8

 

 
(43.0
)
 
1,887.3

Long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt

 
3,156.5

 

 
76.0

 

 

 
3,232.5

Deferred income taxes

 
117.3

 
272.8

 
83.4

 

 
(3.9
)
 
469.6

Other liabilities

 
60.7

 
2.9

 
276.8

 

 
(270.4
)
 
70.0

Total long-term liabilities

 
3,334.5

 
275.7

 
436.2

 

 
(274.3
)
 
3,772.1

Total stockholders’ equity
1,095.9

 
1,092.0

 
3,030.6

 
271.5

 

 
(4,394.1
)
 
1,095.9

Total liabilities and stockholders’ equity
$
1,095.9

 
$
4,628.9

 
$
4,730.4

 
$
1,011.5

 
$

 
$
(4,711.4
)
 
$
6,755.3





21

Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Consolidating Statement of Operations
Three Months Ended September 30, 2016
(in millions)
Parent
Guarantor
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Co-Issuer
 
Consolidating
Adjustments
 
Consolidated
Net sales
$

 
$

 
$
3,389.6

 
$
318.6

 
$

 
$

 
$
3,708.2

Cost of sales

 

 
2,828.7

 
265.2

 

 

 
3,093.9

Gross profit

 

 
560.9

 
53.4

 

 

 
614.3

Selling and administrative expenses

 
30.0

 
262.1

 
42.8

 

 

 
334.9

Advertising expense

 

 
40.9

 
1.0

 

 

 
41.9

Income (loss) from operations

 
(30.0
)
 
257.9

 
9.6

 

 

 
237.5

Interest (expense) income, net

 
(37.6
)
 
1.8

 
(1.8
)
 

 

 
(37.6
)
Net loss on extinguishments of long-term debt

 
(2.1
)
 

 

 

 

 
(2.1
)
Other income (expense), net

 
0.7

 
0.3

 
(0.6
)
 

 

 
0.4

Income (loss) before income taxes

 
(69.0
)
 
260.0

 
7.2

 

 

 
198.2

Income tax benefit (expense)

 
27.6

 
(99.4
)
 
(0.5
)
 

 

 
(72.3
)
Income (loss) before equity in earnings of subsidiaries

 
(41.4
)
 
160.6

 
6.7

 

 

 
125.9

Equity in earnings of subsidiaries
125.9

 
167.3

 

 

 

 
(293.2
)
 

Net income
$
125.9

 
$
125.9

 
$
160.6

 
$
6.7

 
$

 
$
(293.2
)
 
$
125.9






22

Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Consolidating Statement of Operations
Three Months Ended September 30, 2015 (1)
(in millions)
Parent
Guarantor
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiary
 
Co-Issuer
 
Consolidating
Adjustments
 
Consolidated
Net sales
$

 
$

 
$
3,248.6

 
$
252.5

 
$

 
$

 
$
3,501.1

Cost of sales

 

 
2,720.4

 
213.5

 

 

 
2,933.9

Gross profit

 

 
528.2

 
39.0

 

 

 
567.2

Selling and administrative expenses

 
26.3

 
261.7

 
33.4

 

 

 
321.4

Advertising expense

 

 
39.8

 
1.4

 

 

 
41.2

Income (loss) from operations

 
(26.3
)
 
226.7

 
4.2

 

 

 
204.6

Interest (expense) income, net

 
(37.9
)
 
0.9

 
(1.5
)
 

 

 
(38.5
)
Gain on remeasurement of equity investment

 

 

 
98.1

 

 

 
98.1

Other income (expense), net

 
(18.8
)
 
0.4

 
0.4