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, ~~2017~~2018


¨	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~~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, a smaller reporting company, or an emerging growth company. See the definitions of ~~“large~~"large accelerated filer,~~” “accelerated~~" "accelerated filer,~~” “smaller~~" "smaller reporting company,”" and ~~“emerging~~"emerging growth ~~company”~~company" in Rule 12b-2 of the Exchange ~~Act (Check one):~~Act:



Large accelerated filer	xý	Accelerated filer	¨

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

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ý No

As of October ~~27, 2017,~~26, 2018, there were ~~153,062,826~~149,984,769 shares of common stock, $0.01 par value, outstanding.

Table of Contents

CDW CORPORATION AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS



		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of September 30, ~~2017 (unaudited)~~2018 and December 31, ~~2016~~2017	3
	Consolidated Statements of Operations for the Three and Nine Months ~~ended~~Ended September 30, ~~2017~~2018 and ~~2016 (unaudited)~~2017	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2017~~2018 and ~~2016 (unaudited)~~2017	5
	Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, ~~2017 (unaudited)~~2018	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2018 and ~~2016 (unaudited)~~2017	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2937
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4855
Item 4.	Controls and Procedures	4855
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	4956
Item 1A.	Risk Factors	4956
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4956
Item 3.	Defaults Upon Senior Securities	4956
Item 4.	Mine Safety Disclosures	4956
Item 5.	Other Information	4956
Item 6.	Exhibits	5057
SIGNATURES		5158

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in millions, except per-share amounts)
CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in millions, except per share amounts)							CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in millions, except per share amounts)

	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
Assets	(unaudited)						(unaudited)			(as adjusted)
Current assets:
Cash and cash equivalents	$	97.9		$	263.7		$	255.1		$	144.2
Accounts receivable, net of allowance for doubtful accounts of $6.2 and $5.9, respectively	2,311.3			2,168.6
Accounts receivable, net of allowance for doubtful accounts of $8.0 and $6.2, respectively							2,650.5			2,329.3
Merchandise inventory	549.0			452.0			481.1			411.5
Miscellaneous receivables	380.8			234.9			370.4			343.0
Prepaid expenses and other	153.5			118.9			192.4			168.3
Total current assets	3,492.5			3,238.1			3,949.5			3,396.3
Property and equipment, net	162.5			163.7			147.8			161.1
Goodwill	2,477.6			2,455.0			2,469.5			2,479.6
Other intangible assets, net	937.1			1,055.6			758.2			897.0
Other assets	32.1			36.0			50.4			32.7
Total assets	$	7,101.8		$	6,948.4
Liabilities and Stockholders’ Equity
Total Assets							$	7,375.4		$	6,966.7
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable-trade	$	1,224.6		$	1,072.9		$	1,609.9		$	1,317.7
Accounts payable-inventory financing	541.3			580.4			407.6			498.0
Current maturities of long-term debt	41.5			18.5			32.0			25.5
Deferred revenue	228.4			172.6
Accrued expenses:
Contract liabilities							188.5			158.8
Accrued expenses and other current liabilities:
Compensation	138.3			167.6			162.8			129.5
Interest	15.4			25.1			15.9			21.6
Sales taxes	30.2			38.0			34.6			43.8
Advertising	122.6			55.8			132.2			89.2
Income taxes	31.6			2.6			11.2			16.2
Other	184.8			147.2			209.2			221.8
Total current liabilities	2,558.7			2,280.7			2,803.9			2,522.1
Long-term liabilities:
Debt	3,388.4			3,215.9			3,187.4			3,210.0
Deferred income taxes	315.9			369.2			158.4			196.3
Other liabilities	32.3			37.1			65.0			52.7
Total long-term liabilities	3,736.6			3,622.2			3,410.8			3,459.0
Commitments and contingencies (Note 12)
Stockholders’ equity:
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, 152.9 and 160.3 shares issued and outstanding, respectively	1.5			1.6
Common stock, $0.01 par value, 1,000.0 shares authorized; 150.9 and 153.1 shares issued, respectively							1.5			1.5
Less: treasury stock, $0.01 par value, 0.0 and 0.1 shares held, respectively							—			—
Outstanding common stock, $0.01 par value, 150.9 and 153.0 shares outstanding, respectively							1.5			1.5
Paid-in capital	2,903.9			2,857.3			2,970.9			2,911.6
Accumulated deficit	(1,997.2		)	(1,673.8		)	(1,703.5		)	(1,831.6		)
Accumulated other comprehensive loss	(101.7		)	(139.6		)	(108.2		)	(95.9		)
Total stockholders’ equity	806.5			1,045.5
Total liabilities and stockholders’ equity	$	7,101.8		$	6,948.4
Total stockholders' equity							1,160.7			985.6
Total Liabilities and Stockholders' Equity							$	7,375.4		$	6,966.7

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

Table of Contents

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per-share amounts) (unaudited)
CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share amounts)													CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share amounts)

														Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,							2018			2017			2018			2017
	2017			2016			2017			2016				(unaudited)			(as adjusted)			(unaudited)			(as adjusted)
Net sales	$	4,033.9		$	3,708.2		$	11,353.0		$	10,489.5			$	4,373.2		$	3,933.2		$	12,165.7		$	11,080.8
Cost of sales	3,391.9			3,093.9			9,517.4			8,740.2				3,659.6			3,291.0			10,152.6			9,244.3
Gross profit	642.0			614.3			1,835.6			1,749.3				713.6			642.2			2,013.1			1,836.5
Selling and administrative expenses	352.0			334.9			1,062.9			1,009.0				390.7			351.9			1,134.8			1,062.8
Advertising expense	46.3			41.9			128.1			118.3				48.1			46.3			133.9			128.1
Income from operations	243.7			237.5			644.6			622.0				274.8			244.0			744.4			645.6
Interest expense, net	(37.8		)	(37.6		)	(113.4		)	(112.6		)		(36.6		)	(37.8		)	(111.5		)	(113.4		)
Net loss on extinguishments of long-term debt	—			(2.1		)	(57.4		)	(2.1		)		—			—			—			(57.4		)
Other income	0.7			0.4			1.9			2.3
Other income, net														0.2			0.7			1.0			1.9
Income before income taxes	206.6			198.2			475.7			509.6				238.4			206.9			633.9			476.7
Income tax expense	(77.4		)	(72.3		)	(147.9		)	(188.4		)		(54.7		)	(77.6		)	(150.2		)	(148.4		)
Net income	$	129.2		$	125.9		$	327.8		$	321.2			$	183.7		$	129.3		$	483.7		$	328.3

Net income per common share:
Basic	$	0.84		$	0.78		$	2.10		$	1.95			$	1.22		$	0.84		$	3.19		$	2.10
Diluted	$	0.83		$	0.76		$	2.06		$	1.93			$	1.20		$	0.83		$	3.14		$	2.06

Weighted-average common shares outstanding:
Basic	153.8			162.1			156.3			164.8				150.9			153.8			151.6			156.3
Diluted	156.2			164.9			159.2			166.9				153.7			156.2			154.1			159.2

Cash dividends declared per common share	$	0.1600		$	0.1075		$	0.4800		$	0.3225			$	0.2100		$	0.1600		$	0.6300		$	0.4800

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

Table of Contents

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) (unaudited)
CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions)												CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions)

													Three Months Ended September 30,					Nine Months Ended September 30,
	Three Months Ended September 30,					Nine Months Ended September 30,							2018			2017		2018			2017
	2017		2016			2017			2016				(unaudited)			(as adjusted)		(unaudited)			(as adjusted)
Net income	$	129.2	$	125.9		$	327.8		$	321.2			$	183.7		$	129.3	$	483.7		$	328.3
Foreign currency translation, net⁽¹⁾	13.9		(11.9		)	39.3			(54.7		)		(3.2		)	14.0		(17.9		)	39.5
Unrealized gain (loss) from hedge accounting, net⁽²⁾	0.3		—			(1.4		)	—				0.1			0.3		5.6			(1.4		)
Other comprehensive income (loss), net	14.2		(11.9		)	37.9			(54.7		)
Other comprehensive (loss) income, net													(3.1		)	14.3		(12.3		)	38.1
Comprehensive income	$	143.4	$	114.0		$	365.7		$	266.5			$	180.6		$	143.6	$	471.4		$	366.4

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


⁽¹⁾	Net of tax expense of ~~$0.3~~$0.1 million and ~~$0.1~~tax expense of $0.3 million for the three months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and net of tax ~~expense~~benefit of ~~$0.3~~$0.1 million and tax ~~benefit~~expense of $0.3 million for the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively.


⁽²⁾	Net of tax expense of zero and $0.2 million for the three months ended September 30, 2018 and 2017, respectively, and net of tax expense of $1.9 million and tax benefit of $0.9 million for the nine months ended September 30, ~~2017.~~2018 and 2017, respectively.

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

Table of Contents

CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in millions) (unaudited)	CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in millions) (unaudited)																				CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in millions) (unaudited)

		Preferred Stock			Common Stock																	Nine Months Ended September 30, 2018
		Shares	Amount		Shares		Amount			Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity				Preferred Stock			Common Stock				Treasury Stock
Balance as of December 31, 2016		—	$	—	160.3		$	1.6		$	2,857.3	$	(1,673.8	)	$	(139.6	)	$	1,045.5
																						Shares	Amount		Shares		Amount		Shares		Amount		Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance as of December 31, 2017 (as reported)																						—	$	—	153.1		$	1.5	0.1		$	—	$	2,911.6	$	(1,834.3	)	$	(95.9	)	$	982.9
Cumulative adjustment upon adoption of ASC 606																						—	—		—		—		—		—		—		2.7			—			2.7
Balance as of December 31, 2017 (as adjusted)																						—	—		153.1		1.5		0.1		—		2,911.6		(1,831.6		)	(95.9		)	985.6
Net income		—	—		—		—			—		327.8			—			327.8				—	—		—		—		—		—		—		483.7			—			483.7
Equity-based compensation expense		—	—		—		—			29.3		—			—			29.3				—	—		—		—		—		—		26.0		—			—			26.0
Stock option exercises		—	—		1.4		—			9.1		—			—			9.1				—	—		0.7		—		—		—		24.4		—			—			24.4
Coworker Stock Purchase Plan		—	—		0.1		—			7.6		—			—			7.6				—	—		0.1		—		—		—		8.4		—			—			8.4
Repurchases of common stock		—	—		(8.9	)	(0.1		)	—		(533.9		)				(534.0		)		—	—		(3.0	)	—		—		—		—		(232.5		)	—			(232.5		)
Dividends		—	—		—		—			0.6		(75.3		)	—			(74.7		)
Incentive compensation plan shares withheld for taxes		—	—		—		—			—		(42.0		)	—			(42.0		)
Dividends paid																						—	—		—		—		—		—		0.5		(96.0		)	—			(95.5		)
Incentive compensation plan stock withheld for taxes																						—	—		—		—		(0.1	)	—		—		(27.1		)	—			(27.1		)
Foreign currency translation		—	—		—		—			—		—			39.3			39.3				—	—		—		—		—		—		—		—			(17.9		)	(17.9		)
Unrealized loss from hedge accounting		—	—		—		—			—		—			(1.4		)	(1.4		)
Balance as of September 30, 2017		—	$	—	152.9		$	1.5		$	2,903.9	$	(1,997.2	)	$	(101.7	)	$	806.5
Unrealized gain from hedge accounting																						—	—		—		—		—		—		—		—			5.6			5.6
Balance as of September 30, 2018																						—	$	—	150.9		$	1.5	—		$	—	$	2,970.9	$	(1,703.5	)	$	(108.2	)	$	1,160.7

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

Table of Contents

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

	Nine Months Ended September 30,							Nine Months Ended September 30,
	2017			2016				2018			2017
Cash flows from operating activities:								(unaudited)			(as adjusted)
Net income	$	327.8		$	321.2			$	483.7		$	328.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	195.2			190.7				198.7			195.2
Equity-based compensation expense	33.6			28.1				29.9			33.6
Deferred income taxes	(55.2		)	(74.8		)		(39.2		)	(55.2		)
Allowance for doubtful accounts	0.3			—
Amortization of deferred financing costs, debt premium and debt discount, net	4.0			4.4
Net loss on extinguishments of long-term debt	57.4			2.1				—			57.4
Gain on interest rate cap agreements	(0.5		)	—
Other	0.1			0.5				8.7			3.9
Changes in assets and liabilities:
Accounts receivable	(120.4		)	(17.9		)		(334.3		)	(120.7		)
Merchandise inventory	(90.5		)	(64.6		)		(72.1		)	(83.6		)
Other assets	(179.3		)	(101.2		)		(66.1		)	(181.6		)
Accounts payable-trade	140.2			141.5				300.6			140.2
Other current liabilities	130.9			97.4
Long-term liabilities	(4.5		)	(28.1		)
Other liabilities								92.4			121.6
Net cash provided by operating activities	439.1			499.3				602.3			439.1
Cash flows used in investing activities:
Capital expenditures	(58.6		)	(41.4		)		(53.4		)	(58.6		)
Premium payments on interest rate cap agreements	—			(2.1		)
Net cash used in investing activities	(58.6		)	(43.5		)		(53.4		)	(58.6		)
Cash flows used in financing activities:
Proceeds from borrowings under revolving credit facilities	1,279.1			332.1				688.9			1,279.1
Repayments of borrowings under revolving credit facilities	(1,087.5		)	(332.1		)		(681.9		)	(1,087.5		)
Repayments of long-term debt	(11.2		)	(17.0		)		(18.2		)	(11.2		)
Proceeds from issuance of long-term debt	2,083.0			1,483.0				—			2,083.0
Payments to extinguish long-term debt	(2,121.3		)	(1,490.4		)		—			(2,121.3		)
Net change in other long-term obligation	(3.8		)	15.7
Payments of debt financing costs	(9.6		)	(5.9		)
Payments of debt financing fees								(1.0		)	(9.6		)
Net change in accounts payable-inventory financing	(41.4		)	39.2				(90.1		)	(41.4		)
Effective portion of interest rate cap agreements	0.2			—
Premium payments on interest rate cap agreements								(12.6		)	—
Proceeds from stock option exercises	9.1			6.0				24.4			9.1
Proceeds from Coworker Stock Purchase Plan	7.6			6.9				8.4			7.6
Repurchases of common stock	(534.0		)	(355.0		)		(232.5		)	(534.0		)
Payment of incentive compensation plan withholding taxes	(42.0		)	—				(27.1		)	(42.0		)
Dividends	(74.7		)	(53.1		)		(95.5		)	(74.7		)
Principal payments under capital lease obligations	(1.1		)	(0.3		)
Other								1.9			(4.7		)
Net cash used in financing activities	(547.6		)	(370.9		)		(435.3		)	(547.6		)
Effect of exchange rate changes on cash and cash equivalents	1.3			(4.2		)		(2.7		)	1.3
Net (decrease) increase in cash and cash equivalents	(165.8		)	80.7
Net increase (decrease) in cash and cash equivalents								110.9			(165.8		)
Cash and cash equivalents—beginning of period	263.7			37.6				144.2			263.7
Cash and cash equivalents—end of period	$	97.9		$	118.3			$	255.1		$	97.9
Supplementary disclosure of cash flow information:
Cash paid for Interest, net	$	(118.6	)	$	(117.4	)
Cash paid for Income taxes, net	$	(169.6	)	$	(234.5	)
Interest paid								$	(117.4	)	$	(118.6	)
Taxes paid, net								$	(200.5	)	$	(169.6	)

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

Table of Contents

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Description of Business and Summary of Significant Accounting Policies

Description of Business

CDW Corporation ~~(“Parent”~~("Parent") is a Fortune 500 company with multi-national capabilities and a leading provider of integrated information technology ~~(“IT”~~("IT") solutions to small, medium and large business, government, education and healthcare customers in the United States ~~Canada and~~("US"), the United ~~Kingdom.~~Kingdom ("UK") and Canada. The Company's offerings range from discrete hardware and software products to integrated IT solutions such as mobility, security, data center optimization, cloud computing, virtualization and collaboration.

Throughout this report, the terms the ~~“Company”~~"Company" and ~~“CDW”~~"CDW" refer to Parent and its 100% owned subsidiaries.

Parent has two 100% owned subsidiaries, CDW LLC and CDW Finance Corporation. CDW LLC is an Illinois limited liability company that, together with its 100% owned subsidiaries, holds all material assets and conducts all business activities and operations of the Company. CDW Finance Corporation is a Delaware corporation formed for the sole purpose of acting as co-issuer of certain debt obligations as described in Note 13 (Supplemental Guarantor Information) and does not hold any material assets or engage in any business activities or operations.

Basis of Presentation

The accompanying unaudited interim Consolidated Financial Statements as of September 30, ~~2017~~2018 and for the three and nine months ended September 30, 2018 and 2017 ~~and 2016~~ (the ~~“Consolidated~~"Consolidated Financial ~~Statements”~~Statements") have been prepared in conformity with accounting principles generally accepted in the United States of America ~~(“GAAP”~~("GAAP") and the rules and regulations of the US Securities and Exchange Commission (the ~~“SEC”~~"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 and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016 included in the Company's Current Report on Form 8-K dated August 25,~~ 2017 (the ~~“December~~"December 31, ~~2016~~2017 Consolidated Financial ~~Statements”~~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, ~~2016~~2017 Consolidated Financial ~~Statements.~~Statements except for changes from the adoption of Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, as amended ("Topic 606"), as discussed below. 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.

Effective January 1, 2018, the Company adopted the requirements of Topic 606 utilizing the full retrospective method as discussed in Note 2 (Recent Accounting Pronouncements). Prior period amounts have been adjusted accordingly.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The notes to the Consolidated Financial Statements contained in the December 31, ~~2016~~2017 Consolidated Financial Statements include a discussion of the significant accounting policies and estimates used in the preparation of the Company's Consolidated Financial Statements. ~~There~~Except as noted above for the adoption of Topic 606, there have been no material changes to the Company's significant accounting policies and estimates during the nine months ended September 30, ~~2017.~~ 2018.

Revenue Recognition

The Company is a primary distribution channel for a large group of vendors and suppliers, including original equipment manufacturers ("OEMs"), software publishers and wholesale distributors.

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial substance and collectability of consideration is probable. The Company evaluates the following indicators amongst others when determining whether it is acting as a principal in the transaction and recording revenue on a gross basis: (i) the Company is primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) the Company has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified good or service. If the terms of a transaction do not indicate the Company is acting as a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.

The Company recognizes revenue once control has passed to the customer. The following indicators are evaluated in determining when control has passed to the customer: (i) the Company has a right to payment for the product or service, (ii) the customer has legal title to the product, (iii) the Company has transferred physical possession of the product to the customer, (iv) the customer has the significant risk and rewards of ownership of the product and (v) the customer has accepted the product. The Company's products can be delivered to customers in a variety of ways, including (i) as physical product shipped from the Company's warehouse, (ii) via drop-shipment by the vendor or supplier or (iii) via electronic delivery of keys for software licenses. The Company’s shipping terms typically specify F.O.B. destination.

The Company leverages drop-shipment arrangements with many of its vendors and suppliers to deliver products to its customers without having to physically hold the inventory at its warehouses. The Company is the principal in the transaction and recognizes revenue for drop-shipment arrangements on a gross basis.

Revenue Recognition for Hardware

Revenues from sales of hardware products are recognized on a gross basis as the Company is acting as a principal in these transactions, with the selling price to the customer recorded as Net sales and the acquisition cost of the product recorded as Cost of sales. The Company recognizes revenue from these transactions when control has passed to the customer, which is usually upon delivery of the product to the customer.

In some instances, the customer agrees to buy the product from the Company but requests delivery at a later date, commonly known as bill-and-hold arrangements. For these transactions, the Company deems that control passes to the customer when the product is ready for delivery. The Company views products ready for delivery when the customer has a signed agreement, significant risk and rewards for the products, the ability to direct the assets, the products have been set aside specifically for the customer, cannot be redirected to another customer and for customer orders that include configuration services, when such services have been completed.

The Company's vendor partners warrant most of the products the Company sells. These manufacturer warranties are assurance-type warranties and are not considered separate performance obligations. The warranties are not sold separately and only provide assurance that products will conform with the manufacturer's specifications. In some transactions, a third-party will provide the customer with an extended warranty. These extended warranties are sold separately and provide the customer with a service in addition to assurance that the product will function as expected. The Company considers these service-type warranties to be separate performance obligations from the underlying product. For service-type warranties, the Company is arranging for those services to be provided by the third-party and therefore is acting as an agent in the transaction and records revenue on a net basis at the point of sale.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Accounting~~Revenue Recognition for ~~Derivative Instruments~~Software

Revenues from most software license sales are recognized as a single performance obligation on a gross basis as the Company is acting as a principal in these transactions at the point the software license is delivered to the customer. Generally, software licenses are sold with accompanying third-party delivered software assurance, which is a product that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during the period that the software assurance is in effect. The Company evaluates whether the software assurance is a separate performance obligation by assessing if the third-party delivered software assurance is critical or essential to the core functionality of the software itself. This involves considering if the software provides its original intended functionality to the customer without the updates, if the customer would ascribe a higher value to the upgrades versus the up-front deliverable, if the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality), and if the customer chooses to not delay or always install upgrades. If the Company determines that the accompanying third-party delivered software assurance is critical or essential to the core functionality of the software license, the software license and the accompanying third-party delivered software assurance are recognized as a single performance obligation. The value of the product is primarily the accompanying support delivered by a third-party and therefore the Company is acting as an agent in these transactions and recognizes them on a net basis at the point the associated software license is delivered to the customer. For software licenses where the accompanying third-party delivered software assurance is not critical or essential to the core functionality, the software assurance is recognized as a separate performance obligation, with the associated revenue recognized on a net basis at the point the related software license is delivered to the customer. For additional details regarding the accounting for bundled arrangements, see "Revenue Recognition for Bundled Arrangements" below.

Revenue Recognition for Services

The Company ~~has entered into interest rate cap agreements~~provides professional services, which include project managers and consultants recommending, designing and implementing IT solutions. Revenue from professional services is recognized either on a time and materials basis or recognized proportionally as costs are incurred for fixed fee project work. For time and materials projects, revenue is recognized on a gross basis each month as work is performed and the Company transfers those services.

The Company sells cloud computing solutions, which include Software as a Service ("SaaS") and Infrastructure as a Service ("IaaS"). SaaS solutions utilize third-party partners to offer the Company's customers access to software in the cloud that enhances office productivity, provides security or assists in collaboration. IaaS solutions utilize third-party partners to enable customers to access data center functionality in a cloud-based solution, including storage, computing and networking. The Company recognizes revenue for cloud computing solutions for arrangements with one-time invoicing to the customer at the time of invoice on a net basis as the Company is acting as an agent in the transaction. For monthly subscription-based arrangements, the Company is acting as an agent in the transaction and recognizes revenue as it invoices the customer for its monthly usage on a net basis.

Revenues from the sale of data center services, such as managed and remote managed services, server co-location, internet connectivity and data backup and storage provided by the Company, are recognized over the period the service is provided. Most hosting and managed service obligations are based on the quantity and pricing parameters established in the agreement. As the customer receives the benefit of the service each month, the Company recognizes the respective revenue on a gross basis as the Company is acting as a principal in the transaction. Additionally, the Company's managed services team provides project support to customers that are billed on a fixed fee basis. The Company is acting as the principal in the transaction and recognizes revenue on a gross basis based on the total number of hours incurred for the ~~purpose~~period over the total expected hours for the project. Total expected hours to complete the project is updated for each period and best represents the transfer of ~~hedging~~control of the service to the customer.

The Company's customers are offered the opportunity by certain of its ~~exposure~~vendors to ~~fluctuations~~purchase software licenses and software assurance under enterprise agreements ("EAs"), referred to as services in ~~interest rates.~~this paragraph. For most EA transactions, the Company's obligation to the customer is that of a distributor or sales agent of the services, where all obligations for providing the services to customers are passed to the Company's vendors. The ~~interest rate cap agreements~~Company's performance obligations are ~~designated~~satisfied at the time of the sale. In other EA transactions, the Company is responsible for fulfilling the promised services to the customer and providing remedy or refund for work if the customer is not satisfied with the delivered services, has inventory risk in the arrangement and has full control to set the price for the customer. This results in the Company acting as ~~cash flow hedges~~a principal in the agreement. With most EAs, the Company's vendors will transfer the license and invoice the customer

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

directly, paying resellers an agency fee or commission on these sales. The Company records these fees as a component of Net sales as earned and there is no corresponding Cost of sales amount.

Revenue Recognition for Bundled Arrangements

The Company also sells some of its products and services as part of bundled contract arrangements containing multiple deliverables, which may include a combination of products and services. For each deliverable that represents a distinct performance obligation, total arrangement consideration is allocated based upon the standalone selling prices of each performance obligation. The Company excludes amounts collected on behalf of third-parties, such as sales taxes, when determining the transaction price. For certain performance obligations, the Company will use a combination of methods to estimate the standalone selling price. When evidence from recent transactions is not available to confirm that the prices are representative of the standalone selling price, an expected cost plus a margin approach is used.

Sales In-Transit

The Company performs an analysis of the estimated number of days of sales in-transit to customers at the end of each reporting period based on a weighted-average analysis of commercial delivery terms that include drop-shipment arrangements. This analysis is the basis upon which the Company estimates the amount of Net sales in-transit at the end of the period and adjusts revenue and the related costs to reflect only what has been delivered to the customer. Changes in delivery patterns may result in a different number of business days estimated to make this adjustment.

Freight Costs

The Company records freight billed to its customers as Net sales and the related freight costs as a Cost of sales when the underlying product revenue is recognized. For freight not billed to its customers, the Company records the freight costs as a Cost of sales. The Company's typical shipping terms are F.O.B. destination, which results in shipping being performed before the customer obtains control of the product. The Company considers shipping to be a fulfillment activity and not a separate performance obligation.

Other

The nature of the Company's contracts give rise to variable consideration in the form of sales returns and allowances. The Company estimates variable consideration at the most likely amount to which it is expected to be entitled. This estimated amount is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of the Company's anticipated performance and all information that is reasonably available. At the time of sale, the Company records an estimate for sales returns and allowances and an associated right of return asset based on historical experience.

When a contract results in revenue being recognized in excess of the amount the Company has the right to invoice to the customer, a contract asset is recorded on the balance sheet. Contract assets are comprised primarily of professional services with fixed fee arrangements.

Contract liabilities consist of payments received from customers, or such consideration that is contractually due, in advance of providing the product or performing services. Contract liabilities are comprised primarily of professional services with fixed fee arrangements, bill-and-hold transactions where control has not passed to the customer and certain governmental contracts.

Trade accounts receivable are recorded at ~~fair value~~the point of sale (or in ~~Other assets~~accordance with the Statement of Work for services) for the total amount payable by the customer to the Company for sale of goods. Taxes to be collected from the customer as part of the sale are included in Accounts receivable.

Any incremental direct costs of obtaining a contract, primarily sales commissions, are deferred on the Consolidated Balance ~~Sheets.~~ Sheets and amortized over the period of contract performance.

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The ~~gain~~Company typically does not enter into long-term contracts. The Company has elected to use the practical expedient for its performance obligations table to show only those contracts that are longer than 12 months at the time of contract inception and those contracts that are non-cancelable. Additionally, for certain governmental contracts where there are annual renewals, the Company has excluded these contracts since there is only a one-year legal obligation. Typically, the only contracts that are longer than 12 months in duration are related to the Company's professional and managed services business.

The Company requests payments for its products and services at the point of sale. The Company generally does not enter into any long-term financing arrangements or loss on the derivative instruments is reported as a component of Accumulated Other Comprehensive Loss (“AOCL”) until reclassified to Interest expense in the same period the hedge transaction affects earnings.payment plans with customers or contracts with customers that have non-cash consideration.


2.	Recent Accounting Pronouncements

Accounting for Hedging Activities

In August 2017, the Financial Accounting Standards Board (the "FASB") issued ~~Accounting Standards Update ("ASU")~~ASU 2017-12, Derivatives and Hedging (Topic 815), intending to improve the transparency of information included in the financial statements by aligning cash flow and fair value hedge accounting with its risk management activities. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness for cash flow hedges and net investment hedges, and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The ASU also simplifies certain documentation and assessment requirements and will incorporate new disclosure requirements and amendments to existing disclosures. This ASU is effective for the Company beginning the first quarter of 2019 and allows for early adoption. The Company is currently evaluating the impact the ASU will have on its ~~Consolidated Financial Statements.~~

~~Accounting for Goodwill Impairment~~

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350). The amendments in this update eliminate step two of the current two-step process, which requires a hypothetical purchase price allocation when an impairment is determined to have occurred. This ASU 2017-04 is effective for the Company beginning in the first quarter of 2020 and allows for early adoption. The Company elected to early adopt this standard during the third quarter of 2017. The Company will continue to perform the quantitative goodwill impairment evaluation by comparing the fair value of each reporting unit to its carrying amount. Under the new standard, if the Company is required to recognize an impairment charge, the amount of the charge will be measured as the excess of a reporting unit's carrying amount over its fair value, not to exceed the carrying amount of goodwill. The adoption of this ASU did not have an impact on the Company's Consolidated Financial Statements.

~~Classification of Certain Cash Receipts and Cash Payments~~

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230), providing guidance for eight specific cash flow issues with the objective of reducing the existing diversity in practice. Among the updates, this standard requires cash payments for debt extinguishment costs to be classified as cash outflows from financing activities, which is consistent with the Company's current practice. This ASU is effective for the Company beginning in the first quarter of 2018 and allows for early adoption. The Company elected to early adopt this standard during the third quarter of 2017. The adoption of this ASU did not have an impact on the Company's Consolidated Financial Statements.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the assumptions, models and methods for estimating expected credit losses. This ASU is effective for the Company beginning in the first quarter of 2020 and allows for early adoption beginning in the first quarter of 2019. The Company is currently evaluating the impact the ASU will have on its Consolidated Financial Statements.

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~~CDW CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Accounting for Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), ~~requiring~~which, together with amendments issued during 2018, requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. This ASU is effective for the Company beginning in the first quarter of 2019 and allows for early adoption. ~~Although~~Entities are required to use the ~~Company is currently evaluating~~modified retrospective approach, with the ~~provisions~~option of applying the requirements of the ASU to determine how it will be affected, the primary impact to the Company of the new ASU will be to record assets and liabilities for current operating leases, which are principally related to the Company’s real estate portfolio.

~~Revenue Recognition~~

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which, along with amendments issued in 2015 and 2016, will replace most existing revenue recognition guidance under GAAP and eliminate industry-specific guidance. The core principle of the new guidance is that an entity should recognize revenue for the transfer of goods and services equal to an amount it expects to be entitled to receive for those goods and services. The ASU, as amended, will be effective for the Company beginning in the first quarter of 2018, and allows for early adoption in the first quarter of 2017. The new guidance permits two methods of adoption:standard either (1) retrospectively to each prior comparative reporting period presented ~~(full retrospective method),~~ or (2) retrospectively ~~with the cumulative effect of initially applying the guidance recognized~~ at the ~~date~~beginning of ~~initial application (the cumulative catch-up~~the period of adoption.

The Company plans to adopt the standard on January 1, 2019, and will apply it at the beginning of the period of adoption. Therefore, upon adoption, financial information and disclosures will not be updated for comparative reporting periods under the new standard. Additionally, the Company intends to elect the transition ~~method).~~

package of practical expedients upon adoption which, among other things, allows an entity to not reassess the historical lease classification. The Company has established a cross-functional implementation team to analyze the effect of the ASU. The Company utilized a combination of a bottom-up and top-down approach to identify and analyze its lease portfolio. The analysis included reviewing all forms of leases, performing a completeness assessment over the ~~impact~~lease population, assessing the policy elections offered by the standard and evaluating its business processes and internal controls to meet the ASU's accounting, reporting and disclosure requirements.

The Company expects adoption of the standard will have an impact on ~~its contract portfolio by reviewing~~ the ~~current accounting policies and practices to identify potential differences that would result from applying~~Consolidated Balance Sheet. The Company does not expect the ~~requirements~~adoption of the ~~new~~ standard to ~~its revenue contracts. In addition,~~impact the ~~Company identified, and is in~~Consolidated Statements of Operations or the process of implementing, appropriate changes to its business processes, systems and controls to support recognition and disclosure under the new standard. The implementation team reports its findings and progress of the project to management and the Audit Committee on a frequent basis.Consolidated

~~The Company will adopt the guidance on January 1, 2018, and will utilize the full retrospective method.~~

~~The Company has finalized its accounting policies under the new standard and it has determined:~~

The accounting for bill and hold transactions will result in revenue for certain of those arrangements being recognized earlier than under current GAAP. This change will not materially impact Net sales or Net income;

In certain security software transactions when accompanying third-party delivered software assurance is deemed to be critical or essential to the core functionality of the software license, the Company has determined that the software license and the accompanying third-party delivered software assurance are a single performance obligation. The value of the product is primarily the accompanying support delivered by a third-party and therefore the Company is acting as an agent in these transactions and will recognize them on a net basis. The Company currently recognizes revenue from the software license on a gross basis (i.e., acting as a principal) and accompanying third-party delivered software assurance on a net basis. While this change will not impact reported Gross profit, the Company estimates the impact of this on the 2016 full-year results would have been to reduce both Net sales and Cost of sales by $250 - $350 million; and

~~The accounting for revenue related to hardware, software (excluding the above) and professional services will remain substantially unchanged.~~


3.	~~Goodwill~~

The Company performs an evaluation of goodwill, utilizing either a quantitative or qualitative impairment test, on an annual basis, or more frequently if circumstances or events require an evaluation. In connection with the segment change described in Note 13 (Segment Information), the Company performed a quantitative analysis of the legacy Corporate reporting unit's fair value prior to the allocation of goodwill to the Small Business reporting unit. Based on the results of the quantitative analysis performed as of January 1, 2017, the Company determined that the fair values of the Corporate and Small Business reporting units exceeded their carrying values and no impairment existed. Using this valuation, the Company allocated the carrying value of goodwill between Small Business and Corporate based on the relative fair values determined by the quantitative test. The Public, CDW UK and CDW Canada operating segments were not impacted by the segment change and therefore no impairment analysis was required.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statements of Cash Flows. The most significant effect of the new standard on the Consolidated Balance Sheet relates to the recognition of right-of-use assets and lease liabilities for the Company’s real estate portfolio. The Company will also be providing new disclosures for its leasing activities.

Revenue Recognition

On January 1, 2018, the Company adopted Topic 606 and utilized the full retrospective method. For additional details, see Note 1 (Description of Business and Summary of Significant Accounting Policies).

The adoption of Topic 606 impacted the Company's results as follows:



	Three Months Ended September 30, 2017⁽¹⁾									Nine Months Ended September 30, 2017⁽¹⁾
(in millions) (except per share amounts)	As Reported			New Revenue Standard Adjustment			As Adjusted			As Reported			New Revenue Standard Adjustment			As Adjusted
Net sales	$	4,033.9		$	(100.7	)	$	3,933.2		$	11,353.0		$	(272.2	)	$	11,080.8
Gross profit	642.0			0.2			642.2			1,835.6			0.9			1,836.5
Gross profit margin	15.9		%	40 bps			16.3		%	16.2		%	40 bps			16.6		%

Income from operations	243.7			0.3			244.0			644.6			1.0			645.6
Income tax expense	(77.4		)	(0.2		)	(77.6		)	(147.9		)	(0.5		)	(148.4		)
Net income	$	129.2		$	0.1		$	129.3		$	327.8		$	0.5		$	328.3

Net income per common share
Basic	$	0.84		$	—		$	0.84		$	2.10		$	—		$	2.10
Diluted	$	0.83		$	—		$	0.83		$	2.06		$	—		$	2.06


4.(1)	~~Inventory Financing Agreements~~Amounts may not foot or cross-foot due to rounding.

The adoption of Topic 606 impacted the Company's Consolidated Balance Sheet as follows:



	December 31, 2017⁽¹⁾
(in millions)	As Reported		New Revenue Standard Adjustment			As Adjusted
Accounts receivable	$	2,320.5	$	8.8		$	2,329.3
Merchandise inventory	449.5		(38.0		)	411.5
Miscellaneous receivables	336.5		6.5			343.0
Prepaid expenses and other	127.4		40.9			168.3
Total current assets	3,378.1		18.2			3,396.3

Other assets	40.8		(8.1		)	32.7
Total assets	6,956.6		10.1			6,966.7

Contract liabilities	194.0		(35.2		)	158.8
Income tax payable	15.1		1.1			16.2
Other accrued expenses	180.2		41.6			221.8
Total current liabilities	2,514.6		7.5			2,522.1

Total liabilities	5,973.7		7.5			5,981.1
Total stockholders’ equity	$	982.9	$	2.7		$	985.6


(1)	Amounts may not foot or cross-foot due to rounding.

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3. 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.~~conditions, as described below. These amounts are classified separately as Accounts payable-inventory financing on the Consolidated Balance Sheets. The Company does not incur any interest expense associated with these agreements as balances are paid when they are due.

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



(in millions)	September 30, 2018		December 31, 2017
Revolving Loan inventory financing agreement⁽¹⁾	$	394.8	$	480.9
Other inventory financing agreements	12.8		17.1
Accounts payable-inventory financing	$	407.6	$	498.0

(in millions) September 30, 2017 December 31, 2016
Revolving Loan inventory financing agreement⁽¹⁾
$ 503.8
$ 558.3
Other inventory financing agreements⁽²⁾
37.5
22.1
Accounts payable-inventory financing $ 541.3
$ 580.4


(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, 2017 and December 31, 2016, amounts less than $3 million each, were collateralized by the inventory purchased under these financing agreements and a second lien on the related accounts receivable.

4. Contract Liabilities and Remaining Performance Obligations

The Company's contract liabilities consist of payments received from customers, or such consideration that is contractually due, in advance of providing the product or performing services. The Company's contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. As of September 30, 2018 and December 31, 2017, the contract liability balance was $188 million and $159 million, respectively. During the nine months ended September 30, 2018 and 2017, the Company recognized revenue of $153 million and $126 million, respectively, related to its contract liabilities.

A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For more information regarding the Company's performance obligations, see Note 1 (Description of Business and Summary of Significant Accounting Policies). The following table represents the total transaction price for the remaining performance obligations as of September 30, 2018 related to non-cancelable contracts longer than 12 months in duration that is expected to be recognized over future periods.



(in millions)	Within 1 Year		Years 1-2		Years 2-3		Thereafter
Remaining performance obligations	$	38.2	$	24.3	$	6.3	$	0.5


5.	Financial Instruments

The ~~Company’s~~Company's indebtedness creates interest rate risk on its variable-rate debt. The Company uses derivative financial instruments to manage its exposure to interest rate risk. The Company does not hold or issue derivative financial instruments for trading or speculative purposes.

The Company has interest rate cap agreements that entitle it to payments from the counterparty of the amount, if any, by which three-month LIBOR exceeds the strike rates of the caps during the agreement period in exchange for an upfront premium. During the first quarter of 2018, the Company entered into interest rate cap agreements with a combined notional value of $1.4 billion resulting in premiums paid to the counterparties of $13 million. As of September 30, 2018 and December 31, 2017, the Company had the following interest rate cap agreements for which the fair values are classified within Other assets on the Consolidated Balance Sheets:



				September 30, 2018		December 31, 2017
Notional Value (in millions)		Effective Date	Maturity Date	Fair Value (in millions)		Fair Value (in millions)
$	1,400.0	January 17, 2017	December 31, 2018	$	3.2	$	5.4
1,400.0		December 31, 2018	December 31, 2020	19.0		—
				$	22.2	$	5.4

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of the ~~Company’s~~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~~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~~third-party credit data provider.

For additional details, see Note 6 (Long-Term Debt).

The interest rate cap agreements ~~entitle the Company to payments from the counterparty of the amount, if any, by which three-month LIBOR exceeds 1.5% during the agreement period. The interest rate cap agreements~~ are in effect from January 17, 2017 through December 31, 2018 with a combined notional amount of $1,400 million. As of September 30, 2017 and December 31, 2016, the interest rate cap agreements had a fair value of $3 million and $5 million, respectively, and are classified within Other Assets on the Consolidated Balance Sheets.

~~During the first quarter of 2017, the Company~~ designated ~~the interest rate cap agreements~~ as cash flow hedges. The effective portion of changes in the fair value of derivatives that qualify as cash flow hedges is recorded in ~~AOCL~~Accumulated other comprehensive loss and is subsequently reclassified into Interest expense in the period when the hedged forecasted transaction affects earnings. If a derivative is deemed to be ineffective, the ineffective portion of the change in fair value of the derivative is recognized directly ininto earnings. The Company's interest rate cap agreements were deemed effective during both the nine months ended September 30, 2018 and 2017, and the Company expects ~~they~~the derivatives will continue to be effective for the next twelve months. ~~The~~During the three months ended September 30, 2018 and 2017, the Company recorded an insignificant gain for the effective portion of the interest rate cap agreements ~~in AOCL for~~into Accumulated other comprehensive loss. During the ~~three~~nine months ended September 30, ~~2017. The~~2018 and 2017, the Company recorded a $6 million gain and a $1 million loss, respectively, net of a tax, ~~benefit of less than $1 million,~~ for the effective portion of the interest rate cap agreements ~~in AOCL for the nine months ended September 30, 2017.~~into Accumulated other comprehensive loss. During the three and nine months ended September 30, ~~2017,~~2018, the Company reclassified ~~an insignificant amount~~$1 million and $3 million, respectively, from ~~AOCL into~~Accumulated other comprehensive loss to earnings within Interest ~~expense.~~expense, net on the Consolidated Statement of Operations. The Company expects to reclassify $4$5 million from ~~AOCL~~Accumulated other comprehensive loss into Interest expense, net during the next twelve months.

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~~CDW CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Prior to the election of hedge accounting treatment during the first quarter of 2017, the Company recognized less than $1 million of Interest income during the nine months ended September 30, 2017 in the Company's Consolidated Statement of Operations ~~for both the three and nine months ended September 30, 2017 and less than $1 million of Interest expense for both the three and nine months ended September 30, 2016~~ related to the changes in the fair value of the interest rate cap agreements.

~~For additional details, see Note 6 (Long-Term Debt).~~


6.	Long-Term Debt

Long-term debt as of September 30, ~~2017~~2018 is as follows:


(dollars in millions)	Interest Rate		Principal			Unamortized Discount and Deferred Financing Costs			Total			Interest Rate		Principal			Unamortized Discount and Deferred Financing Fees			Total
Senior secured asset-based revolving credit facility⁽¹⁾	2.9	%	$	176.0		$	—		$	176.0		—	%	$	—		$	—		$	—
CDW UK revolving credit facility⁽¹⁾	1.7	%	16.1			—			16.1			2.1	%	6.5			—			6.5
Senior secured term loan facility(1)	3.3	%	1,471.8			(2.2		)	1,469.6			3.8	%	1,456.9			(2.7		)	1,454.2
CDW UK term loan	1.7	%	75.0			(1.3		)	73.7			2.3	%	66.5			(1.1		)	65.4
Senior notes due 2023	5.0	%	525.0			(4.7		)	520.3			5.0	%	525.0			(3.8		)	521.2
Senior notes due 2024	5.5	%	575.0			(5.4		)	569.6			5.5	%	575.0			(4.6		)	570.4
Senior notes due 2025	5.0	%	600.0			(7.6		)	592.4			5.0	%	600.0			(6.6		)	593.4
Other long-term obligations			12.2			—			12.2					8.3			—			8.3
Total debt			3,451.1			(21.2		)	3,429.9					3,238.2			(18.8		)	3,219.4
Less current maturities			(41.5		)	—			(41.5		)			(32.0		)	—			(32.0		)
Long-term debt, excluding current maturities			$	3,409.6		$	(21.2	)	$	3,388.4				$	3,206.2		$	(18.8	)	$	3,187.4


(1)	The Senior secured term loan facility has a variable interest rate, which has effectively been capped through the use of an interest rate cap (see Note 5 (Financial Instruments)). The interest rate disclosed represents the variable interest rate in effect as of September 30, 2018.

~~(1)Represents a weighted-average interest rate.~~

~~Long-term debt as of December 31, 2016 is as follows:~~

(dollars in millions) Interest
Rate Principal Unamortized Discount and Deferred Financing Costs Total
Senior secured asset-based revolving credit facility — % $ —
$ —
$ —
CDW UK revolving credit facility — % —
—
—
Senior secured term loan facility 3.3 % 1,483.0
(14.9 ) 1,468.1
CDW UK Term Loan 1.8 % 69.1
(1.6 ) 67.5
Senior notes due 2022 6.0 % 600.0
(5.6 ) 594.4
Senior notes due 2023 5.0 % 525.0
(5.3 ) 519.7
Senior notes due 2024 5.5 % 575.0
(6.0 ) 569.0
Other long-term obligations 15.7
—
15.7
Total debt 3,267.8
(33.4 ) 3,234.4
Less current maturities (18.5 ) —
(18.5 )
Long-term debt, excluding current maturities $ 3,249.3
$ (33.4 ) $ 3,215.9

1215

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-term debt as of December 31, 2017 is as follows:



(dollars in millions)	Interest Rate		Principal			Unamortized Discount and Deferred Financing Fees			Total
Senior secured asset-based revolving credit facility	—	%	$	—		$	—		$	—
CDW UK revolving credit facility	—	%	—			—			—
Senior secured term loan facility ⁽¹⁾	3.7	%	1,468.0			(2.0		)	1,466.0
CDW UK term loan	1.9	%	75.7			(1.4		)	74.3
Senior notes due 2023	5.0	%	525.0			(4.5		)	520.5
Senior notes due 2024	5.5	%	575.0			(5.2		)	569.8
Senior notes due 2025	5.0	%	600.0			(7.3		)	592.7
Other long-term obligations			12.2			—			12.2
Total debt			3,255.9			(20.4		)	3,235.5
Less current maturities			(25.5		)	—			(25.5		)
Long-term debt, excluding current maturities			$	3,230.4		$	(20.4	)	$	3,210.0


(1)	The Senior secured term loan facility has a variable interest rate, which has effectively been capped through the use of an interest rate cap (see Note 5 (Financial Instruments)). The interest rate disclosed represents the variable interest rate in effect as of December 31, 2017.

Senior Secured ~~Asset-Based~~Asset-based Revolving Credit Facility (“("Revolving ~~Loan”~~Loan")

As of September 30, ~~2017,~~2018, the Company had ~~$176 million of~~no outstanding borrowings under the Revolving Loan, less than $1 million of undrawn letters of credit, ~~$480~~$379 million reserved for the floorplan sub-facility and a borrowing base of ~~$1,872 million,~~$2.0 billion, which is based on the amount of eligible inventory and accounts receivable balances as of August 31, ~~2017.~~2018. Borrowings under the Revolving Loan are limited by the borrowing base. As of September 30, ~~2017,~~2018, the Company could have borrowed up to an additional ~~$794 million~~$1.1 billion under the Revolving Loan. Borrowings are also limited by a minimum liquidity condition, which provides that, if excess cash availability is less than the lower of (i) $125 million and (ii) the greater of (a) 10.0% of the borrowing base, and (b) $100 million, the lenders are not required to lend additional amounts under the Revolving Loan unless the consolidated fixed charge coverage ratio, as defined, is at least 1.00 to 1.00.

Borrowings under the Revolving Loan bear interest at a variable interest rate plus an applicable margin. The interest rate margin is based on one of two indices, either (i) LIBOR or (ii) the Alternate Base Rate ~~(“ABR”~~("ABR"), with the ABR being the greater of (a) the prime rate, (b) the federal funds effective rate plus 50 basis points or (c) the one-month LIBOR plus 1.00%. The applicable margin varies (1.25% to 1.75% for LIBOR borrowings and 0.25% to 0.75% for ABR borrowings) depending upon average daily excess cash availability under the agreement evidencing the Revolving Loan.

~~On March 31,~~During the nine months ended September 30, 2017, the Company amended, extended and increased its Revolving Loan to a five-year, $1,450 million senior secured asset-based revolving credit facility, with the facility being available to the Company for borrowings, issuance of letters of credit and floorplan financing. The Revolving Loan matures on March 31, 2022. The Revolving Loan replaces the Company’s previousprior revolving loan ~~credit facility that was to mature on June 6, 2019. The~~("Prior Revolving Loan (i) increases the overall revolving credit facility capacity available to the Company from $1,250 million to $1,450 million, (ii) maintains the maximum aggregate amount of increases that may be made to the revolving credit facility of $300 million, (iii) maintains the fees on the unused portion of the revolving credit facility at 25 basis points, (iv) makes permanent the 25 basis point reduction in the applicable interest rate margin that was previously conditioned on meeting certain credit ratings levels,Loan") and ~~(v) maintains the existing inventory floorplan sub-facility. In connection with the amendment of the previous facility, the Company~~ recorded a loss on extinguishment of long-term debt of $1 million in the Consolidated Statement of Operations, ~~for the nine months ended September 30, 2017,~~ representing a write-off of a portion of unamortized deferred financing ~~costs.~~fees. Fees of $4 million related to the Prior Revolving Loan were capitalized as deferred financing ~~costs~~fees and are being amortized over the five-year term of the facility on a straight-line basis. These deferred financing ~~costs~~fees are recorded in the Other assets line on the Consolidated Balance Sheets.

Senior Secured Term Loan Facility (“("Term ~~Loan”~~Loan")

On ~~September 30, 2017, the outstanding principal amount of the Term Loan was $1,472 million, excluding $2 million of deferred financing costs. On February 28, 2017,~~April 3, 2018, the Company amended the Term Loan, ~~to reprice the facility,~~ reducing interest ~~rate~~ margins by 25 basis points. Borrowings under the Term Loan continue to bear interest at either ~~(a) the ABR~~(i) LIBOR plus a margin or (ii) the Alternative Base Rate ("ABR"), with the ABR being the greater of (a) the prime rate, (b) the federal funds effective rate plus 50 basis points or (c) the one-month LIBOR plus a margin. The amended margin is 1.75% for LIBOR borrowings and 0.75% for ABR borrowings effective April 3, 2018. Additionally, the Company amended its covenant on restricted payments, such that the Company is permitted to make restricted payments so long as the total net leverage ratio is less than 3.75:1.00 on a pro forma basis.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2018, the outstanding principal amount of the Term Loan was $1.5 billion, excluding $3 million of deferred financing fees. Borrowings under the Term Loan are 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 1.00% for ABR borrowings and 2.00% for LIBOR borrowings as of September 30, 2017.~~

The Term Loan was issued at par. The Term Loan replaced the prior senior secured term loan facility (the “Prior Term Loan Facility”) that had an outstanding aggregate principal amount of $1,483 million. The Company is required to pay quarterly principal installments ~~equal to 0.25%~~ of ~~the original principal amount of the Prior Term Loan Facility,~~$4 million with the remaining principal amount payable on the maturity date of August 17, ~~2023, which was retained from~~2023.

During the nine months ended September 30, 2017, the Company amended its prior $1.5 billion senior secured term loan facility ("Prior Term Loan ~~Facility. In connection with this refinancing, the Company~~Facility") and recorded a loss on extinguishment of long-term debt of $14 million in the Consolidated Statement of ~~Operations for the nine months ended September 30, 2017.~~Operations. This loss represented the write-off of a portion of the unamortized deferred financing ~~costs~~fees of $5 million and unamortized discount related to the Prior Term Loan Facility of $9 million. In connection with the issuance of the Term Loan, the Company incurred and recorded $2 million in deferred financing ~~fees, which is recorded as a reduction to the debt and presented in the above table as of September 30, 2017.~~fees.

CDW UK Term Loan and Revolving Credit Facility

~~On August 1, 2016,~~As of September 30, 2018, the ~~Company entered into a new five-year £56~~outstanding principal amount of the CDW UK Term Loan facility ("CDW UK Term Loan") was £51 million ($7566 million at September 30, ~~2017) aggregate principal amount term loan facility (“CDW UK Term Loan”)~~2018), ~~which replaced the prior senior secured term loan facility (the “Prior CDW UK Term Loan Facility”) that had an outstanding principal amount~~excluding £1 million ($1 million at September 30, 2018) of ~~£56 million. Fees of $1 million were capitalized as~~ deferred financing ~~costs and are being amortized over the loan on a straight-line basis.~~fees.

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~~CDW CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Commencing during the quarter ending September 30, 2018, the~~The Company is required to make annual principal installments of £5 million ($7 million at September 30, ~~2017)~~2018), with the remaining principal amount payable on the maturity date of August 1, 2021. Borrowings under the CDW UK Term Loan bear interest at LIBOR plus a margin, payable quarterly on the last day of each March, June, September and December. As of September 30, ~~2017,~~2018, an interest rate of ~~1.69%~~2.29% was in effect, which represents LIBOR plus a 1.40% margin.

~~In connection with this refinancing, the Prior~~The CDW UK Term Loan ~~Facility was amended to include both the CDW UK Term Loan and~~also includes a separate £50 million ($6765 million at September 30, ~~2017)~~2018) revolving credit facility (the ~~“CDW~~"CDW UK Revolving Credit ~~Facility”~~Facility"). As of September 30, ~~2017,~~2018, the Company ~~has borrowed £12~~had £5 million ($167 million at September 30, ~~2017) from~~2018) of outstanding borrowings under the CDW UK Revolving Credit Facility.

~~6.0%~~5.0% Senior Notes due ~~2022 (“2022~~2023 ("2023 Senior ~~Notes”~~Notes")

OnAs of September 30, 2018, the outstanding principal amount of the 2023 Senior Notes was $525 million. The 2023 Notes will mature on September 1, 2023 and bear interest at a rate of 5.0% per annum, payable semi-annually on March 2,1 and September 1 of each year.

5.5% Senior Notes due 2024 ("2024 Senior Notes")

As of September 30, 2018, the outstanding principal amount of the 2024 Senior Notes was $575 million. The 2024 Senior Notes will mature on December 1, 2024 and bear interest at a rate of 5.5% per annum, payable semi-annually on June 1 and December 1 of each year.

5.0% Senior Notes due 2025 ("2025 Senior Notes")

As of September 30, 2018, the outstanding principal amount of the 2025 Senior Notes was $600 million. The 2025 Senior Notes will mature on September 1, 2025 and bear interest at a rate of 5.0% per annum, payable semi-annually on March 1 and September 1 of each year.

During the nine months ended September 30, 2017, the Company completed the issuance of the 2025 Senior Notes at par. The proceeds from the issuance of the 2025 Senior Notes ~~discussed below,~~ along with cash on hand and proceeds from Revolving Loan borrowings were deposited ~~with the trustee~~ to redeem all of the then remaining $600 million aggregate principal amount of the 2022 Senior Notes at a redemption price of 106.182% of the principal amount redeemed, plus accrued and unpaid interest through the date of redemption. The redemption date was April 2, 2017. On the same date, the indenture governing the ("2022 Senior ~~Notes was satisfied and discharged.~~Notes"). In connection with this redemption, the Company recorded a loss on extinguishment of long-term debt of $43 million in the Consolidated Statement of Operations for the nine months ended September 30, 2017. This loss represents $37 million in redemption premium and $6 million for the write-off of the remaining deferred financing ~~costs~~fees related to the 2022 Senior Notes.

~~5.0% Senior Notes due 2023 (“2023 Senior Notes”)~~

~~At September 30, 2017, the outstanding principal amount of the 2023 Senior Notes was $525 million. The 2023 Notes will mature on September 1, 2023~~Debt Guarantors, Covenants and ~~bear interest rate of 5.0% per annum, payable semi-annually on March 1 and September 1 of each year.~~

~~5.5% Senior Notes due 2024 (“2024 Senior Notes”)~~

At September 30, 2017, the outstanding principal amount of the 2024 Senior Notes was $575 million. The 2024 Senior Notes will mature on December 1, 2024 and bear interest at a rate of 5.5% per annum, payable semi-annually on June 1 and December 1 of each year.

~~5.0% Senior Notes due 2025 (“2025 Senior Notes”)~~

On March 2, 2017, the Company completed the issuance of $600 million aggregate principal amount of 2025 Senior Notes at par. In connection with the issuance of the 2025 Senior Notes, the Company incurred and recorded $8 million in deferred financing fees, which is recorded as a reduction to the debt and presented in the above table as of September 30, 2017.

At September 30, 2017, the outstanding principal amount of the 2025 Senior Notes was $600 million. The 2025 Senior Notes will mature on September 1, 2025 and bear interest at a rate of 5.0% per annum, payable semi-annually on March 1 and September 1 of each year.

~~Debt Covenants~~

Restrictions

CDW LLC is the borrower under the Term Loan and Revolving Loan. CDW LLC and CDW Finance Corporation are the co-issuers of the 2023, 2024 and 2025 Senior Notes (“("Senior ~~Notes”~~Notes"). The obligations under the Term Loan, the Revolving Loan and the Senior Notes are guaranteed by Parent and each of CDW LLC's direct and indirect, wholly owned, US subsidiaries (the ~~“Guarantors”~~"Guarantors").

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Revolving Loan is collateralized by a first priority interest in inventory (excluding inventory collateralized under the inventory floorplan arrangements as described in Note 3 (Inventory Financing Agreements)), deposits and accounts receivable and by a second priority interest in substantially all US assets.

The Term Loan is collateralized by a second priority interest in substantially all inventory (excluding inventory collateralized under the inventory floorplan arrangements as described in Note 3 (Inventory Financing Agreements)), deposits and accounts receivable and by a first priority interest in substantially all other US assets.

As of September 30, ~~2017,~~2018, the Company remained in compliance with the covenants under its various credit agreements. The Term Loan contains negative covenants that, among other things, place restrictions and limitations on the ability of the Guarantors to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other indebtedness, make distributions or other restricted payments, create liens, make equity or debt investments, make acquisitions, engage in mergers or consolidations or engage in certain transactions with affiliates. As of September 30, ~~2017,~~2018, the amount of ~~CDW’s~~CDW's restricted payment capacity under the Term Loan was ~~$1,056 million. However, the Company is separately~~

~~Table of Contents~~

~~CDW CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~permitted to make restricted payments, so long as the total net leverage ratio is less than 3.25:1.00 on a pro forma basis.~~$1.4 billion. The total net leverage ratio was ~~2.88:~~2.33:1.00 as of September 30, ~~2017.~~2018.

Each of the Senior Notes indentures contain negative covenants that, among other things, place restrictions and limitations on the ability of the Guarantors to enter into sale and lease-back transactions, incur additional secured indebtedness and create liens. The indenture governing each of the Senior Notes do not contain any financial covenants.

The CDW UK Term Loan ~~Agreement~~ imposes restrictions on CDW UK's ability to transfer funds to the Company through the payment of dividends, repayment of intercompany loans, advances or subordinated debt that require, among other things, the maintenance of a minimum net leverage ratio. As of September 30, ~~2017,~~2018, the amount of restricted payment capacity under the CDW UK Term Loan was ~~£56~~£117 million ($75152 million at September 30, ~~2017)~~2018).

Fair Value

The fair values of the Senior Notes were estimated using quoted market prices for identical liabilities that are traded in over-the-counter secondary markets that are not considered active. The fair value of the Term Loan was estimated using dealer quotes for identical liabilities in markets that are not considered active. The Senior Notes, Term Loan ~~Revolving Loan~~ and the CDW UK Term Loan are classified as Level 2 within the fair value hierarchy. The carrying value of the Revolving Loan and the CDW UK Revolving Credit Facility approximate fair value if there are outstanding borrowings. As of September 30, 2018, the carrying value of the CDW UK Term Loan approximated fair value. 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,~~fees, were as follows:



(in millions)	September 30, 2018		December 31, 2017
Fair value	$	3,275.3	$	3,366.5
Carrying value	3,238.2		3,255.9

(in millions) September 30, 2017 December 31, 2016
Fair value $ 3,583.8
$ 3,334.8
Carrying value 3,451.1
3,267.8


7.	~~Income Taxes~~

7. Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. The Tax Cuts and Jobs Act changes several aspects of US federal tax law including: reducing the US corporate income tax rate from 35.0% to 21.0% beginning on January 1, 2018; a one-time tax on the deemed mandatory repatriation of the Company's unremitted foreign earnings which have not been subject to US tax; imposing a minimum US tax on foreign earnings; providing for the immediate expensing of certain qualified property; and changing the tax treatment of performance-based executive compensation and certain employee fringe benefits.

The SEC issued Staff Accounting Bulletin 118 allowing for provisional amounts to be recorded during a measurement period not to exceed one year. The Company recorded during the year ended December 31, 2017 provisional amounts for the impact of revaluing deferred tax assets and liabilities, the deemed mandatory repatriation tax on the Company's unremitted foreign earnings and the state income tax effects from the changes in federal tax law during the year ended December 31, 2017. The Company adjusted the US federal provisional amounts during the three and nine months ended September 30, 2018, recording a net tax benefit of $2 million. The adjustment was driven by the rate differential on adjustments to temporary book-tax differences made in finalizing the 2017 federal income tax return and finalizing the deemed mandatory repatriation tax on the Company’s unremitted foreign earnings. The Company continues to analyze

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the state income tax effects of the changes in federal tax law and will adjust the related provisional amounts within the one-year measurement period.

Income tax expense was ~~$77~~$55 million for the three months ended September 30, ~~2017,~~2018, compared to ~~$72~~$78 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 ~~37.5%~~22.9% for the three months ended September 30, ~~2017~~2018 and differed from the US federal statutory rate of 21.0% primarily due to state income taxes ~~a $1 million deferred~~partially offset by excess tax benefits on equity-based compensation. The effective tax rate for the same period of the prior year was 37.5% and differed from the US federal statutory rate of 35.0% primarily due to state income taxes and additional expense as a result of a change in state tax rates enacted during the quarter, ~~a $1 million~~partially offset by excess tax ~~benefit related to~~benefits on equity-based compensation and a state tax refund. The effective tax rate for the same period of the prior year was 36.5% and differed from the US federal statutory rate primarily due to state and local income taxes and a $1 million tax benefit as a result of equity-based compensation.

Income tax expense was ~~$148~~$150 million for the nine months ended September 30, ~~2017,~~2018, compared to ~~$188~~$148 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 ~~31.1%~~23.7% for the nine months ended September 30, ~~2017~~2018 and differed from the US federal statutory rate of 21.0% primarily due to ~~$31 million of~~state income taxes partially offset by excess tax benefits ~~related to~~on equity-based compensation. The effective tax rate for the same period of the prior year was ~~37.0%~~31.1% and differed from the US federal statutory rate of 35.0% primarily due to excess tax benefits on equity-based compensation, partially offset by state ~~and local income taxes and $1 million tax benefit as a result of equity-based compensation.~~

taxes.


8.	~~Earnings per Share~~Stockholders' Equity

~~The numerator for both basic and diluted earnings per share is Net income. The denominator for basic earnings per share is~~On February 14, 2018, the ~~weighted-average~~Company retired 109,207 shares ~~outstanding during~~of its treasury stock. On December 31, 2017 the ~~period. A reconciliation~~shares were acquired in satisfaction 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) 2017 2016 2017 2016
Basic weighted-average shares outstanding 153.8
162.1
156.3
164.8
Effect of dilutive securities⁽¹⁾
2.4
2.8
2.9
2.1
Diluted weighted-average shares outstanding⁽²⁾
156.2
164.9
159.2
166.9


~~(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.

~~Table~~withholding taxes which were paid by the Company on behalf of ~~Contents~~coworkers under the Performance Share Awards program.

~~CDW CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


~~(2)~~	There were less than 1 million potential common shares excluded from diluted weighted-average shares outstanding for both the three and nine months ended September 30, 2017 and 2016 as their inclusion would have had an anti-dilutive effect.


9.	~~Stockholders' Equity~~Equity-Based Compensation

On August ~~3, 2017,~~1, 2018, 456,613 stock options granted by one of the sellers of CDW UK to certain CDW UK coworkers as part of the Company's acquisition of CDW UK vested. These equity awards had a weighted-average grant-date fair value of $35.93 per option. In connection with the exercise of such options, the seller of CDW UK distributed shares of common stock to each participant and withheld the number of shares of common stock equal to the respective tax withholding for each participant. The seller of CDW UK then transferred such withheld shares to the Company ~~announced that its Board~~to satisfy the tax withholding for participants. The Company was required to pay withholding taxes of ~~Directors authorized~~$19 million to Her Majesty’s Revenue and Customs taxing authority related to the exercise of these options. This amount is reported as a ~~$750 million~~financing activity in the Consolidated Statement of Cash Flows and as an increase to Accumulated Deficit in the ~~share repurchase program~~Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2018.

On December 31, 2017, 321,880 Performance Share Units ("PSUs") under ~~which~~the 2013 Long-Term Incentive Plan vested, representing a vesting rate for the 2015-2017 performance period of 192.0% of target. The PSUs had a weighted-average grant-date fair value of $37.84 per unit. In connection with the PSUs that vested, the Company ~~may repurchase~~distributed shares of ~~its~~ common stock to each participant during the nine months ended September 30, 2018 and withheld the number of shares of common stock equal to the respective tax withholding for each participant. The Company was required to pay withholding taxes of $9 million to federal, state and foreign taxing authorities for the vesting of these PSUs. This amount is reported as a financing activity in the ~~open market through privately negotiated or other transactions, depending on share price, market conditions~~Consolidated Statement of Cash Flows and ~~other factors.~~as an increase to Accumulated Deficit in the Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2018.


~~10.~~	~~Equity-Based Compensation~~

On December 31, 2016, 748,855 ~~Performance Share Units (“PSUs”)~~PSUs under the 2013 Long-Term Incentive Plan vested, representing a vesting rate for the 2014-2016 performance period of 193.5% of target. The PSUs had a weighted-average grant-date fair value of $24.40 per unit. In connection with the PSUs that vested, the Company distributed shares of common stock to each participant during the nine months ended September 30, 2017 and withheld the number of shares of common stock equal to the respective tax withholding for each participant. The Company was required to pay withholding taxes of $18 million to federal, state and foreign taxing authorities for the vesting of these PSUs. This amount is reported as a financing activity in the Consolidated Statement of Cash Flows and as an increase to Accumulated Deficit in the Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2017.

On June 26, 2017, an aggregate of 997,450 Restricted Stock Units ~~(“RSUs”~~("RSUs") under the 2013 Long-Term Incentive Plan vested. The RSUs had a weighted-average grant-date fair value of $17.04 per unit. In connection with the RSUs that vested, the Company distributed shares of common stock to each participant during the nine months ended September 30, 2017 and withheld the number of shares of common stock equal to the respective tax withholding for each participant.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company was required to pay withholding taxes of $24 million to federal, state and foreign taxing authorities for the vesting of these RSUs. This amount is reported as a financing activity in the Consolidated Statement of Cash Flows and as an increase to Accumulated Deficit in the Consolidated Statement of ~~Shareholders'~~Stockholders' Equity for the nine months ended September 30, 2017.


~~11.~~10.	~~Other Compensation Benefits~~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.

On September 15, 2017, the Company settled its Restricted Debt Unit Plan (the “RDU Plan”), which was an unfunded nonqualified deferred compensation plan established on March 10, 2010. The total payment made on September 15, 2017 was $31 million, which settled the obligation in full. Compensation expense relatedA reconciliation of basic weighted-average shares outstanding to ~~the RDU Plan was less than $1 million for the three months ended September 30, 2017 and 2016, and $2 million and $1 million for the nine months ended September 30, 2017 and 2016, respectively.~~diluted weighted-average shares outstanding is as follows:



	Three Months Ended September 30,		Nine Months Ended September 30,
(in millions)	2018	2017	2018	2017
Basic weighted-average shares outstanding	150.9	153.8	151.6	156.3
Effect of dilutive securities⁽¹⁾	2.8	2.4	2.5	2.9
Diluted weighted-average shares outstanding⁽²⁾	153.7	156.2	154.1	159.2


~~12.~~(1)	~~Commitments~~The dilutive effect of outstanding stock options, restricted stock units, restricted stock, performance share units and ~~Contingencies~~Coworker Stock Purchase Plan units is reflected in the diluted weighted-average shares outstanding using the treasury stock method.


(2)	There were fewer than 0.2 million potential common shares excluded from diluted weighted-average shares outstanding for both the three and nine months ended September 30, 2018 and 2017 as their inclusion would have had an anti-dilutive effect.

11. Commitments and Contingencies

The Company is party to various legal proceedings that arise in the ordinary course of its business, which include commercial, intellectual property, employment, tort and other litigation matters. The Company is also subject to audit by federal, state, international, national, provincial and local authorities, and by various partners, group purchasing organizations and customers, including government agencies, relating to purchases and sales under various contracts. In addition, the Company is subject to indemnification claims under various contracts. From time to time, certain customers of the Company file voluntary petitions for reorganization or liquidation under the US bankruptcy laws or similar laws of the jurisdictions for the Company's business activities outside of the US. In such cases, certain pre-petition payments received by the Company could be considered preference items and subject to return to the bankruptcy administrator.

As of September 30, ~~2017,~~2018, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for these proceedings and matters, if any, has been incurred. However, the ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company's financial condition and results of operations could be adversely affected in any particular period by the unfavorable resolution of one or more of these proceedings or matters.

On October 29, 2015, the Company learned of an investigation by the SEC of the Company’s vendor partner program incentives. On May 19, 2017, the SEC Staff informed the Company that the SEC has concluded its investigation and does

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

not intend to recommend an enforcement action. The investigation did not have any impact on the Company’s financial condition or results of operations other than customary costs related to the Company’s cooperation with the investigation.


~~13.~~12.	Segment Information

Effective January 1, 2017, the Company established Small Business as its own operating and reportable segment to align the Company's financial reporting with the manner in which the Chief Operating Decision Maker assesses performance and makes resource allocation decisions.

Small Business results were previously presented within the Corporate segment as a sales channel. Segment information reported below in prior periods have been recast to conform to the current period presentation. The Company ~~now~~ has three reportable segments: Corporate, which is comprised primarily of US private sector business customers with more than 250 employees, ~~in the US,~~ Small Business, primarily servicing US private sector business customers with up to 250 employees, and Public, which is comprised of government agencies and education and healthcare institutions in the ~~U.S.~~US. The Company has two other operating segments: CDW ~~Canada~~UK and CDW ~~UK,~~Canada, both of which do not meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category ~~(“Other”~~("Other").

Information about the ~~Company’s~~Company's segments is as follows:


(in millions)	Corporate			Small Business			Public			Other			Headquarters			Total			Corporate			Small Business			Public			Other			Headquarters			Total
Three Months Ended September 30, 2017:
Three Months Ended September 30, 2018
Net sales	$	1,598.5		$	311.5		$	1,732.9		$	391.0		$	—		$	4,033.9		$	1,706.5		$	340.0		$	1,875.1		$	451.6		$	—		$	4,373.2
Income (loss) from operations	121.0			17.7			122.3			14.5			(31.8		)	243.7			127.2			24.1			138.0			19.2			(33.7		)	274.8
Depreciation and amortization expense	(20.8		)	(5.2		)	(11.2		)	(8.0		)	(20.5		)	(65.7		)	(20.3		)	(5.2		)	(11.5		)	(7.3		)	(21.5		)	(65.8		)

Three Months Ended September 30, 2016:
Three Months Ended September 30, 2017⁽¹⁾
Net sales	$	1,466.4		$	282.5		$	1,640.6		$	318.7		$	—		$	3,708.2		$	1,552.8		$	305.4		$	1,693.9		$	381.1		$	—		$	3,933.2
Income (loss) from operations	120.0			18.0			120.0			10.0			(30.5		)	237.5			121.6			17.7			122.3			14.2			(31.8		)	244.0
Depreciation and amortization expense	(20.7		)	(5.1		)	(11.2		)	(7.6		)	(18.5		)	(63.1		)	(20.8		)	(5.2		)	(11.2		)	(8.0		)	(20.5		)	(65.7		)


(in millions)	Corporate			Small Business			Public			Other			Headquarters			Total			Corporate			Small Business			Public			Other			Headquarters			Total
Nine Months Ended September 30, 2017:
Nine Months Ended September 30, 2018
Net sales	$	4,705.5		$	931.7		$	4,583.5		$	1,132.3		$	—		$	11,353.0		$	5,006.1		$	997.1		$	4,740.5		$	1,422.0		$	—		$	12,165.7
Income (loss) from operations	359.5			53.7			287.4			39.8			(95.8		)	$	644.6		393.3			71.0			322.7			60.7			(103.3		)	744.4
Depreciation and amortization expense	(62.5		)	(15.4		)	(33.6		)	(22.7		)	(61.0		)	$	(195.2	)	(61.8		)	(15.6		)	(34.0		)	(25.1		)	(62.2		)	(198.7		)

Nine Months Ended September 30, 2016:
Nine Months Ended September 30, 2017⁽¹⁾
Net sales	$	4,372.1		$	848.2		$	4,257.1		$	1,012.1		$	—		$	10,489.5		$	4,573.5		$	912.4		$	4,480.4		$	1,114.5		$	—		$	11,080.8
Income (loss) from operations	339.1			52.3			287.0			27.4			(83.8		)	$	622.0		360.6			53.7			287.6			39.5			(95.8		)	645.6
Depreciation and amortization expense	(62.1		)	(15.5		)	(33.5		)	(24.6		)	(55.0		)	$	(190.7	)	(62.5		)	(15.4		)	(33.6		)	(22.7		)	(61.0		)	(195.2		)


~~14.~~(1)	~~Supplemental Guarantor Information~~Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Geographic Areas and Revenue Mix



	Three Months Ended September 30, 2018
	Corporate		Small Business		Public		Other		Total
Geography⁽¹⁾
United States	$	1,704.1	$	340.0	$	1,875.1	$	6.8	$	3,926.0
Rest of World	2.4		—		—		444.8		447.2
Total Net sales	1,706.5		340.0		1,875.1		451.6		4,373.2

Major Product and Services
Hardware	1,378.1		284.0		1,531.5		365.1		3,558.7
Software	228.5		44.3		290.8		44.0		607.6
Services	83.2		6.6		48.3		40.5		178.6
Other⁽²⁾	16.7		5.1		4.5		2.0		28.3
Total Net sales	1,706.5		340.0		1,875.1		451.6		4,373.2

Sales by Channel
Corporate	1,706.5		—		—		—		1,706.5
Small Business	—		340.0		—		—		340.0
Government	—		—		639.3		—		639.3
Education	—		—		793.1		—		793.1
Healthcare	—		—		442.7		—		442.7
Other	—		—		—		451.6		451.6
Total Net sales	1,706.5		340.0		1,875.1		451.6		4,373.2

Timing of Revenue Recognition
Transferred at a point in time where CDW is principal	1,571.6		321.0		1,764.6		402.8		4,060.0
Transferred at a point in time where CDW is agent	85.7		16.9		64.3		12.3		179.2
Transferred over time where CDW is principal	49.2		2.1		46.2		36.5		134.0
Total Net sales	$	1,706.5	$	340.0	$	1,875.1	$	451.6	$	4,373.2


(1)	Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.


(2)	Includes items such as delivery charges to customers.

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	Three Months Ended September 30, 2017⁽¹⁾
	Corporate		Small Business		Public		Other		Total
Geography⁽²⁾
United States	$	1,551.2	$	305.4	$	1,693.9	$	6.0	$	3,556.5
Rest of World	1.6		—		—		375.1		376.7
Total Net sales	1,552.8		305.4		1,693.9		381.1		3,933.2

Major Product and Services
Hardware	1,253.9		256.9		1,383.9		307.1		3,201.8
Software	202.7		37.9		265.3		38.3		544.2
Services	79.2		5.5		39.5		33.7		157.9
Other⁽³⁾	17.0		5.1		5.2		2.0		29.3
Total Net sales	1,552.8		305.4		1,693.9		381.1		3,933.2

Sales by Channel
Corporate	1,552.8		—		—		—		1,552.8
Small Business	—		305.4		—		—		305.4
Government	—		—		591.9		—		591.9
Education	—		—		691.3		—		691.3
Healthcare	—		—		410.7		—		410.7
Other	—		—		—		381.1		381.1
Total Net sales	1,552.8		305.4		1,693.9		381.1		3,933.2

Timing of Revenue Recognition
Transferred at a point in time where CDW is principal	1,423.9		289.1		1,597.3		340.4		3,650.7
Transferred at a point in time where CDW is agent	82.2		14.4		53.5		8.0		158.1
Transferred over time where CDW is principal	46.7		1.9		43.1		32.7		124.4
Total Net sales	$	1,552.8	$	305.4	$	1,693.9	$	381.1	$	3,933.2


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.


(3)	Includes items such as delivery charges to customers.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Nine Months Ended September 30, 2018
	Corporate		Small Business		Public		Other		Total
Geography⁽¹⁾
United States	$	4,999.9	$	997.1	$	4,740.5	$	24.0	$	10,761.5
Rest of World	6.2		—		—		1,398.0		1,404.2
Total Net sales	5,006.1		997.1		4,740.5		1,422.0		12,165.7

Major Product and Services
Hardware	4,010.5		830.7		3,877.5		1,134.3		9,853.0
Software	702.3		130.0		729.7		156.4		1,718.4
Services	242.6		20.6		120.5		124.9		508.6
Other⁽²⁾	50.7		15.8		12.8		6.4		85.7
Total Net sales	5,006.1		997.1		4,740.5		1,422.0		12,165.7

Sales by Channel
Corporate	5,006.1		—		—		—		5,006.1
Small Business	—		997.1		—		—		997.1
Government	—		—		1,551.3		—		1,551.3
Education	—		—		1,902.4		—		1,902.4
Healthcare	—		—		1,286.8		—		1,286.8
Other	—		—		—		1,422.0		1,422.0
Total Net sales	5,006.1		997.1		4,740.5		1,422.0		12,165.7

Timing of Revenue Recognition
Transferred at a point in time where CDW is principal	4,581.3		940.0		4,445.8		1,277.4		11,244.5
Transferred at a point in time where CDW is agent	279.9		50.5		160.7		37.1		528.2
Transferred over time where CDW is principal	144.9		6.6		134.0		107.5		393.0
Total Net sales	$	5,006.1	$	997.1	$	4,740.5	$	1,422.0	$	12,165.7


(1)	Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.


(2)	Includes items such as delivery charges to customers.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Nine Months Ended September 30, 2017 ⁽¹⁾
	Corporate		Small Business		Public		Other		Total
Geography⁽²⁾
United States	$	4,569.3	$	912.4	$	4,480.4	$	19.2	$	9,981.3
Rest of World	4.2		—		—		1,095.3		1,099.5
Total Net sales	4,573.5		912.4		4,480.4		1,114.5		11,080.8

Major Product and Services
Hardware	3,639.8		758.6		3,671.9		892.5		8,962.8
Software	647.2		120.4		692.3		120.6		1,580.5
Services	236.3		18.0		102.2		95.6		452.1
Other⁽³⁾	50.2		15.4		14.0		5.8		85.4
Total Net sales	4,573.5		912.4		4,480.4		1,114.5		11,080.8

Sales by Channel
Corporate	4,573.5		—		—		—		4,573.5
Small Business	—		912.4		—		—		912.4
Government	—		—		1,490.0		—		1,490.0
Education	—		—		1,789.3		—		1,789.3
Healthcare	—		—		1,201.1		—		1,201.1
Other	—		—		—		1,114.5		1,114.5
Total Net sales	4,573.5		912.4		4,480.4		1,114.5		11,080.8

Timing of Revenue Recognition
Transferred at a point in time where CDW is principal	4,176.1		861.5		4,217.0		997.3		10,251.9
Transferred at a point in time where CDW is agent	256.0		44.3		143.1		23.1		466.5
Transferred over time where CDW is principal	141.4		6.6		120.3		94.1		362.4
Total Net sales	$	4,573.5	$	912.4	$	4,480.4	$	1,114.5	$	11,080.8


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.


(3)	Includes items such as delivery charges to customers.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents Net sales by major category for the three and nine months ended September 30, 2018 and 2017. Categories are based upon internal classifications.



	Three Months Ended September 30,
	2018				2017⁽¹⁾
	Dollars in Millions		Percentage of Total Net Sales		Dollars in Millions		Percentage of Total Net Sales
Notebooks/Mobile Devices	$	1,114.7	25.5	%	$	964.8	24.5	%
Netcomm Products	581.4		13.3		544.1		13.8
Desktops	341.6		7.8		306.2		7.8
Video	319.5		7.3		290.7		7.4
Enterprise and Data Storage (Including Drives)	293.2		6.7		281.2		7.1
Other Hardware	908.3		20.8		814.8		20.8
Total Hardware	3,558.7		81.4		3,201.8		81.4

Software⁽²⁾	607.6		13.9		544.2		13.8
Services⁽²⁾	178.6		4.1		157.9		4.0
Other⁽³⁾	28.3		0.6		29.3		0.8
Total Net sales	$	4,373.2	100.0	%	$	3,933.2	100.0	%



	Nine Months Ended September 30,
	2018				2017⁽¹⁾
	Dollars in Millions		Percentage of Total Net Sales		Dollars in Millions		Percentage of Total Net Sales
Notebooks/Mobile Devices	$	3,041.7	25.0	%	$	2,612.1	23.6	%
Netcomm Products	1,562.9		12.8		1,543.5		13.9
Desktops	990.4		8.1		877.6		7.9
Video	904.5		7.4		815.7		7.4
Enterprise and Data Storage (Including Drives)	813.7		6.7		806.9		7.3
Other Hardware	2,539.8		21.0		2,307.0		20.8
Total Hardware	9,853.0		81.0		8,962.8		80.9

Software⁽²⁾	1,718.4		14.1		1,580.5		14.3
Services⁽²⁾	508.6		4.2		452.1		4.1
Other⁽³⁾	85.7		0.7		85.4		0.7
Total Net sales	$	12,165.7	100.0	%	$	11,080.8	100.0	%


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	Certain software and services revenues are recorded on a net basis for accounting purposes. As a result, the category percentage of net revenues is not representative of the category percentage of gross profits.


(3)	Includes items such as delivery charges to customers.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. Supplemental Guarantor Information

The 2023 Senior Notes, the 2024 Senior Notes and the 2025 Senior Notes are ~~and, prior to being redeemed in full, the 2022 Senior Notes were,~~ guaranteed by the Parent and each of CDW LLC’s direct and indirect, 100% owned, domestic subsidiaries (the ~~“Guarantor Subsidiaries”~~"Guarantor Subsidiaries"). All guarantees by the Parent and the Guarantor Subsidiaries are and were joint and several, and full and unconditional; provided that guarantees by the Guarantor Subsidiaries ~~(i)~~ are subject to certain customary release provisions contained in the indentures governing the 2023 Senior Notes, the 2024 Senior Notes and the 2025 Senior Notes and (ii) were subject to certain customary release provisions contained in the indenture governing the 2022 Senior Notes until such indenture was satisfied and discharged in the first quarter of 2017.Notes. CDW LLC's 100% owned foreign subsidiaries, CDW International Holdings Limited, which is comprised of CDW UK and CDW Canada

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(together~~ (together the ~~“Non-Guarantor Subsidiaries”~~"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~~Condensed Consolidating Balance Sheets as of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, Consolidating Statements of Operations for the three and nine months ended September 30, 2018 and 2017, ~~and 2016, condensed~~Condensed Consolidating Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017 and ~~2016 and condensed~~Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, in accordance with Rule 3-10 of Regulation S-X. The consolidating financial information includes the accounts of CDW Corporation (the ~~“Parent Guarantor”~~"Parent Guarantor"), which has no independent assets or operations, the accounts of CDW LLC (the ~~“Subsidiary Issuer”~~"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”~~"Co-Issuer") for the periods indicated. The information was prepared on the same basis as the Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheet

September 30, 2018
(in millions)	Parent Guarantor		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuer		Consolidating Adjustments			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	220.9	$	—	$	49.5	$	—	$	(15.3	)	$	255.1
Accounts receivable, net	—		—		2,338.3		312.2		—		—			2,650.5
Merchandise inventory	—		—		419.7		61.4		—		—			481.1
Miscellaneous receivables	—		123.6		228.6		18.2		—		—			370.4
Prepaid expenses and other	—		17.4		133.3		41.7		—		—			192.4
Total current assets	—		361.9		3,119.9		483.0		—		(15.3		)	3,949.5
Property and equipment, net	—		84.4		40.9		22.5		—		—			147.8
Goodwill	—		751.8		1,439.0		278.7		—		—			2,469.5
Other intangible assets, net	—		272.7		317.4		168.1		—		—			758.2
Other assets	1.4		64.9		151.8		2.1		—		(169.8		)	50.4
Investment in and advances to subsidiaries	1,159.3		3,115.3		—		—		—		(4,274.6		)	—
Total Assets	$	1,160.7	$	4,651.0	$	5,069.0	$	954.4	$	—	$	(4,459.7	)	$	7,375.4
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable-trade	$	—	$	24.9	$	1,431.2	$	169.1	$	—	$	(15.3	)	$	1,609.9
Accounts payable-inventory financing	—		0.2		395.1		12.3		—		—			407.6
Current maturities of long-term debt	—		14.9		4.1		13.0		—		—			32.0
Contract liabilities	—		—		112.8		75.7		—		—			188.5
Accrued expenses and other current liabilities	—		217.1		283.3		65.5		—		—			565.9
Total current liabilities	—		257.1		2,226.5		335.6		—		(15.3		)	2,803.9
Long-term liabilities:
Debt	—		3,124.2		4.3		58.9		—		—			3,187.4
Deferred income taxes	—		63.4		68.6		27.8		—		(1.4		)	158.4
Other liabilities	—		47.0		5.7		180.7		—		(168.4		)	65.0
Total long-term liabilities	—		3,234.6		78.6		267.4		—		(169.8		)	3,410.8
Total stockholders' equity	1,160.7		1,159.3		2,763.9		351.4		—		(4,274.6		)	1,160.7
Total Liabilities and Stockholders' Equity	$	1,160.7	$	4,651.0	$	5,069.0	$	954.4	$	—	$	(4,459.7	)	$	7,375.4

Condensed Consolidating Balance Sheet
September 30, 2017
(in millions)
Parent
Guarantor

Subsidiary
Issuer

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
Assets
Current assets:
Cash and cash equivalents $ —
$ 79.3
$ —
$ 30.3
$ —
$ (11.7 ) $ 97.9
Accounts receivable, net —
—
2,013.0
298.3
—
—
2,311.3
Merchandise inventory —
—
456.2
92.8
—
—
549.0
Miscellaneous receivables —
122.8
232.5
25.5
—
—
380.8
Prepaid expenses and other —
16.5
88.9
48.1
—
—
153.5
Total current assets —
218.6
2,790.6
495.0
—
(11.7 ) 3,492.5
Property and equipment, net —
97.9
45.2
19.4
—
—
162.5
Goodwill —
751.8
1,439.0
286.8
—
—
2,477.6
Other intangible assets, net —
280.6
459.3
197.2
—
—
937.1
Other assets 2.8
34.9
234.1
4.4
—
(244.1 ) 32.1
Investment in and advances to subsidiaries 845.8
3,155.5
—
—
—
(4,001.3 ) —
Total assets $ 848.6
$ 4,539.3
$ 4,968.2
$ 1,002.8
$ —
$ (4,257.1 ) $ 7,101.8
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable—trade $ —
$ 22.7
$ 1,065.8
$ 147.8
$ —
$ (11.7 ) $ 1,224.6
Accounts payable—inventory financing —
—
506.6
34.7
—
—
541.3
Current maturities of
long-term debt
—
14.9
3.8
22.8
—
—
41.5
Deferred revenue —
—
136.4
92.0
—
—
228.4
Accrued expenses —
227.4
224.1
71.0
—
0.4
522.9
Total current liabilities —
265.0
1,936.7
368.3
—
(11.3 ) 2,558.7
Long-term liabilities:
Debt —
3,313.2
8.3
66.9
—
—
3,388.4
Deferred income taxes —
91.8
160.5
66.4
—
(2.8 ) 315.9
Other liabilities 42.1
23.5
4.5
203.9
—
(241.7 ) 32.3
Total long-term liabilities 42.1
3,428.5
173.3
337.2
—
(244.5 ) 3,736.6
Total stockholders’ equity 806.5
845.8
2,858.2
297.3
—
(4,001.3 ) 806.5
Total liabilities and stockholders’ equity $ 848.6
$ 4,539.3
$ 4,968.2
$ 1,002.8
$ —
$ (4,257.1 ) $ 7,101.8

1928

Table of Contents

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheet

December 31, 2017
(as adjusted)
(in millions)	Parent Guarantor		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuer		Consolidating Adjustments			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	113.7	$	—	$	32.4	$	—	$	(1.9	)	$	144.2
Accounts receivable, net	—		—		2,015.7		313.6		—		—			2,329.3
Merchandise inventory	—		—		354.6		56.9		—		—			411.5
Miscellaneous receivables	—		103.9		211.1		28.0		—		—			343.0
Prepaid expenses and other	—		18.0		100.4		49.9		—		—			168.3
Total current assets	—		235.6		2,681.8		480.8		—		(1.9		)	3,396.3
Property and equipment, net	—		95.0		43.5		22.6		—		—			161.1
Goodwill	—		751.8		1,439.0		288.8		—		—			2,479.6
Other intangible assets, net	—		280.1		424.5		192.4		—		—			897.0
Other assets	1.7		30.7		209.3		2.6		—		(211.6		)	32.7
Investment in and advances to subsidiaries	983.9		3,066.1		—		—		—		(4,050.0		)	—
Total Assets	$	985.6	$	4,459.3	$	4,798.1	$	987.2	$	—	$	(4,263.5	)	$	6,966.7
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable-trade	$	—	$	42.5	$	1,112.1	$	165.0	$	—	$	(1.9	)	$	1,317.7
Accounts payable-inventory financing	—		1.0		480.9		16.1		—		—			498.0
Current maturities of long-term debt	—		14.9		3.8		6.8		—		—			25.5
Contract liabilities	—		—		87.5		71.3		—		—			158.8
Accrued expenses and other current liabilities	—		173.3		262.0		86.8		—		—			522.1
Total current liabilities	—		231.7		1,946.3		346.0		—		(1.9		)	2,522.1
Long-term liabilities:
Debt	—		3,134.2		8.3		67.5		—		—			3,210.0
Deferred income taxes	—		66.5		100.1		31.4		—		(1.7		)	196.3
Other liabilities	—		43.0		4.7		214.9		—		(209.9		)	52.7
Total long-term liabilities	—		3,243.7		113.1		313.8		—		(211.6		)	3,459.0
Total stockholders' equity	985.6		983.9		2,738.7		327.4		—		(4,050.0		)	985.6
Total Liabilities and Stockholders' Equity	$	985.6	$	4,459.3	$	4,798.1	$	987.2	$	—	$	(4,263.5	)	$	6,966.7

Condensed Consolidating Balance Sheet
December 31, 2016
(in millions)
Parent
Guarantor

Subsidiary
Issuer

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
Assets
Current assets:
Cash and cash equivalents $ —
$ 222.7
$ 3.1
$ 37.9
$ —
$ —
$ 263.7
Accounts receivable, net —
—
1,904.9
263.7
—
—
2,168.6
Merchandise inventory —
—
390.6
61.4
—
—
452.0
Miscellaneous receivables —
92.6
130.1
12.2
—
—
234.9
Prepaid expenses and other —
14.3
69.0
35.6
—
—
118.9
Total current assets —
329.6
2,497.7
410.8
—
—
3,238.1
Property and equipment, net —
105.6
49.3
8.8
—
—
163.7
Goodwill —
751.8
1,439.0
264.2
—
—
2,455.0
Other intangible assets, net —
291.5
565.1
199.0
—
—
1,055.6
Other assets 3.2
19.4
248.2
1.5
—
(236.3 ) 36.0
Investment in and advances to subsidiaries 1,042.3
3,026.5
—
—
—
(4,068.8 ) —
Total assets $ 1,045.5
$ 4,524.4
$ 4,799.3
$ 884.3
$ —
$ (4,305.1 ) $ 6,948.4
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable-trade $ —
$ 25.9
$ 895.3
$ 151.7
$ —
$ —
$ 1,072.9
Accounts payable-inventory financing —
1.2
559.5
19.7
—
—
580.4
Current maturities of long-term debt —
14.9
3.6
—
—
—
18.5
Deferred revenue —
—
100.8
71.8
—
—
172.6
Accrued expenses —
173.9
214.8
47.7
—
(0.1 ) 436.3
Total current liabilities —
215.9
1,774.0
290.9
—
(0.1 ) 2,280.7
Long-term liabilities:
Debt —
3,136.3
12.1
67.5
—
—
3,215.9
Deferred income taxes —
99.1
205.4
67.9
—
(3.2 ) 369.2
Other liabilities —
30.8
3.6
235.7
—
(233.0 ) 37.1
Total long-term liabilities —
3,266.2
221.1
371.1
—
(236.2 ) 3,622.2
Total stockholders’ equity 1,045.5
1,042.3
2,804.2
222.3
—
(4,068.8 ) 1,045.5
Total liabilities and stockholders’ equity $ 1,045.5
$ 4,524.4
$ 4,799.3
$ 884.3
$ —
$ (4,305.1 ) $ 6,948.4

2029

Table of Contents

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidating Statement of Operations

Three Months Ended September 30, 2018
(in millions)	Parent Guarantor			Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Net sales	$	—		$	—		$	3,921.6		$	451.6		$	—	$	—		$	4,373.2
Cost of sales	—			—			3,286.6			373.0			—		—			3,659.6
Gross profit	—			—			635.0			78.6			—		—			713.6
Selling and administrative expenses	—			33.7			299.8			57.2			—		—			390.7
Advertising expense	—			—			45.9			2.2			—		—			48.1
Income (loss) from operations	—			(33.7		)	289.3			19.2			—		—			274.8
Interest (expense) income, net	—			(36.1		)	0.9			(1.4		)	—		—			(36.6		)
Other income	—			—			0.1			0.1			—		—			0.2
Income (loss) before income taxes	—			(69.8		)	290.3			17.9			—		—			238.4
Income tax (expense) benefit	(0.1		)	20.5			(75.3		)	0.2			—		—			(54.7		)
Income (loss) before equity in earnings of subsidiaries	(0.1		)	(49.3		)	215.0			18.1			—		—			183.7
Equity in earnings of subsidiaries	183.8			233.1			—			—			—		(416.9		)	—
Net income	$	183.7		$	183.8		$	215.0		$	18.1		$	—	$	(416.9	)	$	183.7

Consolidating Statement of Operations
Three Months Ended September 30, 2017
(in millions)
Parent
Guarantor

Subsidiary
Issuer

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
Net sales $ —
$ —
$ 3,642.9
$ 391.0
$ —
$ —
$ 4,033.9
Cost of sales —
—
3,066.2
325.7
—
—
3,391.9
Gross profit —
—
576.7
65.3
—
—
642.0
Selling and administrative expenses —
31.8
271.9
48.3
—
—
352.0
Advertising expense —
—
43.8
2.5
—
—
46.3
Income (loss) from operations —
(31.8 ) 261.0
14.5
—
—
243.7
Interest (expense) income, net —
(37.3 ) 1.0
(1.5 ) —
—
(37.8 )
Other income (expense) —
(0.2 ) 0.3
0.6
—
—
0.7
Income (loss) before income taxes —
(69.3 ) 262.3
13.6
—
—
206.6
Income tax benefit (expense) —
26.2
(100.2 ) (3.4 ) —
—
(77.4 )
Income (loss) before equity in earnings of subsidiaries —
(43.1 ) 162.1
10.2
—
—
129.2
Equity in earnings of subsidiaries 129.2
172.3
—
—
—
(301.5 ) —
Net income $ 129.2
$ 129.2
$ 162.1
$ 10.2
$ —
$ (301.5 ) $ 129.2

2130

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidating Statement of Operations

Three Months Ended September 30, 2017
(as adjusted)
(in millions)	Parent Guarantor		Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Net sales	$	—	$	—		$	3,552.1		$	381.1		$	—	$	—		$	3,933.2
Cost of sales	—		—			2,974.9			316.1			—		—			3,291.0
Gross profit	—		—			577.2			65.0			—		—			642.2
Selling and administrative expenses	—		31.8			271.8			48.3			—		—			351.9
Advertising expense	—		—			43.8			2.5			—		—			46.3
Income (loss) from operations	—		(31.8		)	261.6			14.2			—		—			244.0
Interest (expense) income, net	—		(37.3		)	1.0			(1.5		)	—		—			(37.8		)
Other income (expense)	—		(0.2		)	0.3			0.6			—		—			0.7
Income (loss) before income taxes	—		(69.3		)	262.9			13.3			—		—			206.9
Income tax (expense) benefit	—		26.2			(100.5		)	(3.3		)	—		—			(77.6		)
Income (loss) before equity in earnings of subsidiaries	—		(43.1		)	162.4			10.0			—		—			129.3
Equity in earnings of subsidiaries	129.3		172.4			—			—			—		(301.7		)	—
Net income	$	129.3	$	129.3		$	162.4		$	10.0		$	—	$	(301.7	)	$	129.3

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 —
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

2231

Table of Contents

CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidating Statement of Operations
Nine Months Ended September 30, 2017
Nine Months Ended September 30, 2018																				Nine Months Ended September 30, 2018
(in millions)	Parent Guarantor		Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated			Parent Guarantor			Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Net sales	$	—	$	—		$	10,220.7		$	1,132.3		$	—	$	—		$	11,353.0		$	—		$	—		$	10,743.7		$	1,422.0		$	—	$	—		$	12,165.7
Cost of sales	—		—			8,571.2			946.2			—		—			9,517.4			—			—			8,966.6			1,186.0			—		—			10,152.6
Gross profit	—		—			1,649.5			186.1			—		—			1,835.6			—			—			1,777.1			236.0			—		—			2,013.1
Selling and administrative expenses	—		95.8			826.3			140.8			—		—			1,062.9			—			103.3			861.8			169.7			—		—			1,134.8
Advertising expense	—		—			122.6			5.5			—		—			128.1			—			—			128.3			5.6			—		—			133.9
Income (loss) from operations	—		(95.8		)	700.6			39.8			—		—			644.6			—			(103.3		)	787.0			60.7			—		—			744.4
Interest (expense) income, net	—		(111.8		)	3.1			(4.7		)	—		—			(113.4		)	—			(109.9		)	2.8			(4.4		)	—		—			(111.5		)
Net loss on extinguishments of long-term debt	—		(57.4		)	—			—			—		—			(57.4		)
Other income	—		—			0.4			1.5			—		—			1.9			—			—			0.6			0.4			—		—			1.0
Income (loss) before income taxes	—		(265.0		)	704.1			36.6			—		—			475.7			—			(213.2		)	790.4			56.7			—		—			633.9
Income tax benefit (expense)	—		112.8			(251.2		)	(9.5		)	—		—			(147.9		)
Income tax (expense) benefit																				(0.3		)	61.5			(202.6		)	(8.8		)	—		—			(150.2		)
Income (loss) before equity in earnings of subsidiaries	—		(152.2		)	452.9			27.1			—		—			327.8			(0.3		)	(151.7		)	587.8			47.9			—		—			483.7
Equity in earnings of subsidiaries	327.8		480.0			—			—			—		(807.8		)	—			484.0			635.7			—			—			—		(1,119.7		)	—
Net income	$	327.8	$	327.8		$	452.9		$	27.1		$	—	$	(807.8	)	$	327.8		$	483.7		$	484.0		$	587.8		$	47.9		$	—	$	(1,119.7	)	$	483.7

2332

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidating Statement of Operations
Nine Months Ended September 30, 2016
Nine Months Ended September 30, 2017																				Nine Months Ended September 30, 2017
(as adjusted)																				(as adjusted)
(in millions)	Parent Guarantor		Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated			Parent Guarantor		Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Net sales	$	—	$	—		$	9,477.4		$	1,012.1		$	—	$	—		$	10,489.5		$	—	$	—		$	9,966.3		$	1,114.5		$	—	$	—		$	11,080.8
Cost of sales	—		—			7,891.6			848.6			—		—			8,740.2			—		—			8,315.4			928.9			—		—			9,244.3
Gross profit	—		—			1,585.8			163.5			—		—			1,749.3			—		—			1,650.9			185.6			—		—			1,836.5
Selling and administrative expenses	—		83.1			793.2			132.7			—		—			1,009.0			—		95.8			826.4			140.6			—		—			1,062.8
Advertising expense	—		—			114.5			3.8			—		—			118.3			—		—			122.6			5.5			—		—			128.1
Income (loss) from operations	—		(83.1		)	678.1			27.0			—		—			622.0			—		(95.8		)	701.9			39.5			—		—			645.6
Interest (expense) income, net	—		(112.4		)	5.6			(5.8		)	—		—			(112.6		)	—		(111.8		)	3.1			(4.7		)	—		—			(113.4		)
Net loss on extinguishments of long-term debt	—		(2.1		)	—			—			—		—			(2.1		)	—		(57.4		)	—			—			—		—			(57.4		)
Other income	—		0.7			1.0			0.6			—		—			2.3			—		—			0.4			1.5			—		—			1.9
Income (loss) before income taxes	—		(196.9		)	684.7			21.8			—		—			509.6			—		(265.0		)	705.4			36.3			—		—			476.7
Income tax benefit (expense)	—		76.2			(259.9		)	(4.7		)	—		—			(188.4		)
Income tax (expense) benefit																				—		112.8			(251.8		)	(9.4		)	—		—			(148.4		)
Income (loss) before equity in earnings of subsidiaries	—		(120.7		)	424.8			17.1			—		—			321.2			—		(152.2		)	453.6			26.9			—		—			328.3
Equity in earnings of subsidiaries	321.2		441.9			—			—			—		(763.1		)	—			328.3		480.5			—			—			—		(808.8		)	—
Net income	$	321.2	$	321.2		$	424.8		$	17.1		$	—	$	(763.1	)	$	321.2		$	328.3	$	328.3		$	453.6		$	26.9		$	—	$	(808.8	)	$	328.3

2433

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended September 30, 2018
(in millions)	Parent Guarantor		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuer		Consolidating Adjustments			Consolidated
Comprehensive income	$	180.6	$	180.7	$	215.0	$	14.9	$	—	$	(410.6	)	$	180.6

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended September 30, 2017
(as adjusted)
(in millions)	Parent Guarantor		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuer		Consolidating Adjustments			Consolidated
Comprehensive income	$	143.6	$	143.6	$	162.4	$	24.0	$	—	$	(330.0	)	$	143.6

Condensed Consolidating Statement of Comprehensive Income
Three Months Ended September 30, 2017
Nine Months Ended September 30, 2018																Nine Months Ended September 30, 2018
(in millions)	Parent Guarantor		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuer		Consolidating Adjustments			Consolidated		Parent Guarantor		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuer		Consolidating Adjustments			Consolidated
Comprehensive income	$	143.4	$	143.4	$	162.1	$	24.1	$	—	$	(329.6	)	$	143.4	$	471.4	$	471.7	$	587.8	$	30.0	$	—	$	(1,089.5	)	$	471.4

Condensed Consolidating Statement of Comprehensive Income

Nine Months Ended September 30, 2017
(as adjusted)
(in millions)	Parent Guarantor		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuer		Consolidating Adjustments			Consolidated
Comprehensive income	$	366.4	$	366.4	$	453.6	$	66.4	$	—	$	(886.4	)	$	366.4

Condensed Consolidating Statement of Comprehensive Income
Three Months Ended September 30, 2016
(in millions)
Parent
Guarantor

Subsidiary
Issuer

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
Comprehensive income (loss) $ 114.0
$ 114.0
$ 160.6
$ (5.2 ) $ —
$ (269.4 ) $ 114.0

Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended September 30, 2017
(in millions)
Parent
Guarantor

Subsidiary
Issuer

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
Comprehensive income $ 365.7
$ 365.7
$ 452.9
$ 66.4
$ —
$ (885.0 ) $ 365.7

Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended September 30, 2016
(in millions)
Parent
Guarantor

Subsidiary
Issuer

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
Comprehensive income (loss) $ 266.5
$ 266.5
$ 424.8
$ (37.6 ) $ —
$ (653.7 ) $ 266.5

2534

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2018
(in millions)	Parent Guarantor			Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Net cash provided by (used in) operating activities	$	—		$	(78.9	)	$	608.4		$	80.2		$	—	$	(7.4	)	$	602.3
Cash flows used in investing activities:
Capital expenditures	—			(40.9		)	(3.5		)	(9.0		)	—		—			(53.4		)
Net cash used in investing activities	—			(40.9		)	(3.5		)	(9.0		)	—		—			(53.4		)
Cash flows (used in) provided by financing activities:
Proceeds from borrowings under revolving credit facilities	—			640.0			—			48.9			—		—			688.9
Repayments of borrowings under revolving credit facilities	—			(640.0		)	—			(41.9		)	—		—			(681.9		)
Repayments of long-term debt	—			(11.2		)	—			(7.0		)	—		—			(18.2		)
Payments of debt financing costs	—			(1.0		)	—			—			—		—			(1.0		)
Net change in accounts payable-inventory financing	—			(0.8		)	(85.8		)	(3.5		)	—		—			(90.1		)
Premium payments on interest rate cap agreements	—			(12.6		)	—			—			—		—			(12.6		)
Proceeds from stock option exercises	—			24.4			—			—			—		—			24.4
Proceeds from Coworker Stock Purchase Plan	—			8.4			—			—			—		—			8.4
Repurchases of common stock	(232.5		)	—			—			—			—		—			(232.5		)
Payment of incentive compensation plan withholding taxes	(27.1		)	—			—			—			—		—			(27.1		)
Dividends	(95.5		)	—			—			—			—		—			(95.5		)
Repayment of intercompany loan	—			—			47.5			(47.5		)	—		—			—
Other	—			6.6			(4.3		)	(0.4		)	—		—			1.9
Distributions and advances from (to) affiliates	355.1			213.2			(562.3		)	—			—		(6.0		)	—
Net cash (used in) provided by financing activities	—			227.0			(604.9		)	(51.4		)	—		(6.0		)	(435.3		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—			(2.7		)	—		—			(2.7		)
Net increase in cash and cash equivalents	—			107.2			—			17.1			—		(13.4		)	110.9
Cash and cash equivalents—beginning of period	—			113.7			—			32.4			—		(1.9		)	144.2
Cash and cash equivalents—end of period	$	—		$	220.9		$	—		$	49.5		$	—	$	(15.3	)	$	255.1

Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2017
(in millions)
Parent
Guarantor

Subsidiary
Issuer

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
Net cash provided by (used in) operating activities $ 42.4
$ (17.7 ) $ 422.4
$ 14.0
$ —
$ (22.0 ) $ 439.1
Cash flows used in investing activities:
Capital expenditures —
(40.0 ) (4.8 ) (13.8 ) —
—
(58.6 )
Net cash used in investing activities —
(40.0 ) (4.8 ) (13.8 ) —
—
(58.6 )
Cash flows from (used in) financing activities:
Proceeds from borrowings under revolving credit facility —
1,233.3
—
45.8
—
—
1,279.1
Repayments of borrowings under revolving credit facility —
(1,057.0 ) —
(30.5 ) —
—
(1,087.5 )
Repayments of long-term debt —
(11.2 ) —
—
—
—
(11.2 )
Proceeds from the issuance of long-term debt —
2,083.0
—
—
—
—
2,083.0
Payments to extinguish long-term debt —
(2,121.3 ) —
—
—
—
(2,121.3 )
Net change in other long-term obligation —
—
(3.8 ) —
—
—
(3.8 )
Payments of debt financing costs —
(9.6 ) —
—
—
—
(9.6 )
Net change in accounts payable-inventory financing —
(1.2 ) (52.9 ) 12.7
—
—
(41.4 )
Effective portion of interest rate cap agreements —
—
0.2
—
—
—
—
—
—
—
—
—
0.2
Proceeds from stock option exercises —
9.1
—
—
—
—
9.1
Proceeds from Coworker Stock Purchase Plan —
7.6
—
—
—
—
7.6
Repurchases of common stock (534.0 ) —
—
—
—
—
(534.0 )
Payment of incentive compensation plan withholding taxes —
(16.0 ) (24.0 ) (2.0 ) —
—
(42.0 )
Dividends (74.7 ) —
—
—
—
—
(74.7 )
Principal payments under capital lease obligations —
—
(0.3 ) (0.8 ) —
—
(1.1 )
Repayment of intercompany loan —
—
34.3
(34.3 ) —
—
—
Distributions and advances from (to) affiliates 566.3
(202.6 ) (374.0 ) —
—
10.3
—
Net cash used in financing activities (42.4 ) —
(85.7 ) —
(420.7 ) —
(9.1 ) —
—
—
10.3
—
(547.6 )
Effect of exchange rate changes on cash and cash equivalents —
—
—
1.3
—
—
1.3
Net decrease in cash and cash equivalents —
(143.4 ) (3.1 ) (7.6 ) —
(11.7 ) (165.8 )
Cash and cash equivalents—beginning of period —
222.7
3.1
37.9
—
—
263.7
Cash and cash equivalents—end of period $ —
$ 79.3
$ —
$ 30.3
$ —
$ (11.7 ) $ 97.9

2635

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2017
(as adjusted)
(in millions)	Parent Guarantor			Subsidiary Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Co-Issuer		Consolidating Adjustments			Consolidated
Net cash provided by (used in) operating activities	$	42.4		$	(17.7	)	$	422.4		$	14.0		$	—	$	(22.0	)	$	439.1
Cash flows used in investing activities:
Capital expenditures	—			(40.0		)	(4.8		)	(13.8		)	—		—			(58.6		)
Net cash used in investing activities	—			(40.0		)	(4.8		)	(13.8		)	—		—			(58.6		)
Cash flows (used in) provided by financing activities:
Proceeds from borrowings under revolving credit facilities	—			1,233.3			—			45.8			—		—			1,279.1
Repayments of borrowings under revolving credit facilities	—			(1,057.0		)	—			(30.5		)	—		—			(1,087.5		)
Repayments of long-term debt	—			(11.2		)	—			—			—		—			(11.2		)
Proceeds from issuance of long-term debt	—			2,083.0			—			—			—		—			2,083.0
Payments to extinguish long-term debt	—			(2,121.3		)	—			—			—		—			(2,121.3		)
Payment of debt financing costs	—			(9.6		)	—			—			—		—			(9.6		)
Net change in accounts payable-inventory financing	—			(1.2		)	(52.9		)	12.7			—		—			(41.4		)
Proceeds from stock option exercises	—			9.1			—			—			—		—			9.1
Proceeds from Coworker Stock Purchase Plan	—			7.6			—			—			—		—			7.6
Repurchases of common stock	(534.0		)	—			—			—			—		—			(534.0		)
Payment of incentive compensation plan withholding taxes	—			(16.0		)	(24.0		)	(2.0		)	—		—			(42.0		)
Dividends	(74.7		)	—			—			—			—		—			(74.7		)
Repayment of intercompany loan	—			—			34.3			(34.3		)	—		—			—
Other	—			0.2			(4.1		)	(0.8		)	—		—			(4.7		)
Distributions and advances from (to) affiliates	566.3			(202.6		)	(374.0		)	—			—		10.3			—
Net cash used in financing activities	(42.4		)	(85.7		)	(420.7		)	(9.1		)	—		10.3			(547.6		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—			1.3			—		—			1.3
Net decrease in cash and cash equivalents	—			(143.4		)	(3.1		)	(7.6		)	—		(11.7		)	(165.8		)
Cash and cash equivalents—beginning of period	—			222.7			3.1			37.9			—		—			263.7
Cash and cash equivalents—end of period	$	—		$	79.3		$	—		$	30.3		$	—	$	(11.7	)	$	97.9

Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2016
(in millions)
Parent
Guarantor

Subsidiary
Issuer

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Co-Issuer
Consolidating
Adjustments
Consolidated
Net cash provided by (used in) operating activities $ —
$ (91.9 ) $ 495.7
$ 62.8
$ —
$ 32.7
$ 499.3
Cash flows used in investing activities:
Capital expenditures —
(35.4 ) (3.2 ) (2.8 ) —
—
(41.4 )
Premium payments on interest rate cap agreements —
(2.1 ) —
—
—
—
(2.1 )
Net cash used in investing activities —
(37.5 ) (3.2 ) (2.8 ) —
—
(43.5 )
Cash flows from (used in) financing activities:
Proceeds from borrowings under revolving credit facility —
329.7
—
2.4
—
—
332.1
Repayments of borrowings under revolving credit facility —
(329.7 ) —
(2.4 ) —
—
(332.1 )
Repayments of long-term debt —
(11.4 ) —
(5.6 ) —
—
(17.0 )
Proceeds from issuance of long-term debt —
1,483.0
—
—
—
—
1,483.0
Payments to extinguish long-term debt —
(1,490.4 ) —
—
—
—
(1,490.4 )
Net change in other long-term obligation —
—
15.7
—
—
—
15.7
Payment of debt financing costs —
(4.5 ) —
(1.4 ) —
—
(5.9 )
Net change in accounts payable - inventory financing —
1.4
41.0
(3.2 ) —
—
39.2
Proceeds from stock option exercises —
6.0
—
—
—
—
6.0
Proceeds from Coworker Stock Purchase Plan —
6.9
—
—
—
—
6.9
Repurchases of common stock (355.0 ) —
—
—
—
—
(355.0 )
Dividends (53.1 ) —
—
—
—
—
(53.1 )
Principal payments under capital lease obligations —
—
0.8
(1.1 ) —
—
(0.3 )
Repayment of intercompany loan —
—
40.4
(40.4 ) —
—
—
Distributions and advances from (to) affiliates 408.1
195.6
(590.4 ) —
—
(13.3 ) —
Net cash provided by (used in) financing activities —
186.6
(492.5 ) (51.7 ) —
(13.3 ) (370.9 )
Effect of exchange rate changes on cash and cash equivalents —
—
—
(4.2 ) —
—
(4.2 )
Net increase in cash and cash equivalents —
57.2
—
4.1
—
19.4
80.7
Cash and cash equivalents—beginning of period —
45.1
—
31.9
—
(39.4 ) 37.6
Cash and cash equivalents—end of period $ —
$ 102.3
$ —
$ 36.0
$ —
$ (20.0 ) $ 118.3

2736

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~~CDW CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


~~15.~~	~~Subsequent Events~~

On November 1, 2017, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.21 per common share to be paid on December 11, 2017 to all stockholders of record as of the close of business on November 24, 2017. Future dividends will be subject to Board of Directors approval.

~~Table of Contents~~

Item 2. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated or the context otherwise requires, as used in this ~~“Management’s~~"Management's Discussion and Analysis of Financial Condition and Results of Operations,”" the terms ~~“we,” “us,” “the~~"we," "us," "the Company,~~” “our,” “CDW”~~" "our," "CDW" and similar terms refer to CDW Corporation and its subsidiaries. ~~“Management’s~~"Management's Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations" should be read in conjunction with the unaudited interim Consolidated Financial Statements and the related notes included elsewhere in this report and with the audited Consolidated Financial Statements and the related notes included in the ~~Company’s Current~~Company's Annual Report on Form ~~8-K dated August 25,~~10-K for the year ended December 31, 2017. This discussion contains forward-looking statements that are subject to numerous risks and uncertainties. Actual results may differ materially from those contained in any forward-looking statements. See ~~“Forward-Looking Statements”~~"Forward-Looking Statements" at the end of this discussion.

Overview

CDW Corporation ~~(“Parent”~~("Parent") is a Fortune 500 company ~~with multi-national capabilities~~ and a leading provider of integrated information technology ~~(“IT”~~("IT") solutions to small, medium and large business, and government, education and healthcare customers in the United States ~~Canada and~~("US"), the United ~~Kingdom.~~Kingdom ("UK") and Canada. Our broad array of offerings ~~range~~ranges from discrete hardware and software products to integrated IT solutions such as mobility, security, data center optimization, cloud computing, virtualization and collaboration.

We are technology ~~“agnostic,”~~"agnostic," with a ~~product~~ portfolio including more than 100,000 products and services from more than 1,000 leading and emerging brands. Our solutions are delivered in physical, virtual and cloud-based ~~environments. We provide our products and solutions~~environments through over ~~5,500~~6,000 customer-facing coworkers, including sellers, highly-skilled technology specialists and advanced service delivery engineers. We are a leading sales channel partner for many original equipment manufacturers ~~(“OEMs”~~("OEMs"), software publishers and cloud providers (collectively, our ~~“vendor partners”~~"vendor partners"), whose products we sell or include in the solutions we offer. We provide our vendor partners with a cost-effective way to reach customers and deliver a consistent brand experience through our established end-market coverage, technical expertise and extensive customer access.

We have three reportable segments, Corporate, Small Business and Public. Our Corporate segment primarily serves US private sector business customers with more than 250 employees. Our Small Business segment primarily serves US private sector business customers with up to 250 employees. Our Public segment is comprised of government agencies and education and healthcare institutions in the US. We also have two other operating segments: CDW ~~Canada~~UK and CDW ~~UK,~~Canada, each of which do not meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category ~~(“Other”~~("Other"). Effective January 1, 2017, we established Small Business as a separate operating and reportable segment to align our financial reporting with the manner in which the Chief Operating Decision Maker assesses performance and makes resource allocation decisions. By separating Small Business from our Corporate segment, we will drive increased focus and accountability for both segments. To achieve our vision to be small business customers' “first choice for technology,” we are aligning coworkers and digital resources that point directly at this growing market. The Small Business results were previously presented within the Corporate segment as a sales channel and the channel was primarily serving private sector business customers with up to 100 employees.

We may sell all or only select products that our vendor partners offer. Each vendor partner agreement provides for specific terms and conditions, which may include one or more of the following: product return privileges, price protection policies, purchase discounts and vendor incentive programs, such as purchase or sales rebates and cooperative advertising reimbursements. We also resell software for major software publishers. Our agreements with software publishers allow the end-user customer to acquire software or licensed products and services. In addition to helping our customers determine the best software solutions for their needs, we help them manage their software agreements, including warranties and renewals. A significant portion of our advertising and marketing expenses are reimbursed through cooperative advertising programs with our vendor partners. These programs are at the discretion of our vendor partners and are typically tied to sales or other commitments to be met by us within a specified period of time.

Effective January 1, 2018, we adopted the requirements of ASU 2014-09, Revenue from Contracts with Customers, as amended ("Topic 606"), utilizing the full retrospective method as discussed in Note 2 (Recent Accounting Pronouncements) to the accompanying Consolidated Financial Statements. Prior period amounts have been adjusted accordingly.

~~Trends and key~~Key factors affecting our financial performance

We believe the following ~~trends~~key factors may have ~~an important~~a meaningful impact on our business performance, influencing our ability to generate sales and achieve our targeted financial ~~performance:~~and operating results:

General economic conditions are a key factor affecting our ~~ability to generate sales and achieve our targeted operating~~ results as they impact our customers’ willingness to spend on information technology. This is particularly the case for business customers, as their purchases tend to reflect confidence in their business prospects, which are driven by their perceptions of business conditions. Purchasing behavior may be different between our Corporate customers and Small Business customers due to their ~~perceptions~~perception of business conditions.

~~Table of Contents~~

Additionally, changes in trade policy and product constraints from suppliers could have an adverse impact on our business.

Changes in spending policies, budget priorities and ~~revenue~~funding levels are a key factor influencing the purchasing levels of government, ~~purchasing levels. Our Government results also reflect increased interest in meeting public safety needs through technology solutions by state~~healthcare and ~~local customers, as well as our ability to address strategic changes made by the Federal government toward a more programmatic technology strategy.~~education customers.

Customer focus on security has been, and we expect will continue to be, an ongoing trend. Customers are seeking solutions to protect their internal systems against threats and are implementing solutions that provide enterprise-wide visibility, detection expertise and investigation workflows. They are also implementing endpoint security, firewall segmentation and user authentication tools.

The Healthcare industry continues to experience uncertainty given recent proposed legislative action and concerns related to funding, which is impacting healthcare spending as customers seek more clarity.

Table of Contents

Our Education sales channel performance continues to benefit from the creation of new learning environments for students. It has also been affected by the implementation of networking projects related to the US Federal Communications Commission E-Rate program. Within the higher education market, networking projects continue to be a key priority across campuses. While technology is an opportunity to create cost savings and improve productivity, funding is a key determinant of technology spending in education.

There continues to be substantial uncertainty regarding the impact of Brexit. Potential adverse consequences of Brexit such as global market uncertainty, volatility in currency exchange rates, greater restrictions on imports and exports between UK and EU countries and increased regulatory complexities could have a negative impact on our business, financial condition and results of operations. To date, CDW UK is not seeing significant changes in the buying behavior of its customers even with the uncertainty related to timing and terms of Brexit.

Technology trends drive customer ~~purchase~~purchasing behaviors ~~and we are seeing continuing evolution~~ in the market. ~~Innovation influences customer purchases across all of our customer end-markets. Key~~Current technology trends ~~in technology include increasing adoption of cloud-based solutions for certain key workloads, including backup~~are focused on delivering greater flexibility and ~~recovery, collaboration and security,~~efficiency, as well as designing IT securely. These trends are driving customer adoption of ~~hyper-converged appliances to deliver greater flexibility~~solutions such as those delivered via cloud, software defined architectures and ~~efficiency. In addition,~~ hybrid ~~IT solutions are being adopted, along with software being embedded into solutions.~~

on-premise and off-premise combinations.

Key business metrics

We monitor a number of financial and non-financial measures and ratios on a regular basis in order to track the progress of our business and make adjustments as necessary. We believe that the most important of these measures and ratios include average daily sales, gross margin, operating margin, Net income, Non-GAAP income before income taxes, Non-GAAP net income, Net income per common share, Non-GAAP net income per diluted share, EBITDA, ~~and~~ Adjusted EBITDA, Adjusted EBITDA margin, free cash flow, return on ~~invested~~working capital, Cash and cash equivalents, net working capital, cash conversion cycle (defined to be days of sales outstanding in Accounts receivable plus days of supply in Inventory minus days of purchases outstanding in Accounts payable, ~~including both trade and inventory-financing,~~ based on a rolling three-month average), debt levels including available credit and leverage ratios, sales per coworker and coworker turnover. These measures and ratios are compared to standards or objectives set by management, so that actions can be taken, as necessary, in order to achieve the standards and objectives.

In this Form 10-Q, we discuss Non-GAAP income before income taxes, Non-GAAP net income, Non-GAAP net income per diluted share, EBITDA, Adjusted EBITDA and Adjusted EBITDA ~~and consolidated Net sales growth on a constant currency basis,~~margin, which are non-GAAP financial measures.

We believe these measures provide analysts, investors and management with helpful information regarding the underlying operating performance of our business, as they remove the impact of items that management believes are not reflective of underlying operating performance. Management uses these measures to evaluate period-over-period performance as management believes they provide a more comparable measure of the underlying business. Additionally, Adjusted EBITDA is a measure in the credit agreement governing our Senior Secured Term Loan Facility (“("Term ~~Loan”~~Loan"), which is used to evaluate our ability to make certain investments, incur additional debt, and make restricted payments, such as dividends and share repurchases, as well as whether we are required to make additional principal prepayments on the Term Loan beyond the quarterly amortization payments. For further details regarding the Term Loan, see Long-Term Debt and Financing Arrangements within ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 6 (Long-Term Debt) to the accompanying Consolidated Financial Statements. For the definitions of Non-GAAP income before income taxes, Non-GAAP net income and Adjusted EBITDA ~~and consolidated Net sales growth on a constant currency basis~~ and reconciliations to Net income, see ~~“Results~~"Results of ~~Operations”.~~Operations."

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The results of certain ~~of our key~~ business metrics are as follows:



	Three Months Ended September 30,
(dollars in millions)	2018		2017⁽¹⁾
Net sales	$	4,373.2	$	3,933.2
Gross profit	713.6		642.2
Income from operations	274.8		244.0
Net income	183.7		129.3
Non-GAAP net income	217.6		168.3
Adjusted EBITDA	354.7		324.6
Average daily sales⁽²⁾	69.4		62.4
Net debt⁽³⁾	2,964.3		3,332.0
Cash conversion cycle (in days)⁽⁴⁾	18		19

Three Months Ended September 30,
(dollars in millions) 2017 2016
Net sales $ 4,033.9
$ 3,708.2
Gross profit 642.0
614.3
Income from operations 243.7
237.5
Net income 129.2
125.9
Non-GAAP net income 168.2
160.3
Adjusted EBITDA 324.3
310.4
Average daily sales ⁽¹⁾
64.0
57.9
Net debt ⁽²⁾
3,332.0
3,123.1
Cash conversion cycle (in days) ⁽³⁾
19
18


(1)	~~There were 63 and 64 selling days~~Amounts for 2017 have been adjusted to reflect the ~~three months ended September 30, 2017 and 2016, respectively.~~adoption of Topic 606.


(2)	~~Defined as total debt minus cash and cash equivalents; $3,430 million minus $98 million as of~~There were 63 selling days for both the three months ended September 30, ~~2017~~2018 and ~~$3,241 million minus $118 million as of September 30, 2016.~~2017.


(3)	Defined as Total debt minus Cash and cash equivalents.


(4)	Cash conversion cycle is defined as days of sales outstanding in Accounts receivable and certain receivables due from vendors plus days of supply in Merchandise inventory minus days of purchases outstanding in Accounts payable and Accounts payable-inventory financing, based on a rolling three-month average.

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Results of Operations

Three Months Ended September 30, ~~2017~~2018 Compared to Three Months Ended September 30, ~~2016~~2017

Results of operations, in dollars and as a percentage of Net sales are as follows:


	Three Months Ended September 30,										Three Months Ended September 30,
	2017					2016					2018					2017⁽¹⁾
	Dollars in Millions			Percentage of Net Sales		Dollars in Millions			Percentage of Net Sales		Dollars in Millions			Percentage of Net Sales		Dollars in Millions			Percentage of Net Sales
Net sales	$	4,033.9		100.0	%	$	3,708.2		100.0	%	$	4,373.2		100.0	%	$	3,933.2		100.0	%
Cost of sales	3,391.9			84.1		3,093.9			83.4		3,659.6			83.7		3,291.0			83.7
Gross profit	642.0			15.9		614.3			16.6		713.6			16.3		642.2			16.3
Selling and administrative expenses	352.0			8.7		334.9			9.0		390.7			8.9		351.9			8.9
Advertising expense	46.3			1.1		41.9			1.1		48.1			1.1		46.3			1.2
Income from operations	243.7			6.0		237.5			6.4		274.8			6.3		244.0			6.2
Interest expense, net	(37.8		)	(0.9	)	(37.6		)	(1.0	)	(36.6		)	(0.8	)	(37.8		)	(1.0	)
Net loss on extinguishments of long-term debt	—			—		(2.1		)	(0.1	)
Other income	0.7			—		0.4			—
Other income, net											0.2			—		0.7			—
Income before income taxes	206.6			5.1		198.2			5.3		238.4			5.5		206.9			5.3
Income tax expense	(77.4		)	(1.9	)	(72.3		)	(1.9	)	(54.7		)	(1.2	)	(77.6		)	(2.0	)
Net income	$	129.2		3.2	%	$	125.9		3.4	%	$	183.7		4.2	%	$	129.3		3.3	%


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.

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Net sales

Net sales by segment, in dollars and as a percentage of total Net sales, and the year-over-year dollar and percentage change in Net sales are as follows:


	Three Months Ended September 30,													Three Months Ended September 30,
	2017				2016									2018				2017⁽¹⁾
(dollars in millions)	Net Sales		Percentage of Total Net Sales		Net Sales⁽¹⁾		Percentage of Total Net Sales		Dollar Change			Percent Change⁽²⁾		Net Sales		Percentage of Total Net Sales		Net Sales		Percentage of Total Net Sales		Dollar Change		Percent Change⁽²⁾
Corporate	$	1,598.5	39.6	%	$	1,466.4	39.6	%	$	132.1		9.0	%	$	1,706.5	39.1	%	$	1,552.8	39.5	%	$	153.7	9.9	%

Small Business	311.5		7.7		282.5		7.6		29.0			10.3		340.0		7.8		305.4		7.8		34.6		11.3

Public:
Government	606.7		15.0		537.5		14.5		69.2			12.9		639.3		14.6		591.9		15.1		47.4		8.0
Education	700.7		17.4		671.4		18.1		29.3			4.4		793.1		18.1		691.3		17.6		101.8		14.7
Healthcare	425.5		10.6		431.7		11.6		(6.2		)	(1.4	)	442.7		10.1		410.7		10.4		32.0		7.8
Total Public	1,732.9		43.0		1,640.6		44.2		92.3			5.6		1,875.1		42.8		1,693.9		43.1		181.2		10.7

Other	391.0		9.7		318.7		8.6		72.3			22.6		451.6		10.3		381.1		9.6		70.5		18.5

Total net sales	$	4,033.9	100.0	%	$	3,708.2	100.0	%	$	325.7		8.8	%	$	4,373.2	100.0	%	$	3,933.2	100.0	%	$	440.0	11.2	%


(1)	~~Effective January 1,~~Amounts for 2017 ~~Small Business is now an operating and reportable segment. Its results were previously presented as a sales channel within the Corporate segment. Prior periods~~ have been ~~recast~~adjusted to ~~conform to~~reflect the ~~current period presentation.~~adoption of Topic 606.


(2)	There were 63 ~~and 64~~ selling days for both the three months ended September 30, ~~2017~~2018 and ~~2016, respectively.~~2017.

Total Net sales for the three months ended September 30, ~~2017~~2018 increased ~~$326~~$440 million, or ~~8.8%~~11.2%, to ~~$4,034~~$4,373 million, compared to ~~$3,708~~$3,933 million for the three months ended September 30, ~~2016. Net sales on a constant currency basis, which excludes~~2017. Excluding the impact of foreign currency ~~translation, for the three months ended September 30, 2017 increased $321 million, or 8.7%, to $4,034 million, compared to $3,713 million for the three months ended September 30, 2016. There~~fluctuations, constant currency Net sales growth was ~~one fewer selling day in the third quarter of 2017 compared to the third quarter of 2016 and net sales on an average daily sales basis increased 10.5%~~11.4%. See ~~“Non-GAAP~~"Non-GAAP Financial Measure ~~Reconciliations”~~Reconciliations" below for additional ~~information.~~information regarding constant currency Net sales growth.

For the three months ended September 30, ~~2017,~~2018, Net sales growth reflected balanced growth across transactions and solutions. Transactional growth was primarily driven by client devices. Solutions growth was driven primarily by ~~all of~~software, servers, networking and enterprise storage. Additionally, strong results from our ~~customer-facing end markets except healthcare. Market trends during the quarter remained similar~~international operations contributed to ~~those experienced in the first half of 2017, with accelerated hardware~~our Net sales and ongoing focus on optimization and efficiency, security and integration of software into solutions. These trends drove significant growth in both transactions and solutions, driven by growth in client devices, netcomm equipment, enterprise storage and video.growth.

Corporate segment Net sales for the three months ended September 30, ~~2017~~2018 increased ~~$132~~$154 million, or ~~9.0%~~9.9%, compared to the three months ended September 30, 2016. Momentum experienced in the first half of 2017 continued to build during the current quarter with more projects moving from the back-burner to the front. Corporate saw increases in transactional items, such as notebooks and mobile devices, and solutions, such as netcomm equipment and enterprise storage.2017. Growth was primarily driven by client device refresh.

Small Business segment Net sales for the three months ended September 30, ~~2017~~2018 increased by ~~$29~~$35 million, or ~~10.3%~~11.3%, between ~~periods, as customer confidence remained strong.~~periods. Sales growth was primarily ~~in transactional products, led~~driven by ~~notebooks and mobile devices.~~solutions growth, including software.

Public segment Net sales for the three months ended September 30, ~~2017~~2018 increased ~~$92~~$181 million, or ~~5.6%~~10.7%, compared to the three months ended September 30, ~~2016, with strong~~2017. The increase was primarily driven by double digit growth in ~~transactional sales. The~~Education, as well as Government and Healthcare both contributing high single-digit growth ~~was fueled~~to the overall performance for the period. Net sales in Education increased 14.7%, primarily driven by ~~a 12.9% increase in Government customers. Strong~~notebook and netcomm performance within K-12 as customers addressed their client device and networking needs. Net sales to ~~our State and Local government~~Government customers ~~was~~increased 8.0%, primarily driven by aState & Local success in executing against contracts and continued ~~focus on~~success in meeting public safety ~~and new contracts.~~needs. Healthcare Net sales ~~to Federal government~~increased as customers ~~continued to reflect focus on spending existing budgets on planned projects~~moved forward with network refresh and ongoing successful alignment with strategic programs. Federal sales also benefited from the partial shipment of a 2016 client device order delayed into 2017. Education results reflected growth from both Higher Education and K-12 customers. Sales to our Higher Education customers grew double-digits, driven by client devices and collaboration as institutions continue to enhance their technology offerings to meet the needs of students. K-12 growth was led by solutions based

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products, particularly software and networking, as well as success helping schools implement collaborative learning environments. Net sales to Healthcare customers decreased 1.4% between periods, primarily due to one fewer selling day during the quarter. Additionally, many customers put purchase decisions on hold awaiting more definitive legislative direction on funding and reimbursements.data center projects.

Net sales in Other, which is comprised of results from our UK and Canadian operations, for the three months ended September 30, ~~2017~~2018 increased ~~$72~~$71 million, or ~~22.6%~~18.5%, compared to the three months ended September 30, ~~2016. Other is comprised of results from our Canadian and UK operations.~~2017. Both operations ~~had strong~~grew in local currency and continued to take share in their respective local markets. In addition, UK growth ~~each up over 20% compared to the prior year.~~was driven in part by referral business for US-based customers. The impact of foreign currency ~~translation increased~~exchange decreased Other sales growth by approximately ~~160~~200 basis ~~points.~~points, due primarily to the unfavorable impact resulting from the Canadian dollar to US dollar translation.

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Gross profit

Gross profit increased ~~$28~~$72 million, or ~~4.5%~~11.1%, to $714 million for the three months ended September 30, 2018, compared to $642 million for the three months ended September 30, ~~2017, compared to $614 million for the three months ended September 30, 2016.~~2017. As a percentage of Net sales, Gross profit ~~decreased 70 basis points to 15.9%~~margin remained flat versus prior year at 16.3% for the three months ended September 30, 2017, down from 16.6% for the three months ended September 30, 2016. Although there was an increase in Gross profit due to higher sales volumes, we experienced a decline in our gross profit margin. This decline was primarily driven by a 60 basis point decline in product margin due to increased hardware sales, particularly in client devices, which generally have lower profit margins, and an ongoing competitive marketplace.

2018. 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~~was positively impacted by product margin improvement. This was offset by year-over-year Net sales ~~product mix, net service contract revenue, commission revenue, pricing strategies, market conditions and other factors.~~growth out-pacing the year-over-year growth rate in partner funding.

Selling and administrative expenses

Selling and administrative expenses increased ~~$17~~$39 million, or ~~5.1%~~11.0%, to $391 million for the three months ended September 30, 2018, compared to $352 million for the three months ended September 30, ~~2017, compared to $335 million~~2017. The increase was driven by higher sales payroll costs, including sales commissions consistent with higher Gross profit dollars, higher coworker costs driven by attainment for ~~the three months ended~~performance-based compensation and strategic investments funded by tax reform. Total coworker count was 8,937, up 215 from 8,722 at September 30, ~~2016.~~ 2017. Total coworker count was 8,726 at December 31, 2017.

As a percentage of total Net sales, Selling and administrative expenses decreased by 30 basis points to 8.7% in the third quarter of 2017, down from 9.0% in the third quarter of 2016. Sales payroll costs increased $8 million, or 5.1%, between periods due to higher sales volumes and was consistent with Gross profit growth. Total coworker count was 8,722remained flat at ~~September 30, 2017, up 157 from 8,565 at September 30, 2016. Total coworker count was 8,516 at December 31, 2016. During~~8.9% for the three months ended September 30, ~~2017, a retroactive Illinois state law change was enacted which required the reinstatement of prior year unclaimed property balances, resulting in an additional $4 million of expenses.~~2018.

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Income from operations

Income from operations by segment, in dollars and as a percentage of Net sales, and the year-over-year percentage change are as follows:


	Three Months Ended September 30,												Three Months Ended September 30,
	2017					2016							2018					2017⁽¹⁾
	Dollars in Millions			Operating Margin Percentage		Dollars in Millions			Operating Margin Percentage		Percent Change in Income from Operations		Dollars in Millions			Operating Margin Percentage		Dollars in Millions			Operating Margin Percentage		Percent Change in Income from Operations
Segments:⁽¹⁾⁽²⁾
Corporate	$	121.0		7.6	%	$	120.0		8.2	%	0.9	%	$	127.2		7.5	%	$	121.6		7.8	%	4.1	%
Small Business⁽²⁾	17.7			5.7		18.0			6.4		(1.4	)	24.1			7.1		17.7			5.8		36.1
Public	122.3			7.1		120.0			7.3		1.9		138.0			7.4		122.3			7.2		12.9
Other⁽³⁾	14.5			3.7		10.0			3.1		45.9		19.2			4.2		14.2			3.7		34.5
Headquarters⁽⁴⁾	(31.8		)	nm*		(30.5		)	nm*		4.4		(33.7		)	nm*		(31.8		)	nm*		5.9
Total income from operations	$	243.7		6.0	%	$	237.5		6.4	%	2.6	%	$	274.8		6.3	%	$	244.0		6.2	%	12.6	%

* Not meaningful


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


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


~~(2)~~	~~Effective January 1, 2017, Small Business is its own operating and reportable segment. The prior period has been recast to conform to the current period presentation.~~


(3)	Includes the financial results for our other operating segments, CDW ~~Canada~~UK and CDW ~~UK,~~Canada, which do not meet the reportable segment quantitative thresholds.


(4)	Includes certain ~~Headquarters’~~Headquarters' function costs that are not allocated to the segments.

Income from operations was $275 million for the three months ended September 30, 2018, an increase of $31 million, or 12.6%, compared to $244 million for the three months ended September 30, ~~2017, an increase of $6 million, or 2.6%, compared to $238 million for the three months ended September 30, 2016.~~2017. Income from operations increased primarily due to higher gross profit dollars, partially offset by higher ~~Selling~~sales payroll expenses and ~~administrative expenses.~~higher coworker costs due to higher attainment for performance-based compensation. Total operating margin percentage ~~decreased 40~~increased 10 basis points to ~~6.0%~~6.3% for the three months ended September 30, ~~2017,~~2018, from ~~6.4%~~6.2% for the three months ended September 30, 2016. Operating margin percentage was impacted by a decline in product margin due to increased hardware sales, particularly in client devices, which generally have lower profit margins, an ongoing competitive marketplace and the impact of the reinstatement of prior year unclaimed property balances, partially offset by a decrease in sales payroll costs as a percentage of Net sales.2017.

Corporate segment income from operations was ~~$121~~$127 million for the three months ended September 30, ~~2017,~~2018, an increase of $1$5 million, or ~~0.9%~~4.1%, compared to ~~$120~~$122 million for the three months ended September 30, ~~2016.~~2017. Corporate segment income from operations increased primarily due to higher gross profit dollars, partially offset by higher sales payroll expenses and coworker costs due to higher attainment for performance-based compensation. Corporate segment operating margin percentage decreased 6030 basis points to ~~7.6%~~7.5% for the three months ended September 30, ~~2017,~~2018, from ~~8.2%~~7.8% for the three months ended September 30, ~~2016.~~

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2017. This decrease in operating margin percentage was primarily ~~due to a decline in~~driven by product margin compression due to increased hardware sales ~~particularly in client devices, which generally have lower profit margins, an ongoing competitive marketplace~~ and ~~the impact of the reinstatement of prior year unclaimed property balances, partially offset by a decrease in sales payroll~~higher coworker costs due to higher attainment for performance-based compensation as a percentage of Net sales.

Small Business segment income from operations was ~~$18~~$24 million ~~for both the three months ended September 30, 2017 and 2016, a decrease of 1.4%. Small Business segment operating margin percentage decreased 70 basis points to 5.7%~~ for the three months ended September 30, ~~2017, from 6.4%~~2018, an increase of $6 million, or 36.1%, compared to $18 million for the three months ended September 30, ~~2016. This decrease was~~2017. Small business segment income from operations increased primarily due to ~~a decline~~higher gross profit dollars. Small Business segment operating margin percentage increased 130 basis points to 7.1% for the three months ended September 30, 2018, from 5.8% for the three months ended September 30, 2017. This increase in operating margin percentage was primarily driven by higher product margin, ~~due to increased hardware sales, particularly in client devices, which generally have lower profit margins, and an ongoing competitive marketplace,~~ partially offset by ~~a decrease in~~higher sales payroll expenses and coworker costs due to higher attainment for performance-based compensation as a percentage of Net sales.

Public segment income from operations was $138 million for the three months ended September 30, 2018, an increase of $16 million, or 12.9%, compared to $122 million for the three months ended September 30, ~~2017, an increase of $2 million, or 1.9%, compared~~2017. Public segment income from operations increased primarily due to ~~$120 million~~higher gross profit dollars. Public segment operating margin percentage increased 20 basis points to 7.4% for the three months ended September 30, ~~2016. Public segment operating margin percentage decreased 20 basis points to 7.1%~~2018, from 7.2% for the three months ended September 30, ~~2017, from 7.3% for the three months ended September 30, 2016. The decrease~~2017. This increase in operating margin percentage was primarily driven by ~~increased hardware sales, an~~

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~~ongoing competitive marketplace and the impact of the reinstatement of prior year unclaimed property balances,~~higher product margin, partially offset by ~~a decrease in sales payroll~~higher coworker costs due to higher attainment for performance-based compensation as a percentage of Net sales.

Other income from operations was ~~$15~~$19 million for the three months ended September 30, ~~2017,~~2018, an increase of $5 million, or ~~45.9%~~34.5%, compared to ~~$10~~$14 million for the three months ended September 30, ~~2016.~~2017. Other income from operations increased primarily due to higher gross profit dollars, partially offset by higher payroll expenses. Other operating margin percentage increased 6050 basis points to 4.2% for the three months ended September 30, 2018, from 3.7% for the three months ended September 30, ~~2017, from 3.1% for the three months ended September 30, 2016. Operating margin improvement~~2017. This increase was primarily driven by the mix of Net sales and lower intangible asset amortization as a percentage of Net sales, partially offset by higher equity-based compensation expense as a percentage of Net sales.

~~Net loss on extinguishments of long-term debt~~

During the three months ended September 30, 2017, there were no extinguishments of long-term debt compared to the same period in 2016 when we incurred a net loss on extinguishment of long-term debt of $2 million.

Income tax expense

Income tax expense was ~~$77~~$55 million for the three months ended September 30, ~~2017,~~2018, compared to ~~$72~~$78 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 ~~37.5%~~22.9% for the three months ended September 30, ~~2017 compared~~2018 and differed from the US federal statutory rate of 21.0% primarily due to ~~36.5%~~state income taxes partially offset by excess tax benefits on equity-based compensation. The effective tax rate for the same period of the prior ~~year.~~ year was 37.5% and differed from the US federal statutory rate of 35.0% primarily due to state income taxes and additional expense as a result of a change in state tax rates enacted during the quarter, partially offset by excess tax benefits on equity-based compensation and a state tax refund.

The ~~higher~~lower effective tax rate for the three months ended September 30, ~~2017~~2018 as compared to the same period of the prior year was primarily attributable to ~~differences in discrete items recorded~~the reduction in the ~~respective periods. For the three months ended September 30, 2017, we recognized a $1 million deferred~~US federal statutory rate and higher excess tax ~~expense as a result of a change in~~benefits on equity-based compensation, partially offset by higher effective net state income tax rates ~~which was largely offset by~~primarily due to the tax benefit of $1 million related to equity-based compensation and a state tax refund, while we recognized $1 million of tax benefits for the same period of the prior year as a result of tax benefits related to equity-based compensation.reduced US federal benefit.

Non-GAAP Financial Measure Reconciliations

Non-GAAP income before income taxes and Non-GAAP net income ~~excludes,~~exclude, among other things, charges related to the amortization of acquisition-related intangible assets, equity-based compensation and associated taxes, ~~integration expenses, and~~ gains and losses from the extinguishment of ~~long-term debt.~~debt and integration expenses. EBITDA is defined as consolidated net income before interest expense, net, income tax expense, depreciation and amortization. Adjusted EBITDA, which is a measure defined in our credit agreements, means EBITDA adjusted for certain items, which are described in the ~~table~~tables below. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of Net sales. Consolidated Net sales growth on a constant currency basis is defined as consolidated Net sales growth excluding the impact of foreign currency translation on net sales compared to the prior period.

Non-GAAP income before income taxes, Non-GAAP net income, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and consolidated Net sales growth on a constant currency basis are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a ~~company’s~~company's performance or financial position that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.

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We believe these measures provide analysts, investors and management with helpful information regarding the underlying operating performance of our business, as they remove the impact of items that management believes are not reflective of underlying operating performance. Management uses these measures to evaluate period-over-period performance as management believes they provide a more comparable measure of the underlying business. Additionally, Adjusted EBITDA is a measure in the credit agreement governing our ~~Senior Secured~~ Term Loan ~~Facility (“Term Loan”) that is~~ used to evaluate our ability to make certain investments, incur additional debt, and make restricted payments, such as dividends and share repurchases, as well as whether we are required to make additional principal prepayments on the Term Loan beyond the quarterly amortization payments. For further details regarding the Term Loan, see Note 6 (Long-Term Debt) to the accompanying Consolidated Financial Statements.

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Non-GAAP net income

Non-GAAP net income was $218 million for the three months ended September 30, 2018, an increase of $50 million, or 29.3%, compared to $168 million for the three months ended September 30, ~~2017, an increase of $8 million, or 4.9%, compared to $160 million for the three months ended September 30, 2016.~~2017.

Three Months Ended September 30,
(in millions) 2017 2016
Net income $ 129.2
$ 125.9
Amortization of intangibles⁽¹⁾
46.5
46.5
Equity-based compensation 10.0
10.0
Net loss on extinguishments of long-term debt —
2.1
Integration expenses⁽²⁾
—
2.4
Reinstatement of prior year unclaimed property balances⁽³⁾
4.1
—
Other adjustments⁽⁴⁾
(0.2 ) (3.3 )
Aggregate adjustment for income taxes⁽⁵⁾
(21.4 ) (23.3 )
Non-GAAP net income $ 168.2
$ 160.3



	Three Months Ended September 30,
	2018								2017⁽¹⁾
(dollars in millions)	Income before income taxes		Income tax expense⁽²⁾			Net income			Income before income taxes			Income tax (expense) benefit⁽²⁾			Net income
GAAP (as reported)	$	238.4	$	(54.7	)	$	183.7		$	206.9		$	(77.6	)	$	129.3
Amortization of intangibles⁽³⁾	45.3		(12.0		)	33.3			46.5			(15.8		)	30.7
Equity-based compensation	10.8		(10.5		)	0.3			10.0			(4.1		)	5.9
Reinstatement of prior year unclaimed property balances⁽⁴⁾	—		—			—			4.1			(1.6		)	2.5
Tax Cuts and Jobs Act⁽⁵⁾	—		(2.0		)	(2.0		)	—			—			—
Other adjustments⁽⁶⁾	3.0		(0.7		)	2.3			(0.2		)	0.1			(0.1		)
Non-GAAP	$	297.5	$	(79.9	)	$	217.6		$	267.3		$	(99.0	)	$	168.3


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	Income tax on non-GAAP adjustments includes excess tax benefits associated with equity-based compensation. Additionally, 2018 includes the impact of global intangible low tax income ("GILTI") on equity-based compensation and amortization of intangibles.


(3)	Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.


(4)	Comprised of the reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois state law change enacted in the third quarter of 2017.


(5)	Comprised of an adjustment to the provisional amounts recorded to finalize the US federal impact of revaluing deferred tax assets and liabilities and mandatory repatriation tax due to the completion of the 2017 US federal tax return.


(6)	Includes other expenses such as payroll taxes on equity-based compensation during the three months ended September 30, 2018 and 2017.

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Adjusted EBITDA

Adjusted EBITDA was $355 million for the three months ended September 30, 2018, an increase of $30 million, or 9.3%, compared to $325 million for the three months ended September 30, 2017. As a percentage of Net sales, Adjusted EBITDA was 8.1% for the three months ended September 30, 2018 and 8.3% for the three months ended September 30, 2017.



	Three Months Ended September 30,
(in millions)	2018		Percentage of Net Sales		2017⁽¹⁾		Percentage of Net Sales
Net income	$	183.7			$	129.3
Depreciation and amortization	65.8				65.7
Income tax expense	54.7				77.6
Interest expense, net	36.6				37.8
EBITDA	340.8		7.8	%	310.4		7.9	%

Adjustments:
Equity-based compensation	10.8				10.0
Reinstatement of prior year unclaimed property balances⁽²⁾	—				4.1
Other adjustments⁽³⁾	3.1				0.1
Total adjustments	13.9				14.2
Adjusted EBITDA	$	354.7	8.1	%	$	324.6	8.3	%


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	Comprised of the reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois state law change enacted in the third quarter of 2017.


(3)	Includes other expenses such as payroll taxes on equity-based compensation and our share of net income from our equity investment during the three months ended September 30, 2018 and 2017. Also includes historical retention costs during the three months ended September 30, 2017.

Consolidated net sales growth on constant currency basis

Consolidated Net sales increased $440 million, or 11.2%, to $4,373 million for the three months ended September 30, 2018, compared to $3,933 million for the three months ended September 30, 2017. Consolidated Net sales on a constant currency basis, which excludes the impact of foreign currency translation, increased $447 million, or 11.4%.



	Three Months Ended September 30,
(in millions)	2018		2017⁽¹⁾			% Change		Average Daily % Change⁽²⁾
Consolidated Net sales, as reported	$	4,373.2	$	3,933.2		11.2	%	11.2	%
Foreign currency translation⁽³⁾	—		(7.0		)
Consolidated Net sales, on a constant currency basis	$	4,373.2	$	3,926.2		11.4	%	11.4	%


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	There were 63 selling days for both the three months ended September 30, 2018 and 2017.


(3)	Represents the effect of translating the prior year results of CDW UK and CDW Canada at the average exchange rates applicable in the current year.

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Nine Months Overview

The results of certain business metrics are as follows:



	Nine Months Ended September 30,
(dollars in millions)	2018		2017⁽¹⁾
Net sales	$	12,165.7	$	11,080.8
Gross profit	2,013.1		1,836.5
Income from operations	744.4		645.6
Net income	483.7		328.3
Non-GAAP net income	593.6		453.2
Adjusted EBITDA	979.2		889.2
Average daily sales⁽²⁾	63.7		58.0
Net debt⁽³⁾	2,964.3		3,332.0
Cash conversion cycle (in days)⁽⁴⁾	18		19


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	There were 191 selling days for both the nine months ended September 30, 2018 and 2017.


(3)	Defined as Total debt minus Cash and cash equivalents.


(4)	Cash conversion cycle is defined as days of sales outstanding in Accounts receivable and certain receivables due from vendors plus days of supply in Merchandise inventory minus days of purchases outstanding in Accounts payable and Accounts payable-inventory financing, based on a rolling three-month average.

Results of Operations

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

Results of operations, in dollars and as a percentage of Net sales are as follows:



	Nine Months Ended September 30,
	2018					2017⁽¹⁾
	Dollars in Millions			Percentage of Net Sales		Dollars in Millions			Percentage of Net Sales
Net sales	$	12,165.7		100.0	%	$	11,080.8		100.0	%
Cost of sales	10,152.6			83.5		9,244.3			83.4
Gross profit	2,013.1			16.5		1,836.5			16.6
Selling and administrative expenses	1,134.8			9.3		1,062.8			9.6
Advertising expense	133.9			1.1		128.1			1.2
Income from operations	744.4			6.1		645.6			5.8
Interest expense, net	(111.5		)	(0.9	)	(113.4		)	(1.0	)
Net loss on extinguishments of long-term debt	—			—		(57.4		)	(0.5	)
Other income, net	1.0			—		1.9			—
Income before income taxes	633.9			5.2		476.7			4.3
Income tax expense	(150.2		)	(1.2	)	(148.4		)	(1.3	)
Net income	$	483.7		4.0	%	$	328.3		3.0	%


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.

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Net sales

Net sales by segment, in dollars and as a percentage of total Net sales, and the year-over-year dollar and percentage change in Net sales are as follows:



	Nine Months Ended September 30,
	2018				2017⁽¹⁾
(dollars in millions)	Net Sales		Percentage of Total Net Sales		Net Sales		Percentage of Total Net Sales		Dollar Change		Percent Change⁽²⁾
Corporate	$	5,006.1	41.1	%	$	4,573.5	41.3	%	$	432.6	9.5	%

Small Business	997.1		8.2		912.4		8.2		84.7		9.3

Public:
Government	1,551.3		12.8		1,490.0		13.5		61.3		4.1
Education	1,902.4		15.6		1,789.3		16.1		113.1		6.3
Healthcare	1,286.8		10.6		1,201.1		10.8		85.7		7.1
Total Public	4,740.5		39.0		4,480.4		40.4		260.1		5.8

Other	1,422.0		11.7		1,114.5		10.1		307.5		27.6

Total net sales	$	12,165.7	100.0	%	$	11,080.8	100.0	%	$	1,084.9	9.8	%


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	There were 191 selling days for both the nine months ended September 30, 2018 and 2017.

Total Net sales for the nine months ended September 30, 2018 increased $1,085 million, or 9.8%, to $12,166 million, compared to $11,081 million for the nine months ended September 30, 2017. Excluding the impact of foreign currency fluctuations, constant currency Net sales growth was 9.3%. See "Non-GAAP Financial Measure Reconciliations" below for additional information regarding constant currency Net sales growth.

For the nine months ended September 30, 2018, growth was driven by ongoing focus on client device refresh within hardware and strong growth from our international operations. In addition, sales growth reflected both underlying demand for solutions, as well as the impact of the reversal associated with supply chain issues experienced at the end of 2017.

Corporate segment Net sales for the nine months ended September 30, 2018 increased $433 million, or 9.5% compared to the nine months ended September 30, 2017. Growth was primarily driven by client device refresh, as well as continued success helping customers with solutions, including data center and software.

Small Business segment Net sales for the nine months ended September 30, 2018 increased by $85 million, or 9.3%, between periods. Sales growth was primarily driven by client device refresh.

Public segment Net sales for the nine months ended September 30, 2018 increased $260 million, or 5.8%, compared to the nine months ended September 30, 2017. Net sales in Healthcare increased 7.1%, primarily driven by performance in client devices and video as customers moved forward on refresh projects. Education Net sales increased 6.3% primarily driven by continued success addressing client device and networking needs for both K-12 and Higher Education customers. Net sales to Government customers grew at 4.1%, driven by the success of executing against contracts to State & Local government customers and continued success meeting public safety needs.

Net sales in Other, which is comprised of results from our UK and Canadian operations, for the nine months ended September 30, 2018 increased $308 million, or 27.6%, compared to the nine months ended September 30, 2017. Both operations had strong growth in local currency as we continued to take share in the local markets. In addition, UK growth was driven in part by increased sales from referrals for US-based customers. The impact of foreign currency exchange increased Other sales growth by approximately 500 basis points, due to the favorable impact resulting from the British pound and Canadian dollar to US dollar translations.

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Gross profit

Gross profit increased $176 million, or 9.6%, to $2,013 million for the nine months ended September 30, 2018, compared to $1,837 million for the nine months ended September 30, 2017. As a percentage of Net sales, Gross profit margin decreased 10 basis points to 16.5% for the nine months ended September 30, 2018. Gross profit margin was impacted by improved product margin, this was offset by year-over-year Net sales growth out-pacing the year-over-year growth rate in partner funding.

Selling and administrative expenses

Selling and administrative expenses increased $72 million, or 6.8%, to $1,135 million for the nine months ended September 30, 2018, compared to $1,063 million for the nine months ended September 30, 2017. The increase was driven by higher sales payroll costs, including sales commissions primarily due to higher Gross profit dollars, higher coworker costs due to higher attainment of performance-based compensation and strategic investments funded by tax reform. This was partially offset by lower equity-based compensation expense and the associated payroll taxes due to the prior year vesting of an equity grant made at the time of our initial public offering.

As a percentage of total Net sales, Selling and administrative expenses decreased 30 basis points to 9.3% during the nine months ended September 30, 2018, down from 9.6% in the nine months ended September 30, 2017.

Income from operations

Income from operations by segment, in dollars and as a percentage of Net sales, and the year-over-year percentage change are as follows:



	Nine Months Ended September 30,
	2018					2017⁽¹⁾
	Dollars in Millions			Operating Margin Percentage		Dollars in Millions			Operating Margin Percentage		Percent Change in Income from Operations
Segments:⁽²⁾
Corporate	$	393.3		7.9	%	$	360.6		7.9	%	8.9	%
Small Business	71.0			7.1		53.7			5.9		32.1
Public	322.7			6.8		287.6			6.4		12.2
Other⁽³⁾	60.7			4.3		39.5			3.5		53.7
Headquarters⁽⁴⁾	(103.3		)	nm*		(95.8		)	nm*		7.8
Total income from operations	$	744.4		6.1	%	$	645.6		5.8	%	15.2	%

* Not meaningful


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


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


(3)	Includes the financial results for our other operating segments, CDW UK and CDW Canada, which do not meet the reportable segment quantitative thresholds.


(4)	Includes certain Headquarters' function costs that are not allocated to the segments.

Income from operations was $744 million for the nine months ended September 30, 2018, an increase of $98 million, or 15.2%, compared to $646 million for the nine months ended September 30, 2017. Income from operations increased primarily due to higher gross profit dollars, partially offset by higher sales payroll expenses and higher coworker costs due to higher attainment on performance-based compensation. Total operating margin percentage increased 30 basis points to 6.1% for the nine months ended September 30, 2018, from 5.8% for the nine months ended September 30, 2017. The increase was primarily due to lower equity-based compensation expense and the associated payroll taxes and intangible asset amortization as a percentage of Net sales, which do not trend in line with sales movement.

Corporate segment income from operations was $393 million for the nine months ended September 30, 2018, an increase of $32 million, or 8.9%, compared to $361 million for the nine months ended September 30, 2017. Corporate segment income from operations increased primarily due to higher gross profit dollars driven by higher sales. Corporate segment operating margin

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percentage remained flat to prior year at 7.9% for the nine months ended September 30, 2018. The benefit from lower Selling and administrative expenses as a percentage of Net sales was offset by product margin compression due to increased hardware sales.

Small Business segment income from operations was $71 million for the nine months ended September 30, 2018, an increase of $17 million, or 32.1%, compared to $54 million for the nine months ended September 30, 2017. Small business segment income from operations increased primarily due to higher gross profit dollars. Small Business segment operating margin percentage increased 120 basis points to 7.1% for the nine months ended September 30, 2018, from 5.9% for the nine months ended September 30, 2017. This increase in operating margin percentage was primarily driven by higher product margin and the benefit of lower sales payroll expenses and intangible asset amortization expenses as a percentage of Net sales.

Public segment income from operations was $323 million for the nine months ended September 30, 2018, an increase of $35 million, or 12.2%, compared to $288 million for the nine months ended September 30, 2017. Public segment income from operations increased primarily due to higher gross profit dollars. Public segment operating margin percentage increased 40 basis points to 6.8% for the nine months ended September 30, 2018, from 6.4% for the nine months ended September 30, 2017. This increase in operating margin percentage was primarily driven by a higher product margin.

Other income from operations was $61 million for the nine months ended September 30, 2018, an increase of $21 million, or 53.7%, compared to $40 million for the nine months ended September 30, 2017. Other income from operations increased primarily due to higher gross profit dollars, partially offset by higher sales payroll expenses. Foreign exchange translation also had a favorable impact on income from operations. Other operating margin percentage increased 80 basis points to 4.3% for the nine months ended September 30, 2018, from 3.5% for the nine months ended September 30, 2017. This increase was primarily due to lower sales payroll expenses and lower intangible asset amortization as a percentage of Net sales.

Net loss on extinguishments of long-term debt

During the nine months ended September 30, 2017, we incurred a net loss on extinguishment of long-term debt of $57 million. For information regarding our debt, see Note 6 (Long-Term Debt) to the accompanying Consolidated Financial Statements.

Net loss on extinguishments of long-term debt for the nine months ended September 30, 2017 are as follows:



Month of Extinguishment	Debt Instrument	(in millions)
Month of Extinguishment	Debt Instrument	Amount Extinguished		Loss Recognized
February 2017	Senior Secured Term Loan Facility	$	1,483.0	$	(13.7	)
March 2017	Senior Notes due 2022	600.0		(42.5		)	⁽¹⁾
March 2017	Senior Secured Asset-based Revolving Credit Facility	—		(1.2		)
	Total Loss Recognized			$	(57.4	)


(1)	We repaid all of the remaining aggregate principal amount outstanding. The loss recognized represents the difference between the aggregate principal amount and the net carrying amount of the purchased debt, adjusted for the remaining unamortized deferred financing fees and premium.

Income tax expense

Income tax expense was $150 million for the nine months ended September 30, 2018, compared to $148 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 23.7% for the nine months ended September 30, 2018 and differed from the US federal statutory rate of 21.0% primarily due to state income taxes, partially offset by excess tax benefits on equity-based compensation. The effective tax rate for the same period of the prior year was 31.1% and differed from the US federal statutory rate of 35.0% primarily due to excess tax benefits on equity-based compensation, partially offset by state taxes.

The lower effective tax rate for the nine months ended September 30, 2018 as compared to the same period of the prior year was primarily attributable to the reduction in the US federal statutory rate, partially offset by lower excess tax benefits on equity-based compensation and a higher effective net state income tax rate primarily due to the reduced US federal benefit.

Non-GAAP Financial Measure Reconciliations

We have included reconciliations of Non-GAAP income before income taxes, Non-GAAP net income, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and consolidated Net sales growth on a constant currency basis for the nine months ended September 30, 2018 and 2017 below. See the "Non-GAAP Financial Measure Reconciliations" section included above for the three months ended September 30, 2018 and 2017 for all Non-GAAP measure definitions.

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Non-GAAP net income

Non-GAAP net income was $594 million for the nine months ended September 30, 2018, an increase of $141 million or 31.0% compared to $453 million for the nine months ended September 30, 2017.



	Nine Months Ended September 30,
	2018								2017⁽¹⁾
(dollars in millions)	Income before income taxes		Income tax expense⁽²⁾			Net income			Income before income taxes		Income tax expense⁽²⁾			Net income
GAAP (as reported)	$	633.9	$	(150.2	)	$	483.7		$	476.7	$	(148.4	)	$	328.3
Amortization of intangibles⁽³⁾	138.6		(36.0		)	102.6			138.9		(49.1		)	89.8
Equity-based compensation	29.9		(23.8		)	6.1			33.6		(42.6		)	(9.0		)
Net loss on extinguishments of long-term debt	—		—			—			57.4		(20.7		)	36.7
Integration expenses⁽⁴⁾	—		—			—			2.5		(0.9		)	1.6
Reinstatement of prior year unclaimed property balances⁽⁵⁾	—		—			—			4.1		(1.5		)	2.6
Tax Cuts and Jobs Act⁽⁶⁾	—		(2.0		)	(2.0		)	—		—			—
Other adjustments⁽⁷⁾	4.2		(1.0		)	3.2			4.8		(1.6		)	3.2
Non-GAAP	$	806.6	$	(213.0	)	$	593.6		$	718.0	$	(264.8	)	$	453.2


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	Income tax on non-GAAP adjustments includes excess tax benefits associated with equity-based compensation. Additionally, 2018 includes the impact of GILTI on equity-based compensation and amortization of intangibles.


(3)	Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.


(4)	Comprised of expenses related to CDW UK.


(5)	Comprised of the reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois state law change enacted in the third quarter of 2017.


(6)	Comprised of an adjustment to the provisional amounts recorded to finalize the US federal impact of revaluing deferred tax assets and liabilities and mandatory repatriation tax due to the completion of the 2017 US federal tax return.


(7)	Includes other expenses such as payroll taxes on equity-based compensation during the nine months ended September 30, 2018 and 2017.

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Adjusted EBITDA

Adjusted EBITDA was $979 million for the nine months ended September 30, 2018, an increase of $90 million, or 10.1%, compared to $889 million for the nine months ended September 30, 2017. As a percentage of Net sales, Adjusted EBITDA was 8.0% for both the nine months ended September 30, 2018 and 2017.



	Nine Months Ended September 30,
(in millions)	2018		Percentage of Net Sales		2017⁽¹⁾		Percentage of Net Sales
Net income	$	483.7			$	328.3
Depreciation and amortization	198.7				195.2
Income tax expense	150.2				148.4
Interest expense, net	111.5				113.4
EBITDA	944.1		7.8	%	785.3		7.1	%

Adjustments:
Equity-based compensation	29.9				33.6
Net loss on extinguishments of long-term debt	—				57.4
Integration expenses⁽²⁾	—				2.5
Reinstatement of prior year unclaimed property balances⁽³⁾	—				4.1
Other adjustments⁽⁴⁾	5.2				6.3
Total adjustments	35.1				103.9
Adjusted EBITDA	$	979.2	8.0	%	$	889.2	8.0	%


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	Comprised of expenses related to CDW UK.


(3)	Comprised of the reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois state law change enacted in the third quarter of 2017.

(4)

~~The three months ended September 30, 2016 primarily includes our share of the settlement payments received from the Dynamic Random Access Memory class action lawsuits~~Includes other expenses such as payroll taxes on equity-based compensation and ~~the favorable resolution of a local sales tax matter, partially offset by expenses related to the consolidation of office locations north of Chicago.~~


~~(5)~~	~~Aggregate adjustment for income taxes consists of the following:~~

Three Months Ended September 30,
2017 2016
Total Non-GAAP adjustments $ 60.4
$ 57.7
Weighted-average statutory effective rate 36.0 % 36.0 %
Income tax (21.7 ) (20.8 )
Excess tax benefits from equity-based compensation (0.6 ) (1.2 )
Non-deductible adjustments and other 0.9
(1.3 )
Total aggregate adjustment for income taxes $ (21.4 ) $ (23.3 )

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~~Adjusted EBITDA~~

Adjusted EBITDA was $324 million for the three months ended September 30, 2017, an increase of $14 million, or 4.5%, compared to $310 million for the three months ended September 30, 2016. As a percentage of Net sales, Adjusted EBITDA was 8.0% for the three months ended September 30, 2017 and 8.4% for the three months ended September 30, 2016.

Three Months Ended September 30,
(in millions) 2017 Percentage of Net Sales 2016 Percentage of Net Sales
Net income $ 129.2
3.2 % $ 125.9
3.4 %
Depreciation and amortization 65.7
63.1

Income tax expense 77.4
72.3

Interest expense, net 37.8
37.6

EBITDA 310.1
7.7 % 298.9
8.1 %

Adjustments:
Equity-based compensation 10.0
10.0

Net loss on extinguishments of long-term debt —
2.1

Income from equity investment⁽¹⁾
(0.2 ) (0.2 )
Integration expenses⁽²⁾
—
2.4

Reinstatement of prior year unclaimed property balances⁽³⁾
4.1
—

Other adjustments⁽⁴⁾
0.3
(2.8 )
Total adjustments 14.2
11.5

Adjusted EBITDA $ 324.3
8.0 % $ 310.4
8.4 %


~~(1)~~	~~Represents~~ our share of net income from our equity ~~investment.~~


~~(2)~~	~~Comprised of expenses related to CDW UK.~~


~~(3)~~	~~Comprised of~~investment during the ~~reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois state law change enacted in the third quarter of 2017.~~

~~(4)~~

~~The three~~nine months ended September 30, ~~2016 primarily~~2018 and 2017. Also includes ~~our share of~~historical retention costs during the settlement payments received from the Dynamic Random Access Memory class action lawsuits and the favorable resolution of a local sales tax matter, partially offset by expenses related to the consolidation of office locations north of Chicago.nine months ended September 30, 2017.

Consolidated net sales growth on a constant currency basis

Consolidated Net sales increased ~~$326~~$1,085 million, or ~~8.8%~~9.8%, to ~~$4,034~~$12,166 million for the ~~three~~nine months ended September 30, ~~2017,~~2018, compared to ~~$3,708~~$11,081 million for the ~~three~~nine months ended September 30, ~~2016.~~2017. Consolidated Net sales on a constant currency basis, which excludes the impact of foreign currency translation, increased ~~$321~~$1,038 million, or ~~8.7%, to $4,034 million for the three months ended September 30, 2017, compared to $3,713 million for the three months ended September 30, 2016.~~9.3%.


	Three Months Ended September 30,								Nine Months Ended September 30,
(in millions)	2017		2016		% Change		Average Daily % Change⁽¹⁾		2018		2017⁽¹⁾		% Change		Average Daily % Change⁽²⁾
Consolidated Net sales, as reported	$	4,033.9	$	3,708.2	8.8	%	10.5	%	$	12,165.7	$	11,080.8	9.8	%	9.8	%
Foreign currency translation⁽²⁾⁽³⁾	—		4.3						—		47.3
Consolidated Net sales, on a constant currency basis	$	4,033.9	$	3,712.5	8.7	%	10.4	%	$	12,165.7	$	11,128.1	9.3	%	9.3	%


(1)	~~There were 63 and 64 selling days~~Amounts for 2017 have been adjusted to reflect the ~~three months ended September 30, 2017 and 2016, respectively.~~adoption of Topic 606.


(2)	There were 191 selling days for both the nine months ended September 30, 2018 and 2017.


(3)	Represents the effect of translating the prior year results of CDW ~~Canada~~UK and CDW ~~UK's results~~Canada at the average exchange rates applicable in the current year.

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~~Nine Months Overview~~

~~The results of certain of our key business metrics are as follows:~~

Nine Months Ended September 30,
(dollars in millions) 2017 2016
Net sales $ 11,353.0
$ 10,489.5
Gross profit 1,835.6
1,749.3
Income from operations 644.6
622.0
Net income 327.8
321.2
Non-GAAP net income 452.7
428.6
Adjusted EBITDA 888.2
843.6
Average daily sales ⁽¹⁾
59.4
54.6
Net debt ⁽²⁾
3,332.0
3,123.1
Cash conversion cycle (in days) ⁽³⁾
19
18


~~(1)~~	~~There were 191 and 192 selling days for the nine months ended September 30, 2017 and 2016, respectively.~~


~~(2)~~	~~Defined as total debt minus cash and cash equivalents; $3,430 million minus $98 million as of September 30, 2017 and $3,241 million minus $118 million as of September 30, 2016.~~


~~(3)~~	Cash conversion cycle is defined as days of sales outstanding in Accounts receivable and certain receivables due from vendors plus days of supply in inventory minus days of purchases outstanding in Accounts payable and Accounts payable-inventory financing, based on a rolling three-month average.

~~Results of Operations~~

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Results of operations, in dollars and as a percentage of Net sales are as follows:~~

Nine Months Ended September 30,
2017 2016

Dollars in
Millions

Percentage of
Net Sales

Dollars in
Millions

Percentage of
Net Sales
Net sales $ 11,353.0
100.0 % $ 10,489.5
100.0 %
Cost of sales 9,517.4
83.8
8,740.2
83.3
Gross profit 1,835.6
16.2
1,749.3
16.7
Selling and administrative expenses 1,062.9
9.4
1,009.0
9.6
Advertising expense 128.1
1.1
118.3
1.1
Income from operations 644.6
5.7
622.0
5.9
Interest expense, net (113.4 ) (1.0 ) (112.6 ) (1.1 )
Net loss on extinguishments of long-term debt (57.4 ) (0.5 ) (2.1 ) —
Other income 1.9
—
2.3
—
Income before income taxes 475.7
4.2
509.6
4.9
Income tax expense (147.9 ) (1.3 ) (188.4 ) (1.8 )
Net income $ 327.8
2.9 % $ 321.2
3.1 %

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~~Net sales~~

~~Net sales by segment, in dollars and as a percentage of total Net sales, and the year-over-year dollar and percentage change in Net sales are as follows:~~

Nine Months Ended September 30,
2017 2016
(dollars in millions) Net Sales
Percentage
of Total Net Sales

Net Sales⁽¹⁾

Percentage
of Total Net Sales

Dollar
Change

Percent
Change⁽²⁾
Corporate $ 4,705.5
41.4 % $ 4,372.1
41.7 % $ 333.4
7.6 %

Small Business 931.7
8.2
848.2
8.1
83.5
9.9

Public:
Government 1,537.4
13.5
1,334.1
12.7
203.3
15.3
Education 1,810.7
15.9
1,652.4
15.8
158.3
9.6
Healthcare 1,235.4
10.9
1,270.6
12.1
(35.2 ) (2.8 )
Total Public 4,583.5
40.4
4,257.1
40.6
326.4
7.7

Other 1,132.3
10.0
1,012.1
9.6
120.2
11.9

Total net sales $ 11,353.0
100.0 % $ 10,489.5
100.0 % $ 863.5
8.2 %


~~(1)~~	Effective January 1, 2017, Small Business is now an operating and reportable segment. Its results were previously presented as a sales channel within the Corporate segment. Prior periods have been recast to conform to the current period presentation.


~~(2)~~	~~There were 191 and 192 selling days for the nine months ended September 30, 2017 and 2016, respectively.~~

Total Net sales for the nine months ended September 30, 2017 increased $864 million, or 8.2%, to $11,353 million, compared to $10,489 million for the nine months ended September 30, 2016. Net sales on a constant currency basis, which excludes the impact of currency translation, for the nine months ended September 30, 2017 increased $913 million, or 8.7%, to $11,353 million, compared to $10,440 million for the nine months ended September 30, 2016. There was one fewer selling day in the first nine months of 2017 compared to the first nine months of 2016 and net sales on an average daily sales basis increased 8.8%. See “Non-GAAP Financial Measure Reconciliations” below for additional information.

For the nine months ended September 30, 2017, we saw accelerated hardware sales, including increased client device sales growth, as well as ongoing focus on optimization and efficiency, security and integration of software into solutions.

Corporate segment Net sales for the nine months ended September 30, 2017 increased $333 million, or 7.6%, compared to the nine months ended September 30, 2016. Growth was primarily driven by customer refresh of client devices. Additionally, we saw building momentum in solution sales as we moved through the year.

Small Business segment Net sales for the nine months ended September 30, 2017 increased by $84 million, or 9.9%, between periods. Sales growth was primarily driven by transactional products such as notebooks and mobile devices.

Public segment Net sales for the nine months ended September 30, 2017 increased $326 million, or 7.7%, compared to the nine months ended September 30, 2016. The growth was driven by double-digit growth in Government customers. Net sales to Federal government customers reflected a focus on spending existing budgets on planned projects and ongoing successful alignment with strategic programs, as well as the impact of client device shipments from a 2016 order that was delayed into 2017. Strong Net sales to our State and Local government customers was driven by a continued focus on public safety and the addition of new contracts. Education results reflected growth from both Higher Education and K-12 customers. Sales to our Higher Education customers had strong growth driven by networking and software as we continued to see the benefit from programs directed at select institutions by optimizing opportunities with available budgets. K-12 growth was led by transactional products in the first half of the year, with solutions products accelerating in the third quarter as schools continued to develop digital curriculum programs and implement collaborative learning environments. Net sales to Healthcare customers decreased 2.8% between periods reflecting customer uncertainty related to reimbursements and funding.

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Net sales in Other for the nine months ended September 30, 2017 increased $120 million, or 11.9%, compared to the nine months ended September 30, 2016. Other is comprised of results from our Canadian and UK operations. Both operations had strong double-digit growth in local currency. The impact of currency decreased Other sales growth by approximately 600 basis points, due to the impact resulting from the British pound to US dollar translation, partially offset by favorable translation of the Canadian to US dollar.

~~Gross profit~~

Gross profit increased $86 million, or 4.9%, to $1,836 million for the nine months ended September 30, 2017, compared to $1,749 million for the nine months ended September 30, 2016. As a percentage of Net sales, Gross profit decreased 50 basis points to 16.2% for the nine months ended September 30, 2017, down from 16.7% for the nine months ended September 30, 2016. Although there was an increase in Gross profit due to higher sales volumes, we experienced a decline in our Gross profit margin. This decline was primarily driven by a decrease in product margin due to increased hardware sales, particularly in client devices, which generally have lower profit margins, and an ongoing competitive marketplace.

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

~~Selling and administrative expenses~~

Selling and administrative expenses increased $54 million, or 5.3%, to $1,063 million for the nine months ended September 30, 2017, compared to $1,009 million for the nine months ended September 30, 2016. As a percentage of total Net sales, Selling and administrative expenses decreased by 20 basis points to 9.4% in the third quarter of 2017, down from 9.6% in the third quarter of 2016. Sales payroll costs increased $20 million, or 4.1%, between periods due to higher sales volume and consistent with Gross profit growth. Equity-based compensation expense and the associated taxes increased $9 million, or 33%, during the nine months ended September 30, 2017, compared to the prior year period, primarily due to the impact of annual equity awards granted under our Long-Term Incentive Plan and due to the vesting of an equity grant made at the time of our initial public offering and the related payroll taxes. During the nine months ended September 30, 2017, a retroactive Illinois state law change was enacted which required the reinstatement of unclaimed property balances, resulting in an additional $4 million of expenses.

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~~Income from operations~~

~~Income from operations by segment, in dollars and as a percentage of Net sales, and the year-over-year percentage changes are as follows:~~

Nine Months Ended September 30,
2017 2016

Dollars in
Millions

Operating
Margin
Percentage

Dollars in
Millions

Operating
Margin
Percentage

Percent Change
in Income
from Operations
Segments:⁽¹⁾

Corporate $ 359.5
7.6 % $ 339.1
7.8 % 6.0 %
Small Business⁽²⁾
53.7
5.8
52.3
6.2
2.7
Public 287.4
6.3
287.0
6.7
0.2
Other⁽³⁾
39.8
3.5
27.4
2.7
44.8
Headquarters⁽⁴⁾
(95.8 ) nm*
(83.8 ) nm*
14.3
Total income from operations $ 644.6
5.7 % $ 622.0
5.9 % 3.6 %

* Not meaningful


~~(1)~~	Segment income from operations includes the segment’s direct operating income, allocations for Headquarters’ costs, allocations for income and expenses from logistics services, certain inventory adjustments and volume rebates and cooperative advertising from vendors.


~~(2)~~	~~Effective January 1, 2017, Small Business is its own operating and reportable segment. The prior period has been recast to conform to the current period presentation.~~


~~(3)~~	~~Includes the financial results for our other operating segments, CDW Canada and CDW UK, which do not meet the reportable segment quantitative thresholds.~~


~~(4)~~	~~Includes certain Headquarters’ function costs that are not allocated to the segments.~~

Income from operations was $645 million for the nine months ended September 30, 2017, an increase of $23 million, or 3.6%, compared to $622 million for the nine months ended September 30, 2016. Although Income from operations increased, primarily due to an increase in sales volume, total operating margin percentage decreased 20 basis points to 5.7% for the nine months ended September 30, 2017, from 5.9% for the nine months ended September 30, 2016. Operating margin percentage decreased primarily due to increased hardware sales, an ongoing competitive marketplace and the impact of the reinstatement of prior year unclaimed property balances, partially offset by a decrease in sales payroll costs as a percentage of Net sales.

Corporate segment Income from operations was $360 million for the nine months ended September 30, 2017, an increase of $21 million, or 6.0%, compared to $339 million for the nine months ended September 30, 2016. Although Income from operations increased, primarily due to an increase in sales volume, Corporate segment operating margin percentage decreased 20 basis points to 7.6% for the nine months ended September 30, 2017, from 7.8% for the nine months ended September 30, 2016. This decrease was primarily due to increased hardware sales and an ongoing competitive marketplace and the impact of the reinstatement of prior year unclaimed property balances, partially offset by a decrease in sales payroll costs as a percentage of Net sales.

Small Business segment Income from operations was $54 million for the nine months ended September 30, 2017, an increase of $2 million, or 2.7%, compared to $52 million for the nine months ended September 30, 2016. Income from operations increased due to an increase in sales volume. Small Business segment operating margin percentage decreased 40 basis points to 5.8% for the nine months ended September 30, 2017, from 6.2% for the nine months ended September 30, 2016. This decrease was primarily due to increased hardware sales and an ongoing competitive marketplace, partially offset by a decrease in sales payroll costs as a percentage of Net sales.

Public segment Income from operations was $287 million for the nine months ended September 30, 2017 and 2016, an increase of 0.2%. Public segment operating margin percentage was 6.3% and 6.7% for the nine months ended September 30, 2017 and 2016, respectively. The 40 basis point decrease in operating margin percentage was primarily driven by increased hardware sales and an ongoing competitive marketplace, which was partially offset by a decrease in sales payroll costs as a percentage of Net sales.

Other Income from operations was $40 million for the nine months ended September 30, 2017, an increase of $13 million, or 44.8%, compared to $27 million for the nine months ended September 30, 2016. Other Income from operations increased due

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to higher sales volumes and higher Gross profit. Other operating margin percentage increased 80 basis points to 3.5% for the nine months ended September 30, 2017, from 2.7% for the nine months ended September 30, 2016. This increase was primarily due to higher Gross profit, amplified by lower intangible amortization expense as a percentage of Net sales.

~~Net loss on extinguishments of long-term debt~~

For information regarding our debt, see Note 6 (Long-Term Debt) to the accompanying Consolidated Financial Statements. During the nine months ended September 30, 2017, we incurred a $57 million net loss on extinguishment of long-term debt, compared to the $2 million recorded in the same period of 2016, which represented the write-off of unamortized deferred financing costs and unamortized discounts related to the three loans in the below table. The loss recognized on the Senior Notes due 2022 also included the redemption premium of $37 million.

~~Net loss on extinguishments of long-term debt for the nine months ended September 30, 2017 and 2016 are as follows:~~

Month of Extinguishment Debt Instrument (in millions)
Loss Recognized
February 2017 Senior Secured Term Loan Facility $ (13.7 )
March 2017 Senior Notes due 2022 (42.5 )
March 2017 Senior secured asset-based revolving credit facility (1.2 )
Total Loss Recognized $ (57.4 )

August 2016 Senior Secured Term Loan Facility $ (2.1 )
Total Loss Recognized $ (2.1 )

~~Income tax expense~~

Income tax expense was $148 million for the nine months ended September 30, 2017, compared to $188 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 31.1% for the nine months ended September 30, 2017 compared to 37.0% for the same period of the prior year. The lower effective tax rate for the nine months ended September 30, 2017 as compared to the same period of the prior year was primarily attributable to $31 million of excess tax benefits related to equity-based compensation recognized in 2017, which exceeded the $1 million of tax benefits related to equity-based compensation recognized in 2016.

~~Non-GAAP Financial Measure Reconciliations~~

We have included reconciliations of Non-GAAP net income, EBITDA, Adjusted EBITDA and consolidated Net sales growth on a constant currency basis for the nine months ended September 30, 2017 and 2016 below. See the “Non-GAAP Financial Measure Reconciliations” section included above for the three months ended September 30, 2017 and 2016 for all Non-GAAP measure definitions.

~~Non-GAAP net income~~

~~Non-GAAP net income was $453 million for the nine months ended September 30, 2017, an increase of $24 million, or 5.6%, compared to $429 million for the nine months ended September 30, 2016.~~

Nine Months Ended September 30,
(in millions) 2017 2016
Net income $ 327.8
$ 321.2
Amortization of intangibles⁽¹⁾
138.9
141.0
Equity-based compensation 33.6
28.1
Net loss on extinguishments of long-term debt 57.4
2.1
Integration expenses⁽²⁾
2.5
6.2
Reinstatement of prior year unclaimed property balances⁽³⁾
4.1
—
Other adjustments⁽⁴⁾
4.8
(6.0 )
Aggregate adjustment for income taxes⁽⁵⁾
(116.4 ) (64.0 )
Non-GAAP net income $ 452.7
$ 428.6


~~(1)~~	~~Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer~~

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~~contracts and trade names.~~


~~(2)~~	~~Comprised of expenses related to CDW UK.~~


~~(3)~~	~~Comprised of the reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois state law change enacted in the third quarter of 2017.~~

~~(4)~~

Primarily includes expenses related to payroll taxes on equity-based compensation during the nine months ended September 30, 2017. The nine months ended September 30, 2016 primarily includes our share of the settlement payments received from the Dynamic Random Access Memory class action lawsuits and the favorable resolution of a local sales tax matter, partially offset by expenses related to the consolidation of office locations north of Chicago.


~~(5)~~	~~Aggregate adjustment for income taxes consists of the following:~~

Nine Months Ended September 30,
2017 2016
Total Non-GAAP adjustments $ 241.3
$ 171.4
Weighted-average statutory effective rate 36.0 % 36.0 %
Income tax (86.9 ) (61.7 )
Excess tax benefits from equity-based compensation (30.7 ) (1.2 )
Non-deductible adjustments and other 1.2
(1.1 )
Total aggregate adjustment for income taxes $ (116.4 ) $ (64.0 )

~~Adjusted EBITDA~~

Adjusted EBITDA was $888 million for the nine months ended September 30, 2017, an increase of $44 million, or 5.3%, compared to $844 million for the nine months ended September 30, 2016. As a percentage of Net sales, Adjusted EBITDA was 7.8% for the nine months ended September 30, 2017 and 8.0% for the nine months ended September 30, 2016.

Nine Months Ended September 30,
(in millions) 2017 Percentage of Net Sales 2016 Percentage of Net Sales
Net income $ 327.8
2.9 % $ 321.2
3.1 %
Depreciation and amortization 195.2
190.7

Income tax expense 147.9
188.4

Interest expense, net 113.4
112.6

EBITDA 784.3
6.9 % 812.9
7.8 %

Adjustments:
Equity-based compensation 33.6
28.1

Net loss on extinguishments of long-term debt 57.4
2.1

Income from equity investments⁽¹⁾
(0.4 ) (0.9 )
Integration expenses⁽²⁾
2.5
6.2

Reinstatement of prior year unclaimed property balances⁽³⁾
4.1
—

Other adjustments⁽⁴⁾
6.7
(4.8 )
Total adjustments 103.9
30.7

Adjusted EBITDA $ 888.2
7.8 % $ 843.6
8.0 %


~~(1)~~	~~Represents our share of net income from our equity investments.~~


~~(2)~~	~~Comprised of expenses related to CDW UK.~~


~~(3)~~	~~Comprised of the reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois state law change enacted in the third quarter of 2017.~~

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~~(4)~~

~~Consolidated net sales growth on a constant currency basis~~

Consolidated Net sales increased $864 million, or 8.2%, to $11,353 million for the nine months ended September 30, 2017, compared to $10,489 million for the nine months ended September 30, 2016. Consolidated Net sales on a constant currency basis, which excludes the impact of foreign currency translation, increased $913 million, or 8.7%, to $11,353 million for the nine months ended September 30, 2017, compared to $10,440 million for the nine months ended September 30, 2016.

Nine Months Ended September 30,
(in millions) 2017 2016 % Change
Average Daily % Change⁽¹⁾
Consolidated Net sales, as reported $ 11,353.0
$ 10,489.5
8.2 % 8.8 %
Foreign currency translation⁽²⁾
—
(49.6 )
Consolidated Net sales, on a constant currency basis $ 11,353.0
$ 10,439.9
8.7 % 9.3 %


~~(1)~~	~~There were 191 and 192 selling days for the nine months ended September 30, 2017 and 2016, respectively.~~


~~(2)~~	~~Represents the effect of translating the prior year results of CDW Canada and CDW UK's results at the average exchange rates applicable in the current year.~~

Seasonality

While we have not historically experienced significant seasonality throughout the year, sales in our Corporate segment, which primarily serves US private sector business customers with more than 250 employees, are typically higher in the fourth quarter than in other quarters due to customers spending their remaining technology budget dollars at the end of the year. Additionally, sales in our Public segment have historically been higher in the third quarter than in other quarters primarily due to the buying patterns of the federal government and education customers.

Liquidity and Capital Resources

Overview

We finance our operations and capital expenditures with internally generated cash from operations. As of September 30, ~~2017,~~2018, we also have ~~$794 million~~$1.1 billion of ~~available~~availability for borrowings under our senior secured asset-based revolving credit facility and an additional ~~£38~~£45 million ($5159 million at September 30, ~~2017) of available borrowings~~2018) under the CDW UK revolving credit facility. Our liquidity and borrowing plans are established to align with our financial and strategic planning processes and ensure we have the necessary funding to meet our operating commitments, which primarily include the purchase of inventory, payroll and general expenses. We also take into consideration our overall capital allocation strategy, which includes investment for future growth, dividend payments, acquisitions and share repurchases. We believe we have adequate sources of liquidity and funding available for at least ~~for~~ the next year; however, there are a number of factors that may negatively impact our available sources of funds. The amount of cash generated from operations will be dependent upon factors such as the successful execution of our business plan and general economic conditions.

~~Debt Refinancing Activity~~

~~For details regarding our debt and refinancing activities, refer to Note 6 (Long-Term Debt) to the accompanying Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.~~

Share Repurchase Program

On August 3, 2017, we announced that our Board of Directors authorized a $750 million increase to our share repurchase program under which we may repurchase shares of our common stock in the open market through privately negotiated or other transactions, depending on share price, market conditions and other factors. During the nine months ended September 30, ~~2017,~~2018, we repurchased ~~8.9~~3.0 million shares of our common stock for ~~$534~~$233 million under the previously announced share repurchase program. For more information on our share repurchase program, ~~See~~see Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds.

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Dividends

A summary of ~~2017~~2018 dividend activity for our common stock is as follows:



Dividend Amount	Declaration Date	Record Date	Payment Date
$~~0.1600~~0.21	February 7, ~~2017~~2018	February ~~24, 2017~~26, 2018	March ~~10, 2017~~12, 2018
$~~0.1600~~0.21	May ~~3, 2017~~2, 2018	May 25, ~~2017~~2018	June ~~12, 2017~~11, 2018
$~~0.1600~~0.21	August ~~3, 2017~~2, 2018	August ~~25, 2017~~24, 2018	September ~~11, 2017~~10, 2018

On ~~November 1, 2017,~~October 31, 2018, we announced that our Board of Directors declared a quarterly cash dividend of ~~$0.21~~$0.295 per common share. The dividend will be paid on December ~~11, 2017~~10, 2018 to all stockholders of record as of the close of business on November ~~24, 2017.~~26, 2018.

The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon our results of operations, financial condition, business prospects, capital requirements, contractual restrictions, any potential indebtedness we may incur, restrictions imposed by applicable law, tax considerations and other factors that our Board of Directors deems relevant. In addition, our ability to pay dividends on our common stock will be limited by restrictions on our ability to pay dividends or make distributions to our stockholders and on the ability of our subsidiaries to pay dividends or make distributions to us, in each case, under the terms of our current and any future agreements governing our indebtedness.

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Cash Flows

Cash flows from operating, investing and financing activities were as follows:


	Nine Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2017			2016			2018			2017
Net cash provided by (used in):
Operating activities	$	439.1		$	499.3		$	602.3		$	439.1
Investing activities	(58.6		)	(43.5		)	(53.4		)	(58.6		)
Net change in accounts payable-inventory financing	(41.4		)	39.2			(90.1		)	(41.4		)
Other financing activities	(506.2		)	(410.1		)	(345.2		)	(506.2		)
Financing activities	(547.6		)	(370.9		)	(435.3		)	(547.6		)
Effect of exchange rate changes on cash and cash equivalents	1.3			(4.2		)	(2.7		)	1.3
Net (decrease) increase in cash and cash equivalents	$	(165.8	)	$	80.7
Net increase (decrease) in cash and cash equivalents							$	110.9		$	(165.8	)

Operating Activities


	Nine Months Ended September 30,									Nine Months Ended September 30,
(in millions)	2017			2016			Dollar Change			2018			2017⁽¹⁾			Dollar Change
Net income	$	327.8		$	321.2		$	6.6		$	483.7		$	328.3		$	155.4
Adjustments for the impact of non-cash items⁽¹⁾⁽²⁾	234.9			151.0			83.9			198.1			234.9			(36.8		)
Net income adjusted for the impact of non-cash items⁽²⁾⁽³⁾	562.7			472.2			90.5			681.8			563.2			118.6
Changes in assets and liabilities:
Accounts receivable⁽³⁾⁽⁴⁾	(120.4		)	(17.9		)	(102.5		)	(334.3		)	(120.7		)	(213.6		)
Merchandise inventory⁽⁴⁾	(90.5		)	(64.6		)	(25.9		)	(72.1		)	(83.6		)	11.5
Accounts payable-trade(5)	140.2			141.5			(1.3		)	300.6			140.2			160.4
Other⁽⁵⁾⁽⁶⁾	(52.9		)	(31.9		)	(21.0		)	26.3			(60.0		)	86.3
Net cash provided by operating activities	$	439.1		$	499.3		$	(60.2	)	$	602.3		$	439.1		$	163.2


(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	Includes items such as ~~Deferred~~deferred income taxes, ~~Depreciation~~depreciation and amortization, ~~Equity-based~~equity-based compensation expense and Net loss on extinguishments of long-term debt.


~~(2)~~(3)	The change is primarily due to ~~the adjustment to Net income for the non-cash item related to the Net loss on extinguishments of long-term debt, coupled with~~ stronger operating results driven by Net sales and Gross profit growth, ~~and lower Income tax expense as a result of excess tax benefits related to equity compensation recognized.~~partially offset by higher sales payroll.


~~(3)~~	~~The change in Accounts receivable primarily reflects the impact of increased Net sales volume to our government customers compared to the same period in 2016.~~

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(4)	The change in ~~Merchandise inventory was~~Accounts receivable is primarily due to ~~the higher inventory balance as of September 30, 2017 as a result of the timing of inventory shipments~~increased sales volume in 2018 compared to ~~customers, strategic stocking positions and higher bill-and-hold orders.~~2017.


(5)	The change in Accounts payable-trade is due to increased sales in 2018, the timing of purchases and the changes in the mix of vendors with different payment terms.

(6)

The change in Other is driven by ~~an increase in the~~improved collection performance of our receivables from vendors, ~~due to the growth~~higher accrued compensation expense in ~~business~~2018 and the settlement of our Restricted Debt Unit Plan liability ~~partially offset by an increase~~ in ~~marketing accruals and an increase in deferred revenue due to higher bill-and-hold inventory orders.~~2017.

In order to manage our working capital and operating cash needs, we monitor our cash conversion cycle, defined as days of sales outstanding in accounts receivable plus days of supply in inventory minus days of purchases outstanding in accounts payable, based on a rolling three-month average. Components of our cash conversion cycle are as follows:

September 30,
(in days) 2017 2016
Days of sales outstanding (“DSO”)⁽¹⁾
53
49
Days of supply in inventory (“DIO”)⁽²⁾
13
13
Days of purchases outstanding (“DPO”)⁽³⁾
(47 ) (44 )
Cash conversion cycle 19
18



	September 30,
(in days)	2018		2017⁽¹⁾
Days of sales outstanding ("DSO")⁽²⁾	55		54
Days of supply in inventory ("DIO")⁽³⁾	12		13
Days of purchases outstanding ("DPO")⁽⁴⁾	(49	)	(48	)
Cash conversion cycle	18		19

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(1)	Amounts for 2017 have been adjusted to reflect the adoption of Topic 606.


(2)	Represents the rolling three-month average of the balance of Accounts receivable, net at the end of the period, divided by average daily Net sales for the same three-month period. Also incorporates components of other miscellaneous receivables.


~~(2)~~(3)	Represents the rolling three-month average of the balance of Merchandise inventory at the end of the period divided by average daily ~~cost~~Cost of sales for the same three-month period.


~~(3)~~(4)	Represents the rolling three-month average of the combined balance of Accounts payable-trade, excluding cash overdrafts, and Accounts payable-inventory financing at the end of the period divided by average daily ~~cost~~Cost of sales for the same three-month period.

The cash conversion cycle ~~increased~~decreased to 18 days at September 30, 2018 compared to 19 days at September 30, 2017 as DSO and DPO each increased 1 day and DIO decreased 1 day compared to ~~18 days at~~ September 30, ~~2016. The increase in~~2017. Both DSO ~~was primarily due to the impact of our higher sequential sales increase, change in customer mix with longer payment cycles, as well as higher Net sales~~ and ~~related Accounts receivable for third-party~~DPO are impacted by third party services such as software as a service ~~software assurance~~ and warranties. These ~~services~~sales have an unfavorable impact on DSO as the receivable is recognized on the Consolidated Balance Sheet on a gross basis while the corresponding sales amount in the Consolidated Statement of Operations is recorded on a net basis. ~~These services have~~This also results in a favorable impact on DPO as the payable is recognized on the Consolidated Balance Sheet without a corresponding Cost of sales in the Statement of Operations because the cost paid to the vendor or third-party service provider is recorded as a reduction to Net sales. ~~In addition, DPO also increased due~~Additionally, average inventory balances remained at the same levels as 2017 which, coupled with higher Cost of sales, led to ~~the mix of payables with certain vendors that have longer payment terms.~~a favorable impact on DIO.

Investing Activities

Net cash used in investing activities ~~increased~~decreased by ~~$15~~$6 million in the nine months ended September 30, ~~2017~~2018 compared to the same period of the prior year. Capital expenditures were ~~$59~~$53 million and ~~$41~~$59 million for the nine months ended September 30, 2018 and 2017, ~~and 2016, respectively, and~~respectively. The decrease in capital expenditures is primarily ~~related~~due to the timing of investments for improvements to our information technology ~~systems during both periods.~~systems.

Financing Activities

Net cash used in financing activities ~~increased~~decreased by ~~$177~~$112 million in the nine months ended September 30, ~~2017~~2018 compared to the same period of the prior year. The ~~increase~~decrease was primarily driven by fewer share repurchases during the nine months ended September 30, ~~2017,~~2018, which resulted in ~~an increase in cash used by financing activities of $179~~a $301 million and by changes in accounts payable-inventory financing, which resulted in an increase in cash used for financing activities of $81 million. For more information on our share repurchase program, see Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds. The increase in cash used by Accounts payable-inventory financing was primarily driven by the termination of one of our inventory financing agreements in the fourth quarter of 2016, with amounts owed subsequently reported as Accounts payable - trade on the Consolidated Balance Sheet, which reduced cash flows reported as financing activities during the nine months ended September 30, 2017. In addition, an increase in dividends paid of $22 million, coupled with an increase in incentive compensation plan tax withholdings paid of $42 million, contributed to the increasedecrease in cash used in financing activities. ~~These increases~~The decrease in cash used in financing activities ~~were~~was partially offset by ~~debt transactions,~~reduced borrowings under our revolving credit facilities, which resulted in a net ~~increase in~~ cash ~~inflows~~outflows of ~~$163~~$185 million. For more information regarding our debt and refinancing activities, see Note 6 (Long-Term Debt). to the accompanying Consolidated Financial Statements.

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Long-Term Debt and Financing Arrangements

As of September 30, ~~2017,~~2018, we had total indebtedness of ~~$3,430 million,~~$3.2 billion, of which ~~$1,739 million~~$1.5 billion was secured indebtedness. At September 30, ~~2017,~~2018, we were in compliance with the covenants under our various credit agreements and indentures. The amount of CDW’s restricted payment capacity under the Senior Secured Term Loan Facility was ~~$1,056 million~~$1.4 billion at September 30, 2017. However, we are separately permitted to make restricted payments, so long as the total net leverage ratio is less than 3.25:1.00 on a pro forma basis. The total net leverage ratio was 2.88:1.00 as of September 30, 2017.2018. The amount of restricted payment capacity for the CDW UK Term Loan was ~~$75~~$152 million at September 30, ~~2017.~~2018.

For additional details regarding our debt and refinancing activities, refer to Note 6 (Long-Term Debt) to the accompanying Consolidated Financial ~~Statements included in Part I, Item 1 of this Form 10-Q.~~Statements.

Inventory Financing Agreements

We have entered into agreements with certain financial intermediaries to facilitate the purchase of inventory from various suppliers under certain terms and conditions. These amounts are classified separately as Accounts payable-inventory financing on the Consolidated Balance Sheets. We do not incur any interest expense associated with these agreements as balances are paid when they are due. For further details, see Note 43 (Inventory Financing Agreements) to the accompanying Consolidated Financial ~~Statements included in Part I, Item 1 of this Form 10-Q.~~Statements.

Contractual Obligations

Except as disclosed under Note 6 (Long-Term Debt) to the accompanying Consolidated Financial Statements, ~~included in Part I, Item 1 of this Form 10-Q,~~ there have been no material changes to our contractual obligations from those reported in ~~Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations"~~our Annual Report on Form 10-K for the year ended December 31, ~~2016 included in our Current Report on Form 8-K dated August 25,~~ 2017.

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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Commitments and Contingencies

The information set forth in Note 1211 (Commitments and Contingencies) to the accompanying Consolidated Financial ~~Statements included in Part I, Item 1 of this Form 10-Q is incorporated herein by reference.~~Statements.

Critical Accounting Policies and Estimates

~~Our~~During the nine months ended September 30, 2018, we adopted the requirements of Topic 606. See Note 1 (Description of Business and Summary of Significant Accounting Policies) to the accompanying Consolidated Financial Statements for information regarding our new revenue recognition critical accounting policies have not changed from those reported in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2016 included in our Current Report on Form 8-K dated August 25, 2017.policy.

Recent Accounting Pronouncements

The information set forth in Note 2 (Recent Accounting Pronouncements) to the accompanying Consolidated Financial Statements ~~included in Part I, Item 1 “Financial Statements”, of this Form 10-Q~~ is incorporated herein by reference.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact included in this report are forward-looking statements. These statements relate to analysis and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. We claim the protection of The Private Securities Litigation Reform Act of 1995 for all forward-looking statements in this report.

These forward-looking statements are identified by the use of terms and phrases such as ~~“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will”~~"anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," "will" and similar terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that we will achieve those plans, intentions or expectations. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected.

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Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the section entitled ~~“Risk Factors”~~"Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 and from time to time in our subsequent Quarterly Reports on Form 10-Q and our other SEC filings. These factors include, among others, global and regional economic and political conditions; decreases in spending on technology ~~products;~~products and services; CDW's relationships with vendor partners and availability of their products; continued innovations in hardware, software and services offerings by CDW's vendor partners; substantial competition that could reduce CDW's market share; CDW's substantial indebtedness and ability to generate sufficient cash to service such indebtedness; restrictions imposed by agreements relating to CDW's indebtedness on its operations and liquidity; changes in, or the discontinuation of, CDW's share repurchase program or dividend payments; the continuing development, maintenance and operation of CDW's information technology systems; potential breaches of data ~~security;~~security and failure to protect our information technology systems from cybersecurity threats; potential failures to comply with Public segment contracts or applicable laws and regulations; potential failures to provide high-quality services to CDW's customers; potential losses of any key personnel; potential interruptions of the flow of products from suppliers; potential adverse occurrences at one of CDW's primary facilities or customer data centers; ~~CDW's dependence on~~increases in the cost of commercial delivery services or disruptions of those services; CDW's exposure to accounts receivable and inventory risks; fluctuations in foreign currency; future acquisitions or alliances; fluctuations in CDW's operating results; current and future legal proceedings and audits; ~~potential acceleration of CDW's deferred cancellation of debt income;~~changes in laws, including the recent US tax legislation, regulations or interpretations thereof; and other risk factors or uncertainties identified from time to time in CDW's filings with the SEC. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements contained in the section entitled ~~“Risk Factors”~~"Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 and elsewhere in this report 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 report in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that 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

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included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

See ~~“Management’s~~"Management's Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations" and ~~“Quantitative~~"Quantitative and Qualitative Disclosures about Market ~~Risk”~~Risk" in the ~~Company’s~~Company's Annual Report inon Form 10-K for the year ended December 31, ~~2016. During the nine months ended~~2017. As of September 30, 2017, the Company designated the interest rate cap agreements as cash flow hedges. Refer to Note 5 (Financial Instruments) for further information on the Company's derivative-related activity during the nine months ended September 30, 2017.2018, there have been no material changes in this information.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ~~“Exchange Act”~~"Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, has concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, and that information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in the ~~Company’s~~Company's internal control over financial reporting during the three months ended September 30, ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, the ~~Company’s~~Company's internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth in Note 1211 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements included in Part I, Item 1 ~~“Financial Statements”~~"Financial Statements", of this Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors

See ~~“Risk Factors”~~"Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

Information relating to the ~~Company’s~~Company's purchases of its common stock during the three months ended September 30, ~~2017~~2018 is as follows:

Period Total Number of Shares Purchased (in millions) Average Price Paid per Share Total Number of Shares Purchased as Part of a Publicly Announced Program (in millions)
Maximum Dollar Value of Shares that May Yet be Purchased Under the Program ⁽¹⁾(in millions)
July 1 through July 31, 2017 1.0
$ 63.25
1.0
$ 223.3
August 1 through August 31, 2017 0.9
$ 62.19
0.9
$ 914.8
September 1 through September 30, 2017 0.9
$ 60.93
0.9
$ 858.2
Total 2.8

2.8



Period	Total Number of Shares Purchased (in millions)	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program (in millions)	Maximum Dollar Value of Shares that May Yet be Purchased Under the Program⁽¹⁾ (in millions)
July 1 through July 31, 2018	0.3	$	84.49	0.3	$	660.1
August 1 through August 31, 2018	0.1	$	85.66	0.1	$	650.7
September 1 through September 30, 2018	0.3	$	88.89	0.3	$	625.5
Total	0.7			0.7

(1)

The amounts presented in this column are the remaining total authorized value to be spent after each month's repurchases. On August 3, 2017, the Company announced that its Board of Directors authorized a $750 million increase to the share repurchase program under which the Company may repurchase shares of its common stock in the open market through privately negotiated or other transactions, depending on share price, market conditions and other factors.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits



Exhibit		Description

~~10.1*§~~		~~Amendment to the CDW Amended and Restated Restricted Debt Unit Plan.~~

~~10.2*§~~		~~Letter of Understanding, dated as of October 9, 2017, by and among CDW Corporation, CDW LLC and Ann E. Ziegler.~~

31.1*		Certification of Chief Executive Officer Pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934.

31.2*		Certification of Chief Financial Officer Pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934.

32.1**		Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350.

32.2**		Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350.

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

________________


*	Filed herewith


**	These items are furnished and not filed.


§	~~A management contract or compensatory arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




		CDW CORPORATION

Date:	~~November 1, 2017~~October 31, 2018	By:	/s/ ~~Ann E. Ziegler~~Collin B. Kebo
			~~Ann E. Ziegler~~Collin B. Kebo
			Senior Vice President and Chief Financial Officer
			(Duly authorized officer and principal financial officer)

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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	—		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