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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-35985
CDW CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 26-0273989
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.)
200 N. Milwaukee Avenue
Vernon Hills, Illinois 60061
(Address of principal executive offices) (Zip Code)
(847) 465-6000
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered
Common stock, par value $0.01 per share NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
____________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes 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). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-
K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Table of Contents

Table of contents

  • Page 1
    ... No.) 200 N. Milwaukee Avenue Vernon Hills, Illinois (Address of principal executive offices) 60061 (Zip Code) (847) 465-6000 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) _____ Securities registered...

  • Page 2
    ... the registrant as of June 28, 2013, the last business day of the registrant's most recently completed second fiscal quarter, was $654,984,661, based on the per share closing sale price of $18.62 on that date (assuming the closing of the registrant's initial public offering). As of February 28, 2014...

  • Page 3
    ...Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services...

  • Page 4
    ...or affect us or our operations in the way we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as...

  • Page 5
    ... business, government, education and healthcare customers by delivering critical solutions to their increasingly complex IT needs. Our broad array of offerings ranges from discrete hardware and software products to integrated IT solutions such as mobility, security, data center optimization, cloud...

  • Page 6
    ... Dearborn Partners, LLC and Providence Equity Partners L.L.C. (the "Sponsors"), certain other co-investors and certain members of CDW management. See "Sponsors" below. On July 2, 2013, Parent completed an initial public offering ("IPO") of its common stock. In connection with the IPO, CDW Holdings...

  • Page 7
    ... application suites, security, virtualization, operating systems, network management and Software as a Service ("SaaS") offerings. We also provide a full suite of value-added-services, which range from basic installation, warranty and repair services to custom configuration, data center and network...

  • Page 8
    ... 31, 2013. Includes items such as delivery charges to customers and certain commission revenue. Our Customers We provide integrated IT solutions to approximately 250,000 small, medium and large business, government, education and healthcare customers throughout the U.S. and Canada. Sales to the...

  • Page 9
    ...inclusion in the solutions we offer. Each vendor partner agreement provides for specific terms and conditions, which may include one or more of the following: product return privileges, price protection policies, purchase discounts and vendor incentive programs, such as purchase or sales rebates and...

  • Page 10
    ..., business and government services, consumer, financial and transaction services, healthcare and telecom, media and technology services. Madison Dearborn's objective is to invest in companies in partnership with outstanding management teams to achieve significant long-term appreciation in equity...

  • Page 11
    ... and new hardware, software and services offerings, for example by providing the appropriate training to our account managers, sales technology specialists and engineers to enable them to effectively sell and deliver such new offerings to customers, our business, results of operations or cash...

  • Page 12
    ... to: • conduct business with our customers, including delivering services and solutions to them; • manage our inventory and accounts receivable; • purchase, sell, ship and invoice our hardware and software products and provide and invoice our services efficiently and on a timely basis; and...

  • Page 13
    ... our business, results of operations or cash flows. Revenues from our Public segment customers are derived from sales to governmental departments and agencies, educational institutions and healthcare customers, through various contracts and open market sales of products and services. Sales to Public...

  • Page 14
    ... data centers could damage our business. Substantially all of our corporate, warehouse and distribution functions are located at our Vernon Hills, Illinois facilities and our second distribution center in North Las Vegas, Nevada. If the warehouse and distribution equipment at one of our distribution...

  • Page 15
    ... technological changes that affect the market and pricing for the products we sell. We seek to minimize our inventory exposure through a variety of inventory management procedures and policies, including our rapid-turn inventory model, as well as vendor price protection and product return programs...

  • Page 16
    ..., acquisitions and other general corporate purposes; • requiring us to comply with restrictive covenants in our senior credit facilities and indentures, which limit the manner in which we conduct our business; • making it more difficult for us to obtain vendor financing from our vendor partners...

  • Page 17
    ... which can consist of federal government accounts receivable) plus the lesser of (i) 70% of CDW LLC and its subsidiary guarantors' eligible inventory (valued at cost and net of inventory reserves) and (ii) the product of 85% multiplied by the net orderly liquidation value percentage multiplied...

  • Page 18
    ...of Operations-Liquidity and Capital Resources" included elsewhere in this report. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional debt or equity capital...

  • Page 19
    ... receiving a premium price for their shares; other acquisitions or dispositions of businesses or assets; incurrence of indebtedness and the issuance of equity securities; repurchase of stock and payment of dividends; and the issuance of shares to management under our equity incentive plans. Even if...

  • Page 20
    ... sold in our initial public offering and secondary offering in 2013 are freely tradable without restriction under the Securities Act of 1933, as amended (the "Securities Act"), except that any shares of our common stock that may be acquired by our directors, executive officers and other affiliates...

  • Page 21
    ... distribution center in Vernon Hills, Illinois, and an approximately 513,000 square foot distribution center in North Las Vegas, Nevada. In addition, we conduct sales, services and administrative activities in various leased locations throughout the U.S. and Canada, including data centers in Madison...

  • Page 22
    ... federal, state and local authorities, and by various partners and large customers, including government agencies, relating to purchases and sales under various contracts. In addition, we are subject to indemnification claims under various contracts. From time to time, certain of our customers file...

  • Page 23
    ... President and Chief Coworker Services Officer. Mr. Berger is responsible for leading CDW's programs in coworker learning and development, benefits, compensation, performance management, coworker relations and talent acquisition. Prior to joining CDW, he served as Vice President of Human Resources...

  • Page 24
    ...Vice President of Strategic Solutions and Services and is responsible for our technology specialist teams focusing on servers and storage, unified communications, security, wireless, power and cooling, networking, software licensing and mobility solutions. He also holds responsibility for CDW Canada...

  • Page 25
    ... as Senior Vice President and Chief Financial Officer. Prior to joining CDW, Ms. Ziegler spent 15 years at Sara Lee Corporation ("Sara Lee"), a global consumer goods company, in a number of executive roles including finance, mergers and acquisitions, strategy and general management positions in both...

  • Page 26
    ... operates in a business-to-business distribution environment; (iii) members of the technology industry; (iv) similar customers (i.e., business, government, healthcare, and education); (v) companies that provide services and/or solutions; and (vi) similar EBITDA and gross margins. Shareholder returns...

  • Page 27
    ... million termination fee to affiliates of Madison Dearborn Partners, LLC and Providence Equity Partners, L.L.C. in connection with the termination of the management services agreement with such entities that was effective upon completion of the IPO, redeemed $175.0 million aggregate principal amount...

  • Page 28
    ... per share amounts) 2013 2012 2011 2010 2009 Statement of Operations Data: Net sales Cost of sales Gross profit Selling and administrative expenses Advertising expense Goodwill impairment Income (loss) from operations Interest expense, net Net (loss) gain on extinguishments of long-term debt Other...

  • Page 29
    ... our credit agreements, is calculated by adjusting EBITDA for certain items of income and expense including (but not limited to) the following: (a) noncash equity-based compensation; (b) goodwill impairment charges; (c) sponsor fees; (d) certain consulting fees; (e) debt-related legal and accounting...

  • Page 30
    ...Depreciation and amortization Goodwill impairment Equity-based compensation expense Amortization of deferred financing costs, debt premium, and debt discount, net Deferred income taxes Allowance for doubtful accounts Realized loss on interest rate swap agreements Mark to market loss on interest rate...

  • Page 31
    ... the following: (in millions) Year Ended December 31, 2013 Acceleration charge for certain equity awards and related employer payroll taxes RDU Plan cash retention pool accrual Management services agreement termination fee Other expenses IPO- and secondary-offering related expenses $ 40.7 7.5 24...

  • Page 32
    ...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 enduser customer to acquire software or licensed products...

  • Page 33
    ... our sales force, price, product availability and speed of delivery. • 2013 Initial Public Offering On July 2, 2013, we completed an initial public offering ("IPO") of 23,250,000 shares of common stock. On July 31, 2013, we completed the sale of an additional 3,487,500 shares of common stock to...

  • Page 34
    ... cycle is 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. Results of Operations Year Ended December 31, 2013 Compared to Year Ended December 31, 2012...

  • Page 35
    ... change in net sales for the years ended December 31, 2013 and 2012: (dollars in millions) Years Ended December 31, 2013 2012 Dollar Change Percent Change Corporate: Medium / Large Small Business Total Corporate Public: Government Education Healthcare Total Public $ $ 4,902.6 1,057.5 5,960...

  • Page 36
    ...other variable compensation costs, increased $28.9 million, or 6.4%, between years, consistent with higher sales and gross profit. Additionally, selling and administrative expenses for 2013 included IPO- and secondary-offering related expenses of $75.0 million, as follows: • Pre-tax charges of $36...

  • Page 37
    ... of IPO- and secondary-offering related expenses, which reduced Corporate segment operating margin by 40 basis points. Higher sales and gross profit dollars offset the effect of IPOand secondary-offering related expenses on income from operations for 2013. Public segment income from operations was...

  • Page 38
    ... tax credits which were partially offset by the unfavorable impact of adjustments to deferred state income taxes due to changes in state tax laws and non-deductible expenses, primarily equity-based compensation and meals and entertainment. The lower effective tax rate for 2013 as compared to 2012...

  • Page 39
    ... following: (in millions) Years Ended December 31, 2013 2012 Acceleration charge for certain equity awards and related employer payroll taxes RDU Plan cash retention pool accrual Management services agreement termination fee Other expenses IPO- and secondary-offering related expenses (5) Based on...

  • Page 40
    ... covenants contained in our credit agreements. (in millions) Years Ended December 31, 2013 2012 Net income Depreciation and amortization Income tax expense Interest expense, net EBITDA Adjustments: Non-cash equity-based compensation Sponsor fee Consulting and debt-related professional fees Net loss...

  • Page 41
    ... Percentage of Net Sales Year Ended December 31, 2011 Dollars in Millions Percentage of Net Sales Net sales Cost of sales Gross profit Selling and administrative expenses Advertising expense Income from operations Interest expense, net Net loss on extinguishments of long-term debt Other income...

  • Page 42
    ... service contract revenue. Fully offsetting these increases in gross profit margin were declines in vendor funding primarily due to program changes for certain vendors. Commission revenue, including agency fees earned on sales of software licenses and software assurance under enterprise agreements...

  • Page 43
    ... additional capital expenditures for information technology systems, and a $2.6 million increase in stock compensation expense, primarily due to incremental expense related to a modified Class B Common Unit grant agreement with our former chief executive officer. Partially offsetting these increases...

  • Page 44
    ... of increased net sales and gross profit dollars, partially offset by higher selling and administrative costs. In addition, Public segment income from operations benefited from an increase of $5.7 million in income allocations from our logistics operations and a decrease in Headquarters' expense...

  • Page 45
    ... reconciliation of Non-GAAP net income for the years ended December 31, 2012 and 2011 below. Non-GAAP net income excludes, among other things, charges related to the amortization of acquisition-related intangibles, non-cash equity-based compensation and gains and losses from the early extinguishment...

  • Page 46
    ... cash provided by operating activities for the years ended December 31, 2012 and 2011. Years Ended December 31, 2012 2011 (in millions) EBITDA Depreciation and amortization Income tax expense Interest expense, net Net income Depreciation and amortization Equity-based compensation expense Deferred...

  • Page 47
    ...cash generated from operations will be dependent upon factors such as the successful execution of our business plan and general economic conditions. On July 2, 2013, we completed an IPO of 23,250,000 shares of common stock. On July 31, 2013, we completed the sale of an additional 3,487,500 shares of...

  • Page 48
    ... driven by a return to more normalized inventory levels in 2012 following the build-up at the end of 2011 related to the hard drive shortage from the Thailand floods, along with a higher percentage of drop shipments from vendor partners and distributors in 2012 compared to 2011. Partially offsetting...

  • Page 49
    ... remaining federal net operating tax loss carryforwards during 2011. 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...

  • Page 50
    ... provisions in our various credit agreements and indentures, CDW LLC and its restricted subsidiaries are generally restricted from paying dividends and making other restricted payments unless CDW LLC could incur an additional dollar of indebtedness under its fixed charges ratio covenant and the...

  • Page 51
    ... Revolving Loan inventory financing agreement plus a reserve of 15% of open orders. The borrowing base is (a) the sum of the products of the applicable advance rates on eligible accounts receivable and on eligible inventory as defined in the agreement less (b) any reserves. At December 31, 2013, the...

  • Page 52
    ...the year ended December 31, 2011. This loss represented a write-off of a portion of the unamortized deferred financing costs related to the Prior Term Loan Facility. CDW LLC is the borrower under the Term Loan. All obligations under the Term Loan are guaranteed by Parent and each of CDW LLC's direct...

  • Page 53
    ... for the write-off of a portion of the remaining deferred financing costs related to the Senior Secured Notes. CDW LLC and CDW Finance Corporation are the co-issuers of the Senior Secured Notes and the obligations under the notes are guaranteed by Parent and each of CDW LLC's direct and indirect...

  • Page 54
    ... limitations on the ability of Parent and each of CDW LLC's direct and indirect, 100% owned, domestic subsidiaries to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other indebtedness, make distributions or other restricted payments, create liens, make equity...

  • Page 55
    ... limitations on the ability of Parent and each of CDW LLC's direct and indirect, 100% owned, domestic subsidiaries to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other indebtedness, make distributions or other restricted payments, create liens, make equity...

  • Page 56
    ... federal, state and local authorities, and by various partners and large customers, including government agencies, relating to purchases and sales under various contracts. In addition, we are subject to indemnification claims under various contracts. From time to time, certain of our customers file...

  • Page 57
    ... Software as a Service ("SaaS") and Infrastructure as a Service ("IaaS") arrangements, as well as data center services such as managed and remote managed services, server co-location, internet connectivity and data backup and storage, is recognized over the period service is provided. We also sell...

  • Page 58
    ...by management, additional inventory write-downs may be required. Vendor Programs We receive incentives from certain of our vendors related to cooperative advertising allowances, volume rebates, bid programs, price protection and other programs. These incentives generally relate to written agreements...

  • Page 59
    ...average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn. Under the market approach, we utilize valuation multiples derived from publicly available information for peer group companies to provide an...

  • Page 60
    ... in redemption premiums and $0.6 million for the write-off of a portion of the remaining deferred financing costs related to the Senior Subordinated Notes. On February 13, 2014, we announced that our board of directors declared a cash dividend on our common stock of $0.0425 per share. The dividend...

  • Page 61
    ...to payments from the counterparty of the amount, if any, by which the three-month LIBOR exceeds 1.5% during the agreement period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Contractual Obligations" for information on...

  • Page 62
    ...Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2013 and 2012 Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011 Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012...

  • Page 63
    ... respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CDW Corporation and subsidiaries' internal control over financial reporting as of December 31, 2013, based on criteria established in...

  • Page 64
    ... Total assets Liabilities and Shareholders' Equity Current liabilities: Accounts payable-trade Accounts payable-inventory financing Current maturities of long-term debt Deferred revenue Accrued expenses: Compensation Interest Sales taxes Advertising Income taxes Other Total current liabilities Long...

  • Page 65
    ... of Contents CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per-share amounts) Years Ended December 31, 2013 2012 2011 Net sales Cost of sales Gross profit Selling and administrative expenses Advertising expense Income from operations Interest expense...

  • Page 66
    ...Contents CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) Years Ended December 31, 2013 2012 2011 Net income Reclassification of realized loss on interest rate swap agreements from accumulated other comprehensive (loss) income to net income, net of tax...

  • Page 67
    ...at December 31, 2010 Equity-based compensation expense Investment from CDW Holdings LLC Repurchase of common shares Accrued charitable contribution related to the MPK Coworker Incentive Plan II, net of tax Net income Reclassification of realized loss on interest rate swap agreements from accumulated...

  • Page 68
    ... millions) Years Ended December 31, 2013 2012 2011 Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Equity-based compensation expense Deferred income taxes Allowance for doubtful accounts...

  • Page 69
    ...of Business CDW is a Fortune 500 company and a leading provider of integrated information technology ("IT") solutions to small, medium and large business, government, education and healthcare customers in the U.S. and Canada. The Company's offerings range from discrete hardware and software products...

  • Page 70
    ... consist of amounts due from vendors. The Company receives incentives from vendors related to cooperative advertising allowances, volume rebates, bid programs, price protection and other programs. These incentives generally relate to written vendor agreements with specified performance requirements...

  • Page 71
    ... under GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established for valuation inputs to prioritize the inputs into three levels based on the...

  • Page 72
    ... center services such as managed and remote managed services, server co-location, internet connectivity and data backup and storage, is recognized over the period service is provided. The Company also sells certain products for which it acts as an agent. Products in this category include the sale...

  • Page 73
    ... the related advertising expenditure is incurred. The Company classifies vendor consideration as a reduction to cost of sales. Equity-Based Compensation The Company measures all equity-based payments using a fair-value-based method and records compensation expense over the requisite service period...

  • Page 74
    .... The Company has two reportable segments: Corporate, which is comprised primarily of business customers, and Public, which is comprised of government entities and education and healthcare institutions. The Company also has two other operating segments, CDW Advanced Services and Canada, which...

  • Page 75
    ...of 2013 and the next six years. The Company used a 3.5% long-term assumed consolidated annual revenue growth rate for periods after the six-year forecast. The estimated future cash flows for the Corporate and Public reporting units were discounted at 10.0%; cash flows for the Canada and CDW Advanced...

  • Page 76
    ...(1) (2) Other is comprised of CDW Advanced Services and Canada reporting units. During 2013, the Company recorded a $13.1 million net-of-tax addition to goodwill in connection with the settlement of the MPK Coworker Incentive Plan II and related charitable contribution. The charitable contribution...

  • Page 77
    ... to facilitate the purchase of inventory from this vendor (the "Revolving Loan inventory financing agreement"). Amounts outstanding under the Revolving Loan inventory financing agreement are unsecured and non-interest bearing. At December 31, 2013 and 2012, the Company reported $256.1 million and...

  • Page 78
    ...provisions in the Company's various credit agreements and indentures, CDW LLC and its restricted subsidiaries are generally restricted from paying dividends and making other restricted payments unless CDW LLC could incur an additional dollar of indebtedness under its fixed charges ratio covenant and...

  • Page 79
    ... Revolving Loan inventory financing agreement plus a reserve of 15% of open orders. The borrowing base is (a) the sum of the products of the applicable advance rates on eligible accounts receivable and on eligible inventory as defined in the agreement less (b) any reserves. At December 31, 2013, the...

  • Page 80
    ...the year ended December 31, 2011. This loss represented a write-off of a portion of the unamortized deferred financing costs related to the Prior Term Loan Facility. CDW LLC is the borrower under the Term Loan. All obligations under the Term Loan are guaranteed by Parent and each of CDW LLC's direct...

  • Page 81
    ... limitations on the ability of Parent and each of CDW LLC's direct and indirect, 100% owned, domestic subsidiaries to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other indebtedness, make distributions or other restricted payments, create liens, make equity...

  • Page 82
    ... limitations on the ability of Parent and each of CDW LLC's direct and indirect, 100% owned, domestic subsidiaries to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other indebtedness, make distributions or other restricted payments, create liens, make equity...

  • Page 83
    ... limitations on the ability of Parent and each of CDW LLC's direct and indirect, 100% owned, domestic subsidiaries to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other indebtedness, make distributions or other restricted payments, create liens, make equity...

  • Page 84
    ...of Contents CDW CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2013, the carrying value of the Company's long-term debt was $3,251.4 million, excluding $4.2 million in unamortized premium and $4.4 million in unamortized discount. Deferred Financing Costs The...

  • Page 85
    ... presented below: (in millions) December 31, 2013 2012 Deferred Tax Assets: Deferred interest State net operating loss and credit carryforwards, net Payroll and benefits Rent Accounts receivable Equity compensation plans Trade credits Interest rate caps Charitable contribution carryforward Deferred...

  • Page 86
    ... year ended December 31, 2013: Year Ended December 31, 2013 (in millions) Acceleration charge for certain equity awards and related employer payroll taxes(1) RDU Plan cash retention pool accrual(2) Management services agreement termination fee(3) Other expenses IPO- and secondary-offering related...

  • Page 87
    ... of the IPO. The Company recorded a pre-tax charge of $36.7 million for compensation expense related to the acceleration of the expense recognition for MPK Plan units in the year ended December 31, 2013. In connection with the completion of the IPO, the Company distributed common stock to each...

  • Page 88
    ... tax benefit of the compensation deductions during the 2013 tax year. The Company expects to make the related cash contribution during the first quarter of 2014. Post-IPO Equity Awards 2013 Long-Term Incentive Plan (the "2013 LTIP") In June 2013, the Company adopted the 2013 Long-Term Incentive Plan...

  • Page 89
    ...-average grant date fair value Weighted-average volatility (1) Weighted-average risk-free rate (2) Dividend yield Expected term (in years) (3) (1) (2) (3) 2013 $ 4.75 35.00% 1.58% 1.00% 5.4 Based upon an assessment of the two-year, five-year and implied volatility for the Company's selected...

  • Page 90
    ... an assessment of the two-year, five-year and implied volatility for the Company's selected peer group, adjusted for the Company's leverage. The risk-free interest rate of return used is based on a composite U.S. Treasury rate. Notional units granted under the MPK Plan were valued on the grant date...

  • Page 91
    ... Information The Company's net income included $46.6 million, $22.1 million and $19.5 million of compensation cost and $16.5 million, $2.3 million and $1.9 million of income tax benefits related to the Company's equity-based compensation arrangements for the years ended December 31, 2013, 2012...

  • Page 92
    ... under the Internal Revenue Code Section 401(k) covering substantially all coworkers. Company contributions to the profit sharing plan are made in cash and determined at the discretion of the Board of Directors. For the years ended December 31, 2013, 2012 and 2011, the amounts charged to expense for...

  • Page 93
    ... in assessing performance. The Company has two reportable segments: Corporate, which is comprised primarily of business customers, and Public, which is comprised of government entities and education and healthcare institutions. The Company also has two other operating segments, CDW Advanced Services...

  • Page 94
    ... information about the Company's segments for the years ended December 31, 2013, 2012 and 2011: (in millions) Corporate Public Other Headquarters Total 2013: Net sales Income (loss) from operations Depreciation and amortization expense IPO- and secondary-offering related expenses 2012: Net sales...

  • Page 95
    ... Net Sales Year Ended December 31, 2012 Dollars in Millions Percentage of Total Net Sales Year Ended December 31, 2011 Dollars in Millions Percentage of Total Net Sales Notebooks/Mobile Devices NetComm Products Enterprise and Data Storage (Including Drives) Other Hardware Software Services Other...

  • Page 96
    ...assets Liabilities and Shareholders' Equity Current liabilities: Accounts payable-trade $ Accounts payableinventory financing Current maturities of longterm debt Deferred revenue Accrued expenses Total current liabilities Long-term liabilities: Debt Deferred income taxes Other liabilities Total long...

  • Page 97
    ... Liabilities and Shareholders' Equity Current liabilities: Accounts payable-trade $ Accounts payableinventory financing Current maturities of longterm debt Deferred revenue Accrued expenses Total current liabilities Long-term liabilities: Debt Deferred income taxes Accrued interest Other liabilities...

  • Page 98
    ... of Operations Year Ended December 31, 2013 (in millions) Parent Guarantor Subsidiary Issuer Guarantor Subsidiaries Non-Guarantor Subsidiary Co-Issuer Consolidating Adjustments Consolidated Net sales $ - $ Cost of sales - Gross profit - Selling and administrative expenses 24.4 Advertising expense...

  • Page 99
    ...Co-Issuer Consolidating Adjustments Consolidated Net sales $ Cost of sales Gross profit Selling and administrative expenses Advertising expense (Loss) income from operations Interest (expense) income, net Net loss on extinguishments of long-term debt Management fee Other income (expense), net (Loss...

  • Page 100
    ...Co-Issuer Consolidating Adjustments Consolidated Net sales $ Cost of sales Gross profit Selling and administrative expenses Advertising expense (Loss) income from operations Interest (expense) income, net Net loss on extinguishments of long-term debt Management fee Other income (expense), net (Loss...

  • Page 101
    Table of Contents CDW CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Comprehensive Income Year Ended December 31, 2013 (in millions) Parent Guarantor Subsidiary Issuer Guarantor Subsidiaries Non-Guarantor Subsidiary Co-Issuer ...

  • Page 102
    Table of Contents CDW CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Comprehensive Income Year Ended December 31, 2012 (in millions) Parent Guarantor Subsidiary Issuer Guarantor Subsidiaries Non-Guarantor Subsidiary Co-Issuer ...

  • Page 103
    Table of Contents CDW CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Comprehensive Income Year Ended December 31, 2011 (in millions) Parent Guarantor Subsidiary Issuer Guarantor Subsidiaries Non-Guarantor Subsidiary Co-Issuer ...

  • Page 104
    ... credit facility - (63.0) Repayments of long-term debt - (51.1) Proceeds from issuance of long-term debt - 1,535.2 Payments to extinguish longterm debt - (2,047.4) Payment of debt financing costs - (6.1) Net change in accounts payable-inventory financing - - Payment of incentive compensation plan...

  • Page 105
    ... under revolving credit facility Repayments of long-term debt Proceeds from issuance of long-term debt Payments to extinguish longterm debt Payment of debt financing costs Net change in accounts payable-inventory financing Advances to/from affiliates Other financing activities Net cash provided by...

  • Page 106
    ... under revolving credit facility Repayments of long-term debt Proceeds from issuance of long-term debt Payments to extinguish longterm debt Payment of debt financing costs Net change in accounts payable-inventory financing Advances to/from affiliates Other financing activities Net cash provided by...

  • Page 107
    ...2013 Second Quarter Third Quarter Fourth Quarter Net Sales Detail: Corporate: Medium/Large Small Business Total Corporate Public: Government Education Healthcare Total Public Other Net sales Gross profit Income from operations... third quarter of 2013 included pre-tax IPO-related charges of $74.1 ...

  • Page 108
    ... premiums and $0.6 million for the write-off of a portion of the remaining deferred financing costs related to the Senior Subordinated Notes. On February 13, 2014, the Company announced that its board of directors declared a cash dividend on the Company's common stock of $0.0425 per share. The...

  • Page 109
    ... of Period Charged to Costs and Expenses Balance at End of Period Deductions Allowance for doubtful accounts: Year Ended December 31, 2013 Year Ended December 31, 2012 Year Ended December 31, 2011 Reserve for sales returns: Year Ended December 31, 2013 Year Ended December 31, 2012 Year Ended...

  • Page 110
    ... under the Exchange Act, and that information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussions regarding required disclosure. Management's Annual Report on Internal...

  • Page 111
    ... 2012, and the related consolidated statements of operations, comprehensive income, shareholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2013 of CDW Corporation and subsidiaries and our report dated March 5, 2014 expressed an unqualified opinion...

  • Page 112
    Table of Contents Item 9B. Other Information None. 111

  • Page 113
    ... 10. Directors, Managers, Executive Officers and Corporate Governance We have adopted The CDW Way Code, our code of business conduct and ethics, that is applicable to all of our coworkers. Additionally, within The CDW Way Code is a Financial Integrity Code of Ethics that sets forth an even higher...

  • Page 114
    ...Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2013 and 2012 Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011 Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012...

  • Page 115
    ... undersigned, thereunto duly authorized. CDW CORPORATION Date: March 5, 2014 By: /s/ Thomas E. Richards Thomas E. Richards Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons...

  • Page 116
    ... and Restated Limited Liability Company Agreement of CDW Direct, LLC, previously filed as Exhibit 3.10 with CDW Corporation's Form S-4 filed on September 7, 2010 (Reg. No. 333-169258) and incorporated herein by reference. Articles of Organization of CDW Government LLC, previously filed as Exhibit...

  • Page 117
    ... as Exhibit 4.8 with CDW Corporation's Form S-4 filed on September 7, 2010 (Reg. No. 333-169258) and incorporated herein by reference. Third Senior Subordinated Exchange Note Supplemental Indenture, dated as of May 10, 2012, by and among CDW LLC, CDW Finance Corporation, the guarantors party thereto...

  • Page 118
    ... herein by reference. Management Services Agreement, dated as of October 12, 2007, by and between CDW Corporation, Madison Dearborn Partners V-B, L.P. and Providence Equity Partners L.L.C., previously filed as Exhibit 10.9 with CDW Corporation's Form S-4 filed on September 7, 2010 (Reg. No. 333...

  • Page 119
    ... J. Stevens and Ann E. Ziegler), previously filed as Exhibit 10.12 with CDW Corporation's Form 10-K filed on March 8, 2013 and incorporated herein by reference. Form of CDW Holdings LLC Class B Common Unit Grant Agreement under the CDW Holdings LLC 2007 Incentive Equity Plan (executed by Neal...

  • Page 120
    ... Description 10.27§ Letter Agreement, dated as of September 13, 2011, by and between CDW Direct, LLC and Christina M. Corley, previously filed as Exhibit 10.31 with CDW Corporation's Form 10-K filed on March 9, 2012 and incorporated herein by reference. Form of CDW Holdings LLC (Director) Class...

  • Page 121
    ... of Contents Exhibit Number Description 31.2* 32.1** 32.2** 101.INS* 101.SCH* 101.CAL* 101.DEF* 101.LAB* 101.PRE* Certification of Chief Financial Officer pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934. Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350...