Equity-Based Compensation

Equity-based compensation expense, which is recorded in Selling and administrative expenses in the Consolidated Statements of Operations is as follows:



	Years Ended December 31,
(in millions)	2017			2016			2015
Equity-based compensation expense	$	43.7		$	39.2		$	31.2
Income tax benefit ⁽¹⁾	(15.3		)	(13.3		)	(10.9		)
Equity-based compensation expense (net of tax)	$	28.4		$	25.9		$	20.3


(1)	Represents equity-based compensation tax expense at the statutory tax rates. This line does not include any excess tax benefits associated with equity awards separately disclosed in Note 11 (Income Taxes).

The total unrecognized compensation cost related to nonvested awards was $32 million at December 31, 2017 and is expected to be recognized over a weighted-average period of 1.6 years.

2013 Long-Term Incentive Plan

The 2013 Long-Term Incentive Plan (“2013 LTIP”) provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, bonus stock and performance awards. The maximum aggregate number of shares that may be issued under the 2013 LTIP is 15,500,000 shares of the Company’s common stock, in addition to the 3,798,508 shares of restricted stock granted in exchange for unvested Class B Common Units in connection with the Company’s IPO. As of December 31, 2017, 6,416,547 shares were available for issuance under the 2013 LTIP which was approved by the Company’s pre-IPO shareholders. Authorized but unissued shares are reserved for issuance in connection with equity-based awards.

Stock Options

The exercise price of a stock option granted is equal to the fair value of the underlying stock on the date of the grant. Stock options have a contractual term of 10 years and generally vest ratably over three years. To estimate the fair value of options granted, the Company uses the Black-Scholes option pricing model. The weighted-average assumptions used to value the stock options granted were as follows:



	Years Ended December 31,
	2017			2016			2015
Grant date fair value	$	12.27		$	8.55		$	11.13
Volatility ⁽¹⁾	22.00		%	25.00		%	30.00		%
Risk-free rate ⁽²⁾	2.08		%	1.47		%	1.75		%
Expected dividend yield	1.09		%	1.08		%	0.72		%
Expected term (in years) ⁽³⁾	6.0			6.0			6.0


(1)	Based upon an assessment of the two-year and five-year historical volatility and implied volatility for the Company’s selected peer group, adjusted for the Company’s leverage.


(2)	Based on a composite US Treasury rate.


(3)	Calculated using the simplified method, which defines the expected term as the average of the option’s contractual term and the option’s weighted-average vesting period. The Company utilizes this method as it has limited historical stock option data that is sufficient to derive a reasonable estimate of the expected stock option term.

Stock option activity for the year ended December 31, 2017 was as follows:



Options	Number of Options		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (millions)
Outstanding at January 1, 2017	3,781,051		$	29.36
Granted	1,213,299		58.97
Forfeited/Expired	(59,834	)	45.76
Exercised⁽¹⁾	(476,520	)	27.37
Outstanding at December 31, 2017	4,457,996		$	37.41	7.21	$	143.0

Vested and exercisable at December 31, 2017	2,372,046		$	25.90	5.97	$	103.4
Expected to vest at December 31, 2017	2,056,814		$	50.44	8.61	$	39.2


(1)	The total intrinsic value of stock options exercised during the years ended December 31, 2017, 2016 and 2015 was $17 million, $7 million and $2 million, respectively.

Restricted Stock Units (“RSUs”)

Restricted stock units represent the right to receive unrestricted shares of the Company’s stock at the time of vesting. RSUs generally cliff-vest at the end of four years. The fair value of RSUs is equal to the closing price of the Company’s common stock on date of grant.

RSU activity for the year ended December 31, 2017 was as follows:



	Number of Units		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2017	1,179,488		$	19.52
Granted ⁽¹⁾	25,493		58.90
Vested ⁽²⁾	(1,032,821	)	17.77
Forfeited	(41,091	)	23.00
Nonvested at December 31, 2017	131,069		$	40.11


(1)	The weighted-average grant date fair value of RSUs granted during the years ended December 31, 2017, 2016 and 2015 was $58.90, $39.82 and $36.24, respectively.


(2)	The aggregate fair value of RSUs that vested during the years ended December 31, 2017, 2016 and 2015 was $18 million, $1 million and $1 million, respectively.

Performance Share Units (“PSUs”)

Performance share units represent the right to receive unrestricted shares of the Company’s stock at the time of vesting. PSUs are granted under the 2013 LTIP which cliff-vest at the end of three years. The percentage of PSUs that shall vest will range from 0% to 200% of the number of PSUs granted based on the Company’s performance against a cumulative adjusted free cash flow measure and cumulative non-GAAP net income per diluted share measure over a three-year performance period.

PSU activity for the year ended December 31, 2017 was as follows:



	Number of Units		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2017	363,947		$	38.92
Granted ⁽¹⁾	254,451		59.00
Attainment Adjustment ⁽²⁾	361,880		24.40
Vested ⁽³⁾	(530,569	)	37.84
Forfeited	(30,736	)	47.28
Nonvested at December 31, 2017	418,973		$	50.75


(1)	The weighted-average grant date fair value of PSUs granted during the years ended December 31, 2017, 2016 and 2015 was $59.00, $39.91 and $37.83, respectively.


(2)	During the year ended December 31, 2017, the attainment on PSUs vested at December 31, 2016 was adjusted to reflect actual performance. The weighted-average grant date fair value of PSUs included in the attainment adjustment is $24.40.


(3)	The aggregate fair value of PSUs that vested during the years ended December 31, 2017 and 2016 was $20 million and $9 million, respectively. No PSUs vested during the year ended December 31, 2015.

Performance Share Awards (“PSAs”)

Performance share awards represent the right to receive unrestricted shares of the Company’s stock at the time of vesting. PSAs are granted under the 2013 LTIP which cliff-vest at the end of three years. The percentage of PSAs that shall vest will range from 0% to 200% of the number of PSAs granted based on the Company’s performance against a cumulative adjusted free cash flow measure and cumulative non-GAAP net income per diluted share measure over a three-year performance period.

PSA activity for the year ended December 31, 2017 was as follows:



	Number of Units		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2017	246,012		$	38.96
Granted ⁽¹⁾	2,714		—
Vested ⁽²⁾	(121,266	)	37.79
Forfeited	(4,993	)	39.79
Nonvested at December 31, 2017	122,467		$	40.08


(1)	The weighted-average grant date fair value of PSAs granted during the year ended December 31, 2017 was zero as the units granted consisted of only dividends on previously granted units. The weighted-average grant date fair value of PSAs granted during the years ended December 31, 2016 and 2015 was $40.06 and $37.79, respectively.


(2)	The aggregate fair value of PSAs that vested during the year ended December 31, 2017 was $5 million. No PSAs vested during the years ended December 31, 2016 and 2015.

Restricted Stock (“RSAs”)

In connection with the IPO, the Company issued restricted shares of the Company’s common stock to former stockholders of CDW Holdings. These shares are subject to any vesting provisions previously applicable to the restrictions associated with the stock of CDW Holdings. Class B Common Unit holders received 3,798,508 shares of restricted stock with respect to Class B Common Units that had not yet vested at the time of the issuance.

RSA activity for the year ended December 31, 2017 was as follows:



	Number of Units		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2017	26,052		$	17.00
Granted	—		—
Vested⁽¹⁾	(25,398	)	17.00
Forfeited	(654	)	17.00
Nonvested at December 31, 2017	—		$	—


(1)	The aggregate fair value of restricted stock that vested during the years ended December 31, 2017, 2016 and 2015 was less than $1 million, $1 million and $3 million, respectively.

Equity Awards Granted by Seller of CDW UK

The Company issued 1,634,809 shares of CDW common stock as part of the consideration transferred to certain sellers for the acquisition of CDW UK. One of the sellers granted 608,706 stock options to certain CDW UK coworkers over his shares of CDW common stock received in this transaction. The options are not dilutive for purposes of calculating diluted weighted-average shares outstanding as the underlying shares were issued as part of the consideration transferred and are included within basic weighted-average shares outstanding since the acquisition date. The weighted average grant date fair value of the stock options was $22 million or $35.93 per option. The grant date fair value of the options was determined by calculating the fair value of the common stock that was issued which will eventually settle these options. The exercise price of these stock options is $0.01. The fair value of these stock options has been accounted for as post-combination stock-based compensation, as service is required for the coworkers to retain the awards, and is being amortized over the weighted-average requisite service period. Options that are forfeited prior to vesting will not be available for future option issuances and will revert as consideration to the seller. For further information regarding the acquisition, see Note 3 (Acquisition).