CDW 2014 Annual Report Download - page 38

Table of Contents
agencies and departments, they collectively accounted for approximately 7% , 7% and 10%
of our net sales for the years ended
December 31, 2014, 2013 and 2012, respectively. In 2013, and through the second quarter of 2014, Public segment results
were impacted by the combined and residual negative effects of sequestration, the partial shutdown of the federal government
in 2013 and federal government budget uncertainty. However, with the finalization of federal budget allocations in early 2014,
we began to see improvement in federal sales in the second quarter of 2014. The momentum continued through the third
quarter of 2014 in conjunction with the federal fiscal year-end. This recovery continued into the fourth quarter of 2014 in
connection with increased customer confidence that a federal budget for 2015 would be in place.
Key Business Metrics
Our management monitors a number of financial and non-financial measures and ratios on a regular basis in order to track the progress
of our business and make adjustments as necessary. We believe that the most important of these measures and ratios include average daily sales,
gross margin, operating margin, net income, Non-GAAP net income, net income per diluted share, Non-GAAP net income per diluted share,
EBITDA and Adjusted EBITDA, return on invested capital, cash and cash equivalents, cash flow, net working capital, cash conversion cycle
(defined to be days of sales outstanding in accounts receivable plus days of supply in inventory minus days of purchases outstanding in accounts
payable, based on a rolling three-month average), debt levels including available credit and leverage ratios, sales per coworker and coworker
turnover. These measures and ratios are compared to standards or objectives set by management, so that actions can be taken, as necessary, in
order to achieve the standards and objectives. Non-GAAP net income, Non-GAAP net income per diluted share and Adjusted EBITDA are non-
GAAP financial measures. We believe these measures provide helpful information with respect to the company’s operating performance and
cash flows including our ability to meet our future debt service, capital expenditures, dividend payments, and working capital requirements.
Adjusted EBITDA also provides helpful information as it is the primary measure used in certain financial covenants contained in our senior
credit facilities. See "Selected Financial Data" included elsewhere in this report for the definitions of Non-GAAP net income and Adjusted
EBITDA and reconciliations to net income.
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• An important factor affecting our ability to generate sales and achieve our targeted operating results is the impact of general
economic conditions on our customers’ willingness to spend on information technology. While macroeconomic uncertainty
drove a cautious approach to customer spending in the early part of 2013, uncertainty began to dissipate in the back half of
2013 and continued to dissipate throughout 2014. Our sales to small business customers increased in 2014 as a result of the
improvement in the macroeconomic environment. We will continue to closely monitor macroeconomic conditions during
2015. Uncertainties related to potential reductions in government spending, requirements associated with implementation of
the Affordable Care Act, potential changes in tax and regulatory policy, weakening consumer and business confidence or
increased unemployment could result in reduced or deferred spending on information technology products and services by our
customers and result in increased competitive pricing pressures.
• We believe that our customers’ transition to more complex technology solutions will continue to be an important growth area
for us in the future. However, because the market for technology products and services is highly competitive, our success at
capitalizing on this transition will be based on our ability to tailor specific solutions to customer needs, the quality and breadth
of our product and service offerings, the knowledge and expertise of our sales force, price, product availability and speed of
delivery. In 2014, market dynamics, including client device refresh and digital testing needs for K-
12 students, drove customer
demand for transactional products, primarily client devices, which include notebooks/mobile devices and desktops. Our
diverse product suite of more than 100,000 products from over 1,000 leading and emerging brands and efficient, distribution
capabilities enabled us to capitalize on this demand. While sales growth for transactional products was strong during the year,
growth in solutions-focused products, including netcomm and software, also contributed to the increase in net sales during
2014. We expect the demand for client devices to moderate in 2015, both from the client device refresh slowing and a wind-
down in preparation for digital testing requirements.