CDW 2014 Annual Report Download - page 41

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Table of Contents
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. Net sales to government customers increased $198.8 million , or 15.9% . The increase in net sales to
the federal government was led by increases in sales of notebooks/mobile devices and desktop computers. The increase in net sales to state/local
government customers was led by growth in sales of notebooks/mobile devices, netcomm products, enterprise storage, and software due to a
continued focus on public safety solutions. Net sales to education customers increased $375.0 million , or 25.9% , between years, led by growth
in net sales to K-12 customers, reflecting increased sales of notebooks/mobile devices to support digital testing requirements. Net sales to
healthcare customers increased $141.1 million , or 9.6% , between periods, driven by growth in netcomm products, notebook/mobile devices,
and desktop computers.
Gross profit
Gross profit increased $161.0 million , or 9.1% , to $1,921.3 million in 2014 , compared to $1,760.3 million in 2013 . As a percentage
of total net sales, gross profit decreased 40 basis points to 15.9% during 2014 , down from 16.3% in 2013 . Gross profit margin was negatively
impacted 30 basis points by unfavorable price/mix changes within product margin, as transactional product categories such as notebooks/mobile
devices and desktops experienced a higher rate of net sales growth than our overall net sales growth, accompanied by continuing product margin
compression in these product categories. Additionally, we experienced an unfavorable impact of 10 basis points from vendor funding in 2014.
Although vendor funding dollars increased, it represented a lower percentage of net sales in 2014 compared to 2013 . Vendor funding includes
purchase discounts, volume rebates and cooperative advertising.
The 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, any of which could result in changes in gross profit margins.
Selling and administrative expenses
Selling and administrative expenses decreased $10.6 million , or 0.9% , to $1,110.3 million in 2014 , compared to $1,120.9 million in
2013 . The overall decrease was largely driven by the absence of $74.3 million in costs incurred during 2013 related to the completion of our
IPO. This decrease was partially offset by an increase of $31.4 million, or 14.3%, of certain coworker costs between years which was primarily
due to higher compensation consistent with increased coworker count and attainment-based compensation accruals tied to annual performance.
Total coworker count was 7,211, up 244 from 6,967 at December 31, 2013 . In addition, sales payroll, including sales commissions and other
variable compensation costs, increased $18.6 million, or 3.9% between years, consistent with higher sales and gross profit. Further offsetting the
decrease in selling and administrative expenses was an increase in long-term compensation expense and equity compensation expense of $7.2
million during 2014.
As a percentage of total net sales, selling and administrative expenses decreased 120 basis points to 9.2% in 2014 , down from 10.4%
in
2013 . The decrease in selling and administrative expenses as a percentage of net sales was largely driven by a decline of 70 basis points in costs
related to the IPO in 2013
. Sales payroll as a percentage of net sales also decreased 30 basis points during 2014 reflecting the lower cost to serve
transactional sales compared to solutions-focused sales, consistent with our variable compensation cost structure.
Advertising expense
Advertising expense increase d $7.2 million , or 5.5% , to $138.0 million in 2014 , compared to $130.8 million in 2013 . As a
percentage of net sales, advertising expense remained relatively consistent at 1.1% in 2014 , compared to 1.2% in 2013 . The dollar increase in
advertising expense was due to a continued focus on advertising our solutions and products, which reinforces our reputation as a leading IT
solutions provider.
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