10-K
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

 
FORM 10-K
 
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
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.)
 
 
75 Tri-State International
Lincolnshire, Illinois
 
60069
(Address of principal executive offices)
 
(Zip Code)
(847) 465-6000
(Registrant’s telephone number, including area code)

 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.    ý  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    ý  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.    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 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
x 
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    ý  No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, was $4,463.1 million, based on the per share closing sale price of $34.28 on that date.
As of February 19, 2016, there were 167,740,043 shares of common stock, $0.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for use in connection with its 2016 Annual Meeting of Shareholders, to be filed not later than 120 days after December 31, 2015, are incorporated by reference into Part III of this report.

 



CDW CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
Year Ended December 31, 2015
TABLE OF CONTENTS
Item
 
Page
PART I
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
PART II
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
 
 
Item 15.
SIGNATURES

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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 analyses 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,” “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.
Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the section entitled “Risk Factors” included elsewhere in this report. 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” included elsewhere in this report as well as other cautionary statements that are made from time to time in our other Securities and Exchange Commission (“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 could cause actual results to differ from our expectations. 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 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.

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PART I
Item 1. Business
Our Company
CDW Corporation (together with its subsidiaries, the “Company”, “CDW” or “we”) is a Fortune 500 company and a leading provider of integrated information technology (“IT”) solutions in North America and the United Kingdom. We help our customer base of over 250,000 small, medium and large 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 computing, virtualization and collaboration. We are technology “agnostic,” with a product portfolio including more than 100,000 products from more than 1,000 brands. We provide our products and solutions through more than 5,000 customer-facing coworkers, including field sellers, highly-skilled technology specialists and advanced service delivery engineers.
We are a leading sales channel partner in North America and the United Kingdom for many original equipment manufacturers (“OEMs”) and software publishers (collectively, our “vendor partners”), whose products we sell or include in the solutions we offer. We believe we are an important extension of our vendor partners’ sales and marketing capabilities, providing them with a cost-effective way to reach customers and deliver a consistent brand experience through our established end-market coverage and extensive customer access.
We provide value to our customers by simplifying the complexities of technology across design, selection, procurement, integration and management. Our goal is to have our customers, regardless of their size, view us as an indispensable extension of their IT staff. We seek to achieve this goal by providing our customers with superior service through our large and experienced sales force and service delivery teams. Our multi-brand offering approach enables us to identify the products or combination of products that best address each customer’s specific organizational IT requirements and to evolve our offerings as new technologies develop.
We believe we offer the following value proposition to our customers and our vendor partners:
Our value proposition to our customers
Our value proposition to our vendor partners
Broad selection of products and multi-branded IT solutions
Access to over 250,000 customers throughout North America and the United Kingdom
Value-added services with integration capabilities
Large and established customer channels
Highly-skilled specialists and engineers
Strong distribution and implementation capabilities
Solutions across a very broad IT landscape
Value-added solutions and marketing programs that generate end-user demand
Our customers include private sector businesses, many of which employ fewer than 5,000 employees, government agencies and educational and healthcare institutions. We serve our customers through channel-specific sales teams and service delivery teams with extensive technical skills and knowledge of the specific markets they serve. This market segmentation allows us to customize our offerings and to provide enhanced expertise in designing and implementing IT solutions for our customers. In our U.S. business, which represents over 90% of our revenues, we currently have five dedicated customer channels: medium/large business, small business, government, education and healthcare, each of which generated over $1 billion or more in net sales in 2015. The scale and diversity of our customer channels provide us with multiple avenues for growth and a balanced customer base to weather economic and technology cycles.
Information regarding our reportable segments and our customer channels is as follows:
 
Corporate Segment
 
Public Segment
 
 
Customer Channels
Medium/Large Business
 
Small Business
 
Government
 
Education
 
Healthcare
 
Other
 Target Customers
100 - 5,000 employees
 
10 - 100 employees
 
Various federal, state and local agencies
 
Higher education and K-12
 
Hospitals, ambulatory service providers and long-term care facilities
 
Advanced services customers, Canada and United Kingdom
2015 Net Sales
(in billions)
$5.8
 
$1.1
 
$1.7
 
$1.8
 
$1.6
 
$1.0

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For further information regarding our segments, including financial results, see Note 16 (Segment Information) to the accompanying Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”
We offer more than 1,000 brands, from well-established companies such as APC, Apple, Cisco, Dell, EMC, Google, Hewlett Packard Enterprise, HP Inc., IBM, Lenovo, Microsoft, NetApp, Samsung, Symantec and VMware, as well as from emerging vendor partners such as BlueJeans, CafeX, Cradlepoint, CloudPhysics, FireEye, Nimble Storage, Nutanix, Palo Alto Networks, Ruckus, and Veeam. In 2015, we generated over $1 billion of revenue from each of four of our vendor partners and over $100 million of revenue from each of 11 other vendor partners. We have received the highest level of certification from major vendor partners such as Cisco, EMC and Microsoft, which reflects the extensive product and solution knowledge and capabilities that we bring to our customers’ IT challenges. These certifications also provide us with access to favorable pricing, tools and resources, including vendor incentive programs, which we use to provide additional value to our customers. Our vendor partners also regularly recognize us with top awards and select us to develop and grow new customer solutions.
History
Founded in 1984, CDW became a public company in 1993. We were a public company from 1993 until October 2007 (see below). In 2003, we purchased selected United States assets and the Canadian operations of Micro Warehouse, which extended our growth platform into Canada. In 2006, we acquired Berbee Information Networks Corporation, a regional provider of technology products, solutions and customized engineering services in advanced technologies primarily across Cisco, IBM and Microsoft portfolios. This acquisition increased our capabilities in customized engineering services and managed services.
On October 12, 2007, CDW Corporation, an Illinois corporation, was acquired through a merger transaction by an entity controlled by investment funds affiliated with Madison Dearborn Partners, LLC (“Madison Dearborn”) and Providence Equity Partners L.L.C. (“Providence Equity”). CDW Corporation continued as the surviving corporation and same legal entity after the acquisition, but became a wholly owned subsidiary of VH Holdings, Inc., a Delaware corporation.
On December 31, 2009, CDW Corporation merged into CDWC LLC, an Illinois limited liability company owned by VH Holdings, Inc., with CDWC LLC as the surviving entity. This change had no impact on our operations or management. On December 31, 2009, CDWC LLC was renamed CDW LLC (“CDW LLC”). On August 17, 2010, VH Holdings, Inc. was renamed CDW Corporation (“Parent”), a Delaware corporation.
Prior to July 2, 2013, the date of our initial public offering (“IPO”), Parent was owned directly by CDW Holdings LLC ("CDW Holdings"), a company controlled by investment funds affiliated with Madison Dearborn and Providence Equity, certain other co-investors and certain members of CDW management. Before the IPO, Madison Dearborn and Providence Equity owned 46.0% and 40.6% of our common stock, respectively. After the IPO and through subsequent secondary offerings from the fourth quarter of 2013 through 2015, their ownership has significantly decreased. As of December 31, 2015, Madison Dearborn and Providence Equity own 4.9% and 4.3% of our common stock, respectively.
On July 2, 2013, Parent completed the IPO of its common stock. In connection with the IPO, CDW Holdings distributed all of its shares of Parent’s common stock to its members in June 2013 in accordance with the members’ respective membership interests and was subsequently dissolved in August 2013. See Note 10 (Stockholders’ Equity) to the accompanying Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data” for additional discussion of the IPO.
On November 10, 2014, we completed the acquisition of a 35% non-controlling equity interest in Kelway TopCo Limited (“Kelway”), a U.K.-based IT solutions provider, which has global supply chain relationships that enable it to conduct business in more than 80 countries. On August 1, 2015, we completed the acquisition of Kelway by purchasing the remaining 65% of its outstanding common stock which increased our ownership interest from 35% to 100%, and provided us control. The acquisition enhances our ability to provide IT solutions to U.S.-based customers with international locations. We included the financial results of Kelway in our Consolidated Financial Statements from the date of acquisition. For further details regarding the acquisition, see Note 3 (Acquisition) to the accompanying Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”
Our Market
We operate in the United States, United Kingdom and Canadian IT markets, which are large and growing markets. We also have an international presence in both private and public sector IT, and through our global supply chain have the ability to provide products and services in over 80 countries. According to the International Data Corporation (“IDC”), the total U.S., U.K. and Canadian IT market generated approximately $900 billion in sales in 2015. We believe our addressable market in the indirect sales channel for the U.S., U.K. and Canadian markets represent more than $282 billion in annual sales. For the year ended December 31, 2015, our total Net sales of $12.9 billion represented approximately 5% of that highly diverse and fragmented market. New technologies, including cloud, virtualization and mobility, coupled with the resulting increase in demand for data as

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well as aging infrastructure, are increasingly requiring businesses and institutions to seek integrated solutions to their IT needs. We expect this trend to continue for the foreseeable future, with end-user demand for business efficiency and productivity driving future IT spending growth.
Our Offerings
Our offerings range from discrete hardware and software products and services to complex integrated solutions including one or more of these elements. We believe our customers increasingly view technology purchases as integrated solutions rather than discrete product and service categories. We estimate that approximately 48% of our net sales in 2015 in the U.S. came from sales of product categories and services typically associated with solutions. Our hardware products include notebooks/mobile devices (including tablets), network communications, enterprise and data storage, video monitors, printers, desktop computers and servers. Our software products include 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 implementation services, as well as managed services that include Infrastructure as a Service (“IaaS”) offerings.
We also offer a variety of integrated solutions, such as:
Mobility: We assist our customers with the selection, procurement and integration of mobile security software, hardware devices, such as smartphones, tablets and notebooks, and cellular wireless activation systems. We also provide mobile device management applications with policy and security management capabilities across a variety of mobile operating systems and platforms.
Security: We assess our customers’ security needs and provide them with threat prevention tools in order to protect their networks, servers and applications such as, anti-virus, anti-spam, content filtering, intrusion prevention, firewall and virtual private network services, and network access control. We also design and implement data loss prevention solutions, using data monitoring and encryption across a wide array of devices to ensure the security of customer information, personal employee information and research and development data.
Data Center Optimization: We help our customers evaluate their data centers for convergence and optimization opportunities. Our data center optimization solutions consist of server virtualization, physical server consolidation, data storage management and energy-efficient power and cooling systems.
Cloud Computing: We provide our customers with a broad portfolio of cloud-based solutions, which are technology delivered as a service. Our cloud offerings include: IaaS, which delivers compute, networking, storage, and data center capabilities via the cloud; SaaS, which connects users to cloud-based software applications; and Platform as a Service (“PaaS”), which enables development and ongoing maintenance of cloud-based solutions. We provide public cloud solutions which reside off customer premises on a public (shared) infrastructure, and private cloud solutions, which reside on customer premises. We also offer hybrid cloud solutions that deliver the benefits of both public and private solutions. Our migration, integration and managed services offerings help our customers simplify cloud adoption, as well as the ongoing management of cloud solutions across the entire IT lifecycle. Dedicated Cloud Client Executives work with our customers to architect cloud solutions meeting their organizational, technology and financial objectives.
Virtualization: We design and implement server, storage and desktop virtualization solutions. Virtualization enables our customers to efficiently utilize hardware resources by running multiple, independent, virtual operating systems on a single computer and multiple virtual servers simultaneously on a single server. Virtualization also can separate a desktop environment and associated application software from the hardware device that is used to access it, and provides employees with remote desktop access. Our specialists assist customers with the steps of implementing virtualization solutions, including evaluating network environments, deploying shared storage options and licensing platform software.
Collaboration: We provide our customers with communication tools allowing employees to share knowledge, ideas and information among each other and with clients and partners effectively and quickly. Our collaboration solutions unite communications and applications via the integration of products that facilitate the use of multiple enterprise communication methods including email, instant messaging, presence, social media, voice, video, hardware, software and services. We also host cloud-based collaboration solutions.

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Although we believe customers increasingly view technology purchases as solutions rather than discrete product and service categories, our net sales by major category, based upon our internal category classifications is as follow:
 
 
Years Ended December 31,
 
 
2015
 
 2014 (1)
 
 2013 (1)
 
 
Dollars in
Millions
 
Percentage
of Total Net Sales
 
Dollars in
Millions
 
Percentage
of Total Net Sales
 
Dollars in
Millions
 
Percentage
of Total Net Sales
Notebooks/Mobile Devices
 
$
2,539.4

 
19.6
%
 
$
2,354.0

 
19.5
%
 
$
1,696.5

 
15.8
%
Netcomm Products
 
1,914.9

 
14.7

 
1,613.3

 
13.4

 
1,482.7

 
13.8

Enterprise and Data Storage (Including Drives)
 
1,065.2

 
8.2

 
1,024.2

 
8.5

 
999.3

 
9.3

Other Hardware
 
4,756.4

 
36.6

 
4,551.1

 
37.6

 
4,184.1

 
38.8

Software (2)
 
2,163.6

 
16.7

 
2,064.1

 
17.1

 
1,982.4

 
18.4

Services
 
478.0

 
3.7

 
371.9

 
3.1

 
332.7

 
3.1

Other (3)
 
71.2

 
0.5

 
95.9

 
0.8

 
90.9

 
0.8

Total net sales
 
$
12,988.7

 
100.0
%
 
$
12,074.5

 
100.0
%
 
$
10,768.6

 
100.0
%
(1)
Amounts have been reclassified for changes in individual product classifications to conform to the presentation for the year ended December 31, 2015.
(2)
The decline in software as a percentage of total net sales is primarily driven by a higher proportion of revenue recorded on a net basis, including SaaS.
(3)
Includes items such as delivery charges to customers and certain commission revenue.
Our Customers
We provide integrated IT solutions to over 250,000 small, medium and large business, government, education and healthcare customers throughout North America and the United Kingdom. As a result of the acquisition of Kelway, we also have the ability to provide products and services to customers in over 80 countries.
Inventory Management
We utilize our IT systems to manage our inventory in a cost-efficient manner, resulting in a rapid-turn inventory model. We generally only stock items that have attained a minimum sales volume.
Our distribution process is highly automated. Once a customer order is received and credit approved, orders are automatically routed to one of our distribution centers for picking and shipping as well as configuration and imaging services. We operate two distribution centers in North America: a 450,000 square foot facility in Vernon Hills, Illinois, and a 513,000 square foot facility in North Las Vegas, Nevada. We ship over 37 million units annually on an aggregate basis from these two distribution centers. We believe that the location of these distribution centers allows us to efficiently ship products throughout North America and provide timely access to our principal distributors. In addition, in the event of weather-related or other disruptions at one of our distribution centers, we are able to shift order processing and fulfillment from one center to the other quickly and efficiently, enabling us to continue to ship products in a timely manner. We believe competitive sources of supply are available in substantially all of the product categories we offer. We continue to improve the productivity of our distribution centers as measured by key performance indicators such as units shipped per hour worked and bin accuracy. We also operate one distribution center in the United Kingdom, a 120,000 square foot facility in Rugby. We ship over 2 million units annually from this distribution center to customers in the United Kingdom and in more than 80 countries around the world.
We also have drop-shipment arrangements with many of our OEMs and wholesale distributors, which permit us to offer products to our customers without having to take physical delivery at our distribution centers. These arrangements generally represent approximately 45% to 55% of total consolidated net sales, including approximately 15% to 20% related to electronic delivery for software licenses.
Information Technology Systems
We maintain customized IT and unified communication systems that enhance our ability to provide prompt, efficient and expert service to our customers. In addition, these systems enable centralized management of key functions, including purchasing, inventory management, billing and collection of accounts receivable, sales and distribution. Our systems provide us with thorough,

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detailed and real-time information regarding key aspects of our business. This capability helps us to continuously enhance productivity, ship customer orders quickly and efficiently, respond appropriately to industry changes and provide high levels of customer service. We believe our websites, which provide electronic order processing and advanced tools, such as, order tracking, reporting and asset management, make it easy for customers to transact business with us and ultimately strengthen our customer relationships.
Product Procurement
We may purchase all or only some of the products our vendor partners offer for resale to our customers or for 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 cooperative advertising reimbursements. In late 2015 we expanded our partnership with Dell. Through this partnership we have increased our offering of Dell products and services to our customers. We also purchase software from major software publishers for resale to our customers or for inclusion in the solutions we offer. Our agreements with software publishers allow the end-user customer to acquire software or licensed products and services.
In addition to purchasing products directly from our vendor partners, we purchase products from wholesale distributors for resale to our customers or for inclusion in the solutions we offer. These wholesale distributors provide logistics management and supply-chain services for us, as well as for our vendor partners.
For our North American operations, we purchased approximately 50% of the products we sold as discrete products or as components of a solution directly from our vendor partners and the remaining 50% from wholesale distributors for the year ended December 31, 2015. Purchases from our three largest wholesale distributors, Tech Data, SYNNEX and Ingram Micro, represented 9%, 9% and 8% of our total purchases.
Sales of products manufactured by Apple, Cisco, EMC, HP Inc., Hewlett Packard Enterprise, Lenovo and Microsoft, whether purchased directly from these vendor partners or from a wholesale distributor, represented in the aggregate 56% of our consolidated Net sales in 2015. Sales of products manufactured by Cisco and the companies formerly known as Hewlett-Packard Company represented 16% and 18%, of our 2015 consolidated Net sales, respectively.
Competition
The market for technology products and services is highly competitive. Competition is based on the ability to tailor specific solutions to customer needs, quality and breadth of product and service offerings, knowledge and expertise of sales force, customer service, price, product availability, speed of delivery and credit availability. Our competition includes:
resellers, such as, Computacenter, Dimension Data, ePlus, Insight Enterprises, PC Connection, PCM, Presidio, SCC, Softchoice, World Wide Technology, and many smaller resellers;
manufacturers who sell directly to customers, such as, Dell, HP Inc., Hewlett Packard Enterprise and Apple;
large service providers and system integrators, such as, IBM, Accenture, Hewlett Packard Enterprise and Dell;
e-tailers, such as, Amazon, Newegg, and TigerDirect.com;
cloud providers, such as, Amazon Web Services, Microsoft and Box; and
retailers (including their e-commerce activities) such as Staples and Office Depot.
We expect the competitive landscape in which we compete to continue to change as new technologies are developed. While innovation can help our business as it creates new offerings for us to sell, it can also disrupt our business model and create new and stronger competitors. For a discussion of the risks associated with competition, see Item 1A, “Risk Factors.”
Marketing
We market the CDW brand to U.S., Canadian, and British audiences using a variety of channels that include online, broadcast, print, social and other media. This promotion is supported by integrated communication efforts targeting decision-makers, influencers and the general public using a combination of news releases, case studies, media interviews and speaking opportunities. We also market to current and prospective customers through integrated marketing programs including behaviorally targeted email, print, online media, events and sponsorships, as well as broadcast media.
As a result of our relationships with our vendor partners, a significant portion of our advertising and marketing expenses are reimbursed through cooperative advertising programs. These programs are at the discretion of our vendor partners and are

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typically tied to sales or other commitments to be met by us within a specified period of time. We believe that our national scale and analytical techniques that measure the efficacy of our marketing programs differentiate us from our competitors.
Coworkers
As of December 31, 2015, we employed 8,465 coworkers, none of whom is covered by collective bargaining agreements. We consider our coworker relations to be good.
Intellectual Property
The CDW trademark and certain variations thereon are registered or subject to pending trademark applications in the U.S., Canada and certain other jurisdictions. The Kelway trademark and certain variations thereon are registered or subject to pending trademark applications in the European Union, which includes the United Kingdom, and certain other jurisdictions such as Hong Kong, Singapore, and South Africa. We believe our trademarks have significant value and are important factors in our marketing programs. In addition, we own registrations for domain names, including cdw.com and cdwg.com, kelway.com and variations thereon, for certain of our primary trademarks. We also have unregistered copyrights in our website content.
Available Information
We maintain a website at www.cdw.com. You may access our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Our website and the information contained on that site, or connected to that site, are not incorporated into and are not a part of this report.
Item 1A. Risk Factors
There are many factors that affect our business, results of operations and cash flows, some of which are beyond our control. The following is a description of some important factors that may cause our actual results of operations and cash flows in future periods to differ materially from those currently expected or desired.
Risks Related to Our Business
General economic conditions could negatively affect technology spending by our customers and put downward pressure on prices, which may have an adverse impact on our business, results of operations or cash flows.
Weak economic conditions generally, sustained uncertainty about global economic conditions, government spending cuts and the impact of new government programs, or a tightening of credit markets, could cause our customers and potential customers to postpone or reduce spending on technology products or services or put downward pressure on prices, which could have an adverse effect on our business, results of operations or cash flows.
Our financial performance could be adversely affected by decreases in spending on technology products and services by our public sector customers.
Our sales to our public sector customers are impacted by government spending policies, budget priorities and revenue levels. An adverse change in government spending policies (including ongoing budget cuts at the federal level), budget priorities or revenue levels could cause our public sector customers to reduce their purchases or to terminate or not renew their contracts with us, which could adversely affect our business, results of operations or cash flows. For example, in 2013, as a result of sequestration and related budget uncertainty and the partial shutdown of the U.S. federal government for 16 days, we experienced significantly reduced U.S. Federal sales in our Public segment.
Our business depends on our vendor partner relationships and the availability of their products.
We purchase products for resale from vendor partners, which include OEMs and software publishers, and wholesale distributors. For the year ended December 31, 2015, we purchased approximately 50% of the products we sold directly from vendor partners and the remaining amount from wholesale distributors for our North American Operations. We are authorized by vendor partners to sell all or some of their products via direct marketing activities. Our authorization with each vendor partner is subject to specific terms and conditions regarding such things as sales channel restrictions, product return privileges, price protection policies, purchase discounts and vendor partner programs and funding, including purchase rebates, sales volume rebates, purchasing incentives and cooperative advertising reimbursements. However, we do not have any long-term contracts with our vendor partners and many of these arrangements are terminable upon notice by either party. A reduction in vendor partner programs or funding or our failure to timely react to changes in vendor partner programs or funding could have an adverse effect on our business, results

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of operations or cash flows. In addition, a reduction in the amount of credit granted to us by our vendor partners could increase our need for, and the cost of, working capital and could have an adverse effect on our business, results of operations or cash flows, particularly given our substantial indebtedness.
From time to time, vendor partners may terminate or limit our right to sell some or all of their products or change the terms and conditions or reduce or discontinue the incentives that they offer us. For example, there is no assurance that, as our vendor partners continue to sell directly to end users and through resellers, they will not limit or curtail the availability of their products to solutions providers like us. Any such termination or limitation or the implementation of such changes could have a negative impact on our business, results of operations or cash flows.
Although we purchase from a diverse vendor base, in 2015, products we purchased from wholesale distributors Tech Data and SYNNEX each represented 9% of our total purchases and Ingram Micro represented 8% of our total North American purchases. In addition, sales of products manufactured by Apple, Cisco, EMC, HP Inc., Hewlett Packard Enterprise, Lenovo and Microsoft in the aggregate represented 56% of our 2015 Net sales. Sales of products manufactured by Cisco and the companies formerly known as Hewlett-Packard Company represented 16% and 18%, respectively, of our 2015 consolidated Net sales. The loss of, or change in business relationship with, any of these or any other key vendor partners, the diminished availability of their products, or backlogs for their products leading to manufacturer allocation, could reduce the supply and increase the cost of products we sell and negatively impact our competitive position.
Additionally, the relocation of key distributors utilized in our purchasing model could increase our need for, and the cost of, working capital and have an adverse effect on our business, results of operations or cash flows. Further, the sale, spin-off or combination of any of our vendor partners and/or certain of their business units, including any such sale to or combination with a vendor with whom we do not currently have a commercial relationship or whose products we do not sell, could have an adverse impact on our business, results of operations or cash flows.
Our sales are dependent on continued innovations in hardware, software and services offerings by our vendor partners and the competitiveness of their offerings, and our ability to partner with new and emerging technology providers.
The technology industry is characterized by rapid innovation and the frequent introduction of new and enhanced hardware, software and services offerings, such as cloud-based solutions, including SaaS, IaaS and PaaS, and the Internet of Things (“IoT”). We have been and will continue to be dependent on innovations in hardware, software and services offerings, as well as the acceptance of those innovations by customers. A decrease in the rate of innovation, or the lack of acceptance of innovations by customers, could have an adverse effect on our business, results of operations or cash flows.
In addition, if we are unable to keep up with changes in technology 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 flows could be adversely affected.
We also are dependent upon our vendor partners for the development and marketing of hardware, software and services to compete effectively with hardware, software and services of vendors whose products and services we do not currently offer or that we are not authorized to offer in one or more customer channels. In addition, our success is dependent on our ability to develop relationships with and sell hardware, software and services from new emerging vendors and vendors that we have not historically represented in the marketplace. To the extent that a vendor’s offering that is highly in demand is not available to us for resale in one or more customer channels, and there is not a competitive offering from another vendor that we are authorized to sell in such customer channels, or we are unable to develop relationships with new technology providers or companies that we have not historically represented, our business, results of operations or cash flows could be adversely impacted.
Substantial competition could reduce our market share and significantly harm our financial performance.
Our current competition includes:
resellers, such as Computacenter, Dimension Data, ePlus, Insight Enterprises, PC Connection, PCM, Presidio, SCC, Softchoice, World Wide Technology and many smaller resellers;
manufacturers who sell directly to customers, such as Dell, HP Inc., Hewlett Packard Enterprise and Apple;
large service providers and system integrators, such as IBM, Accenture, Hewlett Packard Enterprise and Dell;
e-tailers, such as Amazon, Newegg and TigerDirect.com;
cloud providers, such as Amazon Web Services, Microsoft and Box; and

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retailers (including their e-commerce activities), such as Staples and Office Depot.
We expect the competitive landscape in which we compete to continue to change as new technologies are developed. While innovation can help our business as it creates new offerings for us to sell, it can also disrupt our business model and create new and stronger competitors. For instance, while cloud-based solutions present an opportunity for us, cloud-based solutions and technologies that deliver technology solutions as a service could increase the amount of sales directly to customers rather than through solutions providers like us, or could reduce the amount of hardware we sell, leading to a reduction in our sales and/or profitability. In addition, some of our hardware and software vendor partners sell, and could intensify their efforts to sell, their products directly to our customers. Moreover, traditional OEMs have increased their services capabilities through mergers and acquisitions with service providers, which could potentially increase competition in the market to provide comprehensive technology solutions to customers. If any of these trends becomes more prevalent, it could adversely affect our business, results of operations or cash flows.
We focus on offering a high level of service to gain new customers and retain existing customers. To the extent we face increased competition to gain and retain customers, we may be required to reduce prices, increase advertising expenditures or take other actions which could adversely affect our business, results of operations or cash flows. Additionally, some of our competitors may reduce their prices in an attempt to stimulate sales, which may require us to reduce prices. This would require us to sell a greater number of products to achieve the same level of net sales and gross profit. If such a reduction in prices occurs and we are unable to attract new customers and sell increased quantities of products, our sales growth and profitability could be adversely affected.
The success of our business depends on the continuing development, maintenance and operation of our information technology systems.
Our success is dependent on the accuracy, proper utilization and continuing development of our information technology systems, including our business systems, such as our sales, customer management, financial and accounting, marketing, purchasing, warehouse management, e-commerce and mobile systems, as well as our operational platforms, including voice and data networks and power systems. The quality and our utilization of the information generated by our information technology systems, and our success in implementing new systems and upgrades, affects, among other things, our ability 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
maintain our cost-efficient operating model while scaling our business.
The integrity of our information technology systems is vulnerable to disruption due to forces beyond our control. While we have taken steps to protect our information technology systems from a variety of threats, including computer viruses, malware, phishing, social engineering, unauthorized access and other malicious attacks, both internal and external, and human error, there can be no guarantee that those steps will be effective. Furthermore, although we have redundant systems at a separate location to back up our primary systems, there can be no assurance that these redundant systems will operate properly if and when required. Any disruption to or infiltration of our information technology systems could significantly harm our business and results of operations.
Breaches of data security could adversely impact our business.
Our business involves the storage and transmission of proprietary information and sensitive or confidential data, including personal information of coworkers, customers and others. In addition, we operate data centers for our customers which host their technology infrastructure and may store and transmit both business-critical data and confidential information. In connection with our services business, our coworkers also have access to our customers’ confidential data and other information. We have privacy and data security policies in place that are designed to prevent security breaches; however, as newer technologies evolve, we could be exposed to increased risk of breaches in security. Breaches in security could expose us, our customers or other individuals to a risk of public disclosure, loss or misuse of this information, resulting in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, as well as the loss of existing or potential customers and damage to our brand and reputation. In addition, the cost and operational consequences of implementing further data protection measures could be significant. Such breaches, costs and consequences could adversely affect our business, results of operations or cash flows.

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The failure to comply with our public sector contracts or applicable laws and regulations could result in, among other things, termination, fines or other liabilities, and changes in procurement regulations could adversely impact our business, results of operations or cash flows.
Revenues from our public sector customers are derived from sales to governmental entities, educational institutions and healthcare customers, through various contracts and open market sales of products and services. Sales to public sector customers are highly regulated. Noncompliance with contract provisions, government procurement regulations or other applicable laws or regulations (including the False Claims Act and the Medicare and Medicaid Anti-Kickback Statute or similar laws of the jurisdictions for our business activities outside of the United States) could result in civil, criminal and administrative liability, including substantial monetary fines or damages, termination of government contracts or other public sector customer contracts, and suspension, debarment or ineligibility from doing business with the government and other customers in the public sector. In addition, contracts in the public sector are generally terminable at any time for convenience of the contracting agency or group purchasing organization (“GPO”) or upon default. Furthermore, our inability to enter into or retain contracts with GPOs may threaten our ability to sell to customers in those GPOs and compete. The effect of any of these possible actions could adversely affect our business, results of operations or cash flows. In addition, the adoption of new or modified procurement regulations and other requirements may increase our compliance costs and reduce our gross margins, which could have a negative effect on our business, results of operations or cash flows.
If we fail to provide high-quality services to our customers, or if our third-party service providers fail to provide high-quality services to our customers, our reputation, business, results of operations or cash flows could be adversely affected.
Our service offerings include field services, managed services, warranties, configuration services, partner services and telecom services. Additionally, we deliver and manage mission critical software, systems and network solutions for our customers. We also offer certain services, such as implementation and installation services and repair services, to our customers through various third-party service providers engaged to perform these services on our behalf. If we or our third-party service providers fail to provide high quality services to our customers or such services result in a disruption of our customers’ businesses, this could, among other things, result in legal claims and proceedings and liability. Moreover, as we expand our services and solutions business, we may be exposed to additional operational, regulatory and other risks. We also could incur liability for failure to comply with the rules and regulations applicable to the new services and solutions we provide to our customers. If any of the foregoing were to occur, our reputation with our customers, our brand and our business, results of operations or cash flows could be adversely affected.
If we lose any of our key personnel, or are unable to attract and retain the talent required for our business, our business could be disrupted and our financial performance could suffer.
Our success is heavily dependent upon our ability to attract, develop, engage and retain key personnel to manage and grow our business, including our key executive, management, sales, services and technical coworkers.
Our future success will depend to a significant extent on the efforts of Thomas E. Richards, our Chairman and Chief Executive Officer, as well as the continued service and support of our other executive officers. Our future success also will depend on our ability to retain our customer-facing coworkers, who have been given critical CDW knowledge regarding, and the opportunity to develop strong relationships with, many of our customers. In addition, as we seek to expand our offerings of value-added services and solutions, our success will even more heavily depend on attracting and retaining highly skilled technology specialists and engineers, for whom the market is extremely competitive.
Our inability to attract, develop and retain key personnel could have an adverse effect on our relationships with our vendor partners and customers and adversely affect our ability to expand our offerings of value-added services and solutions. Moreover, our inability to train our sales, services and technical personnel effectively to meet the rapidly changing technology needs of our customers could cause a decrease in the overall quality and efficiency of such personnel. Such consequences could adversely affect our business, results of operations or cash flows.
The interruption of the flow of products from suppliers could disrupt our supply chain.
A significant portion of the products we sell are manufactured or purchased by our vendor partners outside of the U.S., primarily in Asia. Political, social or economic instability in Asia, or in other regions in which our vendor partners purchase or manufacture the products we sell, could cause disruptions in trade, including exports to the U.S. Other events that could also cause disruptions to our supply chain include:
the imposition of additional trade law provisions or regulations;
the imposition of additional duties, tariffs and other charges on imports and exports;

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foreign currency fluctuations;
natural disasters or other adverse occurrences at, or affecting, any of our suppliers’ facilities;
restrictions on the transfer of funds;
the financial instability or bankruptcy of manufacturers; and
significant labor disputes, such as strikes.
We cannot predict whether the countries in which the products we sell are purchased or manufactured, or may be purchased or manufactured in the future, will be subject to new or additional trade restrictions or sanctions imposed by the U.S. or foreign governments, including the likelihood, type or effect of any such restrictions. Trade restrictions, including new or increased tariffs or quotas, embargoes, sanctions, safeguards and customs restrictions against the products we sell, as well as foreign labor strikes and work stoppages or boycotts, could increase the cost or reduce the supply of product available to us and adversely affect our business, results of operations or cash flows. In addition, our exports are subject to regulations and noncompliance with these requirements could have a negative effect on our business, results of operations or cash flows.
A natural disaster or other adverse occurrence at one of our primary facilities or customer data centers could damage our business.
We have two warehouse and distribution facilities in the United States and one in the United Kingdom. If the warehouse and distribution equipment at one of our distribution centers were to be seriously damaged by a natural disaster or other adverse occurrence, we could utilize another distribution center or third-party distributors to ship products to our customers. However, this may not be sufficient to avoid interruptions in our service and may not enable us to meet all of the needs of our customers and would cause us to incur incremental operating costs. In addition, we operate three customer data centers and numerous sales offices which may contain both business-critical data and confidential information of our customers. A natural disaster or other adverse occurrence at any of the customer data centers or at any of our major sales offices could negatively impact our business, results of operations or cash flows.
We are heavily dependent on commercial delivery services.
We generally ship hardware products to our customers by FedEx, United Parcel Service and other commercial delivery services and invoice customers for delivery charges. If we are unable to pass on to our customers future increases in the cost of commercial delivery services, our profitability could be adversely affected. Additionally, strikes, inclement weather, natural disasters or other service interruptions by such shippers could adversely affect our ability to deliver products on a timely basis.
We are exposed to accounts receivable and inventory risks.
We extend credit to our customers for a significant portion of our net sales, typically on 30-day payment terms. We are subject to the risk that our customers may not pay for the products they have purchased, or may pay at a slower rate than we have historically experienced, the risk of which is heightened during periods of economic downturn or uncertainty or, in the case of public sector customers, during periods of budget constraints.
We are also exposed to inventory risks as a result of the rapid 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. However, if we were unable to maintain our rapid-turn inventory model, if there were unforeseen product developments that created more rapid obsolescence or if our vendor partners were to change their terms and conditions, our inventory risks could increase. We also from time to time take advantage of cost savings associated with certain opportunistic bulk inventory purchases offered by our vendor partners or we may decide to carry high inventory levels of certain products that have limited or no return privileges due to customer demand or request. These bulk purchases could increase our exposure to inventory obsolescence.
We could be exposed to additional risks if we continue to make strategic investments or acquisitions or enter into alliances.
We may continue to pursue transactions, including strategic investments, acquisitions or alliances, in an effort to extend or complement our existing business. These types of transactions involve numerous business risks, including finding suitable transaction partners and negotiating terms that are acceptable to us, the diversion of management’s attention from other business concerns, extending our product or service offerings into areas in which we have limited experience, entering into new geographic markets, the potential loss of key coworkers or business relationships and successfully integrating acquired businesses, any of which could adversely affect our operations.

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In addition, our financial results could be adversely affected by financial adjustments required by accounting principles generally accepted in the United States of America (“GAAP”) in connection with these types of transactions where significant goodwill or intangible assets are recorded. To the extent the value of goodwill or identifiable intangible assets with indefinite lives becomes impaired, we may be required to incur material charges relating to the impairment of those assets.
Our future operating results may fluctuate significantly.
We may experience significant variations in our future quarterly results of operations. These fluctuations may cause the market price of our common stock to be volatile and may result from many factors, including the condition of the technology industry in general, shifts in demand and pricing for hardware, software and services and the introduction of new products or upgrades.
Our operating results are also highly dependent on our level of gross profit as a percentage of net sales. Our gross profit percentage fluctuates due to numerous factors, some of which may be outside of our control, including general macroeconomic conditions; pricing pressures; changes in product costs from our vendor partners; the availability of price protection, purchase discounts and incentive programs from our vendor partners; changes in product, order size and customer mix; the risk of some items in our inventory becoming obsolete; increases in delivery costs that we cannot pass on to customers; and general market and competitive conditions.
In addition, our cost structure is based, in part, on anticipated sales and gross margins. Therefore, we may not be able to adjust our cost structure quickly enough to compensate for any unexpected sales or gross margin shortfall, and any such inability could have an adverse effect on our business, results of operations or cash flows.
Fluctuations in foreign currency have an effect on our reported results of operations.
Our exposure to fluctuations in foreign currency rates results primarily from the translation exposure associated with the preparation of our Consolidated Financial Statements. While our Consolidated Financial Statements are reported in U.S. dollars, the financial statements of our subsidiaries outside the U.S. are prepared using the local currency as the functional currency and translated into U.S. dollars. As a result, fluctuations in the exchange rate of the U.S. dollar relative to the local currencies of our international subsidiaries, particularly the British pound and the Canadian dollar, could cause fluctuations in our reported results of operations. We also have foreign currency exposure to the extent sales and purchases are not denominated in a subsidiary’s functional currency, such as sales and purchases in euros, which could have an adverse effect on our business, results of operations or cash flows.
We are exposed to risks from legal proceedings and audits.
We are party to various legal proceedings that arise in the ordinary course of our business, which include commercial, employment, tort and other litigation.
We are subject to intellectual property infringement claims against us in the ordinary course of our business, either because of the products and services we sell or the business systems and processes we use to sell such products and services, in the form of cease-and-desist letters, licensing inquiries, lawsuits and other communications and demands. In our industry, such intellectual property claims have become more frequent as the complexity of technological products and the intensity of competition in our industry have increased. Increasingly, many of these assertions are brought by non-practicing entities whose principal business model is to secure patent licensing revenue, but we may also be subject to suits from inventors, competitors or other patent holders who may seek licensing revenue, lost profits and/or an injunction preventing us from engaging in certain activities, including selling certain products and services.
Because of our significant sales to governmental entities, we also are subject to audits by federal, state, international, national, provincial and local authorities. We also are subject to audits by various vendor 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.
Current and future litigation, infringement claims, governmental proceedings and investigations, audits or indemnification claims that we face, including the SEC’s investigation of our vendor partner program incentives, may result in substantial costs and expenses and significantly divert the attention of our management regardless of the outcome. In addition, these matters could lead to increased costs or interruptions of our normal business operations. Litigation, infringement claims, governmental proceedings and investigations, audits or indemnification claims involve uncertainties and the eventual outcome of any such matter could adversely affect our business, results of operations or cash flows.

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Failure to comply with the laws and regulations applicable to our operations could adversely impact our business, results of operations or cash flows.
Our operations are subject to numerous U.S. and foreign laws and regulations in a number of areas including areas of labor and employment, advertising, e-commerce, tax, import and export requirements, anti-corruption, data privacy requirements, anti-competition, and environmental, health, and safety. Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business, and the risk of noncompliance. We have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, but there can be no guarantee against coworkers, contractors, or agents violating such laws and regulations or our policies and procedures. As a public company, we also are subject to increasingly complex public disclosure, corporate governance and accounting requirements that increase compliance costs and require significant management focus.
We have significant deferred cancellation of debt income.
As a result of a 2009 debt modification, we realized $395.5 million of cancellation of debt income (“CODI”). We made an election under Code Section 108(i) to defer this CODI from taxable income, pursuant to which we are also required to defer certain original issue discount (“OID”) deductions as they accrue. As of December 31, 2013, we had deferred approximately $114.5 million of OID deductions. Starting in 2014, we were required to include the deferred CODI and the deferred OID into taxable income ratably over a five-year period ending in 2018. Because we have more CODI than the aggregate of our deferred OID on the relevant remaining debt instruments, we will have a future cash tax liability associated with our significant deferred CODI. We have reflected the associated cash tax liability in our deferred taxes for financial accounting purposes.
All of our deferred CODI will be accelerated into current taxable income if, prior to 2018, we engage in a so-called “impairment transaction” and the gross value of our assets immediately afterward is less than 110% of the sum of our total liabilities and the tax on the net amount of our deferred CODI and OID (the “110% test”) as determined under the applicable Treasury Regulations. An “impairment transaction” is any transaction that impairs our ability to pay the tax on our deferred CODI, and includes dividends or distributions with respect to our equity and charitable contributions, in each case in a manner that is not consistent with our historical practice within the meaning of the applicable Treasury Regulations.
Prior to 2018, our willingness to pay dividends or make distributions with respect to our equity could be adversely affected if, at the time, we do not meet the 110% test and, as a result, the payment of a dividend or the making of a distribution would accelerate the tax payable with respect to our deferred CODI. We believe that, based on our interpretation of applicable Treasury Regulations, the gross value of our assets exceeds 110% of the sum of our total liabilities and the tax on the net amount of our deferred CODI and OID as of the filing date of this Annual Report on Form 10-K. However, we cannot assure you that this will continue to be true in the future.
Risks Related to Our Indebtedness
We have a substantial amount of indebtedness, which could have important consequences to our business.
We have a substantial amount of indebtedness. As of December 31, 2015, we had $3.3 billion of total long-term debt outstanding, as defined by GAAP, and $439.6 million of obligations outstanding under our inventory financing agreements, and the ability to borrow an additional $843.1 million under our senior secured asset-based revolving credit facility (the “Revolving Loan”) and an additional £50.0 million ($73.7 million) under our Kelway revolving credit facility (“Kelway Credit Facility”). Our substantial indebtedness could have important consequences, including the following:
making it more difficult for us to satisfy our obligations with respect to our indebtedness;
requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments on our and our subsidiaries’ debt, which reduces the funds available for working capital, capital expenditures, 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, including original equipment manufacturers and software publishers;
limiting our flexibility in planning for, or reacting to, changes in the industry in which we operate;
placing us at a competitive disadvantage compared to any of our less-leveraged competitors;

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increasing our vulnerability to both general and industry-specific adverse economic conditions; and
limiting our ability to obtain additional debt or equity financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements and increasing our cost of borrowing. 
Restrictive covenants under our senior credit facilities and, to a lesser degree, our indentures may adversely affect our operations and liquidity.
Our senior credit facilities and, to a lesser degree, our indentures contain, and any future indebtedness of ours may contain, various covenants that limit our ability to, among other things:
incur or guarantee additional debt;
pay dividends or make distributions to holders of our capital stock or to make certain other restricted payments or investments;
repurchase or redeem capital stock;
make loans, capital expenditures or investments or acquisitions;
receive dividends or other payments from our subsidiaries;
enter into transactions with affiliates;
create liens;
merge or consolidate with other companies or transfer all or substantially all of our assets;
transfer or sell assets, including capital stock of subsidiaries; and
prepay, repurchase or redeem debt.
As a result of these covenants, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities or finance future operations or capital needs. A breach of any of these covenants or any of the other restrictive covenants would result in a default under our senior credit facilities. Upon the occurrence of an event of default under our senior credit facilities, the lenders:
will not be required to lend any additional amounts to us;
could elect to declare all borrowings outstanding thereunder, together with accrued and unpaid interest and fees, to be due and payable; or
could require us to apply all of our available cash to repay these borrowings.
The acceleration of amounts outstanding under our senior credit facilities would likely trigger an event of default under our existing indentures.
If we were unable to repay those amounts, the lenders under our senior credit facilities could proceed against the collateral granted to them to secure our borrowings thereunder. We have pledged a significant portion of our assets as collateral under our senior credit facilities. If the lenders under our senior credit facilities accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay our senior credit facilities and our other indebtedness or the ability to borrow sufficient funds to refinance such indebtedness. Even if we were able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us.
In addition, under our Revolving Loan, we are permitted to borrow an aggregate amount of up to $1,250.0 million. However, our ability to borrow under our Revolving Loan is limited by a borrowing base and a liquidity condition. The borrowing base at any time equals the sum of up to 85% of CDW LLC and its subsidiary guarantors’ eligible accounts receivable (net of accounts reserves) (up to 30% of such eligible accounts receivable which can consist of federal government accounts receivable) plus the lesser of (i) 75% 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 by eligible inventory (valued at cost and net of inventory reserves), less reserves (other than accounts reserves and inventory reserves). The borrowing base in effect as of December 31, 2015 was $1,423.1 million, and therefore, did not restrict our ability to borrow under our Revolving Loan as of that date.

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Our ability to borrow under our Revolving Loan is also limited by a minimum liquidity condition, which provides that, if excess cash availability is less than the lesser of (i) $125.0 million and (ii) the greater of (A) 10% of the borrowing base and (B) $100.0 million, the lenders are not required to lend any additional amounts under our Revolving Loan unless the consolidated fixed charge coverage ratio (as defined in the credit agreement for our Revolving Loan) is at least 1.0 to 1.0. Moreover, our Revolving Loan provides discretion to the agent bank acting on behalf of the lenders to impose additional availability reserves, which could materially impair the amount of borrowings that would otherwise be available to us. We cannot assure you that the agent bank will not impose such reserves or, were it to do so, that the resulting impact of this action would not materially and adversely impair our liquidity.
We will be required to generate sufficient cash to service our indebtedness and, if not successful, we may be forced to take other actions to satisfy our obligations under our indebtedness.
Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. Our outstanding long-term debt will impose significant cash interest payment obligations on us and, accordingly, we will have to generate significant cash flow from operating activities to fund our debt service obligations. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. See “Management’s Discussion and Analysis of Financial Condition and Results 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, restructure or refinance our indebtedness, or revise or delay our strategic plan. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or satisfy our capital requirements, or that these actions would be permitted under the terms of our existing or future debt agreements, including our senior credit facilities and indentures. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our senior credit facilities restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds which we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. Furthermore, Madison Dearborn and Providence Equity have no obligation to provide us with debt or equity financing.
If we cannot make scheduled payments on our debt, we will be in default and, as a result:
our debt holders could declare all outstanding principal and interest to be due and payable;
the lenders under our senior credit facilities could foreclose against the assets securing the borrowings from them and the lenders under our Revolving Loan and Kelway Credit Facility could terminate their commitments to lend us money; and
we could be forced into bankruptcy or liquidation.
Despite our indebtedness levels, we and our subsidiaries may be able to incur substantially more debt, including secured debt. This could further increase the risks associated with our leverage.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of our senior credit facilities and indentures do not fully prohibit us or our subsidiaries from doing so. To the extent that we incur additional indebtedness or such other obligations, the risks associated with our substantial indebtedness described above, including our possible inability to service our debt, will increase. As of December 31, 2015, we had $843.1 million available for additional borrowing under our Revolving Loan after taking into account borrowing base limitations (net of $2.1 million of issued and undrawn letters of credit and $439.6 million of reserves related to our floorplan sub-facility) and an additional £50.0 million ($73.7 million) available under our Kelway Credit Facility.
Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Certain of our borrowings, primarily borrowings under our senior credit facilities, are at variable rates of interest and expose us to interest rate risk. As of December 31, 2015, we had $1,586.5 million of variable rate debt outstanding, $1,498.1 million of which is subject to a 1.0% LIBOR floor. If interest rates increase above 1% per annum, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease. Although we have entered into interest rate cap agreements on our term loan facility to reduce interest rate volatility, we

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cannot assure you we will be able to enter into interest rate cap agreements in the future on acceptable terms or that such caps or the caps we have in place now will be effective.
Risks Related to Ownership of Our Common Stock
Our common stock price may be volatile and may decline regardless of our operating performance, and holders of our common stock could lose a significant portion of their investment.
The market price for our common stock may be volatile. Our stockholders may not be able to resell their shares of common stock at or above the price at which they purchased such shares, due to fluctuations in the market price of our common stock, which may be caused by a number of factors, many of which we cannot control, including the risk factors described in this Annual Report on Form 10-K and the following:
changes in financial estimates by any securities analysts who follow our common stock, our failure to meet these estimates or failure of securities analysts to maintain coverage of our common stock;
downgrades by any securities analysts who follow our common stock;
future sales of our common stock by our officers, directors and significant stockholders, including Madison Dearborn and Providence Equity;
market conditions or trends in our industry or the economy as a whole;
investors’ perceptions of our prospects;
announcements by us or our competitors of significant contracts, acquisitions, joint ventures or capital commitments; and
changes in key personnel.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, including companies in our industry. In the past, securities class action litigation has followed periods of market volatility. If we were involved in securities litigation, we could incur substantial costs, and our resources and the attention of management could be diverted from our business.
Future sales or distributions of our common stock, or the perception in the public markets that these sales or distributions may occur, may depress our stock price.
Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares. As of February 19, 2016, there were 167,740,043 shares of our common stock outstanding. The shares of our common stock sold in our initial public offering and in registered secondary offerings 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, as that term is defined in the Securities Act, may be sold only in compliance with certain volume limitations and other restrictions of Rule 144 under the Securities Act.
The remaining shares of our common stock, to the extent not previously sold pursuant to an exemption from registration, will continue to be “restricted securities” within the meaning of Rule 144 under the Securities Act and subject to certain restrictions on resale. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144 under the Securities Act.
As of February 19, 2016, the holders of approximately 16,000,000 shares of our common stock, including Madison Dearborn and Providence Equity, will continue to have the right to require us to register the sales of such shares under the Securities Act, under the terms of an agreement between us and the holders. As of February 19, 2016, Madison Dearborn beneficially owned approximately 4.9% of our common stock and Providence Equity beneficially owned approximately 4.3% of our common stock.  Madison Dearborn and Providence Equity are permitted to distribute all or a portion of the shares of common stock that they hold in one or more pro rata distributions to their respective limited partners, and the recipients of the shares would generally be permitted to sell the shares immediately pursuant to Rule 144 under the Securities Act.  A distribution of shares by Madison Dearborn or Providence Equity, and the subsequent sale of shares by the recipients, or the perception that such a distribution and subsequent sale of shares might occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares.

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In the future, we may also issue our securities in connection with investments or acquisitions. The number of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock.
Anti-takeover provisions in our charter documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of the Company more difficult without the approval of our Board of Directors. These provisions:
authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock;
establish a classified Board of Directors so that not all members of our Board of Directors are elected at one time;
generally prohibit stockholder action by written consent, requiring all stockholder actions be taken at a meeting of our stockholders;
provide that special meetings of the stockholders can only be called by or at the direction of our Board of Directors pursuant to a written resolution adopted by the affirmative vote of the majority of the total number of directors that the Company would have if there were no vacancies;
establish advance notice requirements for nominations for elections to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and
provide that our Board of Directors is expressly authorized to make, alter or repeal our amended and restated bylaws.
Our amended and restated certificate of incorporation also contains a provision that provides us with protections similar to Section 203 of the Delaware General Corporation Law, and will prevent us from engaging in a business combination with a person who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock, unless board or stockholder approval is obtained prior to the acquisition. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of the Company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for our stockholders to elect directors of their choosing and to cause us to take other corporate actions our stockholders desire.
Conflicts of interest may arise because some of our directors are principals of Madison Dearborn and Providence Equity.
Paul Finnegan and Robin Selati, who are principals of Madison Dearborn, and Glenn Creamer and Michael Dominguez, who are managing directors of Providence Equity, serve on our Board of Directors. Madison Dearborn, Providence Equity and the entities respectively controlled by them may hold equity interests in entities that directly or indirectly compete with us, and companies in which they currently invest may begin competing with us. As a result of these relationships, when conflicts arise between the interests of Madison Dearborn or Providence Equity, on the one hand, and of other stockholders, on the other hand, these directors may not be disinterested. Although our directors and officers have a duty of loyalty to us under Delaware law and our amended and restated certificate of incorporation, transactions that we enter into in which a director or officer has a conflict of interest are generally permissible so long as (1) the material facts relating to the director’s or officer’s relationship or interest as to the transaction are disclosed to our Board of Directors and a majority of our disinterested directors approves the transaction, (2) the material facts relating to the director’s or officer’s relationship or interest as to the transaction are disclosed to our stockholders and a majority of our disinterested stockholders approve the transaction or (3) the transaction is otherwise fair to us. Our amended and restated certificate of incorporation also provides that any principal, officer, member, manager and/or employee of Madison Dearborn or Providence Equity or any entity that controls, is controlled by or under common control with Madison Dearborn or Providence Equity (other than us or any company that is controlled by us) or an investment fund managed by Madison Dearborn or Providence Equity will not be required to offer any transaction opportunity of which they become aware to us and could take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is offered to them solely in their capacities as our directors.

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We cannot assure you that we will continue to pay dividends on our common stock or repurchase any of our common stock under our share repurchase program, and our indebtedness and certain tax considerations could limit our ability to continue to pay dividends on, or make share repurchases of, our common stock. If we do not continue to pay dividends, you may not receive any return on investment unless you are able to sell your common stock for a price greater than your purchase price.
We expect to continue to pay a cash dividend on our common stock of $0.1075 per share per quarter, or $0.43 per share per annum. However, any determination to pay dividends in the future will be at the discretion of our Board of Directors. Any determination to pay dividends on, or repurchase, shares of our common stock in the future 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 our Board of Directors deems relevant. In addition, our ability to pay dividends on, or repurchase, shares of 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. There can be no assurance that we will continue to pay a dividend at the current rate or at all or that we will repurchase shares of our common stock. If we do not pay dividends in the future, realization of a gain on your investment will depend entirely on the appreciation of the price of our common stock, which may never occur. See “--Risks Related to Our Business--We have significant deferred cancellation of debt income” for a discussion of certain tax considerations that could affect our willingness to pay dividends in the future.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our obligations.
We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash dividends and distributions and other transfers from our subsidiaries to meet our obligations. The agreements governing the indebtedness of our subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could also limit or impair their ability to pay dividends or other distributions to us.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2015, we owned or leased a total of 2.5 million square feet of space, primarily in the U.S., Canada and United Kingdom. We own two properties: a combined office and a 442,000 square foot distribution center in Vernon Hills, Illinois and a 513,000 square foot distribution center in North Las Vegas, Nevada. In addition, we conduct sales, services and administrative activities in various leased locations primarily in the U.S., Canada and United Kingdom, including data centers in Madison, Wisconsin, Minneapolis, Minnesota and the United Kingdom.
We believe our facilities are well maintained, suitable for our business and occupy sufficient space to meet our operating needs. As part of our normal business, we regularly evaluate sales center performance and site suitability. Leases covering our currently occupied leased properties expire at varying dates, generally within the next ten years. We anticipate no difficulty in retaining occupancy through lease renewals, month-to-month occupancy or replacing the leased properties with equivalent properties. We believe that suitable additional or substitute leased properties will be available as required.
Item 3. Legal Proceedings
We are party to various legal proceedings that arise in the ordinary course of our business, which include commercial, intellectual property, employment, tort and other litigation matters. We are 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, we are subject to indemnification claims under various contracts. From time to time, certain of our customers file voluntary petitions for reorganization or liquidation under the U.S. bankruptcy laws or similar laws of the jurisdictions for our business activities outside of the United States. In such cases, certain pre-petition payments received by us could be considered preference items and subject to return to the bankruptcy administrator.
On October 29, 2015, the Company received a request for production of documents in connection with an investigation by the SEC of the Company’s vendor partner program incentives. The Company has produced documents to the SEC and is continuing to cooperate with the SEC in this matter.
As of December 31, 2015, we do 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

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these proceedings and matters are inherently unpredictable. As such, our 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.
Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers
Name
Age
Position
Thomas E. Richards
61

Chairman, President and Chief Executive Officer, and Director
Dennis G. Berger
51

Senior Vice President and Chief Coworker Services Officer
Neal J. Campbell
54

Senior Vice President and Chief Marketing Officer
Christina M. Corley
48

Senior Vice President - Corporate Sales
Douglas E. Eckrote
51

Senior Vice President - Strategic Solutions and Services
Christine A. Leahy
51

Senior Vice President - International, Chief Legal Officer and Corporate Secretary
Christina V. Rother
52

Senior Vice President - Public and Advanced Technology Sales
Jonathan J. Stevens
46

Senior Vice President - Operations and Chief Information Officer
Matthew A. Troka
45

Senior Vice President - Product and Partner Management
Ann E. Ziegler
57

Senior Vice President and Chief Financial Officer
Thomas E. Richards serves as our Chairman, President and Chief Executive Officer, as a member of our board of directors and as a manager of CDW LLC, our wholly owned subsidiary. Mr. Richards has served as our President and Chief Executive Officer since October 2011 and was named Chairman on January 1, 2013. From 2009 to 2011, Mr. Richards served as our President and Chief Operating Officer. Prior to joining CDW, Mr. Richards held leadership positions with Qwest Communications International Inc. (“Qwest”), a broadband Internet-based communications company. From 2008 to 2009, he served as Executive Vice President and Chief Operating Officer, where he was responsible for the day-to-day operation and performance of Qwest, and before assuming that role, was the Executive Vice President of the Business Markets Group from 2005 to 2008. Mr. Richards also has served as Chairman and Chief Executive Officer of Clear Communications Corporation and as Executive Vice President of Ameritech Corporation. Mr. Richards serves as a board member of The Northern Trust Corporation, Junior Achievement of Chicago, Rush University Medical Center and the University of Pittsburgh. Mr. Richards also is a member of the Economic Club of Chicago and the Executives’ Club of Chicago. Mr. Richards is a graduate of the University of Pittsburgh where he earned a bachelor’s degree and a graduate of Massachusetts Institute of Technology where he earned a Master of Science in Management as a Sloan Fellow.
Dennis G. Berger serves as our Senior Vice President and Chief Coworker Services Officer. Mr. Berger joined CDW in 2005 as Vice President-Coworker Services. In 2007, he was named Senior Vice 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 at PepsiAmericas, a beverage company, from 2002 to 2005. Mr. Berger has also held human resources positions of increasing responsibility at Pepsi Bottling Group, Inc., Pepsico, Inc. and GTE Corporation. Mr. Berger serves on the board of directors of Glenwood Academy, the Anti-Defamation League of Chicago and Skills for Chicagoland’s Future. Mr. Berger is a graduate of Northeastern University where he earned a bachelor’s degree and a graduate of John M. Olin School of Business at Washington University in St. Louis where he earned a Master of Business Administration.
Neal J. Campbell serves as our Senior Vice President and Chief Marketing Officer. Mr. Campbell joined CDW in 2011, and is responsible for the strategy and development of CDW’s advertising, public relations, channel marketing, marketing intelligence and research, merchandising, microsites, creative services and direct marketing content, along with relationship marketing, corporate communications and e-commerce initiatives including content development, online marketing and e-procurement. Prior to joining CDW, Mr. Campbell served as Chief Executive Officer of TrafficCast, a provider of real-time and predictive traffic information to Google, Yahoo and others from 2008 to 2011. From 2006 to 2008, he served as Executive Vice President and General Manager-Strategic Marketing and Next Generation Products for ISCO International, a manufacturer of wireless telecommunications components. Mr. Campbell also spent 17 years with Motorola, most recently as Vice President and General Manager, GSM Portfolio Marketing and Planning for the company’s mobile device business. He currently serves as a board member of Junior Achievement of Chicago, and is on the Executive Advisory Council of Bradley University. During the previous five years, Mr. Campbell served on the board of directors of TrafficCast. Mr. Campbell is a graduate of Bradley University where he earned a bachelor’s degree and a graduate of Northwestern University’s Kellogg School of Management where he earned a Master of Business Administration.

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Christina M. Corley serves as our Senior Vice President - Corporate Sales and is responsible for managing all aspects of our corporate sales force, including sales force strategy, structure, goals, operations, revenue generation and training and development. Prior to joining CDW in 2011, Ms. Corley served as President and Chief Operating Officer of Zones, Inc., a provider of IT products and solutions, from 2006 to 2011. She served as Executive Vice President of Purchasing and Operations for Zones, Inc. from 2005 to 2006. She served as President of Corporate PC Source (“CPCS”), a wholly owned subsidiary of Zones, Inc., from 2003 to 2005. Prior to its acquisition by Zones, Inc., Ms. Corley served as Chief Executive Officer of CPCS from 1999 to 2003. Ms. Corley began her career in sales and marketing, holding various positions at IBM, Dataflex and VisionTek. She currently serves as a board member of the Boys and Girls Club of Chicago. Ms. Corley is a graduate of the University of Illinois at Urbana-Champaign where she earned a bachelor’s degree and a graduate of Northwestern University’s Kellogg School of Management where she earned a Master of Business Administration in management and strategy.
Douglas E. Eckrote serves as our Senior Vice President - 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. Through the end of 2015, Mr. Eckrote had responsibility for CDW Canada. Mr. Eckrote joined CDW in 1989 as an account manager. Mr. Eckrote was appointed Director of Operations in 1996, Vice President of Operations in 1999 and Senior Vice President of Purchasing in 2001. In 2001, he was named Senior Vice President of Purchasing and Operations. He was named Senior Vice President of Operations, Services and Canada in 2006 and assumed his current role in 2009. Prior to joining CDW, Mr. Eckrote worked in outside sales for Arrow Electronics and Cintas Uniform Company. Mr. Eckrote currently serves on the Board of Directors of The Northern Illinois Food Bank, the Board of Trustees of The Center for Enriched Living and the Board of Trustees of Westlake Christian Academy. Mr. Eckrote is a graduate of Purdue University where he earned a bachelor’s degree and a graduate of Northwestern University’s Kellogg School of Management where he earned an Executive Master of Business Administration.
Christine A. Leahy serves as our Senior Vice President - International, Chief Legal Officer and Corporate Secretary and is responsible for our international growth platform, including CDW Canada and Kelway, CDW’s U.K.-based technology solutions provider with locations in Europe, the Middle East, Africa and Asia. In addition, she is responsible for the legal, corporate governance, enterprise risk management and compliance functions. Ms. Leahy joined CDW in 2002 as the Company’s first general counsel. Prior to that, Ms. Leahy served as a corporate partner in the Chicago office of Sidley Austin LLP where she specialized in mergers and acquisitions, strategic counseling, corporate governance and securities law. Ms. Leahy serves as Vice Chair of the board of trustees of Children’s Home and Aid. She also is a member of the Economic Club of Chicago and The Chicago Network. In addition, she is a founder and current sponsor of CDW's Women’s Opportunity Network, a business resource group dedicated to helping women advance and grow into tomorrow’s leaders. Ms. Leahy is a graduate of Brown University where she earned a bachelor’s degree and a graduate of Boston College Law School where she earned her Juris Doctor. She also completed the CEO Perspective and Women’s Director Development Programs at Northwestern University’s Kellogg School of Management.
Christina V. Rother serves as our Senior Vice President - Public and Advanced Technology Sales and is responsible for managing all aspects of our public sector and advanced technology sales forces, including sales force strategy, structure, goals, operations, revenue generation and training and development. Ms. Rother joined CDW in 1991 as an account manager. In 2002, she was appointed Vice President for Education and State and Local Sales. In 2005, she was chosen to lead our newly formed healthcare sales team. Beginning in 2006, Ms. Rother has held various positions ranging from Group Vice President of CDW Government LLC, President of CDW Government LLC and Senior Vice President of Sales. In September 2011, Ms. Rother assumed her current role as Senior Vice President of Public and Advanced Technology Sales. Prior to joining CDW, Ms. Rother held a number of sales positions with technology companies including Laser Computers and Price Electronics. Ms. Rother currently serves as chair of the board of directors of the Make-A-Wish Foundation of Illinois. Ms. Rother is a graduate of the University of Illinois at Chicago where she earned a bachelor’s degree.
Jonathan J. Stevens serves as our Senior Vice President - Operations and Chief Information Officer. Mr. Stevens joined CDW in 2001 as Vice President-Information Technology, was named Chief Information Officer in 2002 and Vice President-International and Chief Information Officer from 2005 until 2006. In 2007, he was named Senior Vice President and Chief Information Officer and assumed his current role in 2009. Mr. Stevens is responsible for the strategic direction of our information technology. Additionally, he holds responsibility for our distribution centers, transportation, facilities, customer relations and operational excellence practices. Prior to joining CDW, Mr. Stevens served as regional technology director for Avanade, an international technology integration company formed through a joint venture between Microsoft and Accenture from 2000 to 2001. Prior to that, Mr. Stevens was a principal with Microsoft Consulting Services and led an information technology group for a corporate division of AT&T/NCR. He currently serves on the board of directors of SingleWire Software, LLC. Mr. Stevens is a graduate of the University of Dayton where he earned a bachelor’s degree.
Matthew A. Troka serves as our Senior Vice President - Product and Partner Management. Mr. Troka is responsible for managing our relationships with all of our vendor partners. In addition, he directs the day-to-day operations of our purchasing department. Mr. Troka joined CDW in 1992 as an account manager and became a sales manager in 1995. From 1998 to 2001, he

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served as Corporate Sales Director. From 2001 to 2004, Mr. Troka was Senior Director of Purchasing. From 2004 to 2006, Mr. Troka served as Vice President of Purchasing. From 2006 to 2011, Mr. Troka was Vice President of Product and Partner Management. In 2011, Mr. Troka was elected Senior Vice President of Product and Partner Management. Mr. Troka is a graduate of the University of Illinois where he earned a bachelor’s degree.
Ann E. Ziegler serves as our Senior Vice President and Chief Financial Officer. Prior to joining CDW in 2008, 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 U.S. and international businesses. Most recently, from 2005 until 2008, Ms. Ziegler served as Chief Financial Officer and Senior Vice President of Administration for Sara Lee Food and Beverage. Prior to joining Sara Lee, Ms. Ziegler was a corporate attorney at Skadden, Arps, Slate, Meagher & Flom. Ms. Ziegler serves on the boards of directors of Hanesbrands, Inc., Groupon, Inc. and the board of governors of the Smart Museum of Art of the University of Chicago. During the previous five years, Ms. Ziegler also served on the board of directors of Unitrin, Inc. Ms. Ziegler is a graduate of The College of William and Mary where she earned a bachelor’s degree and a graduate of the University of Chicago Law School where she earned her Juris Doctor.

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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock has been listed on the NASDAQ Global Select Market since June 27, 2013 under the symbol “CDW.” Prior to that date, there was no public market for our common stock. Shares sold in our initial public offering (“IPO”) were priced at $17.00 per share on June 26, 2013. The following table sets forth the ranges of high and low sales prices per share of our common stock as reported on the NASDAQ Global Select Market and the cash dividends per share of common stock declared for the two most recent fiscal years.
 
 
Year Ended December 31,
 
 
2015
 
2014
 
 
High
 
Low
 
Dividends Declared per Share
 
High
 
Low
 
Dividends Declared per Share
Fourth quarter
 
$
46.92

 
$
40.07

 
$
0.1075

 
$
36.08

 
$
27.59

 
$
0.0675

Third quarter
 
$
41.99

 
$
33.01

 
$
0.0675

 
$
33.80

 
$
30.07

 
$
0.0425

Second quarter
 
$
39.32

 
$
34.19

 
$
0.0675

 
$
32.41

 
$
26.70

 
$
0.0425

First quarter
 
$
38.44

 
$
33.21

 
$
0.0675

 
$
27.53

 
$
22.72

 
$
0.0425

Holders
As of February 19, 2016, there were 59 holders of record of our common stock. The number of beneficial stockholders is substantially greater than the number of holders of record because a portion of our common stock is held through brokerage firms.
Dividends
On February 9, 2016, we announced that our Board of Directors declared a quarterly cash dividend on our common stock of $0.1075 per share. The dividend will be paid on March 10, 2016 to all stockholders of record as of the close of business on February 25, 2016.
We expect to continue to pay quarterly cash dividends on our common stock in the future, but such payments remain 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. For a discussion of our cash resources and needs and restrictions on our ability to pay dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included elsewhere in this report. For additional discussion of restrictions on our ability to pay dividends, see Note 8 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
Issuer Purchases of Equity Securities
Information relating to our purchases of our common stock during the quarter ended December 31, 2015 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 (1) (in millions)
 
Maximum Dollar Value of Shares that May Yet be Purchased Under the Program (2) (in millions)
October 1 through October 31, 2015
 

 
$

 

 
$
306.7

November 1 through November 30, 2015
 
1.1

 
$
43.77

 
1.1

 
$
258.7

December 1 through December 31, 2015
 

 
$

 

 
$
258.7

Total
 
1.1

 
$
43.77

 
1.1

 
 
(1)
On November 30, 2015, we completed a public offering of 9.2 million shares of our common stock by certain selling stockholders, which included 1.2 million shares sold by the selling stockholders to the underwriters pursuant to the grant of an option that was exercised in full. We did not receive any proceeds from the sale of these shares. Subsequent to the

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completion of this offering, we purchased from the underwriters 1.0 million of the shares of our common stock that were subject to the offering at a price per share equal to the price paid by the underwriters to the selling stockholders in the offering. All other share repurchases during the period were made through the open market.
(2)
On November 6, 2014, we announced that the Board of Directors approved a $500 million share repurchase program, which became effective immediately, under which we may repurchase shares of our common stock in the open market or through privately negotiated transactions, depending on share price, market conditions and other factors. The share repurchase program does not obligate us to repurchase any dollar amount or number of shares and repurchases may be commenced or suspended from time to time without prior notice.
Stock Performance Graph
The information contained in this Stock Performance Graph section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.
The following graph compares the cumulative total shareholder return, calculated on a dividend reinvested basis, on $100.00 invested at the opening of the market on June 27, 2013, the date our common stock first traded on the NASDAQ Global Select Market, through and including the market close on December 31, 2015, with the cumulative total return for the same time period of the same amount invested in the S&P MidCap 400 index and a peer group index. Our peer group index for 2015 consists of the following companies: Accenture plc, Anixter International, Inc., Arrow Electronics, Inc., Avnet, Inc., CGI Group Inc., Genuine Parts Company, Henry Schein, Inc., Insight Enterprises, Inc., Owens & Minor, Inc., Patterson Companies, Inc., SYNNEX Corporation, United Stationers Inc., W.W. Grainger, Inc. and Wesco International, Inc. This peer group was selected based on a review of publicly available information about these companies and our determination that they met one or more of the following criteria: (i) similar size in terms of revenue and/or enterprise value (one-third to three times our revenue or enterprise value); (ii) 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 over the indicated period are based on historical data and should not be considered indicative of future shareholder returns.

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June 27, 2013
 
December 31, 2013
 
December 31, 2014
 
December 31, 2015
CDW Corp
 
$
100

 
$
138

 
$
209

 
$
249

S&P MidCap 400 index
 
$
100

 
$
118

 
$
130

 
$
127

CDW Peers
 
$
100

 
$
111

 
$
125

 
$
130

Recent Sales of Unregistered Securities
None.
Use of Proceeds from Registered Securities
None.
Item 6. Selected Financial Data
The selected financial data set forth below are not necessarily indicative of the results of future operations and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the related notes.
We have derived the selected financial data presented below as of December 31, 2015 and December 31, 2014 and for the years ended December 31, 2015, 2014 and 2013 from our Consolidated Financial Statements and related notes. The selected financial data as of December 31, 2012 and December 31, 2011 have been derived from our Consolidated Financial Statements as of and for those periods and are not included in this report.

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Years Ended December 31,
(dollars and shares in millions, except per share amounts)
 
2015(5)
 
2014
 
2013
 
2012
 
2011
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
12,988.7

 
$
12,074.5

 
$
10,768.6

 
$
10,128.2

 
$
9,602.4

Cost of sales
 
10,872.9

 
10,153.2

 
9,008.3

 
8,458.6

 
8,018.9

Gross profit
 
2,115.8

 
1,921.3

 
1,760.3

 
1,669.6

 
1,583.5

Selling and administrative expenses
 
1,226.0

 
1,110.3

 
1,120.9

 
1,029.5

 
990.1

Advertising expense
 
147.8

 
138.0

 
130.8

 
129.5

 
122.7

Income from operations
 
742.0

 
673.0

 
508.6

 
510.6

 
470.7

Interest expense, net
 
(159.5
)
 
(197.3
)
 
(250.1
)
 
(307.4
)
 
(324.2
)
Net loss on extinguishments of long-term debt
 
(24.3
)
 
(90.7
)
 
(64.0
)
 
(17.2
)
 
(118.9
)
Gain on remeasurement of equity investment
 
98.1

 

 

 

 

Other income (expense), net
 
(9.3
)
 
2.7

 
1.0

 
0.1

 
0.7

Income before income taxes
 
647.0

 
387.7

 
195.5

 
186.1

 
28.3

Income tax expense
 
(243.9
)
 
(142.8
)
 
(62.7
)
 
(67.1
)
 
(11.2
)
Net income
 
$
403.1

 
$
244.9

 
$
132.8

 
$
119.0

 
$
17.1

Net income per common share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
2.37

 
$
1.44

 
$
0.85

 
$
0.82

 
$
0.12

Diluted
 
$
2.35

 
$
1.42

 
$
0.84

 
$
0.82

 
$
0.12

 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$
0.3100

 
$
0.1950

 
$
0.0425

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
Balance Sheet Data (at period end):
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
37.6

 
$
344.5

 
$
188.1

 
$
37.9

 
$
99.9

Working capital
 
903.5

 
985.4

 
810.9

 
666.5

 
538.1

Total assets
 
6,755.3

 
6,075.9

 
5,899.3

 
5,673.5

 
5,907.9

Total debt and capitalized lease obligations (1)(2)
 
3,262.9

 
3,166.1

 
3,226.0

 
3,724.5

 
4,006.2

Total stockholders’ equity (deficit)
 
1,095.9

 
936.5

 
711.7

 
136.5

 
(7.3
)
 
 
 
 
 
 
 
 
 
 
 
Other Financial Data:
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
$
90.1

 
$
55.0

 
$
47.1

 
$
41.4

 
$
45.7

Gross profit as a percentage of net sales
 
16.3
%
 
15.9
%
 
16.3
%
 
16.5
%
 
16.5
%
EBITDA (3)
 
$
1,033.9

 
$
792.9

 
$
653.8

 
$
703.7

 
$
557.4

Adjusted EBITDA (3)
 
1,018.5

 
907.0

 
808.5

 
766.6

 
717.3

Non-GAAP net income (4)
 
503.5

 
409.9

 
314.3

 
247.1

 
198.8

 
 
 
 
 
 
 
 
 
 
 
Statement of Cash Flows Data:
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in):
 
 
 
 
 
 
 
 
 
 
Operating activities
 
$
277.5

 
$
435.0

 
$
366.3

 
$
317.4

 
$
214.7

Investing activities
 
(354.4
)
 
(164.8
)
 
(47.1
)
 
(41.7
)
 
(56.0
)
Financing activities
 
(226.5
)
 
(112.0
)
 
(168.3
)
 
(338.0
)
 
(95.4
)
 
(1)
Excludes borrowings of $439.6 million, $332.1 million, $256.6 million, $249.2 million and $278.7 million, as of December 31, 2015, 2014, 2013, 2012, and 2011, respectively, under our inventory financing agreements. We do not include these borrowings in total debt because we have not in the past incurred, and in the future do not expect to incur, any interest expense or late fees under these agreements.

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(2)
Includes capitalized lease obligations of $3.2 million and $0.1 million as of December 31, 2015 and 2014, respectively, which are included in Other liabilities on the Consolidated Balance Sheet.
(3)
EBITDA is defined as consolidated net income before interest expense, 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 below. We have included a reconciliation of EBITDA and Adjusted EBITDA in the table below. Both EBITDA and Adjusted EBITDA are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows 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 us may differ from similar measures used by other companies, even when similar terms are used to identify such measures.
We believe that EBITDA and Adjusted EBITDA provide helpful information with respect to our operating performance and cash flows including our ability to meet our future debt service, capital expenditures and working capital requirements. Adjusted EBITDA is also the primary measure used in certain key covenants and definitions contained in the credit agreement governing our Senior Secured Term Loan Facility (“Term Loan”), including the excess cash flow payment provision, the restricted payment covenant and the net leverage ratio. These covenants and definitions are material components of the Term Loan as they are used in determining the interest rate applicable to the Term Loan, 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 8 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
The following unaudited table sets forth reconciliations of net income to EBITDA and EBITDA to Adjusted EBITDA for the periods presented:
 
 
Years Ended December 31,
(in millions)
 
2015
 
2014
 
2013
 
2012
 
2011
Net income
 
$
403.1

 
$
244.9

 
$
132.8

 
$
119.0

 
$
17.1

Depreciation and amortization
 
227.4

 
207.9

 
208.2

 
210.2

 
204.9

Income tax expense
 
243.9

 
142.8

 
62.7

 
67.1

 
11.2

Interest expense, net
 
159.5

 
197.3

 
250.1

 
307.4

 
324.2

EBITDA
 
1,033.9

 
792.9

 
653.8

 
703.7

 
557.4

 
 
 
 
 
 
 
 
 
 
 
Non-cash equity-based compensation
 
31.2

 
16.4

 
8.6

 
22.1

 
19.5

Net loss on extinguishment of long-term debt(a)
 
24.3

 
90.7

 
64.0

 
17.2

 
118.9

Loss (income) from equity investments(b)
 
10.1

 
(2.2
)
 
(0.6
)
 
(0.3
)
 
(0.1
)
Acquisition and integration expenses(c)
 
10.2

 

 

 

 

Gain on remeasurement of equity investment(d)
 
(98.1
)
 

 

 

 

Other adjustments(e)
 
6.9

 
9.2

 
82.7

 
23.9

 
21.6

Adjusted EBITDA(f)
 
$
1,018.5

 
$
907.0

 
$
808.5

 
$
766.6

 
$
717.3

(a)
During the years ended December 31, 2015, 2014, 2013, 2012, and 2011, we recorded net losses on extinguishments of long-term debt. The losses represented the difference between the amount paid upon extinguishment, including call premiums and expenses paid to the debt holders and agents, and the net carrying amount of the extinguished debt, adjusted for a portion of the unamortized deferred financing costs.
(b)
Represents our share of net income/loss from our equity investments. Our 35% share of Kelway’s net loss includes our 35% share of an expense related to certain equity awards granted by one of the sellers to Kelway coworkers in July 2015 prior to the acquisition.
(c)
Primarily includes expenses related to the acquisition of Kelway.
(d)
Represents the gain resulting from the remeasurement of our previously held 35% equity investment to fair value upon the completion of the acquisition of Kelway.

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(e)
Other adjustments primarily include certain historical retention costs, unusual, non-recurring litigation matters, secondary-offering-related expenses and expenses related to the consolidation of office locations north of Chicago. During the year ended December 31, 2013, we recorded IPO- and secondary-offering related expenses of $75.0 million. For additional information on the IPO- and secondary-offering related expenses, see Note 10 (Stockholder’s Equity) to the accompanying Consolidated Financial Statements.
(f)
Includes the impact of consolidating five months for the year ended December 31, 2015 of Kelway’s financial results.
(4)
Non-GAAP net income excludes, among other things, charges related to the amortization of acquisition-related intangible assets, non-cash equity-based compensation, acquisition and integration expenses, and gains and losses from the extinguishment of long-term debt. Non-GAAP net income is considered a non-GAAP financial measure. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows 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 us may differ from similar measures used by other companies, even when similar terms are used to identify such measures. We believe that non-GAAP net income provides meaningful information regarding our operating performance and cash flows including our ability to meet our future debt service, capital expenditures and working capital requirements.
The following unaudited table sets forth a reconciliation of net income to non-GAAP net income for the periods presented:
 
 
Years Ended December 31,
(in millions)
 
2015
 
2014
 
2013
 
2012
 
2011
Net income
 
$
403.1

 
$
244.9

 
$
132.8

 
$
119.0

 
$
17.1

Amortization of intangibles (a)
 
173.9

 
161.2

 
161.2

 
163.7

 
165.7

Non-cash equity-based compensation
 
31.2

 
16.4

 
8.6

 
22.1

 
19.5

Non-cash equity-based compensation related to equity investment(b)
 
20.0

 

 

 

 

Net loss on extinguishments of long-term debt
 
24.3

 
90.7

 
64.0

 
17.2

 
118.9

Acquisition and integration expenses(c)
 
10.2

 

 

 

 

Gain on remeasurement of equity investment(d)
 
(98.1
)
 

 

 

 

Other adjustments(e)
 
3.7

 
(0.3
)
 
61.2

 
(3.3
)
 
(15.6
)
Aggregate adjustment for income taxes (f)
 
(64.8
)
 
(103.0
)
 
(113.5
)
 
(71.6
)
 
(106.8
)
Non-GAAP net income(g)
 
$
503.5

 
$
409.9

 
$
314.3

 
$
247.1

 
$
198.8

(a)
Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.
(b)
Represents our 35% share of an expense related to certain equity awards granted by one of the sellers to Kelway coworkers in July 2015 prior to our acquisition of Kelway.
(c)
Primarily includes expenses related to the acquisition of Kelway.
(d)
Represents the gain resulting from the remeasurement of our previously held 35% equity investment to fair value upon the completion of the acquisition of Kelway.
(e)
Primarily includes expenses related to the consolidation of office locations north of Chicago and secondary-offering-related expenses. Amount in 2013 primarily relates to IPO- and secondary-offering related expenses.
(f)
Based on a normalized effective tax rate of 38.0% (39.0% prior to the Kelway acquisition), except for the non-cash equity-based compensation from our equity investment and the gain resulting from the remeasurement of our previously held 35% equity investment to fair value upon the completion of the acquisition of Kelway, which were tax effected at a rate of 35.4%. The aggregate adjustment for income taxes also includes a $4.0 million deferred tax benefit recorded during the three months and year ended December 31, 2015 as a result of a tax rate reduction in the United Kingdom and additional tax expense during the year ended December 31, 2015 of $3.3 million as a result of recording withholding tax on the unremitted earnings of our Canadian subsidiary. Additionally, note that certain acquisition costs are non-deductible.

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(g)
Includes the impact of consolidating five months for the year ended December 31, 2015 of Kelway’s financial results.
(5)
Includes the impact of consolidating five months for the year ended December 31, 2015 of Kelway’s financial results.
Item 7. 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 Discussion and Analysis of Financial Condition and Results of Operations,” the terms “we,” “us,” “the Company,” “our,” “CDW” and similar terms refer to CDW Corporation and its subsidiaries. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this report. 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” above.
Overview
CDW is a Fortune 500 company and a leading provider of integrated information technology (“IT”) solutions in North America and the United Kingdom. We help our customer base of over 250,000 small, medium and large 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 computing, virtualization and collaboration. We are technology “agnostic,” with a product portfolio including more than 100,000 products from more than 1,000 brands. We provide our products and solutions through more than 5,000 customer-facing coworkers, including field sellers, highly-skilled technology specialists and advanced service delivery engineers.
We are a leading sales channel partner in North America and the United Kingdom for many original equipment manufacturers (“OEMs”) and software publishers (collectively, our “vendor partners”), whose products we sell or include in the solutions we offer. We believe we are an important extension of our vendor partners’ sales and marketing capabilities, providing them with a cost-effective way to reach customers and deliver a consistent brand experience through our established end-market coverage and extensive customer access.
On August 1, 2015, we completed the acquisition of Kelway TopCo Limited (“Kelway”) by purchasing the remaining 65% of its outstanding common stock which increased our ownership interest from 35% to 100%, and provided us control. Kelway is a U.K.-based IT solutions provider, which has global supply chain relationships that enable it to conduct business in more than 80 countries. This investment strengthens our ability to provide a more comprehensive solution to our customers and enhances our ability to serve our existing multi-national customers. We included the financial results of Kelway in our Consolidated Financial Statements from the date of acquisition. For additional information relating to the acquisition, see Note 3 (Acquisition) to our Consolidated Financial Statements.
We have two reportable segments: Corporate, which is comprised primarily of private sector business customers in the U.S., and Public, which is comprised of government agencies and education and healthcare institutions in the U.S. Our Corporate segment is divided into a medium/large business customer channel, primarily serving customers with more than 100 employees, and a small business customer channel, primarily serving customers with up to 100 employees. We also have three other operating segments: CDW Advanced Services; Canada; and Kelway, each of which do not meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category (“Other”). For additional information relating to Kelway, see Note 3 (Acquisition) to these Consolidated Financial Statements. The CDW Advanced Services business consists primarily of customized engineering services delivered by technology specialists and engineers, and managed services that include Infrastructure as a Service (“IaaS”) offerings. Effective January 1, 2016, the CDW Advanced Services business will be included in our Corporate and Public segments and Other will be comprised of Canada and Kelway. Revenues in the U.S. from the sale of hardware, software, custom configuration and third-party provided services are recorded within our Corporate and Public segments.
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 is 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.

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Trends and Key Factors Affecting our Financial Performance
We believe the following trends may have an important impact on our financial performance:
Our Public segment sales are impacted by government spending policies, budget priorities and revenue levels. An adverse change in any of these factors could cause our Public segment customers to reduce their purchases or to terminate or not renew contracts with us, which could adversely affect our business, results of operations or cash flows. For the year ended December 31, 2015, sales to federal customers increased year-over-year in the mid-teens as we continued to benefit from strategic changes made to better align with new federal government purchasing programs implemented last year. During the same period, sales to state and local customers also increased year-over-year in the mid-teens, driven by the continued focus on public safety. Meeting K-12 customer digital curriculum testing needs through sales of client devices was a significant contributor to education sales throughout 2014 and into early 2015. Education sales decreased slightly in 2015 as a decline in K-12 client device sales was partially offset by an increase in netcomm sales. In 2015, we were named as provider on both the largest number of applications and the largest dollar amounts requested for funds by K-12 customers to support internal connections for the 2014-2015 program year of the U.S. Federal Communications Commission E-Rate program. The amount and timing of E-Rate funds approval and customer implementation is not certain.
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. During the year ended December 31, 2015, global economic signals were mixed. We continue to closely monitor macroeconomic conditions. Uncertainties related to potential changes in tax and regulatory policy, potential interest rate increases, 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. During the year ended December 31, 2015, customer priorities continued to shift away from last year's focus on client devices towards more integrated solutions, which grew substantially faster than transactional sales.
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 common share, Non-GAAP net income per diluted share, EBITDA and Adjusted EBITDA, free cash flow, return on invested 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, 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, EBITDA and Adjusted EBITDA are non-GAAP financial measures. We believe these measures provide helpful information with respect to our operating performance and cash flows including our ability to meet our future debt service, capital expenditures and working capital requirements. Adjusted EBITDA also provides helpful information as it is the primary measure used in certain key covenants and definitions contained in the credit agreement governing our Senior Secured Term Loan Facility (the “Term Loan”), including the excess cash flow payment provision, the restricted payment covenant and the net leverage ratio. These covenants and definitions are material components of the Term Loan as they are used in determining the interest rate applicable to the Term Loan, 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 Discussion and Analysis of Financial Condition and Results of Operations and Note 8 (Long-Term Debt) to the accompanying Consolidated Financial Statements. For the definitions of Non-GAAP net income and Adjusted EBITDA and reconciliations to Net income, see “Results of Operations”.

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The results of certain key business metrics are as follows:
 
Years Ended December 31,
(dollars in millions)
2015
 
2014
 
2013
Net sales
$
12,988.7

 
$
12,074.5

 
$
10,768.6

Gross profit
2,115.8

 
1,921.3

 
1,760.3

Income from operations
742.0

 
673.0

 
508.6

Net income
403.1

 
244.9

 
132.8

Non-GAAP net income
503.5

 
409.9

 
314.3

Adjusted EBITDA
1,018.5

 
907.0

 
808.5

Average daily sales
51.1

 
47.5

 
42.4

Net debt (defined as total debt minus cash and cash equivalents) (1)
3,222.1

 
2,821.5

 
3,037.9

Cash conversion cycle (in days) (2)
21

 
21

 
23

(1)
As a result of the adoption of Accounting Standards Update (ASU) 2015-03 during the second quarter of 2015, historical periods have been revised to reflect the change in the presentation of deferred financing costs, which are now shown as a reduction of Long-term debt, instead of being presented as a separate asset on the Consolidated Balance Sheet. In the third quarter of 2015, we adopted ASU 2015-15 which allows entities to present deferred financing costs for line-of-credit arrangements as an asset. We retroactively adjusted the deferred financing costs and Long-term debt liability presented in historical periods to align it to the current period presentation.
(2)
Cash conversion 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, 2015 Compared to Year Ended December 31, 2014
Results of operations, in dollars and as a percentage of Net sales, for the years ended December 31, 2015 and 2014 are as follows:
 
 
Years Ended December 31,
 
 
2015
 
2014
 
 
Dollars in
Millions
 
Percentage of
Net Sales (1)
 
Dollars in
Millions
 
Percentage of
Net Sales
Net sales
 
$
12,988.7

 
100.0
 %
 
$
12,074.5

 
100.0
 %
Cost of sales
 
10,872.9

 
83.7

 
10,153.2

 
84.1

Gross profit
 
2,115.8

 
16.3

 
1,921.3

 
15.9

Selling and administrative expenses
 
1,226.0

 
9.4

 
1,110.3

 
9.2

Advertising expense
 
147.8

 
1.1

 
138.0

 
1.1

Income from operations
 
742.0

 
5.7

 
673.0

 
5.6

Interest expense, net
 
(159.5
)
 
(1.2
)
 
(197.3
)
 
(1.6
)
Net loss on extinguishments of long-term debt
 
(24.3
)
 
(0.2
)
 
(90.7
)
 
(0.8
)
Gain on remeasurement of equity investment
 
98.1

 
0.8

 

 

Other (expense) income, net
 
(9.3
)
 
(0.1
)
 
2.7

 

Income before income taxes
 
647.0

 
5.0

 
387.7

 
3.2

Income tax expense
 
(243.9
)
 
(1.9
)
 
(142.8
)
 
(1.2
)
Net income
 
$
403.1

 
3.1
 %
 
$
244.9

 
2.0
 %
(1)
Percentages may not total due to rounding.

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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 for the years ended December 31, 2015 and 2014 are as follows:
 
 
Years Ended December 31,
 
 
 
 
 
 
2015
 
2014
 
 
 
 
(dollars in millions)
 
Net Sales
 
Percentage
of Total Net Sales
 
Net Sales
 
Percentage
of Total Net Sales
 
Dollar
Change
 
Percent
Change
(1)
Corporate:
 
 
 
 
 
 
 
 
 
 
 
 
Medium/Large
 
$
5,758.2

 
44.3
%
 
$
5,485.4

 
45.4
%
 
$
272.8

 
5.0
 %
Small Business
 
1,058.2

 
8.2

 
990.1

 
8.2

 
68.1

 
6.9

Total Corporate
 
6,816.4

 
52.5

 
6,475.5

 
53.6

 
340.9

 
5.3

 
 
 
 
 
 
 
 
 
 
 
 
 
Public:
 
 
 
 
 
 
 
 
 
 
 
 
Government
 
1,675.9

 
12.9

 
1,449.4

 
12.0

 
226.5

 
15.6

Education
 
1,807.0

 
13.9

 
1,824.0

 
15.1

 
(17.0
)
 
(0.9
)
Healthcare
 
1,642.6

 
12.6

 
1,606.0

 
13.3

 
36.6

 
2.3

Total Public
 
5,125.5

 
39.4

 
4,879.4

 
40.4

 
246.1

 
5.0

 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
1,046.8

 
8.1

 
719.6

 
6.0

 
327.2

 
45.5

 
 
 
 
 
 
 
 
 
 
 
 
 
Total Net sales
 
$
12,988.7

 
100.0
%
 
$
12,074.5

 
100.0
%
 
$
914.2

 
7.6
 %
(1)
There were 254 selling days for the years ended December 31, 2015 and 2014.
Total Net sales in 2015 increased $914.2 million, or 7.6%, to $12,988.7 million, compared to $12,074.5 million in 2014, reflecting both organic net sales growth and the impact of consolidating five months of Kelway net sales. Customer priorities continued to shift more towards integrated solutions, which drove higher growth in solutions sales compared to transactional product sales. Strong sales performance in solutions-focused products was driven by netcomm and server and server-related products. The growth in transactional products was led by notebooks/mobile devices, partially offset by a decline in desktop computers.
Organic net sales, which excludes the impact of the acquisition of Kelway, increased $563.5 million, or 4.7%, to $12,638.0 million in 2015, compared to $12,074.5 million in 2014. Organic net sales on a constant currency basis, which excludes the impact of foreign currency translation, in 2015 increased $635.0 million, or 5.3%, to $12,638.0 million, compared to $12,003.0 million in 2014. For additional information, see “Non-GAAP Financial Measure Reconciliations” below.
Corporate segment net sales in 2015 increased $340.9 million, or 5.3%, compared to 2014, driven by sales growth in both our medium/large and small business customer channels and reflecting stronger performance in solutions sales compared to transactional product sales. Within our Corporate segment, net sales to medium/large customers increased $272.8 million, or 5.0%, year over year, primarily due to strong sales performance in solutions-focused products driven by netcomm products and server and server-related products. Growth in transactional products was driven by notebook/mobile devices, partially offset by a decline in desktop computers. Net sales to small business customers increased by $68.1 million, or 6.9%, between periods, driven by growth in notebooks/mobile devices and netcomm products, partially offset by a decline in desktop computers.
Public segment net sales in 2015 increased $246.1 million, or 5.0%, between years, due to strong sales performance in government and growth in healthcare, partially offset by education remaining relatively flat. Net sales to government customers increased $226.5 million, or 15.6%, between periods, as sales to both federal and state/local government customers experienced mid-teens growth. The increase in net sales to the federal government was driven by growth in sales of netcomm products, software and enterprise storage, as we continued to benefit from strategic changes made to better align with new federal government purchasing programs implemented last year. A continued focus on public safety drove the increase in net sales to state/local government customers, which was led by netcomm products, notebooks/mobile devices and software, partially offset by a decline in desktop computers. Net sales to education customers decreased $17.0 million, or 0.9%, year over year, primarily due to declines in notebooks/mobile devices, partially offset by growth in netcomm products. Net sales to healthcare customers increased $36.6 million, or 2.3%, year over year, driven by growth in netcomm and server-related products, partially offset by declines in desktop

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computers and point-of-care technology carts, as some of our larger customers shifted priorities to reducing costs due to industry consolidation.
Net sales in Other in 2015 increased $327.2 million, or 45.5%, compared 2014. Other is comprised of CDW Advanced Services, Canada and Kelway. The increase in net sales was driven by the impact of consolidating five months of Kelway net sales, as well as growth in CDW Advanced Services, partially offset by a decline in the U.S. dollar-denominated net sales of Canada. The net sales of Canada in constant currency continued to grow during 2015 compared to 2014.
Gross profit
Gross profit increased $194.5 million, or 10.1%, to $2,115.8 million in 2015, compared to $1,921.3 million in 2014. As a percentage of net sales, Gross profit increased 40 basis points to 16.3% in 2015, from 15.9% in 2014.
Net service contract revenue, including items such as third-party services, warranties and SaaS contributed a positive impact of 15 basis points to gross profit margin as our cost paid to the vendor or third-party service provider is recorded as a reduction to net sales, resulting in net sales being equal to the gross profit on the transaction. Gross profit margin was positively impacted 15 basis points due to a higher mix of services and improved product margin. We also experienced a favorable impact of 10 basis points from vendor partner funding. Vendor partner funding includes purchase discounts, volume rebates and cooperative advertising.
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 $115.7 million, or 10.4%, to $1,226.0 million in 2015, compared to $1,110.3 million in 2014. As a percentage of total Net sales, Selling and administrative expenses increased 20 basis points to 9.4% in 2015, up from 9.2% in 2014. Sales payroll costs increased $60.1 million, or 12.0%, year over year, primarily due to increased sales compensation consistent with growth in solutions-related sales, an increase in Gross profit and consolidating five months of incremental Kelway sales payroll costs. In addition, certain coworker costs increased $9.5 million, or 3.8%, during 2015 compared to the prior year, due to higher costs consistent with increased coworker count, primarily due to our acquisition of Kelway. Total coworker count was 8,465 at December 31, 2015, up 1,254 from 7,211 at December 31, 2014. Amortization expense related to intangibles increased $16.7 million, or 9.2%, during 2015 compared to 2014, primarily due to incremental amortization expense related to the intangible assets arising from our acquisition of Kelway. Non-cash equity-based compensation expense increased $14.8 million, or 90.7%, during 2015 compared to 2014, primarily due to annual equity awards granted under our 2013 Long-Term Incentive Plan in 2015, performance against long-term incentive program targets and equity awards granted in connection with our acquisition of Kelway. In addition, we incurred $10.2 million of acquisition and integration costs in 2015 related to our acquisition of Kelway.
Income from operations
Income from operations by segment, in dollars and as a percentage of Net sales, and the year-over-year percentage change for the years ended December 31, 2015 and 2014 is as follows:
 
 
Years Ended December 31,
 
 
 
 
2015
 
2014
 
 
 
 
Dollars in
Millions
 
Operating
Margin
 
Dollars in
Millions
 
Operating
Margin
 
Percent Change
in Income
from Operations
Segments: (1)
 
 
 
 
 
 
 
 
 
 
Corporate
 
$
470.1

 
6.9
%
 
$
439.8

 
6.8
%
 
6.9
%
Public
 
343.3

 
6.7

 
313.2

 
6.4

 
9.6

Other (2)
 
43.1

 
4.1

 
32.9

 
4.6

 
31.0

Headquarters (3)
 
(114.5
)
 
nm*

 
(112.9
)
 
nm*

 
1.4

Total Income from operations
 
$
742.0

 
5.7
%
 
$
673.0

 
5.6
%
 
10.3
%
 
* Not meaningful

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(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)
Includes the financial results for our other operating segments, CDW Advanced Services, Canada and five months for Kelway, which do not meet the reportable segment quantitative thresholds.
(3)
Includes certain Headquarters’ function costs that are not allocated to the segments.
Income from operations was $742.0 million in 2015, an increase of $69.0 million, or 10.3%, compared to $673.0 million in 2014. Total operating margin increased 10 basis points to 5.7% in 2015, from 5.6% in 2014. Operating margin was positively impacted by the increase in gross profit margin, partially offset by an increase in Selling and administrative expenses as a percentage of Net sales. This increase was driven by higher Net sales and Gross profit.
Corporate segment income from operations was $470.1 million in 2015, an increase of $30.3 million, or 6.9%, compared to $439.8 million in 2014. Corporate segment operating margin increased 10 basis points to 6.9% in 2015, from 6.8% in 2014. This increase was driven by higher net sales and gross profit.
Public segment income from operations was $343.3 million in 2015, an increase of $30.1 million, or 9.6%, compared to $313.2 million in 2015. Public segment operating margin increased 30 basis points to 6.7% in 2015, from 6.4% in 2014. This increase was driven by higher net sales and gross profit.
Interest expense, net
At December 31, 2015, our outstanding long-term debt totaled $3,259.7 million, compared to $3,166.0 million at December 31, 2014, an increase of $93.7 million primarily due to the completion of the acquisition of Kelway. Net interest expense in 2015 was $159.5 million, a decrease of $37.8 million, compared to $197.3 million in 2014. This decrease was primarily due to lower effective interest rates for 2015, compared to 2014 as a result of redemptions and refinancing activities completed during 2014 and 2015.
Net loss on extinguishments of long-term debt
For information regarding our debt, see Note 8 (Long-Term Debt) to the accompanying Consolidated Financial Statements. During 2015, we recorded a net loss on extinguishments of long-term debt of $24.3 million compared to $90.7 million in 2014.
Net loss on extinguishments of long-term debt for the years ended December 31, 2015 and 2014 are as follows:
Month of Extinguishment
Debt Instrument
 
(in millions)
 
 
Amount Extinguished
 
Loss Recognized
 
For the Year Ended December 31, 2015
 
 
 
 
 
March 2015
2019 Senior Notes
 
$
503.9

 
$
(24.3
)
(1) 
Total Loss Recognized
 
 
 
 
$
(24.3
)
 
 
 
 
 
 
 
 
For the Year Ended December 31, 2014
 
 
 
 
 
December 2014
2019 Senior Notes
 
$
541.4

 
$
(36.9
)
(1) 
September 2014
2019 Senior Notes
 
234.7

 
(22.1
)
(1) 
August 2014
8.0% Senior Secured Notes due 2018
 
325.0

 
(23.7
)
(1) 
June 2014
Revolving Loan
 

 
(0.4
)
(2) 
May 2014
12.535% Senior Subordinated Exchange Notes due 2017
 
42.5

 
(2.2
)
(1) 
March 2014
2019 Senior Notes
 
25.0

 
(2.7
)
(1) 
January and February 2014
12.535% Senior Subordinated Exchange Notes due 2017
 
50.0

 
(2.7
)
(1) 
Total Loss Recognized
 
 
 
 
$
(90.7
)
 
(1)
We redeemed or repurchased all of or a portion of the remaining aggregate principal amount outstanding. The loss recognized represents the difference between the redemption price and the net carrying amount of the purchased debt, adjusted for the remaining unamortized deferred financing costs and/or premium.

35


(2)
We entered into the Revolving Loan, a new $1,250 million five-year senior secured asset-based revolving credit facility. The Revolving Loan replaced our previous revolving loan credit facility that was to mature on June 24, 2016. The loss recognized represents the write-off of a portion of unamortized deferred financing costs.
Gain on remeasurement of equity investment
On August 1, 2015, we completed the acquisition of Kelway by purchasing the remaining 65% of its outstanding common stock which increased our ownership interest from 35% to 100%, and provided us control. As a result, our previously held 35% equity investment was remeasured to fair value, resulting in a gain of $98.1 million recorded in Gain on remeasurement of equity investment in the Consolidated Statements of Operations.
Income tax expense
Income tax expense was $243.9 million in 2015, compared to $142.8 million in 2014. The effective income tax rate, expressed by calculating income tax expense or benefit as a percentage of income before income taxes, was 37.7% and 36.8% for 2015 and 2014, respectively.
For 2015, the effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes and withholding tax expense on the earnings of our Canadian business as a result of no longer asserting permanent reinvestment which was partially offset by a deferred tax benefit as a result of a tax rate reduction in the U.K. For 2014, the effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, including current year state income tax credits. The higher effective tax rate for 2015 as compared to 2014 was primarily attributable to higher state income taxes due to lower state income tax credits and the aforementioned Canadian withholding tax expense partially offset by the deferred tax benefit reflecting the tax rate reduction in the U.K. We are asserting that the unremitted earnings of our U.K. business are indefinitely reinvested.
Non-GAAP Financial Measure Reconciliations
We have included reconciliations of Non-GAAP net income, EBITDA, Adjusted EBITDA, Organic net sales growth and Organic net sales growth on a constant currency basis for the years ended December 31, 2015 and 2014 below. Non-GAAP net income excludes, among other things, charges related to the amortization of acquisition-related intangible assets, non-cash equity-based compensation, acquisition and integration expenses and gains and losses from the extinguishment of long-term debt. EBITDA is defined as consolidated Net income before interest expense, 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 below. Organic net sales growth is calculated as net sales growth excluding the impact of acquisitions recorded within the last twelve months. Organic net sales growth on a constant currency basis is calculated as organic net sales growth excluding the impact of foreign currency translation on organic net sales compared to the prior period. Non-GAAP net income, EBITDA, Adjusted EBITDA, Organic net sales growth and Organic 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 performance, financial position or cash flows 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 us may differ from similar measures used by other companies, even when similar terms are used to identify such measures.
We believe that Non-GAAP net income, EBITDA, Adjusted EBITDA, Organic net sales growth and Organic net sales growth on a constant currency basis provide helpful information with respect to our operating performance and cash flows including our ability to meet our future debt service, capital expenditures and working capital requirements. Adjusted EBITDA is also the primary measure used in certain key covenants and definitions contained in the credit agreement governing our Term Loan, including the excess cash flow payment provision, the restricted payment covenant and the net leverage ratio. These covenants and definitions are material components of the Term Loan as they are used in determining the interest rate applicable to the Term Loan, 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 8 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
Non-GAAP net income
Non-GAAP net income was $503.5 million for the year ended December 31, 2015, an increase of $93.6 million, or 22.8%, compared to $409.9 million for the year ended December 31, 2014.

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Years Ended December 31,
(in millions)
 
2015
 
2014
Net income
 
$
403.1

 
$
244.9

Amortization of intangibles(1)
 
173.9

 
161.2

Non-cash equity-based compensation
 
31.2

 
16.4

Non-cash equity-based compensation related to equity investment(2)
 
20.0

 

Net loss on extinguishments of long-term debt
 
24.3

 
90.7

Acquisition and integration expenses(3)
 
10.2

 

Gain on remeasurement of equity investment(4)
 
(98.1
)
 

Other adjustments(5)
 
3.7

 
(0.3
)
Aggregate adjustment for income taxes (6)
 
(64.8
)
 
(103.0
)
Non-GAAP net income(7)
 
$
503.5

 
$
409.9

(1)
Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.
(2)
Represents our 35% share of an expense related to certain equity awards granted by one of the sellers to Kelway coworkers in July 2015 prior to our acquisition of Kelway.
(3)
Primarily includes expenses related to the acquisition of Kelway.
(4)
Represents the gain resulting from the remeasurement of our previously held 35% equity investment to fair value upon the completion of the acquisition of Kelway.
(5)
Primarily includes expenses related to the consolidation of office locations north of Chicago and secondary-offering-related expenses.
(6)
Based on a normalized effective tax rate of 38.0% (39.0% prior to the Kelway acquisition), except for the non-cash equity-based compensation from our equity investment and the gain resulting from the remeasurement of our previously held 35% equity investment to fair value upon the completion of the acquisition of Kelway, which were tax effected at a rate of 35.4%. The aggregate adjustment for income taxes also includes a $4.0 million deferred tax benefit recorded during the year ended December 31, 2015 as a result of a tax rate reduction in the United Kingdom and additional tax expense during the year ended December 31, 2015 of $3.3 million as a result of recording withholding tax on the unremitted earnings of our Canadian subsidiary. Additionally, note that certain acquisition costs are non-deductible.
(7)
Includes the impact of consolidating five months for the year ended December 31, 2015 of Kelway's financial results.
Adjusted EBITDA
Adjusted EBITDA was $1,018.5 million for the year ended December 31, 2015, an increase of $111.5 million, or 12.3%, compared to $907.0 million for the year ended December 31, 2014. As a percentage of Net sales, Adjusted EBITDA was 7.8% and 7.5% for the years ended December 31, 2015 and 2014, respectively.

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Years Ended December 31,
(in millions)
 
2015
 
Percentage of
Net Sales
 
2014
 
Percentage of
Net Sales
Net income
 
$
403.1

 
 
 
$
244.9

 
 
Depreciation and amortization
 
227.4

 
 
 
207.9

 
 
Income tax expense
 
243.9

 
 
 
142.8

 
 
Interest expense, net
 
159.5

 
 
 
197.3

 
 
EBITDA
 
1,033.9

 
8.0%
 
792.9

 
6.6%
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
 
Non-cash equity-based compensation
 
31.2

 
 
 
16.4

 
 
Net loss on extinguishments of long-term debt
 
24.3

 
 
 
90.7

 
 
Loss (income) from equity investments(1)
 
10.1

 
 
 
(2.2
)
 
 
Acquisition and integration expenses(2)
 
10.2

 
 
 

 
 
Gain on remeasurement of equity investment(3)
 
(98.1
)
 
 
 

 
 
Other adjustments(4)
 
6.9

 
 
 
9.2

 
 
Total adjustments
 
(15.4
)
 
 
 
114.1

 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA(5)
 
$
1,018.5

 
7.8%
 
$
907.0

 
7.5%
(1)
Represents our share of net (income) loss from our equity investments. Our share of Kelway's net loss includes our 35% share of an expense related to certain equity awards granted by one of the sellers to Kelway coworkers in July 2015 prior to the acquisition.
(2)
Primarily includes expenses related to the acquisition of Kelway.
(3)
Represents the gain resulting from the remeasurement of our previously held 35% equity investment to fair value upon the completion of the acquisition of Kelway.
(4)
Primarily includes certain historical retention costs, unusual, non-recurring litigation matters, secondary-offering-related expenses and expenses related to the consolidation of office locations north of Chicago.
(5)
Includes the impact of consolidating five months for the year ended December 31, 2015 of Kelway's financial results.
Organic net sales growth and organic net sales growth on constant currency basis
Organic net sales, which excludes the impact of the acquisition of Kelway, increased $563.5 million, or 4.7%, to $12,638.0 million for the year ended December 31, 2015, compared to $12,074.5 million for the year ended December 31, 2014. Organic net sales on a constant currency basis, which excludes the impact of foreign currency translation, for the year ended December 31, 2015 increased $635.0 million, or 5.3%, to $12,638.0 million, compared to $12,003.0 million for the year ended December 31, 2014.
 
 
Years Ended December 31,
 
 
(in millions)
 
2015
 
2014
 
% Change
Net sales, as reported
 
$
12,988.7

 
$
12,074.5

 
7.6
%
Impact of acquisition (1)
 
(350.7
)
 

 
 
Organic net sales
 
$
12,638.0

 
$
12,074.5

 
4.7
%
Foreign currency translation (2)
 

 
(71.5
)
 
 
Organic net sales, on a constant currency basis
 
$
12,638.0

 
$
12,003.0

 
5.3
%
(1)
Represents five months for the year ended December 31, 2015 of Kelway's financial results.
(2)
Represents the effect of translating the prior year results of our Canadian subsidiary at the average exchange rates applicable in the current year.


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Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Results of operations, in dollars and as a percentage of net sales, for the years ended December 31, 2014 and 2013 are as follows:
 
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
 
Dollars in
Millions
 
Percentage of
Net Sales
 
Dollars in
Millions
 
Percentage of
Net Sales
Net sales
 
$
12,074.5

 
100.0
 %
 
$
10,768.6

 
100.0
 %
Cost of sales
 
10,153.2

 
84.1

 
9,008.3

 
83.7

Gross profit
 
1,921.3

 
15.9

 
1,760.3

 
16.3

Selling and administrative expenses
 
1,110.3

 
9.2

 
1,120.9

 
10.4

Advertising expense
 
138.0

 
1.1

 
130.8

 
1.2

Income from operations
 
673.0

 
5.6

 
508.6

 
4.7

Interest expense, net
 
(197.3
)
 
(1.6
)
 
(250.1
)
 
(2.3
)
Net loss on extinguishments of long-term debt
 
(90.7
)
 
(0.8
)
 
(64.0
)
 
(0.6
)
Other income, net
 
2.7

 

 
1.0

 

Income before income taxes
 
387.7

 
3.2

 
195.5

 
1.8

Income tax expense
 
(142.8
)
 
(1.2
)
 
(62.7
)
 
(0.6
)
Net income
 
$
244.9

 
2.0
 %
 
$
132.8

 
1.2
 %
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 for the years ended December 31, 2014 and 2013 are as follows:
 
 
Years Ended December 31,
 
 
 
 
 
 
2014
 
2013
 
 
 
 
(dollars in millions)
 
Net Sales
 
Percentage
of Total Net sales
 
Net Sales
 
Percentage
of Total Net Sales
 
Dollar
Change
 
Percent
Change (1)
Corporate:
 
 
 
 
 
 
 
 
 
 
 
 
Medium / Large
 
$
5,485.4

 
45.4
%