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, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 from our Consolidated Financial Statements and related notes included elsewhere in this report. The selected financial data as of December 31, 2016, 2015 and 2014 and for the years ended December 31, 2015 and 2014 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 in millions, except per share amounts) | | 2018 | | | | 2017(1) | | | | 2016(1) | | | | 2015(2) | | | | 2014 | | |
| Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | |
| Net sales | | $ | 16,240.5 | | | $ | 14,832.9 | | | $ | 13,672.7 | | | $ | 12,988.7 | | | $ | 12,074.5 | |
| Cost of sales | | 13,533.6 | | | | 12,382.7 | | | | 11,344.4 | | | | 10,872.9 | | | | 10,153.2 | | |
| Gross profit | | 2,706.9 | | | | 2,450.2 | | | | 2,328.3 | | | | 2,115.8 | | | | 1,921.3 | | |
| Selling and administrative expenses | | 1,537.1 | | | | 1,410.0 | | | | 1,345.4 | | | | 1,226.0 | | | | 1,110.3 | | |
| Advertising expense | | 182.5 | | | | 173.7 | | | | 162.9 | | | | 147.8 | | | | 138.0 | | |
| Operating income | | 987.3 | | | | 866.5 | | | | 820.0 | | | | 742.0 | | | | 673.0 | | |
| Interest expense, net | | (148.6 | | ) | | (150.5 | | ) | | (146.5 | | ) | | (159.5 | | ) | | (197.3 | | ) |
| Net loss on extinguishments of long-term debt | | — | | | | (57.4 | | ) | | (2.1 | | ) | | (24.3 | | ) | | (90.7 | | ) |
| Gain on remeasurement of equity investment | | — | | | | — | | | | — | | | | 98.1 | | | | — | | |
| Other income (expense), net | | 1.8 | | | | 2.1 | | | | 1.8 | | | | (9.3 | | ) | | 2.7 | | |
| Income before income taxes | | 840.5 | | | | 660.7 | | | | 673.2 | | | | 647.0 | | | | 387.7 | | |
| Income tax expense | | (197.5 | | ) | | (137.6 | | ) | | (248.1 | | ) | | (243.9 | | ) | | (142.8 | | ) |
| Net income | | $ | 643.0 | | | $ | 523.1 | | | $ | 425.1 | | | $ | 403.1 | | | $ | 244.9 | |
| Net income per common share: | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | 4.26 | | | $ | 3.37 | | | $ | 2.60 | | | $ | 2.37 | | | $ | 1.44 | |
| Diluted | | $ | 4.19 | | | $ | 3.31 | | | $ | 2.56 | | | $ | 2.35 | | | $ | 1.42 | |
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| Cash dividends declared per common share | | $ | 0.9250 | | | $ | 0.6900 | | | $ | 0.4825 | | | $ | 0.3100 | | | $ | 0.1950 | |
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| Balance Sheet Data (at period end): | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 205.8 | | | $ | 144.2 | | | $ | 263.7 | | | $ | 37.6 | | | $ | 344.5 | |
| Working capital | | 993.7 | | | | 874.2 | | | | 959.9 | | | | 903.5 | | | | 985.4 | | |
| Total assets | | 7,167.7 | | | | 6,966.7 | | | | 6,958.4 | | | | 6,755.3 | | | | 6,075.9 | | |
| Total debt and capitalized lease obligations(3) | | 3,209.1 | | | | 3,236.7 | | | | 3,236.6 | | | | 3,262.9 | | | | 3,166.1 | | |
| Total stockholders' equity | | 975.2 | | | | 985.6 | | | | 1,047.9 | | | | 1,095.9 | | | | 936.5 | | |
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| Other Financial Data: | | | | | | | | | | | | | | | | | | | | |
| Capital expenditures | | $ | 86.1 | | | $ | 81.1 | | | $ | 63.5 | | | $ | 90.1 | | | $ | 55.0 | |
| Gross profit as a percentage of Net sales | | 16.7 | | % | | 16.5 | | % | | 17.0 | | % | | 16.3 | | % | | 15.9 | | % |
| EBITDA(4) | | $ | 1,254.7 | | | $ | 1,072.1 | | | $ | 1,074.2 | | | $ | 1,033.9 | | | $ | 792.9 | |
| Adjusted EBITDA(4) | | 1,302.2 | | | | 1,186.0 | | | | 1,118.1 | | | | 1,018.5 | | | | 907.0 | | |
| Non-GAAP net income(5) | | 794.3 | | | | 605.9 | | | | 569.7 | | | | 503.5 | | | | 409.9 | | |
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| Statement of Cash Flows Data: | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in): | | | | | | | | | | | | | | | | | | | | |
| Operating activities | | $ | 905.9 | | | $ | 777.7 | | | $ | 604.0 | | | $ | 277.5 | | | $ | 435.0 | |
| Investing activities | | (86.1 | | ) | | (81.1 | | ) | | (65.9 | | ) | | (354.4 | | ) | | (164.8 | | ) |
| Financing activities | | (754.8 | | ) | | (818.7 | | ) | | (304.6 | | ) | | (226.5 | | ) | | (112.0 | | ) |
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| (1) | Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606. |
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| (2) | Includes the impact of consolidating five months of CDW UK's financial results for the year ended December 31, 2015. |
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| (3) | Excludes borrowings of $429 million, $498 million, $580 million, $440 million and $332 million as of December 31, 2018, 2017, 2016, 2015 and 2014, 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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| (4) | 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 or financial position 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 management 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 analysts, investors and management with helpful information regarding the underlying operating performance of our business, as they remove the impact of items that management believes are not reflective of underlying operating performance. Management uses these measures to evaluate period-over-period performance as management believes they provide a more comparable measure of the underlying business. Additionally, Adjusted EBITDA is a measure in the credit agreement governing our senior secured term loan facility (the "Term Loan") used to evaluate 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 9 (Long-Term Debt) to the accompanying Consolidated Financial Statements.
The following unaudited table sets forth reconciliations of Net income to EBITDA and Adjusted EBITDA for the periods presented:
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| | Years Ended December 31, | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2018 | | | | 2017(1) | | | | 2016(1) | | | | 2015(2) | | | | 2014 | | |
| Net income | | $ | 643.0 | | | $ | 523.1 | | | $ | 425.1 | | | $ | 403.1 | | | $ | 244.9 | |
| Depreciation and amortization | | 265.6 | | | | 260.9 | | | | 254.5 | | | | 227.4 | | | | 207.9 | | |
| Income tax expense | | 197.5 | | | | 137.6 | | | | 248.1 | | | | 243.9 | | | | 142.8 | | |
| Interest expense, net | | 148.6 | | | | 150.5 | | | | 146.5 | | | | 159.5 | | | | 197.3 | | |
| EBITDA | | 1,254.7 | | | | 1,072.1 | | | | 1,074.2 | | | | 1,033.9 | | | | 792.9 | | |
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| Non-cash equity-based compensation | | 40.7 | | | | 43.7 | | | | 39.2 | | | | 31.2 | | | | 16.4 | | |
| Net loss on extinguishments of long-term debt(3) | | — | | | | 57.4 | | | | 2.1 | | | | 24.3 | | | | 90.7 | | |
| Gain on remeasurement of equity investment(4) | | — | | | | — | | | | — | | | | (98.1 | | ) | | — | | |
| Other adjustments(5) | | 6.8 | | | | 12.8 | | | | 2.6 | | | | 27.2 | | | | 7.0 | | |
| Adjusted EBITDA | | $ | 1,302.2 | | | $ | 1,186.0 | | | $ | 1,118.1 | | | $ | 1,018.5 | | | $ | 907.0 | |
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| (1) | Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606. |
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| (2) | Includes the impact of consolidating five months of CDW UK's financial results for the year ended December 31, 2015. |
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| (3) | During the years ended December 31, 2017, 2016, 2015 and 2014, 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. |
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| (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 CDW UK. |
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| (5) | Includes other expenses such as payroll taxes on equity-based compensation for the years ended December 31, 2018 and 2017, expenses related to the acquisition of Scalar Decisions Inc. incurred during 2018, integration expenses related to CDW UK during 2017, and the reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois state law change enacted during 2017. The year ended December 31, 2016 includes our share of the settlement payments received from the Dynamic Random Access Memory class actions lawsuits and the favorable resolution of a local sales tax matter, offset by integration expenses related to CDW |
UK and expenses related to the consolidation of office locations north of Chicago. The year ended December 31, 2015 includes our 35% share of CDW UK's net loss, which entails our 35% share of an expense related to certain equity awards granted by one of the sellers to CDW UK coworkers in July 2015 prior to the acquisition. The years ended December 31, 2015 and 2014 also includes certain historical retention costs, expenses related to litigation matters, secondary-offering-related expenses and expenses related to the consolidation of office locations north of Chicago.
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| (5) | Non-GAAP net income excludes, among other things, charges related to the amortization of acquisition-related intangible assets, equity-based compensation and the associated tax benefits, acquisition and integration expenses, and gains and losses from the extinguishments 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 or financial position 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 management 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 analysts, investors and management with helpful information regarding the underlying operating performance of our business, as this measure removes the impact of items that management believes are not reflective of underlying operating performance. Management uses this measure to evaluate period-over-period performance as management believes it provides a more comparable measure of the underlying business. |
The following unaudited table sets forth a reconciliation of Net income to non-GAAP net income for the periods presented:
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| | Years Ended December 31, | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2018 | | | | 2017(1) | | | | 2016(1) | | | | 2015(2) | | | | 2014 | | |
| Net income | | $ | 643.0 | | | $ | 523.1 | | | $ | 425.1 | | | $ | 403.1 | | | $ | 244.9 | |
| Amortization of intangibles(3) | | 182.7 | | | | 185.1 | | | | 187.2 | | | | 173.9 | | | | 161.2 | | |
| Equity-based compensation | | 40.7 | | | | 43.7 | | | | 39.2 | | | | 31.2 | | | | 16.4 | | |
| Net loss on extinguishments of long-term debt | | — | | | | 57.4 | | | | 2.1 | | | | 24.3 | | | | 90.7 | | |
| Gain on remeasurement of equity investment(4) | | — | | | | — | | | | — | | | | (98.1 | | ) | | — | | |
| Other adjustments(5) | | 5.9 | | | | 11.5 | | | | 1.9 | | | | 33.9 | | | | (0.3 | | ) |
| Aggregate adjustment for income taxes(6) | | (78.0 | | ) | | (214.9 | | ) | | (85.8 | | ) | | (64.8 | | ) | | (103.0 | | ) |
| Non-GAAP net income | | $ | 794.3 | | | $ | 605.9 | | | $ | 569.7 | | | $ | 503.5 | | | $ | 409.9 | |
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| (1) | Amounts for 2017 and 2016 have been adjusted to reflect the adoption of Topic 606. |
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| (2) | Includes the impact of consolidating five months for the year ended December 31, 2015 of CDW UK's financial results. |
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| (3) | Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names. |
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| (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 CDW UK. |
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| (5) | Includes other expenses such as payroll taxes on equity-based compensation for the years ended December 31, 2018 and 2017, expenses related to the acquisition of Scalar Decisions Inc. incurred during 2018, integration expenses related to CDW UK during 2017, and the reinstatement of prior year unclaimed property balances as a result of a retroactive Illinois state law change enacted during 2017. The year ended December 31, 2016 includes our share of the settlement payments received from the Dynamic Random Access Memory class actions lawsuits and the favorable resolution of a local sales tax matter, offset by integration expenses related to CDW UK and expenses related to the consolidation of office locations north of Chicago. The year ended December 31, 2015 includes our 35% share of CDW UK's net loss, which entails our 35% share of an expense related to certain equity awards granted by one of the sellers to CDW UK coworkers in July 2015 prior to the acquisition. The years ended December 31, 2015 and 2014 include secondary-offering-related expenses and expenses related to the consolidation of office locations north of Chicago. |
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| (6) | Aggregate adjustment for income taxes consists of the following: |
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| Years Ended December 31, | | | | | | | | | | | | | | | | | | |
| 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | | | 2014 | | |
| Total Non-GAAP adjustments | $ | 229.3 | | | $ | 297.7 | | | $ | 230.4 | | | $ | 165.2 | | | $ | 268.0 | |
| Weighted-average statutory effective rate | 25.0 | | % | | 36.0 | | % | | 36.0 | | % | | 38.0 | | % | | 39.0 | | % |
| Income tax | (57.3 | | ) | | (107.2 | | ) | | (82.9 | | ) | | (62.8 | | ) | | (104.5 | | ) |
| Deferred tax adjustment due to law changes | 0.5 | | | | 1.3 | | | | (1.5 | | ) | | (4.0 | | ) | | — | | |
| Excess tax benefits from equity-based compensation | (19.1 | | ) | | (36.2 | | ) | | (1.8 | | ) | | — | | | | — | | |
| Tax Cuts and Jobs Act | (1.9 | | ) | | (75.5 | | ) | | — | | | | — | | | | — | | |
| Withholding tax expense on the unremitted earnings of our Canadian subsidiary | — | | | | — | | | | — | | | | 3.3 | | | | — | | |
| Non-deductible adjustments and other | (0.2 | | ) | | 2.7 | | | | 0.4 | | | | (1.3 | | ) | | 1.5 | | |
| Total aggregate adjustment for income taxes | $ | (78.0 | ) | | $ | (214.9 | ) | | $ | (85.8 | ) | | $ | (64.8 | ) | | $ | (103.0 | ) |
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