CDW 2004 Annual Report Download - page 18

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x our pricing strategies;
x changes in product costs from vendors;
x the availability of price protection, purchase discounts and rebate programs from vendors;
x the availability of cooperative advertising funds from vendors, which are classified as a reduction of
cost of sales;
x the risk of some of the items in our inventory becoming obsolete;
x the relative mix of products sold, and customers sold to, during the period;
x general market and competitive conditions; and
x increases in shipping costs that we cannot pass on to customers.
A natural disaster or other adverse occurrence at our primary facility could damage our business. We
operate our business from a primary facility in Vernon Hills, Illinois. Although we have multiple sales office
locations, substantially all of our corporate, warehouse and distribution functions are located at our Vernon
Hills facility. If the warehouse and distribution equipment at our Vernon Hills facility were to be seriously
damaged by a natural disaster or other adverse occurrence, we could utilize 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. Additionally, this would cause us to incur incremental
operating costs. As a result, a natural disaster or other adverse occurrence at our primary facility in Vernon
Hills could negatively impact our business and profitability.
We are heavily dependent on commercial delivery services. We generally ship our products to customers
by A.I.T., DHL, Eagle, FedEx, FedEx Ground, Menlo, United Parcel Service and other commercial delivery
services and invoice customers for shipping 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 or other service interruptions by such shippers could adversely affect our ability to deliver
products on a timely basis.
Our earnings and growth rate could be adversely affected by changes in general economic conditions and
uncertain geopolitical conditions. Weak general economic conditions, along with uncertainties in geopolitical
conditions, could adversely impact our revenues and growth rate. In addition, our revenues, gross margins and
earnings could deteriorate in the future as a result of unfavorable economic or political conditions.
We could be exposed to additional risks when we make acquisitions or alliances. We may pursue
transactions, including acquisitions or alliances, to extend or complement our existing business. These types of
transactions involve numerous risks, including investor acceptance, finding suitable transaction partners and
negotiating terms that are acceptable to us, the diversion of management’s attention from other business
concerns, entering product or geographic markets in which we have limited experience, the potential loss of key
coworkers or business relationships and successfully integrating acquired businesses, any of which could
adversely affect our operations or the price of our stock.
The failure to comply with our public sector contracts could result in, among other things, fines or other
liabilities. Revenues from the public sector segment are derived from sales to federal, state and local
governmental departments and agencies, as well as to educational institutions, through various contracts and
open market sales. Government contracting is a highly regulated area. Noncompliance with government
procurement regulations or contract provisions could result in civil, criminal, and administrative liability,
including substantial monetary fines or damages, termination of government contracts, and suspension,
debarment or ineligibility from doing business with the government. The effect of any of these possible actions
by any governmental department or agency could adversely affect our business and results of operations.
We are exposed to the risks of a global market. Portions of our products are either produced, or have
major components produced, in the Asia Pacific region. We engage in U.S. dollar denominated transactions
with U.S. divisions and subsidiaries of companies located in this region. As a result, we may be indirectly
affected by risks associated with international events, including economic and labor conditions, political
instability, tariffs and taxes, availability of products and currency fluctuations in the U.S. dollar versus the