CDW 2012 Annual Report Download - page 29

Table of Contents
The gross profit margin may fluctuate based on various factors, including vendor incentive and inventory price protection programs,
cooperative advertising funds classified as a reduction of cost of sales, product mix, net service contract revenue, commission revenue, pricing
strategies, market conditions, and other factors, any of which could result in changes in gross profit margins.
Selling and administrative expenses
Selling and administrative expenses increased $39.4 million , or 4.0% , to $1,029.5 million in 2012, compared to $990.1 million in
2011. As a percentage of total net sales, selling and administrative expenses decreased 10 basis points to 10.2% in 2012, down from 10.3% in
2011. The dollar increase in selling and administrative expenses was primarily due to higher payroll costs (excluding bonus compensation tied to
Adjusted EBITDA) of $43.0 million. The higher payroll costs reflected in selling and administrative expenses were driven by increased sales
commissions and other variable compensation costs consistent with higher sales and gross profit. While total coworker count increased by 59
coworkers, from 6,745 coworkers at December 31, 2011 to 6,804 coworkers at December 31, 2012, the increase was primarily comprised of
service delivery coworkers, the cost of which is reflected in cost of sales. Other factors that increased selling and administrative expenses
included a $5.8 million increase in health benefits due to higher claims costs and a higher average number of participants in 2012 compared to
2011, a $5.3 million increase in depreciation and amortization expense related primarily to additional capital expenditures for information
technology systems, and a $2.6 million increase in stock compensation expense, primarily due to incremental expense related to a modified Class
B Common Unit grant agreement with our former chief executive officer. Partially offsetting these increases was an $11.8 million decline in
bonus compensation tied to Adjusted EBITDA, as performance fell below target, $3.8 million of expenses related to the modification of our
senior secured term loan facility in 2011 that did not recur in 2012, and a $3.3 million decline in litigation expenses between years.
The decrease in selling and administrative expenses as a percentage of sales of 10 basis points between years was driven by the decline
in incentive compensation tied to Adjusted EBITDA.
Advertising expense
Advertising expense increased $6.8 million , or 5.6% , to $129.5 million in 2012, compared to $122.7 million in 2011. As a percentage
of net sales, advertising expense was 1.3% in both 2012 and 2011. The increase in advertising expense was due to a focus on continuing to
advertise our solutions and products and to build our reputation as a leading IT solutions provider, primarily through targeted digital advertising,
partially offset by decreases in expenditures for print advertising.
Income from operations
The following table presents income (loss) from operations by segment, in dollars and as a percentage of net sales, and the year-over-
year percentage change in income (loss) from operations for the years ended
December 31, 2012 and 2011 :
* Not meaningful
Income from operations was $510.6 million in 2012, an increase of $39.9 million , or 8.5% , compared to $470.7 million in 2011. This
increase was driven by higher net sales and gross profit, partially offset by higher selling and administrative expenses and advertising expense.
Total operating margin percentage increased 10 basis points to 5.0% in 2012,
25
Year Ended December 31, 2012 Year Ended December 31, 2011
Dollars in
Millions
Operating
Margin
Percentage
Dollars in
Millions
Operating
Margin
Percentage
Percent Change
in Income (Loss)
from Operations
Segments:
(1)
Corporate
$
349.0
6.3
%
$
331.6
6.2
%
5.2
%
Public
246.7
6.1
233.3
6.2
5.7
Other
18.6
3.1
17.5
3.4
6.5
Headquarters
(2)
(103.7
)
nm*
(111.7
)
nm*
7.2
Total income from operations
$
510.6
5.0
%
$
470.7
4.9
%
8.5
%
(1) Segment income (loss) from operations includes the segment’s direct operating income (loss) and allocations for Headquarters’ costs,
allocations for logistics services, certain inventory adjustments, and volume rebates and cooperative advertising from vendors.
(2) Includes Headquarters’
function costs that are not allocated to the segments.