CDW 2003 Annual Report Download - page 27

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read
in conjunction with our Consolidated Financial Statements and the Notes thereto.
Overview
We are a leading direct marketer of multi-brand computers and related technology products and services in
the United States. Our primary business is conducted from a combined corporate office and distribution center
located in Vernon Hills, Illinois, and sales offices in Illinois, Virginia, Connecticut, New Jersey, and Toronto,
Canada. Additionally, we market and sell products through CDW.com, CDWG.com and macwarehouse.com,
our Web sites.
For financial reporting purposes, we have two operating segments: corporate, which is primarily comprised
of business customers, but also includes consumers (which generated approximately 2% of net sales in 2003);
and public sector, which is comprised of federal, state and local government entities and educational institutions
who are served by CDW Government, Inc. (“CDW-G”), a wholly-owned subsidiary.
CDW management monitors a number of financial and non-financial measures and ratios on a daily,
weekly, and monthly basis in order to track the progress of the business and make adjustments as necessary. We
believe that the most important of these measures and ratios include daily sales, by business segment and total
company, gross margin, number of orders shipped per day, number of orders shipped complete per day,
inventory balance and turnover, cash and cash equivalents balance, and accounts receivable balance and aging.
The measures and ratios are compared to standards or targets set by management, so that actions can be taken,
as necessary, in order to achieve the standards and targets.
Financial Reporting Release No. 60, released by the Securities and Exchange Commission, encourages all
registrants to include a discussion of “critical” accounting policies or methods used in the preparation of
financial statements. We present in the notes to our consolidated financial statements a summary of these
accounting policies. Our most significant accounting policies relate to the sale, purchase, distribution and
promotion of our products. Therefore, our accounting principles in the areas of revenue recognition, trade
accounts receivable valuation, inventory valuation, vendor transactions and marketing activities are the most
significant.
The preparation of financial statements in accordance with accounting principles generally accepted in the
United States of America requires management to make use of certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses during the reported periods. We base
our estimates on historical experience and on various other assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results could differ from those estimates, and
revisions to estimates are included in our results for the period in which the actual amounts become known.
Significant estimates in our financial statements include allowances for doubtful accounts receivable, sales
returns and pricing disputes, net realizable value of inventories, vendor transactions, loss contingencies and
intangible assets.
Allowance for doubtful accounts receivable. We provide allowances for doubtful accounts related to
accounts receivable for estimated losses resulting from the inability of our customers to make required
payments. We take into consideration the overall quality and aging of the receivable portfolio along with
specifically identified customer risks. If actual customer payment performance were to deteriorate to an extent
not expected, additional allowances may be required.