CDW 2012 Annual Report Download - page 25

Table of Contents
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 audited 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” at the end of this discussion.
Overview
CDW is a Fortune 500 company and a leading provider of integrated information technology (“IT”) solutions in the U.S. and Canada.
We help our customer base of more than 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 range from discrete hardware and software
products to integrated IT solutions such as mobility, security, data center optimization, cloud computing, virtualization and collaboration. Our
product portfolio includes more than 100,000 products from more than 1,000 brands. We provide these solutions through a large and
experienced sales force and service delivery team consisting of more than 4,300 coworkers, including nearly 1,400 highly skilled technology
specialists and engineers.
We are a leading U.S. sales channel partner for many original equipment manufacturers (“OEMs”) and software publishers
(collectively, our “vendor partners”), whose products we include in our offerings. 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 maintain a consistent brand
experience through our established end-market coverage and extensive customer access.
We have two reportable segments: Corporate, which is comprised primarily of private sector business customers, and Public, which is
comprised of government agencies and education and healthcare institutions. 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 two other operating segments, CDW Advanced Services and Canada, which do not meet the
reportable segment quantitative thresholds and, accordingly, are combined together as “Other.” 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. Revenues 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 are reimbursed through cooperative
advertising reimbursement programs. These programs are at the discretion of our vendors and are typically tied to sales or purchasing volumes or
other commitments to be met by us within a specified period of time.
Trends and Key Factors Affecting our Financial Performance
Net sales, gross profit and operating income increased 5.5% , 5.4% and 8.5% , respectively, in 2012 compared to 2011. Our Corporate
segment grew net sales by 3.3% and our Public segment grew net sales by 7.1% . Gross profit as a percentage of net sales remained flat from
2011 at 16.5% . The increase in operating income was driven by sales growth and our continued focus on cost management. Net income
increased $101.9 million, to $119.0 million in 2012, compared to $17.1 million in 2011.
We believe the following trends may have an important impact on our financial performance:
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• 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. Beginning in the second quarter of 2012, we began to see
customers take a more cautious approach to spending as increased macroeconomic uncertainty impacted decision-making and led to
some customers delaying purchases. We expect this trend to continue into 2013. Uncertainties related to the potential impacts of federal
budget negotiations, potential changes in tax and regulatory policy, weakening consumer and business confidence or increased
unemployment could