CDW 2012 Annual Report Download - page 45

Table of Contents
Off-Balance Sheet Arrangements
We have no off-
balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Commitments and Contingencies
We are party to various legal proceedings that arise in the ordinary course of our business, which include commercial, intellectual
property, employment, tort and other litigation matters. We are also subject to audit by federal, state and local authorities, by various partners
and large customers, including government agencies, relating to purchases and sales under various contracts. In addition, we are subject to
indemnification claims under various contracts. From time to time, certain of our customers file voluntary petitions for reorganization or
liquidation under the U.S. bankruptcy laws. In such cases, certain pre-
petition payments received by us could be considered preference items and
subject to return to the bankruptcy administrator.
As of December 31, 2012, we do not believe that there is a reasonable possibility that any material loss exceeding the amounts already
recognized for these proceedings and matters, if any, has been incurred. However, the ultimate resolutions of these proceedings and matters are
inherently unpredictable. As such, our financial condition and results of operations could be adversely affected in any particular period by the
unfavorable resolution of one or more of these proceedings or matters.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP 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 at the date of the financial
statements and the reported amounts of revenue and expenses during the reported periods. We base our estimates on historical experience and on
various other assumptions that we believe are 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.
In Note 1 to our consolidated financial statements, we include a discussion of the significant accounting policies used in the preparation
of our consolidated financial statements. We believe the following are the most critical accounting policies and estimates that include significant
judgments used in the preparation of our financial statements. We consider an accounting policy or estimate to be critical if it requires
assumptions to be made that were uncertain at the time they were made, and if changes in these assumptions could have a material impact on our
financial condition or results of operations.
Revenue Recognition
We are a primary distribution channel for a large group of vendors and suppliers, including OEMs, software publishers and wholesale
distributors. We record revenue from sales transactions when title and risk of loss are passed to our customer, there is persuasive evidence of an
arrangement for sale, delivery has occurred and/or services have been rendered, the sales price is fixed or determinable, and collectability is
reasonably assured. Our shipping terms typically specify F.O.B. destination, at which time title and risk of loss have passed to the customer.
Revenues from the sales of hardware products or software products and licenses are generally recognized on a gross basis with the
selling price to the customer recorded as sales and the acquisition cost of the product recorded as cost of sales. These items can be delivered to
customers in a variety of ways, including (i) as physical product shipped from our warehouse, (ii) via drop-shipment by the vendor or supplier,
or (iii) via electronic delivery for software licenses. At the time of sale, we record an estimate for sales returns and allowances based on
historical experience. Our vendor partners warrant most of the products we sell.
We leverage drop-shipment arrangements with many of our vendors and suppliers to deliver products to our customers without having
to physically hold the inventory at our warehouses, thereby increasing efficiency and reducing costs. We recognize revenue for drop-shipment
arrangements on a gross basis upon delivery to the customer with contract terms that typically specify F.O.B. destination. We recognize revenue
on a gross basis as the principal in the transaction because we are the primary obligor in the arrangement, we assume inventory risk if the
product is returned by the customer, we set the price of the product charged to the customer, we assume credit risk for the amounts invoiced, and
we work closely with our customers to determine their hardware and software specifications. These arrangements generally represent
approximately 40% to 50% of total net sales, including approximately 10% to 15% related to electronic delivery for software licenses.
Revenue from professional services is either recognized as incurred for services billed at an hourly rate or recognized using a
proportional performance model for services provided at a fixed fee. Revenue from Software as a Service
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