CDW 2003 Annual Report Download - page 61

48
In accordance with a new accounting standard, FASB Interpretation No. 46 (revised December 2003),
“Consolidation of Variable Interest Entities, an interpretation of ARB 51,” the assets and liabilities of
CDW-L were consolidated into our balance sheet as of December 31, 2003, and we recorded a minority
interest for FIRSTCORP’s 50% interest in CDW-L. We consolidated approximately $7.8 million and $3.4
million of assets and liabilities, respectively, from CDW-L that are classified primarily as miscellaneous
receivables and accrued expenses. Beginning on December 31, 2003, we will consolidate the future results
of operations of CDW-L into our statement of income and record a minority interest for our partner’s 50%
interest in CDW-L.
In 2000, CDW-L obtained a financing commitment for $25 million from a financial institution. This
commitment was increased to $40 million in 2001, of which $1.5 million was outstanding at December 31,
2003. The financing commitment is collateralized by lease receivables (included in miscellaneous
receivables on the balance sheet) of $4.6 million at December 31, 2003, requires CDW-L to meet certain
financial covenants, and is without recourse to CDWCC or the Company. Under the terms of the financing
agreements, CDW-L’s total loans outstanding are limited to a maximum of 90% of the present value of the
lease payments receivable, discounted at the prime rate. At December 31, 2003, the present value of
CDW-L’s borrowing base was $4.5 million and CDW-L was in compliance with all of the covenants under
the agreement.
15. Contingencies
As of December 31, 2003, the Company was not a party to any material legal proceedings.
On September 9, 2003, CDW completed the purchase of certain assets of Bridgeport Holdings, Inc., Micro
Warehouse, Inc., Micro Warehouse, Inc. of Ohio, and Micro Warehouse Gov/Ed, Inc. (collectively, “Micro
Warehouse”). On September 10, 2003, Micro Warehouse filed voluntary petitions for relief under chapter
11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for
the District of Delaware (Case No. 03-12825). On January 20, 2004, the Official Committee of Unsecured
Creditors (the “Committee”) appointed in the Micro Warehouse bankruptcy proceedings filed a motion with
the court seeking the production of certain documents for review and certain representatives of CDW for
depositions. CDW believes that the purpose of the motion is to explore whether the purchase of assets of
Micro Warehouse by CDW involved “fraudulent transfers” under the Bankruptcy Code. On February 12,
2004, the Bankruptcy Court entered an order approving a stipulation between the Committee and CDW
whereby CDW consented to the Committee’s production requests. CDW believes that its transaction with
Micro Warehouse did not constitute a “fraudulent transfer” as it believes that it paid reasonably equivalent
value for such assets. CDW expects that the outcome of the Committee’s inquiry in this matter will have
no material effect on CDW’s financial condition.
16. Guarantees
In accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”), we recorded a $5.0
million reserve related to the equipment in a Wilmington, Ohio distribution center leased by Micro
Warehouse. In September 2003, in conjunction with our purchase of selected U.S. assets of Micro
Warehouse, we agreed to assume the lease for the distribution center and purchase the equipment in the
facility for $8.0 million if requested by Micro Warehouse. In February 2004, under the terms of a modified
agreement, we purchased the equipment and forfeited leasing the distribution center in exchange for $8.25
million. The purchase price of the equipment in the facility of $8.0 million, net of the reserve of $5.0
million, reflects the estimated realizable value of the equipment to CDW.
17. Segment Information
We are engaged in the sale of multi-brand computers and related technology products and services,
primarily through direct marketing activities. We have two operating segments: corporate, which is
primarily comprised of business customers, but also includes consumers, and public sector, which is