CDW 2004 Annual Report Download - page 46

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effect at the applicable reporting date and the results of operations are translated at the average exchange
rates in effect during the applicable period. The resulting foreign currency translation adjustment is
recorded as accumulated other comprehensive income, which is reflected as a separate component of
shareholders’ equity.
3. Recently Issued or Newly Adopted Accounting Standards
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”), which requires the Company to
measure all share-based payments to coworkers under our stock-based compensation plans using a fair-
value-based method and record compensation expense related to these payments in our consolidated
financial statements. SFAS 123R is effective for the first interim or annual period beginning after June 15,
2005, therefore, we are required to adopt SFAS 123R in the third quarter of 2005. The pro forma
disclosures previously required under SFAS 123 will no longer be an alternative to financial statement
recognition. Note 2 presents pro forma net income and earnings per share amounts as if we had applied the
fair value recognition provisions of SFAS 123 to stock-based employee compensation, which would have
reduced reported diluted earnings per share by $0.32, $0.28 and $0.29 for the years ended December 31, 2004,
2003 and 2002, respectively. We are currently evaluating the requirements of SFAS 123R and have not yet
determined whether the adoption of SFAS 123R will result in compensation expense of an amount similar to
the current pro forma disclosures under SFAS 123. We intend to use the modified prospective application
transition method, which allows for prospective recognition of compensation expense without restatement of
prior interim periods in the year of adoption.
Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting for Consideration Received from a
Vendor by a Customer (Including a Reseller of the Vendor’s Products)” (“EITF 02-16”) became effective for
the Company on January 1, 2003. EITF 02-16 requires that consideration received from vendors, such as
advertising support funds, be accounted for as a reduction to cost of sales when recognized in the reseller’s
income statement unless certain conditions are met showing that the funds are used for a specific program
entirely funded by an individual vendor. If these specific requirements related to individual vendors are met,
the consideration is accounted for as a reduction in the related expense category, such as advertising or selling
and administrative expense. EITF 02-16 applies to all agreements modified or entered into on or after January
1, 2003. As a result of adopting EITF 02-16, we recorded $95.4 and $62.7 million of vendor consideration as
a reduction of cost of sales during the years ended December 31, 2004 and 2003, respectively. Adopting EITF
02-16 had no impact on our income from operations, as the vendor consideration recorded as a reduction of
cost of sales would previously have been recorded as a reduction of advertising expense and selling and
administrative expense.
In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest
Entities, an interpretation of ARB 51” (“FIN 46”). In December 2003, the FASB issued a revised version of
FIN 46, FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities, an
interpretation of ARB 51” (“FIN 46R”), to clarify some of the provisions of FIN 46 and to exempt certain
entities from its requirements. FIN 46R requires that the assets, liabilities and results of the activity of
variable interest entities be consolidated into the financial statements of the company that has the
controlling financial interest. FIN 46R also provides the framework for determining whether a variable
interest entity should be consolidated based on voting interests or significant financial support provided to
it. FIN 46R was effective for the Company on February 1, 2003 for variable interest entities created after
January 31, 2003. For variable interest entities or potential variable interest entities commonly referred to
as special-purpose entities created prior to February 1, 2003, the FASB deferred the implementation date of
FIN 46R to the period ending after December 15, 2003. For potential variable interest entities that are not
special-purpose entities, FIN 46R was effective for the period ending after March 15, 2004. In accordance
with FIN 46R, 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 our partner’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 were classified primarily as miscellaneous receivables and accrued expenses at December 31, 2003.
In a transaction that was effective August 1, 2004, we sold our 50 percent interest in CDW-L. CDW-L’s