CDW 2012 Annual Report Download - page 40

Table of Contents
As described in Note 5 to the consolidated financial statements, we have entered into agreements with certain financial intermediaries to
facilitate the purchase of inventory from various suppliers. In connection with the floorplan sub-facility, we entered into the Revolving Loan
inventory financing agreement. Amounts outstanding under the Revolving Loan inventory financing agreement are unsecured and noninterest
bearing. We will either pay the outstanding Revolving Loan inventory financing agreement amounts when they become due, or the Revolving
Loan's administrative agent will automatically initiate an advance on the Revolving Loan and use the proceeds to pay the balance on the due
date. As of December 31, 2012, the financial intermediary reported an outstanding balance of $267.9 million under the Revolving Loan
inventory financing agreement, which did not reflect payments we made on December 31, 2012. The total amount reported on the consolidated
balance sheet as accounts payable-inventory financing related to the Revolving Loan inventory financing agreement is $19.6 million less than
the $267.9 million owed to the financial intermediary due to differences in the timing of reporting activity under the Revolving Loan inventory
financing agreement. The outstanding balance reported by the financial intermediary excludes $8.0 million in reserves for open orders that
reduce the availability under the Revolving Loan. Changes in cash flows from the Revolving Loan inventory financing agreement are reported in
financing activities on the consolidated statement of cash flows.
Borrowings under the Revolving Loan bear interest at a variable interest rate plus an applicable margin. The variable interest rate is
based on one of two indices, either (i) LIBOR, or (ii) the Alternate Base Rate (“ABR”) with the ABR being the greatest of (a) the prime rate, (b)
the federal funds effective rate plus 50 basis points or (c) the one-month LIBOR plus 1.00%. The applicable margin varies (2.00% to 2.50% for
LIBOR borrowings and 1.00% to 1.50% for ABR borrowings) depending upon our average daily excess cash availability under the agreement
and is subject to a reduction of 0.25% if, and for as long as, the senior secured leverage ratio is less than 3.0. The senior secured leverage ratio is
defined as the ratio of senior secured debt (including amounts owed under certain inventory floorplan arrangements and capital leases) less cash
and cash equivalents, to Adjusted EBITDA, a non-GAAP measure, for the four most recently ended fiscal quarters. For the four quarters ended
December 31, 2012 , the senior secured leverage ratio was 2.4 .
Availability under the Revolving Loan is limited to (a) the lesser of the revolving commitment of $900.0 million and the amount of the
borrowing base less (b) outstanding borrowings, letters of credit, and amounts outstanding under the Revolving Loan inventory financing
agreement plus a reserve of 15% of open orders. The borrowing base is (a) the sum of the products of the applicable advance rates on eligible
accounts receivable and on eligible inventory as defined in the agreement less (b) any reserves. At December 31, 2012, the borrowing base was
$1,018.2 million as supported by eligible inventory and accounts receivable balances as of November 30, 2012. We could have borrowed up to
an additional $622.4 million under the Revolving Loan at December 31, 2012.
CDW LLC is the borrower under the Revolving Loan. All obligations under the Revolving Loan are guaranteed by Parent and each of
CDW LLC's direct and indirect, 100% owned, domestic subsidiaries. Borrowings under the Revolving Loan are collateralized by a first priority
interest in inventory (excluding inventory collateralized under the inventory floorplan arrangements as described in Note 5 to the consolidated
financial statements), deposits, and accounts receivable, and a second priority interest in substantially all other assets. The Revolving Loan
contains negative covenants that, among other things, place restrictions and limitations on the ability of Parent and each of CDW LLC's direct
and indirect, 100% owned, domestic subsidiaries to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other
indebtedness, make distributions or other restricted payments, create liens, make equity or debt investments, make acquisitions, engage in
mergers or consolidations, or engage in certain transactions with affiliates. The Revolving Loan also includes maintenance of a minimum
average daily excess cash availability requirement. Should we fall below the minimum average daily excess cash availability requirement for
five consecutive business days, we become subject to a fixed charge coverage ratio until such time as the daily excess cash availability
requirement is met for 30 consecutive business days.
Senior Secured Term Loan Facility (“Term Loan”)
At December 31, 2012, the outstanding principal amount of the Term Loan was $1,339.5 million, with $421.3 million of non-extended
loans due October 10, 2014 and $918.2 million of extended loans due July 15, 2017. The effective weighted-average interest rate on Term Loan
principal amounts outstanding on December 31, 2012 was 3.9% per annum.
Borrowings under the Term Loan bear interest at either (a) the ABR plus a margin; or (b) LIBOR plus a margin. The margin is based on
our senior secured leverage ratio as defined in the amended agreement evidencing the Term Loan. Effective with the March 2011 amendment
discussed below, the margins were reduced on extended loans. For ABR borrowings, the applicable margin varies within a range of 2.50% to
3.00% for non-extended loans and 1.75% to 2.25% for extended loans. For LIBOR borrowings, the applicable margin varies within a range of
3.50% to 4.00% for non-extended loans and 2.75% to 3.25% for extended loans.
36