CDW 2014 Annual Report Download - page 18

Table of Contents
infringement claim, governmental proceeding, audit or indemnification claim could adversely affect our business, results of operations or cash
flows.
Failure to comply with the laws and regulations applicable to our operations could adversely impact our business, results of operations or
cash flows.
Our operations are subject to numerous U.S. and foreign laws and regulations in a number of areas including, but not limited to, areas of
labor and employment, advertising, e-commerce, tax, import and export requirements, anti-corruption, data privacy requirements, anti-
competition, and environmental, health, and safety. Compliance with these laws, regulations and similar requirements may be onerous and
expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business, and the
risk of noncompliance. We have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations,
but there can be no guarantee against coworkers, contractors, or agents violating such laws and regulations or our policies and procedures.
We have significant deferred cancellation of debt income.
As a result of a 2009 debt modification, we realized $395.5 million of cancellation of debt income (“CODI”). We made an election
under Code Section 108(i) to defer this CODI from taxable income, pursuant to which we are also required to defer certain original issue
discount (“OID”) deductions as they accrue. As of December 31, 2013, we had deferred approximately $114.5 million of OID deductions.
Starting in 2014, we were required to include the deferred CODI and the deferred OID into taxable income ratably over a five-
year period ending
in 2018. Because we have more CODI than the aggregate of our deferred OID on the relevant remaining debt instruments, we will have a future
cash tax liability associated with our significant deferred CODI. We have reflected the associated cash tax liability in our deferred taxes for
financial accounting purposes.
All of our deferred CODI will be accelerated into current taxable income if, prior to 2018, we engage in a so-called “impairment
transaction” and the gross value of our assets immediately afterward is less than 110% of the sum of our total liabilities and the tax on the net
amount of our deferred CODI and OID (the “110% test”) as determined under the applicable Treasury Regulations. An “impairment transaction”
is any transaction that impairs our ability to pay the tax on our deferred CODI, and includes dividends or distributions with respect to our equity
and charitable contributions, in each case in a manner that is not consistent with our historical practice within the meaning of the applicable
Treasury Regulations.
Prior to 2018, our willingness to pay dividends or make distributions with respect to our equity could be adversely affected if, at the
time, we do not meet the 110% test and, as a result, the payment of a dividend or the making of a distribution would accelerate the tax payable
with respect to our deferred CODI. We believe that, based on our interpretation of applicable Treasury Regulations, the gross value of our assets
exceeds 110% of the sum of our total liabilities and the tax on the net amount of our deferred CODI and OID as of the filing date of this Annual
Report on Form 10-K. However, we cannot assure you that this will continue to be true in the future.
Risks Related to Our Indebtedness
We have a substantial amount of indebtedness, which could have important consequences to our business.
We have a substantial amount of indebtedness. As of December 31, 2014 , we had $3.2 billion of total long-term debt outstanding, as
defined by GAAP, and $332.1 million of obligations outstanding under our inventory financing agreements, and the ability to borrow an
additional $935.6 million under our senior secured asset-based revolving credit facility (the “Revolving Loan”). Our substantial indebtedness
could have important consequences, including the following:
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making it more difficult for us to satisfy our obligations with respect to our indebtedness;
• requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments on our and our subsidiaries'
debt, which reduces the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes;
• requiring us to comply with restrictive covenants in our senior credit facilities and indentures, which limit the manner in which we
conduct our business;
• making it more difficult for us to obtain vendor financing from our vendor partners, including original equipment manufacturers and
software publishers;
•
limiting our flexibility in planning for, or reacting to, changes in the industry in which we operate;