CDW 2003 Annual Report Download - page 36

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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
Leasing, L.L.C. (“CDW-L”) were consolidated into our balance sheet as of December 31, 2003. CDW-L is a joint
venture, formed in April 1999, that is 50 percent owned by each of CDW Capital Corporation (“CDWCC”), a
wholly-owned subsidiary of the Company, and First Portland Corporation (“FIRSTCORP”), an unrelated third
party leasing company. During the first quarter of 2003, FIRSTCORP was acquired by IFC Credit Corporation.
Effective May 1, 2002, we decided to stop originating new leases with this venture and began to refer customers
to independent leasing sources, including FIRSTCORP and several manufacturer captive entities. The existing
leases in CDW-L’s portfolio will be held until maturity, with the majority expiring prior to December 31, 2004.
CDW-L has a $40 million financing commitment from a financial institution, 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. 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 with the financial institution.
Net cash used in financing activities for the year ended December 31, 2003 was $38.3 million. This
includes the repurchase of 1,852,424 shares of our common stock at a total cost of $76.3 million and the
payment of cash dividends totaling $24.9 million. These payments were partially offset by proceeds of $22.9
million from the exercise of stock options under our various stock option plans, $3.0 million from the issuance
of common stock in connection with the Employee Stock Purchase Plan, and $37.0 million of book overdrafts at
December 31, 2003.
In May 2003, Gregory C. Zeman, former director and vice chairman of the Company, and Daniel B. Kass,
former director and executive vice president of the Company, sold a total of 1,108,864 shares of common stock.
We did not receive any proceeds from the sale of shares and the number of outstanding common shares was not
impacted. The shares sold by Mr. Zeman and Mr. Kass were acquired from Michael P. Krasny, the chairman
emeritus, principal shareholder, and a director of the Company, through the exercise of options previously
granted to them pursuant to the MPK Stock Option Plan. The exercise of options by Mr. Zeman and Mr. Kass
resulted in the realization by the Company of an income tax benefit of approximately $17.7 million in the
second quarter of 2003, of which approximately $0.3 million had been previously recorded to deferred taxes.
We recorded the incremental tax benefit of $17.4 million as an increase to paid-in capital. In addition, we
recorded incremental payroll tax expense related to the option exercise of approximately $0.7 million, which
reduced diluted earnings per share by less than $0.01 per share.
Aggregate Contractual Obligations
At December 31, 2003, we were obligated under various operating lease agreements, primarily for sales
office facilities that expire at various dates through 2011. These lease agreements generally provide for
minimum rent payments and a proportionate share of operating expenses and property taxes and include certain
renewal and expansion options. For the years ended December 31, 2003, 2002 and 2001, rent expense was
$11.3 million, $9.8 million and $7.6 million, respectively. We expect to fulfill these commitments from our
working capital. The following table summarizes our contractual commitments under these operating lease
agreements as of December 31, 2003 (in thousands):
Total
Less than
1 year 1-3 years 3-5 years
Over 5
years
Operating leases $ 49,616 $ 6,727 $ 13,386 $ 13,749 $ 15,754
Recently Issued or Newly Adopted Accounting Pronouncements
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