CDW 2003 Annual Report Download - page 46

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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
CDW Corporation (collectively with its subsidiaries, “CDW” or the “Company”) is a leading direct
marketer of multi-brand computers and related technology products and services in the United States. Our
primary business is conducted from a combined corporate office and distribution center located in Vernon
Hills, Illinois, and sales offices in Illinois, Virginia, Connecticut, New Jersey, and Toronto, Canada.
Additionally, we market and sell products through CDW.com, CDWG.com and macwarehouse.com, our
Web sites.
2. Micro Warehouse Transactions
During September 2003, we purchased selected U.S. assets and the Canadian operations of Micro
Warehouse, a reseller of computers, software and peripheral products. The U.S. transaction, completed on
September 9, 2003, was accounted for as a purchase of assets, with the $20.0 million purchase price
allocated to the assets purchased, including inventory, fixed assets and customer lists, based upon their fair
values at the date of purchase. Subsequent to the completion of the U.S. transaction, sales made by former
members of the Micro Warehouse U.S. sales force who joined CDW in conjunction with this transaction,
along with the associated costs, are included in the accompanying consolidated financial statements. The
Canadian transaction, completed on September 23, 2003, was accounted for as the purchase of a business
and, accordingly, the results of operations of the acquired business subsequent to the date of purchase are
included in the accompanying consolidated financial statements, and the assumed assets and liabilities were
recorded based upon their fair values at the date of purchase. The Canadian operations were purchased for
$2.7 million.
During the year ended December 31, 2003, we recorded $22.3 million of transaction and integration expenses
associated with these transactions. These expenses are primarily comprised of severance and outplacement
costs, payroll expenses for former Micro Warehouse employees performing transition services, customer
satisfaction expenses, customer communications and advertising expenses, legal and accounting advisory fees
and a reserve established for the equipment in a Wilmington, Ohio distribution center leased by Micro
Warehouse. These expenses are included in cost of sales ($0.3 million), selling and administrative expenses
($20.2 million), net advertising expenses ($1.5 million) and other expense ($0.3 million) in the Consolidated
Statements of Income.
3. Summary of Significant Accounting Policies
Presented here is a summary of the most significant accounting policies used in the preparation of our
consolidated financial statements. Our most significant accounting policies relate to the sale, purchase,
distribution and promotion of our products. Therefore, our accounting policies in the areas of revenue
recognition, inventory valuation, vendor purchase and merchandising arrangements and marketing
activities, among others, are discussed.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of CDW Corporation and our
wholly-owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation. One
of our wholly-owned subsidiaries, CDW Capital Corporation (“CDWCC”), owns a 50% interest in CDW
Leasing, LLC (“CDW-L”) (Note 14). 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.