CDW 2003 Annual Report Download - page 47

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Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the
United States of America requires management to make use of certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reported periods. We base
our estimates on historical experience and on various other assumptions that we believe are reasonable under
the circumstances, the results of which form the basis for making judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Significant estimates in these financial statements
include allowances for doubtful accounts receivable, sales returns and pricing disputes, net realizable value of
inventories, vendor transactions, loss contingencies and intangible assets. Actual results could differ from
those estimates.
Allowance for doubtful accounts receivable. We provide allowances for doubtful accounts related to
accounts receivable for estimated losses resulting from the inability of our customers to make required
payments. We take into consideration the overall quality and aging of the receivable portfolio along with
specifically identified customer risks. If actual customer payment performance were to deteriorate to an
extent not expected, additional allowances may be required.
Sales returns and pricing disputes. At the time of sale, we record an estimate for sales returns and pricing
disputes based on historical experience. If actual sales returns and pricing disputes are greater than
estimated by management, additional expense may be incurred.
Net realizable value of inventories. Inventory is valued at the lower of cost or market value. We decrease
the value of inventory for estimated obsolescence equal to the difference between the cost of inventory and
the estimated market value, based upon an aging analysis of the inventory on hand, specifically known
inventory-related risks, and assumptions about future demand and market conditions. If future demand or
actual market conditions are less favorable than those projected by management, additional inventory write-
downs may be required.
Vendor transactions. We receive incentives from vendors related to cooperative advertising allowances,
rebates, price protection and other programs. These incentives generally relate to agreements with the
vendors and are recorded as adjustments to gross margin or net advertising expense, as appropriate. If
market conditions were to deteriorate, vendors may change the terms of some or all of these programs.
Loss contingencies. We accrue for contingent obligations when a loss is probable and the amount can be
reasonably estimated. As facts concerning contingencies become known, we reassess our position and
make appropriate adjustments to the financial statements.
Intangible assets. We purchased intangible assets, such as customer lists, in connection with the Micro
Warehouse transactions. These intangible assets have finite lives, and are amortized using the straight-line
method over the estimated economic lives, generally seven years.
Earnings Per Share
We calculate earnings per share in accordance with Statement of Financial Accounting Standards No. 128,
“Earnings Per Share” (“SFAS 128”). Accordingly, we have disclosed earnings per share calculated using
both the basic and diluted methods for all periods presented. A reconciliation of basic and diluted per
share computations is included in Note 12.