CDW 2006 Annual Report Download - page 62

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determined at trial, paid to it. On February 1, 2007, CDW entered into a settlement agreement
(the "Settlement Agreement") to resolve the above referenced action pursuant to which CDW
agreed to pay $25 million to the Liquidating Trust in return for a full release and complete
dismissal of the litigation, with prejudice. While CDW believed it had good defenses to the claims
by the Liquidating Trust, it agreed to settle the case in order to avoid the substantial costs and
uncertainties involved with further litigation. The Settlement Agreement represents the
compromise of a disputed claim and does not constitute an admission of liability on behalf of
CDW. A Motion to Approve the Settlement Agreement was filed in the Bankruptcy Court by the
Liquidating Trust on February 1, 2007. No objections were filed with the Bankruptcy Court, and
the time for filing objections has expired. An order approving the Settlement Agreement was
entered by the Bankruptcy Court on February 21, 2007. That order becomes final and
nonappealable on March 5, 2007. CDW’s settlement payment, included in other current liabilities
on the Consolidated Balance Sheet as of December 31, 2006, and a motion by the Liquidating
Trust to dismiss the litigation with prejudice, are both due on March 12, 2007.
From time to time, customers of CDW file voluntary petitions for reorganization under the United
States bankruptcy laws. In such cases, certain pre-petition payments received by CDW could be
considered preference items and subject to return to the bankruptcy administrator. CDW believes
that the final resolution of any such preference items will not have a material adverse effect on its
financial condition.
In addition, CDW is party to legal proceedings that arise from time to time, both with respect to
specific transactions and in the ordinary course of our business. CDW is also subject to audit by
federal, state and local tax authorities, by various government agencies relating to sales under
certain government contracts and by vendors relating to vendor incentive programs.
We do not believe that any current audit or pending or threatened litigation will have a material
adverse effect on our financial condition. Litigation and audits, however, involve uncertainties
and it is possible that the eventual outcome of litigation or audits could adversely affect our
results of operations for a particular period.
16. Segment Information
We have three operating segments: corporate sector, which is primarily comprised of business
customers; public sector, which is comprised of federal, state and local government entities,
educational institutions, and healthcare institutions; and Berbee, a new segment as a result of the
Berbee acquisition in October 2006, which provides advanced technology solutions. In
accordance with Statement of Financial Accounting Standards No. 131, “Disclosure about
Segments of an Enterprise and Related Information,” the internal organization that is used by
management for making operating decisions and assessing performance is the source of our
reportable segments.
In the first quarter of 2005, we revised the operating segments which reflect the basis for making
operating decisions and assessing performance. Under the revised structure, centralized
logistics and headquarters functions that were formerly provided by the corporate sector segment
to the public sector segment were separated from the corporate sector segment. The logistics
functions include purchasing, distribution, and fulfillment services to support both the corporate
and public sector segments, and costs and intercompany charges associated with the logistics
function are fully allocated to both of the operating segments based on a percent of sales. The
centralized headquarters functions provide services in areas such as accounting, information
technology, marketing, legal, and coworker services. Certain of the headquarters function costs
that are not allocated to the operating segments are included under the heading of
“Headquarters/Other” in the tables below.
In July 2005, the Company announced the creation of a dedicated healthcare sales team. In
creating this team, we consolidated healthcare accounts from across our entire sales