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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-K (Mark One) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________ to _____________
 Commission file number 0-21796 CDW Corporation  Illinois
    
    36-3310735(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)200 N. Milwaukee Ave.
    
    60061Vernon Hills, Illinois
    
    (Zip Code)(Address of principal executive offices)
 Registrants telephone number, including area code: (847) 465-6000 Securities registered pursuant to Section 12(b) of the Act:None Securities registered pursuant to Section 12 (g) of the Act:Common Stock Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.   Yes   þ   No   o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.   o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act)   Yes   þ   No   o As of June 30, 2004, the last business day of the registrants most recently completed second
fiscal quarter, the aggregate market value of the common stock held by non-affiliates was
approximately $4.146 billion, based upon the closing market price per share of $63.76. As of March 7, 2005, the registrant had 82,085,465 shares of common stock, $0.01 par value,
outstanding. Documents Incorporated by Reference Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May
11, 2005 are incorporated by reference into Part III.




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CDW CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2004
INDEX 10-K Page NoPART IItem 1.
    
    Business
    
    
    1Item 2.
    
    Properties
    
    
    11Item 3.
    
    Legal Proceedings
    
    
    11Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    12PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities
    
    
    12Item 6.
    
    Selected Financial Data
    
    
    14Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Resultsof Operations
    
    
    15Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 8.
    
    Financial Statements and Supplementary Data
    
    
    26Item 9.
    
    Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure
    
    
    54Item 9A.
    
    Controls and Procedures
    
    
    54Item 9B.
    
    Other Information
    
    
    54PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    54Item 11.
    
    Executive Compensation
    
    
    55Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters
    
    
    55Item 13.
    
    Certain Relationships and Related Transactions
    
    
    55Item 14.
    
    Principal Accounting Fees and Services
    
    
    55PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    55Signatures
    
    
    59Industrial LeaseGuaranty AgreementSubsidiariesConsent of Independent Registered Public Accounting FirmCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to 18 U.S.C. 1350Certification of CFO Pursuant to 18 U.S.C. 1350
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PART I 
  Item 1.
    Business. General 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. The Company was founded in 1984 and reincorporated in 1995 in Illinois. Our extensive
offering of products, including hardware and peripherals, software, accessories and other products,
combined with our service offerings, provide comprehensive solutions for our customers technology
needs. We offer customers a broad range of technology products from leading brands such as Adobe,
APC, Apple, Cisco, Hewlett-Packard, IBM, Microsoft, Sony, Symantec, Toshiba and ViewSonic, among
others. Our dedicated and well-trained coworkers and high volume, cost-efficient operations,
supported by our proprietary information technology systems, enable us to offer these products at
competitive prices combined with a high level of customer service. We provide a variety of
value-added services and web-based tools to our customers, including the ability to custom
configure multi-branded solutions, manage software licenses through our Software License Tracker
tool, track tagged assets through our IT Asset Management Tracking Database and generate online
quotes. We also offer technical support 24 hours a day, 7 days a week to our customers. In 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 was
completed on September 9, 2003. The purchase price of the assets acquired in the U.S. transaction,
including inventory, fixed assets and customer lists, was $20.0 million. The purchase of the
Canadian operations was completed on September 23, 2003, for a purchase price of $2.7 million. Building on the Micro Warehouse transactions, we expanded our customer base, increased our
penetration in the public sector and the eastern half of the U.S., and extended our growth platform
into Canada. For financial reporting purposes, we have two operating segments, corporate and public sector.
Our corporate customers are concentrated in the small to medium business (SMB) category, which is
generally comprised of businesses that have less than 1,000 employees at a single location. Our
public sector customers are comprised of federal, state and local government entities and
educational institutions which are served by CDW Government, Inc. (CDW-G), a wholly-owned
subsidiary. (See Note 15 to the Consolidated Financial Statements for certain financial
information regarding our two operating segments.) For the year ended December 31, 2004, 98% of our net sales were to commercial customers,
defined as public sector and corporate customers excluding consumers. We create a high degree of
customer loyalty through our relationship-focused account managers and value-added services. These
account managers become knowledgeable about customer needs and assist customers by providing advice
on the selection and configuration of multi-branded technology solutions. We focus on generating
repeat sales from existing customers while also generating sales from new customers. We market to current and prospective customers through our catalogs, other direct mail
programs, product advertisements in newspapers, computer trade magazines and other publications,
our Web sites and various Web advertising vehicles. Additionally, we promote the CDW brand on a
national basis through our branding campaign, which includes television, print media and other
activities. Our marketing efforts are integrated with a proactive outbound calling program by our
account managers. We also focus significant efforts on developing and expanding our E-commerce
initiatives. These initiatives include CDW.com, CDWG.com, macwarehouse.com
and CDW.ca (our Web sites), and CDW@work and CDWG@work (our extranets), which are customized
Web sites for our commercial customers. 1




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We adhere to a core philosophy known as the CDW CIRCLE OF SERVICEä, which places the
customer at the center of all of the Companys actions. The fundamental element of the CDW CIRCLE
OF SERVICEä is our coworkers, who are highly motivated and incented to share in the Companys
success. The CDW CIRCLE OF SERVICEä philosophy is based on the premise that People Do
Business With People They Like. The CDW CIRCLE OF SERVICEä is a graphic reminder to our
coworkers that good service leads to good experiences and increased sales. Electronic versions of CDWs Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and amendments to these reports are available free of charge through
our Web site, CDW.com, as soon as reasonably practicable after we electronically file these
reports with the Securities and Exchange Commission. Business Strategy Our business strategy is to be a high volume, cost-efficient direct marketer of multi-brand,
competitively-priced computers and related technology products and services, while providing a high
level of support to our customers. We believe that the following factors are of principal
importance in our ability to implement this business strategy: Multi-Branded Solutions.We offer more than 100,000 products, which include a wide range of
products from leading brands including Adobe, APC, Apple, Cisco, Hewlett-Packard, IBM, Microsoft,
Sony, Symantec, Toshiba, ViewSonic and others. With this broad selection of products, we can
provide our customers with fully-integrated, multi-branded technology solutions and the convenience
of one-stop shopping. We also continuously review and enhance our product mix based on new product
introductions and the needs of our customers. Customer Focus.We focus our sales and marketing efforts on attracting and serving commercial
customers. We believe commercial customers typically have ongoing requirements to purchase
sophisticated products and systems and value our relationship-based approach and high level of
service. Our field sales force actively calls on commercial customers and prospects in person to
augment our inside sales force. We also reach our customers through our customized Web sites,
CDW@work and CDWG@work. Competitive Pricing. We are able to offer our customers competitive prices due to our low
cost structure, efficient distribution methods, ability to purchase products both directly from
manufacturers as well as through distributors and economies of scale in purchasing products. Our
size, financial strength and ability to successfully serve our customers allow us to negotiate
advantageous purchasing terms and earn vendor rebates and incentives. Marketing.We use a marketing mix of direct response activities, including our catalogs and
trade magazine advertising, combined with a multifaceted branding campaign, including national
television and print advertising. These activities are intended to promote a high level of
awareness of CDW and generate customer response. Our marketing activities are directed to
commercial customers and the decision makers in commercial organizations. Customer Service.Our sales force consists of over 2,000 coworkers who are highly trained in
the Companys systems and philosophies, and in the products we sell, enabling them to provide a
high level of customer service. We assign an account manager to each customer. Account managers
obtain an understanding of their customers businesses and technology systems and are able to
recommend integrated product solutions based on customer needs, past purchases and technological
developments. Our account managers provide a high level of customer service utilizing CDWs
proprietary customer relationship management system. Customers also benefit from specialty sales
support teams that have in-depth knowledge of and experience with complex technology products and
applications in multiple product categories, such as network solutions, storage applications and
software licenses. 2




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Custom Configuration.We offer custom configuration services such as the installation of
accessories and expansion products, loading of software, imaging for custom applications and
configuration of network operating systems. These services are performed in a configuration center
within our distribution center. Our custom configuration services benefit our customers by
reducing the cost and time necessary to deploy new products into their existing technology
environment. Technical Support.Our technical staff is well-trained and maintains high levels of
professional certification from product manufacturers. We employ a technical staff of more than
160 with over 440 manufacturer certifications to assist our customers with technical questions and
issues during regular business hours. We offer technical support services by telephone 24 hours a
day, 7 days a week. We believe that our commitment to service at the time of sale and after the
purchase maximizes sales opportunities and encourages repeat customers. Information Technology.We use proprietary, real-time information technology systems which
centralize the management of key functions and generate daily operating reports enabling management
to identify and respond quickly to internal changes and to provide high levels of customer
satisfaction. We also monitor trends in the technology industry. We integrate our real-time
systems with our Web sites, CDW.com, CDWG.com, macwarehouse.com and
CDW.ca, providing real-time information for our customers. Effective Inventory Control.Our inventory tracking system, purchasing system, cycle counting
system and use of vendor stock balancing and price protection programs allow us to minimize our
investment in inventory and to reduce inventory discrepancies and the risk of obsolescence while
meeting customer needs by shipping orders generally on a same-day basis. High Quality Coworkers.We strive to attract, retain and motivate high quality coworkers and
provide our coworkers with competitive compensation and incentives designed to maximize
performance and productivity. Our objective is, whenever possible, to promote coworkers from
within the Company to positions of increased responsibility. Examples of rewards and motivations
for our coworkers include short-term incentive programs, stock-based compensation and an on-site
childcare and fitness center facility at our Vernon Hills, Illinois headquarters. Product Offering We sell multi-brand computers and related technology products, including hardware and
peripherals, software, accessories and other products, for use on a variety of technology operating
platforms, including Microsoft, Apple, Linux, Novel, Unix and others. We continually seek to expand and improve our relationships with manufacturers as well as
increase the number of products which we are authorized to sell. Purchasing and Vendor Relationships We purchase products for resale from manufacturers, distributors and other sources, all of
whom we consider our vendors. During 2004, we purchased approximately 50% of the products we sold
directly from manufacturers and the remaining amount from distributors and other sources. We
believe that effective purchasing from a diverse vendor base is a key element of our business
strategy. For the year ended December 31, 2004, purchases from distributors Ingram Micro and Tech
Data represented approximately 19% and 16%, respectively, of our total purchases. Additionally, in
2004, sales of products manufactured by Hewlett-Packard comprised approximately 28% of our total
sales. Our marketing and purchasing staffs work together to identify reliable, high-quality suppliers
of products, then actively negotiate to achieve the lowest possible cost and expand vendor
incentive programs. We seek to establish strong relationships with our vendors, and employ a
policy of paying vendors within stated terms and taking advantage of all appropriate discounts.
Several of our leading vendors, such as Hewlett-Packard, IBM and Microsoft, have full-time product
specialists on-site at our facilities. 3




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We are authorized by manufacturers to sell via direct marketing all or selected products
offered by the manufacturer. Our authorization with each manufacturer provides for certain terms
and conditions, which may include one or more of the following: product return privileges, price
protection policies, purchase discounts and vendor incentive programs, such as purchase or sales
rebates, and cooperative advertising reimbursements. Vendors also periodically offer us
opportunities to purchase a large amount of product at reduced prices. Vendor incentive programs
are at the discretion of the vendors and usually require the achievement of a specified sales
volume or growth rate within a specified period of time to qualify for all, or some, of the
incentive programs. Inventory Management/Distribution We utilize our proprietary information technology systems to manage our inventory in an
aggressive, cost-efficient manner, resulting in a rapid-turn inventory model. Our information
technology systems provide information on each item of inventory from the time it is ordered until
it is shipped to a customer. We generally only stock items that have attained a minimum sales
volume. We also use vendor stock balancing and price protection programs to
minimize our investment in inventory. Our distribution process is highly automated. Once a customer order is received, by phone,
online or by fax, it is processed for credit approval. After credit approval, orders are
automatically routed to our distribution center for picking and shipping. We believe that the Chicago metropolitan area is an excellent location for our current
distribution center as it is centrally located for purposes of shipping products throughout the
United States and provides timely access to our principal distributors. Our location enables us to
obtain non-stocked items for same-day shipping. We believe that competitive sources of supply are
available in substantially all of the merchandise categories we carry. The capacity of our 450,000 square foot Vernon Hills, Illinois, distribution center should be
sufficient to handle our expected growth in sales and shipments at least through 2005, based on
current projections. We will continue to make investments in this distribution center to further
automate the facility and increase its efficiency. In February 2005, we signed a lease for a
second distribution center to be constructed in North Las Vegas, Nevada, to support the Companys
projected growth beyond 2005. We expect the new 513,240 square foot facility to be completed and
operational by the end of 2005. This new facility will predominantly serve customers located in
the Western United States. Marketing and Advertising Activities We market to our current and prospective customers using catalogs, direct mail programs,
advertising and an outbound calling program. In addition, we promote the CDW brand through a
national branding campaign, which includes print media, television advertisements and other
activities. Catalogs are one of our main advertising vehicles and our catalog strategy has evolved to
include specialty catalogs for products such as networking communications and software. Our main
catalog also includes articles about noteworthy technology developments and interviews with
industry executives. We also hold a Customer Technology Seminar Series, hosting representatives
from industry manufacturers and influential persons in the technology field who discuss the latest
information technology issues with our customers. Customers who are unable to attend the series
can access the presentations on the Companys Web sites. 4




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As a result of our relationships with our vendors, a substantial portion of our advertising
and marketing expenses are reimbursed through cooperative advertising reimbursement programs.
These cooperative advertising programs are at the discretion of our vendors and are typically tied
to sales or purchasing volumes or other commitments required to be met by the Company within a
specified period of time. To measure the effectiveness of our various marketing activities, we
track customer responses to our efforts by a variety of means. We use this information to further
refine our marketing strategy and to develop more effective programs. E-commerce We utilize our Web sites and extranets to implement our business strategy. Our objective is
to make it easy for our customers to transact business with the Company and ultimately to enhance
our customer relationships. Our Web sites include many advanced features to attract new customers
and produce sales, including more than 100,000 computer products to search and order online,
advanced search capabilities, product specifications, and information on product availability and
pricing. During 2004 and 2003, we generated $1.526 billion and $1.057 billion, respectively, of
direct online sales over our Web sites, representing approximately 27% and 23% of total sales,
respectively. We continue to enhance our award-winning, customized Web sites, marketed as CDW@work
and CDWG@work extranets. These sites give customers online access to information such as
order and shipping status, payment details, purchase history and details about their dedicated CDW
or CDW-G account team. Customers may also use their sites to automate technology purchasing
procedures, manage software licenses, inventory asset-tagged items, reprint invoices and retrieve
quotes prepared by their account managers. In addition, we have links between vendors Web sites
and our own. Many customers use the extranets to gather product information, including pricing and
availability, and then follow up with their account managers to access the account managers
knowledge regarding product compatibility and other information. Sales Activities and Order Fulfillment Our success is due in part to the strength of the relationships our account managers develop
with our customers by calling existing and potential new customers, providing advice on products,
and responding to customer inquiries. Our account managers are trained in Company philosophies and
systems, have in-depth product knowledge and are motivated to maximize gross profit and provide
high levels of customer service. New account managers are immersed in CDW Academy, our proprietary
sales training program, and complete an intensive sales consulting, product training, systems and
customer service curriculum. We seek to build customer relationships by generally assigning each
customer to the account manager who first serves the customer. Upon subsequent calls to CDW, the
customer is directed to their account manager for assistance. In the spirit of teamwork, account
managers are encouraged to cooperate and work together to maximize gross profit and customer
satisfaction. Each catalog and advertisement distributed by the Company bears a toll-free number and Web
site address to be used by customers in contacting CDW to place a product order. Telephone calls
are answered by account managers who utilize proprietary on-line computer systems to retrieve
information regarding product characteristics, cost and availability and to enter customer orders.
Account managers enter orders on-line into a computerized order fulfillment system which updates
our customer purchase history. Computer processing of orders is performed immediately following
the placement of the order and credit approval. We ship most credit approved orders on the day the
order is received. We generally ship products to customers by A.I.T., DHL, Eagle, FedEx, FedEx
Ground, Menlo, United Parcel Service and other commercial delivery services and invoice customers
for shipping charges. Customers Sales
to our commercial customers accounted for approximately 98% of our net sales for the
year ended December 31, 2004. We are not dependent on any one customer. For the year ended
December 31, 2004, our 5




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largest customer comprised only .24% of net sales and our top five customers comprised
approximately 1.14% of net sales. Our corporate customers are primarily small and medium size
businesses that generally have less than 1,000 employees at a single location. We also serve
larger corporate customers, including FORTUNE 1000 companies, as either a primary or secondary
vendor. CDW-G, which conducts the Companys public sector business, focuses on meeting the
technology needs of federal, state and local governments, and educational institutions. Our customers are located almost entirely in the United States. In 2004, approximately 35% of
our net sales were to customers in the eastern United States, approximately 20% were to customers
in the southern United States, approximately 20% were to customers in the western United States and
approximately 24% were to customers in the midwestern United States. Approximately 1% of our sales
in 2004 were to customers outside of the continental United States, primarily in Canada. Custom Configuration and Technical Support We offer custom configuration services such as the installation of accessories and expansion
products, loading of software, imaging for custom applications and configuration of network
operating systems. Custom configurations provide additional value to our customers because they
reduce the cost and time necessary to deploy new products into their existing technology
environments. The ability to configure products to customer specifications enables CDW to generate
incremental sales. In May 2004, we opened a new 8,000 square foot Enterprise Configuration Center
in our Vernon Hills, Illinois headquarters, in order to meet growing demand for configuration
services, particularly from medium-to-large size businesses and public sector organizations. Our technical support staff is well trained and maintains high levels of professional
certification from manufacturers relating to the products we sell. Our technical support staff is
motivated to obtain high certification levels, as they are compensated, in part, on the levels of
those certifications. Technical support is available by telephone 24 hours a day, 7 days a week to
assist customers with technical problems or answer questions in order to increase customer
satisfaction and reduce product returns. We have developed a proprietary customer service tracking
system to ensure that customer-initiated service requests are responded to rapidly. As a result,
substantially all customer service calls are answered in one minute or less. Information Technology Systems Our information technology systems are a key element in our ability to maintain what we
believe is the lowest cost structure among multi-brand direct marketers of computers and related
technology products and services in the U.S. We have developed and operate customized information
technology and telephony systems. Collectively, these systems allow for centralized management of
key functions, including inventory management, collection of accounts receivable, purchasing, sales
and distribution. Additionally, our systems enable the preparation of daily operating reports
which provide thorough, detailed and timely information regarding key aspects of our business. Our
proprietary information technology systems enable us to enhance productivity, ship customer orders
on a same-day basis, respond quickly to industry changes and provide high levels of customer
service. Historical customer orders are tracked within our system so that we can provide our
customers with updates regarding product upgrades and other information relating to the products
they purchase from the Company. Our success is dependent on the accuracy and proper utilization of our information technology
and telephony systems. We anticipate that we will continue to upgrade the software and hardware
for our current information technology systems. In addition, our ability to adapt our systems to
changes in the competitive environment or to take advantage of additional automation is dependent
on our ability to recruit and retain qualified information technology professionals. Coworkers, Training and Culture At December 31, 2004, we employed approximately 3,800 coworkers. We consider our coworker
relations to be excellent. No coworkers are covered by collective bargaining agreements. 6




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We emphasize the recruiting, training and development of high quality coworkers throughout our
organization. Our objective is to promote coworkers from within the Company to positions of
increased responsibility, whenever possible. We help our coworkers to develop through CDW
University, our company-wide training program. CDW University provides specialized training in
sales and relationship-building techniques, technical certifications, leadership development skills
and interpersonal and professional skills. We strive to create a supportive and rewarding work environment. In 2005, we were named by
FORTUNE magazine as one of the 100 Best Companies to Work For for the seventh consecutive year.
For the third consecutive year, we were the highest ranked FORTUNE 500 company on this list. Our
Vernon Hills, Illinois headquarters offers an on-site childcare and fitness center, on-site dry
cleaning service, private rooms for nursing mothers and a series of English language classes for
coworkers who speak English as a second language. CDW coworkers are encouraged to provide their
thoughts and concerns regarding the Company directly to management, including through our
whistleblower hotline. Incentive and Regular Compensation Arrangements Compensation Arrangements. Our coworkers are compensated on a basis that rewards performance
and the achievement of identified goals. For example, account managers generally receive
compensation pursuant to a monthly commission schedule which is based on the gross profit they
generate. Account managers have the authority to negotiate and adjust prices for products,
provided that the product is sold at a price which meets established management guidelines and
pursuant to various contracted prices, where applicable. Account managers have the opportunity to
achieve relatively high compensation levels and have historically shown increased productivity as
training and experience levels increase. In addition, most coworkers, excluding the Companys
sales force, are eligible for monthly, quarterly or annual bonus programs that are tied to
achieving certain goals. We believe that these incentives positively impact the Companys
performance and profitability. Coworker Bonus and Stock Incentive Plans.In addition to regular compensation,
we provide coworkers with additional long-term incentives designed to maximize performance and
productivity. To this end, we have adopted various stock-based compensation plans which enable
coworkers to share in the Companys success through appreciation in the value of the Companys
stock. We have historically rewarded every coworker with an annual stock option grant as a part of their
compensation. Trademarks and Trade Names We conduct business under a number of trademarks, trade names and service marks including
CDW, CDW. THE RIGHT TECHNOLOGY. RIGHT AWAY., CDW@WORK, CDW-G, CDW-G@WORK, CDW
SOLUTIONEDGE, and CDW MACWAREHOUSE. We have taken steps to protect these marks, some of which
are registered, and believe they have significant value and are important factors in our marketing
programs. Certain Factors Affecting CDWs Business There are many factors that affect our business and the results of operations, some of which
are beyond our control. The following is a description of some important factors that may cause
the actual results of operations in future periods to differ materially from those currently
expected or desired. Our sales and profitability may be affected by changes in the economic environment and other
factors.There are many factors which could affect our business, including:  
    the capital and technology spending patterns of existing and prospective customers;
    general economic trends;
    the addition of new customers and further penetration of our existing customer base;
    the productivity and retention of our sales force; 7




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
    the optimization of our product mix and pricing strategies;
    the availability of products from our vendors;
    the successful development of new technology and products by equipment manufacturers
and software developers; and
    new competitors and new forms of competition. Our business depends on our vendor relationships and the availability of products.We
purchase products for resale from manufacturers, distributors and other sources, all of whom we
consider our vendors. During 2004, we purchased approximately 50% of the products we sold directly
from manufacturers and the remaining amount from distributors and other sources. We are authorized
by manufacturers to sell all or some of their products via direct marketing activities. Our
authorization with each manufacturer is subject to specific terms and conditions regarding such
things as product return privileges, price protection policies, purchase discounts and vendor
incentive programs, including purchase rebates, sales volume rebates and cooperative advertising
reimbursements. From time to time, vendors may terminate our right to sell some or all of their products or
change these terms and conditions or reduce or discontinue the incentives that they offer us. Any
such termination or the implementation of such changes could have a negative impact on our
operating income. Additionally, some products are subject to manufacturer allocation, which limits
the number of units of those products that are available to resellers, including us. Sales of Cisco, Hewlett-Packard, IBM, Microsoft, Sony and Toshiba products comprise a
substantial portion of our sales. In 2004, sales of products manufactured by Hewlett-Packard
represented approximately 28% of our total sales and, therefore, we are dependent on the economic
condition and product competitiveness of, and our business relationship with, this manufacturer in
particular. In addition, although we purchase from a diverse vendor base, in 2004, products we
purchased from distributors Ingram Micro and Tech Data represented approximately 19% and 16%,
respectively, of our total purchases. The loss of, or change in business relationship with, any of
these or any other key vendors, or the diminished availability of their products, could reduce the
supply and increase the cost of products we sell and negatively impact our competitive position.
Additionally, the relocation of key distributors utilized in our purchasing model could adversely
impact our results of operations. Although to date mergers among manufacturers have not had an
adverse impact on our business and results of operations, further consolidation could adversely
impact us. The success of our business depends on the continuing development, maintenance and operation
of our information technology systems.Our success is dependent on the accuracy, proper
utilization and continuing development of our information technology systems, including our
business application systems, Web servers and telephony system. The quality and our utilization of
the information generated by our information technology systems, and our success in implementing
new systems and upgrades, affects, among other things, our ability to:  
    conduct business with our customers;
    manage our inventory and accounts receivable;
    purchase, sell, ship and invoice our products efficiently and on a timely basis; and
    maintain our cost-efficient operating model. The integrity of our information technology systems is vulnerable to certain forms of disaster
including, but not limited to, natural disasters such as tornadoes. While we have taken steps to
protect our information technology systems from a variety of threats, including computer viruses
and malicious hackers, there can be no guarantee that those steps will be effective. Furthermore,
although we have redundant systems at a separate location to back up our primary application
systems, there can be no assurance that these redundant systems will operate properly if and when
required. Any disruption to or infiltration of our information technology systems could
significantly harm our business and results of operations. 8




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Our sales are dependent on the continued development of new technologies and products.
The market for computers and related technology products and services has evolved as a result of
the development of new technologies that are transformed by manufacturers into new products and
applications. We have been and will continue to be dependent on the development of new
technologies and products by manufacturers, as well as the acceptance of those technologies and
products by customers. A decrease in the rate of development of new technologies and new products
by manufacturers, or the lack of acceptance of those technologies and products by customers, could
have an adverse effect on our business and results of operations. We would be adversely affected if we are not able to expand or retain our sales force or if we
are not able to maintain or increase their productivity.Our statistics show that the level of
sales achieved by our account managers increases with the number of years of experience they have
with us. Our rate of sales growth and our operating results would be negatively affected if we are
unable to expand the size of our sales force, if the turnover rate of account managers increases
from relatively constant historical levels or if the sales volumes achieved by our account managers
do not increase with experience. Substantial competition could reduce our market share and significantly harm our financial
performance.The market for computers and related technology products and accessories is highly
competitive. Our competition includes:  
    national direct marketers, such as Insight Enterprises, PC Connection, PC Mall and Zones;
    manufacturers, such as Dell, who sell directly to customers;
    computer superstores, such as CompUSA;
    government resellers, such as GTSI;
    consumer electronic and office supply superstores, such as Best Buy, Circuit City,
Office Depot, Office Max and Staples;
    value-added resellers;
    corporate resellers; and
    Web resellers, such as Amazon.com and Buy.com. Some of our hardware and software vendors, such as Hewlett-Packard and IBM, have sold, and
could intensify their efforts to sell, their products directly to customers. In addition, some
software manufacturers have developed, and may continue to develop, sales methods that directly
provide customers with subscription-based software programs and packages. If either of these
trends becomes more prevalent, it could adversely affect our sales growth and profitability. We believe that competition may increase in the future, which could require us to reduce
prices, increase advertising expenditures or take other actions which may have an adverse effect on
our operating results. Some of our competitors have reduced their prices in an attempt to
stimulate sales. Decreasing prices of computers and related technology products and accessories
resulting from competition and technological changes require us to sell a greater number of
products to achieve the same level of net sales and gross profit. If this trend continues and we
are unable to attract new customers and sell increased quantities of products, our sales growth and
profitability could be adversely affected. We are exposed to inventory risks.We are exposed to inventory risks as a result of the rapid
technological changes that affect the market and pricing for the products we sell. We seek to
minimize our inventory exposure through a variety of inventory management procedures and policies,
including our rapid-turn inventory model, as well as vendor price protection and product return
programs. However, if we were unable to maintain our rapid-turn inventory model, if there were
unforeseen product developments or if vendors were to change their terms and conditions, our
inventory risks could increase. We also periodically take advantage of cost savings associated
with certain opportunistic bulk inventory purchases offered by our vendors. These bulk purchases
could increase our exposure to inventory obsolescence. Our future operating results may fluctuate significantly.We may experience significant
variations in our future quarterly results of operations. These fluctuations may result from many
factors, including the condition 9




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of the information technology industry in general, shifts in demand and pricing for hardware
and software products and the introduction of new products or upgrades. Our operating results are
also highly dependent on our level of gross profit as a percentage of net sales. Our gross profit
percentage fluctuates due to numerous factors, some of which may be outside of our control. These
factors include:  
    our pricing strategies;
    changes in product costs from vendors;
    the availability of price protection, purchase discounts and rebate programs from vendors;
    the availability of cooperative advertising funds from vendors, which are classified as
a reduction of cost of sales;
    the risk of some of the items in our inventory becoming obsolete;
    the relative mix of products sold, and customers sold to, during the period;
    general market and competitive conditions; and
    increases in shipping costs that we cannot pass on to customers. A natural disaster or other adverse occurrence at our primary facility could damage our
business.We operate our business from a primary facility in Vernon Hills, Illinois. Although we
have multiple sales office locations, substantially all of our corporate, warehouse and
distribution functions are located at our Vernon Hills facility. If the warehouse and distribution
equipment at our Vernon Hills facility were to be seriously damaged by a natural disaster or other
adverse occurrence, we could utilize third-party distributors to ship products to our customers.
However, this may not be sufficient to avoid interruptions in our service and may not enable us to
meet all of the needs of our customers. Additionally, this would cause us to incur incremental
operating costs. As a result, a natural disaster or other adverse occurrence at our primary
facility in Vernon Hills could negatively impact our business and profitability. We are heavily dependent on commercial delivery services.We generally ship our products to
customers by A.I.T., DHL, Eagle, FedEx, FedEx Ground, Menlo, United Parcel Service and other
commercial delivery services and invoice customers for shipping charges. If we are unable to pass
on to our customers future increases in the cost of commercial delivery services, our profitability
could be adversely affected. Additionally, strikes or other service interruptions by such shippers
could adversely affect our ability to deliver products on a timely basis. Our earnings and growth rate could be adversely affected by changes in general economic
conditions and uncertain geopolitical conditions.Weak general economic conditions, along with
uncertainties in geopolitical conditions, could adversely impact our revenues and growth rate. In
addition, our revenues, gross margins and earnings could deteriorate in the future as a result of
unfavorable economic or political conditions. We could be exposed to additional risks when we make acquisitions or alliances.We may pursue
transactions, including acquisitions or alliances, to extend or complement our existing business.
These types of transactions involve numerous risks, including investor acceptance, finding suitable
transaction partners and negotiating terms that are acceptable to us, the diversion of managements
attention from other business concerns, entering product or geographic markets in which we have
limited experience, the potential loss of key coworkers or business relationships and successfully
integrating acquired businesses, any of which could adversely affect our operations or the price of
our stock. The failure to comply with our public sector contracts could result in, among other things,
fines or other liabilities.Revenues from the public sector segment are derived from sales to
federal, state and local governmental departments and agencies, as well as to educational
institutions, through various contracts and open market sales. Government contracting is a highly
regulated area. Noncompliance with government procurement regulations or contract provisions could
result in civil, criminal, and administrative liability, including substantial monetary fines or
damages, termination of government contracts, and suspension, debarment or ineligibility from doing
business with the government. The effect of any of these possible actions by any governmental
department or agency could adversely affect our business and results of operations. 10




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We are exposed to the risks of a global market.Portions of our products are either produced,
or have major components produced, in the Asia Pacific region. We engage in U.S. dollar
denominated transactions with U.S. divisions and subsidiaries of companies located in this region.
As a result, we may be indirectly affected by risks associated with international events, including
economic and labor conditions, political instability, tariffs and taxes, availability of products
and currency fluctuations in the U.S. dollar versus the regional currencies. In the past,
countries in the Asia Pacific region have experienced volatility in their currency, banking and
equity markets. Future volatility could adversely affect the supply and price of products and
components and ultimately, our results of operations. We are exposed to litigation risk.CDW is party to legal proceedings that arise from time to
time, both with respect to specific transactions, such as our acquisition of selected U.S. assets
of Micro Warehouse, and in the ordinary course of our business. We do not believe that any
currently pending or threatened litigation will have a material adverse effect on our financial
position. Litigation, however, involves uncertainties and it is possible that the eventual outcome
of litigation could adversely affect our results of operations for a particular period. 
  Item 2.
    Properties. The following table shows the location of our various facilities across the United States and
in Canada. For more information on lease obligations, see Note 8 to the Consolidated Financial
Statements.  Square
    
    Owned /Location
    
    Footage
    
    Leased
    
    Purpose10 S. Riverside, Chicago, Illinois
    
    
    72,000
    
    
    Leased
    
    Sales Office120 S. Riverside, Chicago, Illinois
    
    
    72,000
    
    
    Leased
    
    Sales Office315 W. Grand, Chicago, Illinois
    
    
    9,000
    
    
    Leased
    
    Business Technology CenterEatontown, New Jersey
    
    
    35,000
    
    
    Leased
    
    Sales OfficeEtobicoke, Ontario, Canada
    
    
    18,000
    
    
    Leased
    
    Corporate Office / Sales OfficeHerndon, Virginia
    
    
    19,000
    
    
    Leased
    
    Sales OfficeMettawa, Illinois
    
    
    156,000
    
    
    Leased
    
    Sales OfficeShelton, Connecticut
    
    
    18,000
    
    
    Leased
    
    Sales OfficeCorporate Office / Distribution Center /Vernon Hills, Illinois
    
    
    550,000
    
    
    Owned
    
    Business Technology CenterVoorhees, New Jersey
    
    
    18,000
    
    
    Leased
    
    Sales Office
 In February 2005, we signed a lease for a 513,240 square foot distribution center to be
constructed in North Las Vegas, Nevada. We expect this new facility to be completed and
operational by the end of 2005. 
  Item 3.
    Legal Proceedings. On September 9, 2003, CDW completed the purchase of certain assets of Bridgeport Holdings,
Inc., Micro Warehouse, Inc., Micro Warehouse, Inc. of Ohio, and Micro Warehouse Gov/Ed, Inc.
(collectively, Micro Warehouse). On September 10, 2003, Micro Warehouse filed voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the Bankruptcy Code)
in the United States Bankruptcy Court for the District of Delaware (Case No. 03-12825). On January
20, 2004, the Official Committee of Unsecured Creditors (the Committee) appointed in the Micro
Warehouse bankruptcy proceedings filed a motion with the court seeking the production of certain
documents for review and certain representatives of CDW for depositions. On February 12, 2004, the
Bankruptcy Court entered an order approving a stipulation between the Committee and CDW whereby CDW
consented to the Committees production requests. Pursuant to the 11




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##### Table of Contents



stipulation, CDW produced the requested documents and certain CDW representatives were deposed. In
a subsequent filing with the Bankruptcy Court, the Committee stated its belief that the Micro
Warehouse estate has a claim against CDW for a transfer of assets for less than reasonably
equivalent value arising from the sale of such assets to CDW. The Bankruptcy Court confirmed a
plan of distribution with respect to Micro Warehouse which became effective on October 14, 2004.
In connection therewith, any such claim that the estate had against CDW was transferred to the
Bridgeport Holdings, Inc. Liquidating Trust (the Liquidating Trust). On March 3, 2005, the
Liquidating Trust filed a civil claim against CDW in the United States Bankruptcy Court for the
District of Delaware. The Liquidating Trust alleges that CDW did not pay reasonably equivalent
value for the assets it acquired from Micro Warehouse and seeks to have CDWs purchase of Micro
Warehouse set aside and an amount of damages, to be determined at trial, paid to it. CDW believes
that it paid reasonably equivalent value for the assets it acquired from Micro Warehouse and
believes that the outcome of this claim will not have a material adverse effect on CDWs financial
condition. 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 these preference items will not have a material 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, such as the purchase of certain assets from Micro Warehouse described
above, and in the ordinary course of our business. We do not believe that any currently pending or
threatened litigation will have a material adverse effect on our financial position. Litigation,
however, involves uncertainties and it is possible that the eventual outcome of litigation could
adversely affect our results of operations for a particular period. 
  Item 4.
    Submission of Matters to a Vote of Security Holders. There were no matters submitted during the fourth quarter of 2004 to a vote of security
holders. 
 PART II 
  Item 5.
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The following table sets forth for the periods indicated the high and low sales prices for the
Companys common stock, which is traded on The Nasdaq Stock
Market® under the symbol CDWC. As of
January 21, 2005 there were approximately 16,000 beneficial owners of the Companys common stock.
On May 20, 2004, our Board of Directors declared an annual cash dividend of $0.36 per share,
totaling $30.0 million, payable on June 30, 2004, to shareholders of record on June 16, 2004. On
July 23, 2003, our Board of Directors declared an annual cash dividend of $0.30 per share, totaling
$24.9 million, payable on September 26, 2003, to shareholders of record on September 12, 2003.
Although in future years we plan to announce any dividend following the annual shareholders
meeting, typically held in May, the timing and amount of any future dividends will depend upon the
earnings, cash requirements and financial condition of the Company and other factors deemed
relevant by our Board of Directors. 12




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##### Table of Contents



2004
    
    
    2003Quarter Ended
    
    Low
    
    
    High
    
    
    Low
    
    
    HighMarch 31
    
    $
    58.06
    
    
    $
    74.45
    
    
    $
    36.30
    
    
    $
    47.45June 30
    
    $
    61.30
    
    
    $
    70.93
    
    
    $
    38.86
    
    
    $
    46.65September 30
    
    $
    56.07
    
    
    $
    65.20
    
    
    $
    44.93
    
    
    $
    60.55December 31
    
    $
    56.61
    
    
    $
    68.26
    
    
    $
    55.91
    
    
    $
    63.65
 We did not repurchase any shares of our common stock in the three months ended December 31, 2004. 13




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##### Table of Contents



Item 6.
    Selected Financial Data CDW Corporation and Subsidiaries
Selected Financial Data
(in thousands, except per share amounts) Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Income Statement Data:Net sales
    
    $
    5,737,774
    
    
    $
    4,664,616
    
    
    $
    4,264,579
    
    
    $
    3,961,545
    
    
    $
    3,842,452Income from operations
    
    $
    392,759
    
    
    $
    284,458
    
    
    $
    298,178
    
    
    $
    268,198
    
    
    $
    259,608Net income
    
    $
    241,445
    
    
    $
    175,186
    (1)
    
    $
    185,249
    
    
    $
    168,686
    
    
    $
    162,269Earnings per share:Basic
    
    $
    2.90
    
    
    $
    2.10
    (1)
    
    $
    2.18
    
    
    $
    1.97
    
    
    $
    1.87Diluted
    
    $
    2.79
    
    
    $
    2.03
    (1)
    
    $
    2.10
    
    
    $
    1.89
    
    
    $
    1.79Dividends per share
    
    $
    0.36
    
    
    $
    0.30
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
 December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Financial Position:Cash, cash
equivalents and
marketable securities
    
    $
    603,623
    
    
    $
    562,360
    
    
    $
    504,614
    
    
    $
    394,381
    
    
    $
    202,621Total assets
    
    $
    1,520,935
    
    
    $
    1,311,632
    
    
    $
    1,095,664
    
    
    $
    937,029
    
    
    $
    748,437Total debt and
capitalized lease
obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  (1)
    
    Includes $22.3 million ($13.5 million after tax) of transaction and integration expenses
recorded in connection with the Micro Warehouse transactions. These expenses impacted basic
and diluted earnings per share by $0.16 per share. 14




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##### Table of Contents



Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our Consolidated Financial Statements and the Notes thereto. Overview We are 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, macwarehouse.com and CDW.ca, our Web sites. For financial reporting purposes, we have two operating segments: corporate, which is
primarily comprised of business customers, but also includes consumers (which generated
approximately 2% of net sales in 2004 and 2003); and public sector, which is comprised of federal,
state and local government entities and educational institutions who are served by CDW Government,
Inc. (CDW-G), a wholly-owned subsidiary. CDW management monitors a number of financial and non-financial measures and ratios on a
daily, weekly, and monthly basis in order to track the progress of the business and make
adjustments as necessary. We believe that the most important of these measures and ratios include
daily sales, by business segment and total company, gross margin, number of orders shipped per day,
number of orders shipped complete per day, inventory balance and turnover, cash, cash equivalents
and marketable securities balance, accounts receivable balance and aging, and operating expenses.
The measures and ratios are compared to standards or targets set by management, so that actions can
be taken, as necessary, in order to achieve the standards and targets. 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 as of 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 are believed to be 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. Actual results could differ from
those estimates, and revisions to estimates are included in our results for the period in which the
actual amounts become known. The estimates and assumptions used in accounting for revenue
recognition, inventory valuation and vendor transactions have the most significant impact on our
consolidated financial statements, and therefore, are considered to be our critical accounting
policies. The following discussion details the estimates and assumptions associated with these
policies. Revenue recognition.We record revenues from sales transactions when both risk of loss and
title to products sold pass to the customer. Our shipping terms dictate that the passage of title
occurs upon receipt of products by the customer. The majority of our revenues relate to physical
products and are recognized on a gross basis with the selling price to the customer recorded as net
sales and the acquisition cost of the product recorded as cost of sales. Software assurance
products, third party services and extended warranties that we sell (for which we are not the
primary obligor) are recognized on a net basis in accordance with SEC Staff Accounting Bulletin No.
104, Revenue Recognition and Emerging Issues Task Force 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent. Accordingly, such revenues are recognized in net sales either
at the time of sale or over the contract period, based on the nature of the contract, at the net
amount retained by us, with no cost of sales. In accordance with this revenue recognition policy, we estimate the value of products that
have shipped but that have not been received by the customer and record an adjustment to reverse
the impact of these sales out of our results for the current period and into our results for the
subsequent period. In doing so, we perform an analysis to determine the estimated number of days
that product is in transit, using data from commercial 15




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##### Table of Contents



delivery services. Changes in delivery patterns may result in a different number of business
days used in making this adjustment and could have a material impact on our revenue recognition for
the current period. Inventory valuation.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. Many of our vendors price protect
our inventory purchases for a specified period of time. If vendors were to change these programs,
additional inventory write-downs may be required. Vendor transactions.We receive incentives from vendors related to cooperative advertising
allowances, volume rebates, bid programs, price protection and other programs. These incentives
generally relate to written agreements with specified performance requirements with the vendors and
are recorded as adjustments to cost of sales or net advertising expense, as appropriate. Vendors
may change the terms of some or all of these programs which could have an impact on our results of
operations. The inability to collect receivables related to these vendor transactions could have a
material impact on gross margin and operating income. In 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. Recently Issued or Newly Adopted Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 123R, Share-Based Payment (SFAS 123R), which requires the
Company to measure all share-based payments to coworkers under our stock-based compensation plans
using a fair-value-based method and record compensation expense related to these payments in our
consolidated financial statements. SFAS 123R is effective for the first interim or annual period
beginning after June 15, 2005, therefore, we are required to adopt SFAS 123R in the third quarter
of 2005. The pro forma disclosures previously required under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123) will no longer be an
alternative to financial statement recognition. Note 2 to our Consolidated Financial Statements
presents pro forma net income and earnings per share amounts as if we had applied the fair value
recognition provisions of SFAS 123 to stock-based employee compensation, which would have reduced
reported diluted earnings per share by $0.32, $0.28 and $0.29 for the years ended December 31,
2004, 2003 and 2002, respectively. We are currently evaluating the requirements of SFAS 123R and
have not yet determined whether the adoption of SFAS 123R will result in compensation expense of an
amount similar to the current pro forma disclosures under SFAS 123. We intend to use the modified
prospective application transition method, which allows for prospective recognition of compensation
expense without restatement of prior interim periods in the year of adoption. See Note 3 to our Consolidated Financial Statements for information on other recently issued
or newly adopted accounting pronouncements. 16




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##### Table of Contents



Results of Operations The following table sets forth for the periods indicated information derived from our
consolidated statements of income expressed as a percentage of net sales: Percentage of Net SalesFinancial Results
    
    
    Years Ended December 31,2004
    
    
    
    2003
    
    
    
    2002Net sales
    
    
    
    100.0
    %
    
    
    
    100.0
    %
    
    
    
    100.0
    %Cost of sales
    
    
    
    84.8
    
    
    
    
    85.6
    
    
    
    
    86.8Gross profit
    
    
    
    15.2
    
    
    
    
    14.4
    
    
    
    
    13.2Selling and
administrative expenses
    
    
    
    6.7
    
    
    
    
    7.0
    
    
    
    
    6.1Net advertising expenses
    
    
    
    1.6
    
    
    
    
    1.3
    
    
    
    
    0.1Income from operations
    
    
    
    6.9
    
    
    
    
    6.1
    
    
    
    
    7.0Interest and other income
    
    
    
    0.1
    
    
    
    
    0.1
    
    
    
    
    0.2Income before income taxes
    
    
    
    7.0
    
    
    
    
    6.2
    
    
    
    
    7.2Income tax provision
    
    
    
    2.8
    
    
    
    
    2.4
    
    
    
    
    2.8Net income
    
    
    
    4.2
    %
    
    
    
    3.8
    %
    
    
    
    4.4
    %
 The following table sets forth for the periods indicated a summary of certain of our
consolidated operating statistics: Operating Statistics
    
    
    Years Ended December 31,2004
    
    
    
    2003
    
    
    
    2002Number of invoices processed
    
    
    
    6,302,462
    
    
    
    
    5,431,041
    
    
    
    
    4,995,459Average invoice size
    
    
    
    $984
    
    
    
    
    $916
    
    
    
    
    $935% of sales to commercial customers (1)
    
    
    
    98.1
    %
    
    
    
    97.9
    %
    
    
    
    97.4
    %Sales force, end of period
    
    
    
    2,012
    
    
    
    
    1,924
    
    
    
    
    1,320Annualized inventory turnover (2)
    
    
    
    24
    
    
    
    
    24
    
    
    
    
    Accounts receivable  days sales outstanding (3)
    
    
    
    37
    
    
    
    
    35
    
    
    
    
    29Direct web sales (000s)
    
    
    
    $1,525,712
    
    
    
    
    $1,056,761
    
    
    
    
    $829,233Net sales per coworker (000s)
    
    
    
    $1,504
    
    
    
    
    $1,402
    
    
    
    
    $1,508Return on shareholders equity
    
    
    
    21.1
    %
    
    
    
    17.8
    %
    
    
    
    22.8
    %
  (1)
    Commercial customers is defined as public sector and corporate customers excluding consumers.(2)
    Starting in 2004, annualized inventory turnover is computed on an average daily basis.
Annualized inventory turnover for 2003 has been restated using the new method. Due to the
inability to recapture daily inventory information, we were not able to calculate the 2002 statistic
using the new method.(3)
    The increase in accounts receivable  days sales outstanding is primarily due to a higher
percentage of sales on terms and a larger proportion of accounts receivable from federal
government customers, which typically have a longer pay cycle than corporate customers. 17




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##### Table of Contents



The following table presents net sales dollars by product category as a percentage of total
net sales dollars. Product lines are based upon internal product code classifications. Analysis of Product Mix
    
    
    Years Ended December 31,2004
    
    
    
    2003
    
    
    
    2002Notebook computers and accessories
    
    
    
    13.6
    %
    
    
    
    12.6
    %
    
    
    
    12.5
    %Desktop computers and servers
    
    
    
    13.8
    
    
    
    
    13.2
    
    
    
    
    13.4Subtotal computer products
    
    
    
    27.4
    
    
    
    
    25.8
    
    
    
    
    25.9Software
    
    
    
    16.9
    
    
    
    
    16.8
    
    
    
    
    17.9Data storage devices
    
    
    
    13.3
    
    
    
    
    14.1
    
    
    
    
    14.2Printers
    
    
    
    12.8
    
    
    
    
    13.8
    
    
    
    
    13.3NetComm products
    
    
    
    8.7
    
    
    
    
    9.2
    
    
    
    
    9.4Video
    
    
    
    9.4
    
    
    
    
    9.0
    
    
    
    
    8.8Add-on boards/memory
    
    
    
    4.6
    
    
    
    
    4.4
    
    
    
    
    4.2Input devices
    
    
    
    3.3
    
    
    
    
    3.5
    
    
    
    
    3.2Other
    
    
    
    3.6
    
    
    
    
    3.4
    
    
    
    
    3.1Total
    
    
    
    100.0
    %
    
    
    
    100.0
    %
    
    
    
    100.0
    %
 The following table represents the change in year-over-year sales dollars by product category
for each of the periods indicated. Product lines are based upon internal product code
classifications. Analysis of Product Category Growth
    
    
    Years Ended December 31,2004
    
    
    
    2003
    
    
    
    2002Notebook computers and accessories
    
    
    
    30.4
    %
    
    
    
    10.4
    %
    
    
    
    (8.3
    )%Desktop computers and servers
    
    
    
    27.9
    
    
    
    
    8.2
    
    
    
    
    7.4Subtotal computer products
    
    
    
    29.1
    
    
    
    
    9.3
    
    
    
    
    (0.8
    )Software
    
    
    
    24.0
    
    
    
    
    2.7
    
    
    
    
    14.0Data storage devices
    
    
    
    15.9
    
    
    
    
    8.7
    
    
    
    
    5.1Printers
    
    
    
    12.9
    
    
    
    
    13.9
    
    
    
    
    11.1NetComm products
    
    
    
    16.4
    
    
    
    
    7.4
    
    
    
    
    6.6Video
    
    
    
    27.6
    
    
    
    
    11.7
    
    
    
    
    13.3Add-on boards/memory
    
    
    
    26.9
    
    
    
    
    14.1
    
    
    
    
    5.7Input devices
    
    
    
    18.9
    
    
    
    
    17.7
    
    
    
    
    20.7Other
    
    
    
    32.6
    
    
    
    
    20.3
    
    
    
    
    27.0
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 Net sales in 2004 increased 23.0% to a record $5.738 billion, compared to $4.665 billion in
2003. The increase in net sales was due to both organic growth along with the current year
including a full year of sales made by former members of the Micro Warehouse sales force who joined
CDW in September 2003 in conjunction with the Micro Warehouse transactions. We experienced
double-digit unit volume growth in most product categories on a year-over-year basis. Sales of
notebook computers and accessories, desktop computers and servers, software, video and add-on
boards/memory each increased over 20% in 2004 over 2003. Corporate segment sales increased 23.3%,
to $4.407 billion in 2004 from $3.575 billion in 2003, and comprised 76.8% of our total sales for
2004. Public sector segment sales increased 22.2%, to $1.330 billion in 2004 from $1.089 billion
in 2003, and comprised 23.2% of our total sales for 2004. 18




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In general, the average selling price of most of our product categories decreased in 2004 from
2003. This decrease in average selling price is a trend experienced across our industry. Such
decreases require us to generate more orders and sell more units in order to maintain or increase
the level of sales. Gross profit increased 29.1% to $870.1 million in 2004, compared to $673.8 million in 2003.
As a percentage of net sales, gross profit was 15.2% in 2004, compared to 14.4% in 2003. The
increase in the gross profit percentage was primarily due to an increase in vendor volume rebates,
an increase in cooperative advertising funds classified as a reduction of cost of sales, and an
increase in net service contract revenue. Vendor volume rebates increased due to achieving goals
set by our vendor partners. Cooperative advertising funds classified as a reduction of cost of
sales increased due to a higher level of cooperative advertising funds received from our vendors
and the classification of a higher percentage of these funds as a reduction of cost of sales rather
than as a reduction of advertising expense in 2004. The increase in net service contract revenue
is due to higher sales of products accounted for on a net basis, such as warranties and software
assurance products. Our objective for gross profit as a percentage of net sales is between 14.50% and 15.25%. The
gross profit margin depends on various factors, including vendor rebate and inventory price
protection programs, cooperative advertising funds classified as a reduction of cost of sales,
product mix, including third party services, pricing strategies, market conditions, and other
factors, any of which could result in changes in gross margins from recent experience. Selling and administrative expenses increased 18.9% to $386.6 million in 2004, compared to
$325.2 million in 2003, while decreasing as a percentage of net sales to 6.7% versus 7.0% in 2003.
Included in selling and administrative expenses in 2004 and 2003 were $3.9 million and $20.2
million of transaction and integration expenses related to the Micro Warehouse transactions. The
primary drivers of the increase in selling and administrative expenses are discussed below.  
    Payroll costs increased $51.1 million, primarily due to our continued investment in our
sales force and increases in administrative areas to support a larger and growing
business. Our sales force increased from 1,924 at December 31, 2003, to 2,012 at December
31, 2004. Our sales force consists of account managers (including field sales
representatives) as well as product category specialists who provide consultation in areas
requiring technical or specialized product expertise such as networking, security, data
storage, and volume software licensing. Payroll costs for 2004 and 2003 also included
$1.5 million and $4.9 million, respectively, of expenses for former Micro Warehouse
employees performing transition services.
    Employee-related costs (which include items such as profit sharing, incentive awards,
and insurance) increased $5.4 million, primarily due to increased insurance costs
resulting from higher insurance rates, higher medical and prescription expenses and
coverage for a larger number of coworkers. In 2003, employee-related costs included $1.6
million of employee benefits related to the Micro Warehouse transactions.
    Occupancy costs increased $4.7 million, primarily due to additional office facilities
for our locations on the East coast. We also incurred expenses, such as duplicate rents,
while we transitioned some locations to new office facilities. Occupancy costs for 2004
and 2003 included $0.8 and $0.7 million, respectively, of facility expenses related to the
Micro Warehouse transactions.
    Other selling and administrative costs increased $0.3 million. Other selling and
administrative costs for 2004 and 2003 included $1.6 million and $13.0 million,
respectively, of costs related to the Micro Warehouse transactions. Excluding these
costs, the increase in other selling and administrative costs is primarily due to
increased administrative expenses required to support a larger business, such as
professional fees, telephone expenses, and travel and entertainment expenses. The $1.6
million of costs related to the Micro Warehouse transactions in 2004 included $2.0 million
for an increase in the reserve for equipment purchased from Micro Warehouse in its
Wilmington, Ohio distribution center 19




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and $2.0 million of legal fees, partially offset by $2.4 million of income from collections
of accounts receivable generated by Micro Warehouse prior to the Micro Warehouse
transactions. Net advertising expense increased to $90.8 million in 2004, compared to $64.1 million in 2003.
This was due to an increase in gross advertising expense and an increase in cooperative
advertising funds classified as a reduction of cost of sales rather than as a reduction of
advertising expense in 2004 compared to 2003 in accordance with Emerging Issues Task Force Issue
No. 02-16, Accounting for Consideration Received from a Vendor by a Customer (Including a Reseller
of the Vendors Products) (EITF 02-16), adopted on January 1, 2003. Net advertising expense in
2003 included $1.5 million of customer communication and advertising costs related to the Micro
Warehouse transactions. Gross advertising expense increased to $99.8 million in 2004 compared to
$92.0 million in 2003, while decreasing as a percentage of net sales to 1.7% versus 2.0% in 2003. Consolidated operating income was $392.8 million in 2004, a 38.1% increase from $284.5 million
in 2003. Consolidated operating income as a percentage of net sales increased to 6.9% in 2004,
compared to 6.1% in 2003. Corporate segment operating income was $354.1 million in 2004, a 38.0%
increase from $256.6 million in 2003. In 2003, corporate segment operating income included $22.0
million of cost of sales, selling and administrative, and net advertising expenses related to the
Micro Warehouse transactions. Public sector segment operating income was $38.6 million in 2004, a
38.5% increase from $27.9 million in 2003. The effective income tax rate, expressed as a percentage of income before income taxes, was
39.6% in 2004 and 39.5% in 2003. Net income in 2004 was $241.4 million, a 37.8% increase from $175.2 million in 2003. Diluted
earnings per share were $2.79 in 2004, an increase of 37.4% from $2.03 in 2003. The 2003 results
included $22.3 million ($13.5 million after tax) of transaction and integration expenses related to
the Micro Warehouse transactions, or a $0.16 per share impact on basic and diluted earnings per
share. Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Net sales in 2003 increased 9.4% to $4.665 billion, compared to $4.265 billion in 2002. Of
the 9.4% growth in sales, approximately half is attributed to the addition of customers as a result
of the Micro Warehouse transactions. The other half is due to a more favorable I.T. spending
environment, particularly toward the end of 2003, and our investment in our sales force, with the
addition of 191 new account managers in 2003 (excluding former members of the Micro Warehouse sales
force who joined CDW in conjunction with the Micro Warehouse transactions). Sales of notebook
computers and accessories, printers, video, add-on boards/memory, and input devices each increased
over 10% in 2003 over 2002. Corporate segment sales increased 5.2% from $3.399 billion in 2002 to
$3.575 billion in 2003, and comprised 76.7% of our total sales for 2003. Public sector segment
sales increased 25.8%, from $865 million in 2002 to $1.089 billion in 2003, and comprised 23.3% of
our total sales for 2003. In general, the average selling price of most of our product categories decreased from 2002.
Such decreases require us to generate more orders and sell more units in order to maintain or
increase the level of sales. Gross profit increased 19.5% to $673.8 million in 2003, compared to $563.8 million in 2002.
As a percentage of net sales, gross profit was 14.4% in 2003, compared to 13.2% in 2002. The
increase in the gross profit percentage was primarily due to the adoption in January 2003 of EITF
02-16. The income statement classification provisions of EITF 02-16 cover vendor consideration
related to agreements entered into or modified after January 1, 2003. This pronouncement requires
that consideration from vendors, such as advertising support funds, be accounted for as a reduction
of cost of sales unless certain requirements are met showing that the funds are used for a specific
program entirely funded by an individual vendor. If these specific requirements related to
individual vendors are met, the consideration is accounted for as a reduction in the related
expense category, such as advertising or selling and administrative expense. We provide numerous
advertising programs to support vendors, including catalogs, television, radio, Internet, 20




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magazine, and newspaper advertising for which we receive consideration. Some of these
programs relate to multiple vendors, while others are performed on behalf of individual vendors for
specific projects. As a consequence of adopting EITF 02-16, we recorded $62.7 million of vendor consideration as
a reduction of cost of sales in 2003, which would have previously been recorded as a reduction of
advertising expense ($60.9 million) and selling and administrative expense ($1.8 million).
Excluding the impact of EITF 02-16, and therefore on a non-GAAP basis, the gross profit margin
would have been 13.1% in 2003 compared to 13.2% in 2002. The non-GAAP gross profit margin is
included in this discussion because the Company believes it provides a meaningful comparison to
reported results of prior periods. The gross profit margin depends on various factors, including vendor rebate and inventory
price protection programs, cooperative advertising funds classified as a reduction of cost of sales, product mix, including third party services, pricing strategies, market
conditions, and other factors. Selling and administrative expenses increased 24.3% to $325.2 million in 2003, compared to
$261.6 million in 2002. Included in selling and administrative expenses in 2003 were $20.2 million
of transaction and integration expenses related to the Micro Warehouse transactions. The primary
drivers of the increase in selling and administrative expenses are discussed below.  
    Payroll costs increased $43.0 million, including $4.9 million of expenses for former
Micro Warehouse employees performing transition services. The remainder of the increase
in payroll costs was due to an increase in our sales force from 1,320 at December 31, 2002
to 1,924 at December 31, 2003, including 413 former members of the Micro Warehouse sales
force who joined CDW in September 2003 in conjunction with the Micro Warehouse
transactions. Our sales force consists of account managers (including field sales
representatives) as well as product category specialists who provide consultation in areas
requiring technical or specialized product expertise such as networking, security, data
storage, and volume software licensing.
    Employee-related costs (which includes items such as profit sharing, incentive awards,
and insurance) increased $2.3 million, including $1.6 million in employee benefits related
to the Micro Warehouse transactions.
    Occupancy costs increased $1.6 million, including $0.7 million in facility expenses
related to the Micro Warehouse transactions.
    Other selling and administrative costs increased $16.7 million, including $13.0 million
of costs related to the Micro Warehouse transactions. Of the $13.0 million of costs, $8.0
million relates to severance and outplacement costs, customer satisfaction expenses, and
legal and accounting advisory fees. The remaining $5.0 million relates to a reserve
established for the equipment in a Wilmington, Ohio distribution center leased by Micro
Warehouse. In September 2003, in conjunction with our purchase of selected U.S. assets of
Micro Warehouse, we agreed to assume the lease for the distribution center and purchase
the equipment in the facility for $8.0 million if requested by Micro Warehouse. In
February 2004, under the terms of a modified agreement, we purchased the equipment and
forfeited leasing the distribution center in exchange for $8.25 million. The purchase
price of the equipment in the facility of $8.0 million, net of the reserve of $5.0
million, reflected the estimated realizable value of the equipment to CDW. Selling and administrative expenses increased to 7.0% of net sales in 2003 versus 6.1% in 2002.
Transaction and integration expenses recorded in connection with the Micro Warehouse transactions,
totaling $20.2 million, accounted for 0.5% of the increase in selling and administrative expenses
as a percentage of net sales. The remainder of the increase was primarily due to the increase in
payroll costs described above resulting from additions to our sales force. 21




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Net advertising expense increased to $64.1 million in 2003, compared to $4.0 million in 2002.
This increase is primarily due to the adoption of EITF 02-16, which resulted in the
reclassification of $60.9 million of vendor consideration to a reduction of cost of sales, which
would previously have been recorded as a reduction of advertising expense. Additionally, $1.5
million of the increase is due to customer communication and advertising costs related to the Micro
Warehouse transactions. Gross advertising expense increased slightly, to $92.0 million in 2003,
compared to $89.1 million in 2002, while decreasing as a percentage of net sales to 2.0% versus
2.1% in 2002. Excluding the impact of EITF 02-16, and therefore on a non-GAAP basis, cooperative
advertising reimbursements increased 4.4% to $88.7 million in 2003, compared to $85.0 million in
2002. This non-GAAP measurement is included because the Company believes it provides a more
meaningful comparison to reported results of prior periods. Consolidated operating income was $284.5 million in 2003, a 4.6% decrease from $298.2 million
in 2002. Consolidated operating income as a percentage of net sales decreased to 6.1% in 2003,
compared to 7.0% in 2002. Corporate segment operating income was $256.6 million in 2003, a 9.0%
decrease from $281.9 million in 2002. The decrease in corporate segment operating income was due
to $22.0 million of cost of sales, selling and administrative, and net advertising expenses related
to the Micro Warehouse transactions, and increased payroll costs related to the investment in our
sales force and former members of the Micro Warehouse sales force who joined CDW. Public sector
segment operating income was $27.9 million in 2003, a 71.5% increase from $16.3 million in 2002.
As a percentage of net sales, public sector segment operating income increased to 2.6% in 2003,
compared to 1.9% in 2002. The increase in public sector operating income was due to increased
sales and higher gross margin. The effective income tax rate, expressed as a percentage of income before income taxes, was
39.5% in 2003 and 2002. Net income in 2003 was $175.2 million, a 5.4% decrease from $185.2 million in 2002. Diluted
earnings per share were $2.03 in 2003, a decrease of 3.3% from $2.10 in 2002. These results
include $22.3 million ($13.5 million after tax) of transaction and integration expenses recorded in
connection with the Micro Warehouse transactions, or a $0.16 per share impact on basic and diluted
earnings per share. Seasonality Sales in our corporate segment, which serves primarily business and, to a small extent,
consumer customers, have not historically experienced significant seasonality throughout the year.
In contrast, sales in our public sector segment have historically been higher in the third quarter
than in other quarters due to the buying patterns of federal government and education customers.
If sales to public sector customers continue to increase as a percentage of overall sales, the
Company as a whole may experience increased seasonality in future periods. Legal Proceedings For a description of certain legal proceedings, see Item 3 of Part I of this Form 10-K. Liquidity and Capital Resources Working Capital We have historically financed our operations and capital expenditures primarily through cash
flow from operations. At December 31, 2004, we had cash, cash equivalents, and current marketable
securities of $478.2 million, representing an increase of $80.6 million in cash, cash equivalents,
and current marketable securities from December 31, 2003. Our working capital increased $215.2
million, to $1,036.9 million at December 31, 2004 from $821.7 million at December 31, 2003. The
increase in working capital was a result of increases in cash, cash equivalents, and current marketable
securities, accounts receivable and merchandise inventory, partially offset by increases in
accounts payable and accrued expenses. The increases in these categories are primarily due to our
sales growth. 22




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We have an aggregate $70 million available pursuant to two $35 million unsecured lines of
credit with two financial institutions. One line of credit expires in June 2005, at which time we
intend to renew the line, and the other does not have a fixed expiration date. Borrowings under
the first credit facility bear interest at the prime rate less 2.5%, LIBOR plus 0.5% or the federal
funds rate plus 0.5%, as determined by the Company. Borrowings under the second credit facility
bear interest at the prime rate less 2.5%, LIBOR plus 0.45% or the federal funds rate plus 0.45%,
as determined by the Company. At December 31, 2004, there were no borrowings under either of the
credit facilities. We have entered into security agreements with certain financial institutions in order to
facilitate the purchase of inventory from various suppliers under certain terms and conditions.
The agreements allow for a maximum credit line of $70.0 million collateralized by inventory
purchases financed by the financial institutions. At December 31, 2004 and 2003, we owed the
financial institutions approximately $29.3 million and $19.6 million, respectively, which is
included in trade accounts payable. Pursuant to share repurchase programs authorized by our Board of Directors, we purchased
1,352,300 shares of our common stock in 2004 at a total cost of $86.0 million (an average price of
$63.60 per share) and 1,852,424 shares of our common stock in 2003 at a total cost of $76.3 million
(an average price of $41.20 per share). We have authority under a repurchase program authorized in
July 2004 to repurchase up to 3,786,900 additional shares. These purchases may be made from time
to time in both open market and private transactions, as conditions warrant. This repurchase
program is expected to remain in effect through July 2006, unless earlier terminated by the Board
or completed. Repurchased shares are held in treasury pending use for general corporate purposes,
including issuances under various employee stock plans. On May 20, 2004, our Board of Directors declared an annual cash dividend to shareholders.
This dividend of $0.36 per share, totaling $30.0 million, was paid on June 30, 2004, to
shareholders of record on June 16, 2004. We paid a dividend of $0.30 per share, totaling $24.9
million, on September 26, 2003. In future years, we plan to announce any dividend following the
annual shareholders meeting, typically held in May. The timing and amount of any future dividends
will depend upon the earnings, cash requirements and financial condition of the Company and other
factors deemed relevant by our Board of Directors. We currently have one distribution center, located with our corporate headquarters, in Vernon
Hills, Illinois. The capacity of this distribution center should be sufficient to handle our
expected growth in sales and shipments at least through 2005, based on current projections. We
will continue to make investments in this distribution center to further automate the facility and
increase its efficiency. In February 2005, we signed a lease for a new distribution center to be
constructed in North Las Vegas, Nevada, to support the Companys projected growth beyond 2005. We
expect the new facility to be completed and operational by the end of 2005. Capital expenditures
for machinery, equipment and leasehold improvements related to this second distribution center are
anticipated to be approximately $30 to $40 million in 2005 and will cause capital expenditures in 2005 to
be significantly higher than recent years. However, we believe that our internally generated cash
flow will be sufficient to cover these capital expenditures. In addition, we expect to incur
approximately $5 to $6 million of operating and start-up costs related to this facility, primarily
in the third and fourth quarters of 2005. Our current and anticipated uses of our cash, cash equivalents and marketable securities are
to fund growth in working capital and capital expenditures necessary to support future growth in
sales, our stock buyback program, potential dividends and possible expansion through acquisitions.
We believe that the funds held in cash, cash equivalents and marketable securities, and funds
available under the credit facilities, will be sufficient to fund our working capital and cash
requirements for the foreseeable future. Cash Flows Net cash provided by operating activities in 2004 was $184.2 million compared to $125.4
million in 2003. The primary factors that affected our cash flow from operations were net income,
accounts receivable, and accounts payable. Accounts receivable increased from $444.0 million at
December 31, 2003 to $580.0 million at December 31, 2004. The increase in accounts receivable was
primarily due to an increase in sales and a larger portion of business being done on terms rather
than on credit cards. Accounts payable increased to 23




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$168.1 million at December 31, 2004, compared to $149.1 million at December 31, 2003. The
accounts payable balance fluctuates due to our normal cycle of payments. The increase in accounts
payable at December 31, 2004 was primarily due to this periodic fluctuation. The change in
accounts payable reflected in cash provided from operating activities also includes the impact of a
$37.0 million decrease in book overdrafts between December 31, 2003 and December 31, 2004. Net cash used in investing activities for the year ended December 31, 2004 was $139.9 million.
This includes $115.5 million used to purchase marketable securities and $22.1 million used for
capital expenditures. Additionally, $2.3 million was used in the sale of our interest in CDW
Leasing, LLC (CDW-L), as CDW-Ls cash balance at the time of sale exceeded the proceeds received
by us. Capital expenditures related primarily to computer software and leasehold improvements. Net cash used in financing activities for the year ended December 31, 2004 was $118.1 million.
This includes the payment of cash dividends totaling $30.0 million, the repurchase of 1,352,300
shares of our common stock at a total cost of $86.0 million, and the impact of a $37.0 million
decrease in book overdrafts between December 31, 2003 and December 31, 2004. These items were
partially offset by proceeds of $30.3 million from the exercise of stock options under our various
stock option plans and $4.5 million from the issuance of common stock in connection with the
Employee Stock Purchase Plan. 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 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 in 2003 by less than $0.01 per share. Aggregate Contractual Obligations At December 31, 2004, we were obligated under various operating lease agreements, primarily
for sales office facilities, that expire at various dates through 2015. 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,
2004, 2003 and 2002, rent expense was $13.8 million, $11.3 million and $9.8 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, 2004 (in
thousands): Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    Over 5 yearsOperating leases
    
    $
    54,153
    
    
    $
    7,268
    
    
    $
    16,284
    
    
    $
    17,184
    
    
    $
    13,417
 In February 2005, we signed a lease for a new distribution center to be constructed in North
Las Vegas, Nevada. See Note 19 to the Consolidated Financial Statements for more information on
this subsequent event. 24




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Any statements in this report that are forward-looking (that is, not historical in nature) are
made pursuant to the safe harbor provisions of The Private Securities Litigation Reform Act of
1995. Such forward-looking statements include, for example, statements concerning the Companys
sales growth, gross profit as a percentage of sales, advertising expense and cooperative
advertising reimbursements. In addition, words such as likely, may, would, could,
should, anticipate, believe, estimate, expect, intend, plan, and similar expressions,
may identify forward-looking statements in this report. Forward-looking statements in this report
are based on the Companys beliefs and expectations as of the date of this report and are subject
to risks and uncertainties, including those outlined in detail in this report in Item 1  Business
under the heading Certain Factors Affecting CDWs Business and other factors identified from time
to time in the Companys filings with the Securities and Exchange Commission. Such risks and
uncertainties may have a significant impact on the Companys business, operating results or
financial condition. Investors are cautioned that these forward-looking statements are inherently
uncertain. Should one or more of the risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results or outcomes may vary materially from those described
herein. 
 Item 7A.Quantitative and Qualitative Disclosures About Market Risk. The Companys investments in marketable securities as of December 31, 2004 all mature before
December 1, 2006 and are concentrated in U.S. Government and Government agency securities,
municipal bonds and corporate fixed income securities. As such, the risk of significant changes in
the value of these securities as a result of a change in market interest rates is minimal. 25




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Item 8.Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageManagements Report on Internal Control Over Financial Reporting
    
    
    27Report of Independent Registered Public Accounting Firm
    
    
    28Consolidated Balance Sheets as of
December 31, 2004 and 2003
    
    
    30Consolidated Statements of Income for the years ended
December 31, 2004, 2003 and 2002
    
    
    31Consolidated Statements of Shareholders Equity for the years ended
December 31, 2004, 2003 and 2002
    
    
    32Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002
    
    
    33Notes to Consolidated Financial Statements
    
    
    34
 26




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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision
and with the participation of our management, including our chief executive officer and our chief
financial officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under
the framework in Internal Control  Integrated Framework, our management concluded that our
internal control over financial reporting was effective as of December 31, 2004. Our managements assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report, which is included herein. CDW Corporation
Vernon Hills, Illinois
March 15, 2005 27




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and
Shareholders of CDW Corporation: We have completed an integrated audit of CDW Corporations 2004 consolidated financial statements
and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003
and 2002 consolidated financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits, are presented
below. Consolidated financial statements and financial statement schedule In our opinion, the consolidated financial statements listed in the index appearing under Item
15(a)(1) present fairly, in all material respects, the financial position of CDW Corporation and
its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2)
presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit of financial statements includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. As discussed in Note 3 to the Consolidated Financial Statements, on January 1, 2003, the Company
adopted Emerging Issues Task Force Issue No. 02-16, Accounting by a Customer (including a
Reseller) for Certain Consideration Received from a Vendor. As discussed in Note 18 to the
Consolidated Financial Statements, on January 1, 2003, the Company adopted Financial Accounting
Standards Board Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees. As discussed in Note 3 to the Consolidated Financial Statements, during 2003 the
Company adopted Financial Accounting Standards Board Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities, an interpretation of ARB 51. Internal control over financial reporting Also, in our opinion, managements assessment, included in Managements Report on Internal
Control Over Financial Reporting appearing on page 27 of the Companys Annual Report on Form 10-K
for the year ended December 31, 2004, that the Company maintained effective internal control over
financial reporting as of December 31, 2004 based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2004, based on criteria established in
Internal Control  Integrated Framework issued by the COSO. The Companys management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on managements assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We conducted our audit of internal
control over financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. An audit of internal control over financial
reporting includes obtaining an 28




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##### Table of Contents



understanding of internal control over financial reporting, evaluating managements assessment,
testing and evaluating the design and operating effectiveness of internal control, and performing
such other procedures as we consider necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions. A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP  
 29




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands) December 31,2004
    
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    148,804
    
    
    $
    222,425Marketable securities
    
    
    329,393
    
    
    
    175,210Accounts receivable, net of allowance for doubtful
accounts of $9,890 and $10,057, respectively
    
    
    580,035
    
    
    
    444,000Merchandise inventory
    
    
    213,222
    
    
    
    183,890Miscellaneous receivables
    
    
    24,364
    
    
    
    28,517Deferred income taxes
    
    
    13,718
    
    
    
    12,147Prepaid expenses
    
    
    6,901
    
    
    
    3,994Total current assets
    
    
    1,316,437
    
    
    
    1,070,183Marketable securities
    
    
    125,426
    
    
    
    164,725Property and equipment, net
    
    
    68,595
    
    
    
    62,323Other assets
    
    
    10,477
    
    
    
    14,401Total assets
    
    $
    1,520,935
    
    
    $
    1,311,632Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    168,061
    
    
    $
    149,074Accrued expenses:Compensation
    
    
    41,178
    
    
    
    39,246Income taxes
    
    
    14,661
    
    
    
    14,419Other
    
    
    55,618
    
    
    
    45,724Total current liabilities
    
    
    279,518
    
    
    
    248,463Commitments and contingencies
    
    
    
    
    
    
    Minority interest
    
    
    
    
    
    
    1,985Shareholders equity:Preferred shares, $1.00 par value; 5,000 shares authorized;
none issued
    
    
    
    
    
    
    Common shares, $.01 par value; 500,000 shares authorized;
92,197 and 90,903 shares issued, respectively
    
    
    922
    
    
    
    909Paid-in capital
    
    
    462,953
    
    
    
    408,413Retained earnings
    
    
    1,168,285
    
    
    
    956,867Unearned compensation
    
    
    (17
    )
    
    
    (269
    )Accumulated other comprehensive income
    
    
    203
    
    
    
    1831,632,346
    
    
    
    1,366,103Less cost of common shares in treasury; 8,913 shares and
7,561 shares, respectively
    
    
    (390,929
    )
    
    
    (304,919
    )Total shareholders equity
    
    
    1,241,417
    
    
    
    1,061,184Total liabilities and shareholders equity
    
    $
    1,520,935
    
    
    $
    1,311,632
 The accompanying notes are an integral part of the consolidated financial statements. 30




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data) Years Ended December 31,2004
    
    
    2003
    
    
    2002Net sales
    
    $
    5,737,774
    
    
    $
    4,664,616
    
    
    $
    4,264,579Cost of sales
    
    
    4,867,650
    
    
    
    3,990,824
    
    
    
    3,700,744Gross profit
    
    
    870,124
    
    
    
    673,792
    
    
    
    563,835Selling and administrative expenses
    
    
    386,563
    
    
    
    325,205
    
    
    
    261,611Net advertising expense
    
    
    90,802
    
    
    
    64,129
    
    
    
    4,046Income from operations
    
    
    392,759
    
    
    
    284,458
    
    
    
    298,178Interest income
    
    
    8,968
    
    
    
    7,225
    
    
    
    9,548Other expense, net
    
    
    (1,867
    )
    
    
    (2,119
    )
    
    
    (1,529
    )Income before income taxes
    
    
    399,860
    
    
    
    289,564
    
    
    
    306,197Income tax provision
    
    
    158,415
    
    
    
    114,378
    
    
    
    120,948Net income
    
    $
    241,445
    
    
    $
    175,186
    
    
    $
    185,249Earnings per share:Basic
    
    $
    2.90
    
    
    $
    2.10
    
    
    $
    2.18Diluted
    
    $
    2.79
    
    
    $
    2.03
    
    
    $
    2.10Weighted-average number of
common shares outstanding:Basic
    
    
    83,391
    
    
    
    83,329
    
    
    
    84,862Diluted
    
    
    86,552
    
    
    
    86,175
    
    
    
    88,296Dividends per share
    
    $
    0.36
    
    
    $
    0.30
    
    
    $
    0.00
 The accompanying notes are an integral part of the consolidated financial statements. 31




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands) AccumulatedTotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherShareholders
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Unearned
    
    
    Treasury
    
    
    Comprehensive
    
    
    ComprehensiveEquity
    
    
    Shares
    
    
    Capital
    
    
    Earnings
    
    
    Compensation
    
    
    Shares
    
    
    Income
    
    
    IncomeBalance at December 31, 2001
    
    $
    778,657
    
    
    $
    885
    
    
    $
    258,708
    
    
    $
    621,299
    
    
    $
    (1,931
    )
    
    $
    (100,304
    )
    
    $
    MPK Restricted Stock Plan forfeitures
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    Amortization of unearned compensation
    
    
    1,072
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,072
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    17,837
    
    
    
    12
    
    
    
    17,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax benefit from stock option and
restricted stock transactions
    
    
    69,543
    
    
    
    
    
    
    
    69,543
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury shares
    
    
    (128,291
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (128,291
    )
    
    
    Net income
    
    
    185,249
    
    
    
    
    
    
    
    
    
    
    
    185,249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    185,249Net unrealized gains on marketable
securities
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    185,252Balance at December 31, 2002
    
    
    924,070
    
    
    
    897
    
    
    
    346,054
    
    
    
    806,548
    
    
    
    (837
    )
    
    
    (228,595
    )
    
    
    3Amortization of unearned compensation
    
    
    568
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    568
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    22,878
    
    
    
    11
    
    
    
    22,867
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock in connection
with Employee Stock Purchase Plan
    
    
    3,014
    
    
    
    1
    
    
    
    3,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax benefit from stock option and
restricted stock transactions
    
    
    36,479
    
    
    
    
    
    
    
    36,479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury shares
    
    
    (76,324
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,324
    )
    
    
    Cash dividends
    
    
    (24,867
    )
    
    
    
    
    
    
    
    
    
    
    (24,867
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    175,186
    
    
    
    
    
    
    
    
    
    
    
    175,186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    175,186Net unrealized (losses) on marketable
securities
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Foreign currency translation adjustment
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    183Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    175,366Balance at December 31, 2003
    
    
    1,061,184
    
    
    
    909
    
    
    
    408,413
    
    
    
    956,867
    
    
    
    (269
    )
    
    
    (304,919
    )
    
    
    183Amortization of unearned compensation
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    Compensatory restricted stock grant
    
    
    62
    
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    30,348
    
    
    
    12
    
    
    
    30,336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock in connection
with Employee Stock Purchase Plan
    
    
    4,518
    
    
    
    1
    
    
    
    4,517
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax benefit from stock option and
restricted stock transactions
    
    
    19,625
    
    
    
    
    
    
    
    19,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury shares
    
    
    (86,010
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (86,010
    )
    
    
    Cash dividends
    
    
    (30,027
    )
    
    
    
    
    
    
    
    
    
    
    (30,027
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    241,445
    
    
    
    
    
    
    
    
    
    
    
    241,445
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    241,445Net unrealized (losses) on marketable
securities
    
    
    (237
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (237
    )
    
    
    (237
    )Foreign currency translation adjustment
    
    
    257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    257
    
    
    
    257Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    241,465Balance at December 31, 2004
    
    $
    1,241,417
    
    
    $
    922
    
    
    $
    462,953
    
    
    $
    1,168,285
    
    
    $
    (17
    )
    
    $
    (390,929
    )
    
    $
    203
 The accompanying notes are an integral part of the consolidated financial statements. 32




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Years Ended December 31,2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income
    
    $
    241,445
    
    
    $
    175,186
    
    
    $
    185,249Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    16,998
    
    
    
    15,135
    
    
    
    15,564Accretion of marketable securities
    
    
    392
    
    
    
    1,031
    
    
    
    699Stock-based compensation expense
    
    
    314
    
    
    
    568
    
    
    
    1,072Allowance for doubtful accounts
    
    
    (167
    )
    
    
    (789
    )
    
    
    1,000Deferred income taxes
    
    
    2,217
    
    
    
    1,773
    
    
    
    (1,446
    )Tax benefit from stock option and restricted stock transactions
    
    
    19,625
    
    
    
    36,479
    
    
    
    69,543Minority interest
    
    
    446
    
    
    
    
    
    
    
    Gain on sale of investment in CDW Leasing, LLC
    
    
    (287
    )
    
    
    
    
    
    
    Changes in assets and liabilities, net of assets acquired:Accounts receivable
    
    
    (135,868
    )
    
    
    (105,723
    )
    
    
    (15,679
    )Miscellaneous receivables and other assets
    
    
    1,208
    
    
    
    (12,180
    )
    
    
    (5,391
    )Merchandise inventory
    
    
    (29,332
    )
    
    
    (17,025
    )
    
    
    (31,668
    )Prepaid expenses
    
    
    (2,907
    )
    
    
    218
    
    
    
    (757
    )Accounts payable
    
    
    55,953
    
    
    
    8,501
    
    
    
    (390
    )Accrued compensation
    
    
    1,932
    
    
    
    5,476
    
    
    
    4,944Accrued income taxes and other expenses
    
    
    12,237
    
    
    
    16,768
    
    
    
    8,668Net cash provided by operating activities
    
    
    184,206
    
    
    
    125,418
    
    
    
    231,408Cash flows from investing activities:Purchases of available-for-sale securities
    
    
    (464,790
    )
    
    
    (244,725
    )
    
    
    (303,567
    )Redemptions of available-for-sale securities
    
    
    391,475
    
    
    
    244,740
    
    
    
    358,142Purchases of held-to-maturity securities
    
    
    (174,030
    )
    
    
    (362,219
    )
    
    
    (298,786
    )Redemptions of held-to-maturity securities
    
    
    131,832
    
    
    
    368,709
    
    
    
    144,445Investment in and advances to joint venture
    
    
    
    
    
    
    (118
    )
    
    
    (8,956
    )Repayment of advances from joint venture
    
    
    
    
    
    
    3,500
    
    
    
    9,510Purchase of property and equipment
    
    
    (22,113
    )
    
    
    (11,380
    )
    
    
    (10,579
    )Purchase of selected U.S. assets of Micro Warehouse
    
    
    
    
    
    
    (20,000
    )
    
    
    Purchase of Canadian operations of Micro Warehouse
    
    
    
    
    
    
    (2,744
    )
    
    
    Consolidation of joint venture
    
    
    
    
    
    
    2,254
    
    
    
    Sale of investment in CDW Leasing, LLC, net of cash sold
    
    
    (2,321
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (139,947
    )
    
    
    (21,983
    )
    
    
    (109,791
    )Cash flows from financing activities:Purchase of treasury shares
    
    
    (86,010
    )
    
    
    (76,324
    )
    
    
    (128,291
    )Proceeds from exercise of stock options
    
    
    30,348
    
    
    
    22,879
    
    
    
    17,837Issuance of common stock in connection with Employee Stock
Purchase Plan
    
    
    4,518
    
    
    
    3,013
    
    
    
    Dividends paid
    
    
    (30,027
    )
    
    
    (24,867
    )
    
    
    Change in book overdrafts
    
    
    (36,966
    )
    
    
    36,966
    
    
    
    Net cash used in financing activities
    
    
    (118,137
    )
    
    
    (38,333
    )
    
    
    (110,454
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    257
    
    
    
    183
    
    
    
    Net (decrease)/increase in cash
    
    
    (73,621
    )
    
    
    65,285
    
    
    
    11,163Cash and cash equivalents  beginning of period
    
    
    222,425
    
    
    
    157,140
    
    
    
    145,977Cash and cash equivalents  end of period
    
    $
    148,804
    
    
    $
    222,425
    
    
    $
    157,140Supplementary disclosure of cash flow information:Taxes paid
    
    $
    134,769
    
    
    $
    80,614
    
    
    $
    42,684
 The accompanying notes are an integral part of the consolidated financial statements. 33




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    Description of BusinessCDW 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, macwarehouse.com and CDW.ca, our Web
sites.2.
    Summary of Significant Accounting PoliciesPresented 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 ConsolidationThe accompanying consolidated financial statements include the accounts of CDW Corporation and
our wholly-owned subsidiaries. All intercompany transactions and accounts are eliminated in
consolidation. As described in Note 13, one of our wholly-owned subsidiaries, CDW Capital
Corporation (CDWCC), owned a 50 percent interest in CDW Leasing, LLC (CDW-L) until CDWCC
sold its interest in CDW-L effective August 1, 2004. In accordance with Financial Accounting
Standards Board (FASB) Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Entities, an interpretation of ARB 51, we consolidated CDW-L beginning on
December 31, 2003.Use of EstimatesThe 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. 34




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##### Table of Contents



Inventory valuation.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, volume rebates, bid programs, price protection and other programs. These
incentives generally relate to written agreements with specified performance requirements with
the vendors and are recorded as adjustments to cost of sales or net advertising expense, as
appropriate. Vendors may change the terms of some or all of these programs which could have an
impact on our results of operations. 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 have purchased intangible assets, such as customer lists, which have
finite lives. These intangible assets are amortized over the estimated economic lives,
generally seven years. Reclassifications Certain reclassifications have been made to the prior year financial statements to conform to
the current year presentation. 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 11. Cash and Cash Equivalents Cash and cash equivalents include all deposits in banks and short-term, highly liquid
investments that are readily convertible to known amounts of cash and are so near maturity that
there is insignificant risk of changes in value due to interest rate changes. Marketable Securities We classify securities with a stated maturity, which we intend to hold to maturity, as
held-to-maturity, and record such securities at amortized cost. Securities which do not have
stated maturities or which we do not intend to hold to maturity are classified as
available-for-sale and recorded at fair value, with unrealized holding gains or losses
recorded as a separate component of Shareholders Equity. We do not invest in trading
securities. All securities are accounted for on a specific identification basis. Our marketable securities are concentrated in securities of the U.S. Government, U.S.
Government agencies and municipal bonds. Such investments are supported by the financial
stability and credit standing of the U.S. Government or applicable U.S. Government agency or
municipality. 35




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##### Table of Contents



Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. As
previously discussed in this footnote, the allowance for doubtful accounts is our best estimate
of losses resulting from the inability of our customers to make required payments. Merchandise Inventory Inventory is valued at the lower of cost or market. Cost is determined on the first-in,
first-out method. Property and Equipment Property and equipment are stated at cost. We calculate depreciation using the straight-line
method over the useful lives of the assets. Expenditures for major renewals and improvements
that extend the useful life of property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred. The following table shows
estimated useful lives of property and equipment: Classification
    
    Estimated Useful LivesMachinery and equipment
    
    5 to 15 yearsBuilding and leasehold improvements
    
    5 to 15 yearsComputer and data processing equipment
    
    2 to 3 yearsComputer software
    
    3 to 5 yearsFurniture and fixtures
    
    5 years
 Revenue Recognition We record revenues from sales transactions when both risk of loss and title to products sold
pass to the customer. Our shipping terms dictate that the passage of title occurs upon receipt
of products by the customer. The majority of our revenues relate to physical products and are
recognized on a gross basis with the selling price to the customer recorded as net sales and
the acquisition cost of the product recorded as cost of sales. At the time of sale, we also
record an estimate for sales returns based on historical experience. Software assurance
products, third party services and extended warranties that we sell (for which we are not the
primary obligor) are recognized on a net basis in accordance with SEC Staff Accounting Bulletin
No. 104, Revenue Recognition and Emerging Issues Task Force 99-19, Reporting Revenue Gross
as a Principal versus Net as an Agent. Accordingly, such revenues are recognized in net sales
either at the time of sale or over the contract period, based on the nature of the contract, at
the net amount retained by us, with no cost of sales. In accordance with EITF 00-10,
Accounting for Shipping and Handling Fees and Costs, we record freight billed to our
customers as net sales and the related freight costs as a cost of sales. Vendor rebates are
recorded when earned as a reduction of cost of sales. Price protection is recorded when earned
as a reduction to cost of sales or merchandise inventory, as applicable. Advertising Advertising costs are charged to expense in the period incurred. Cooperative reimbursements
from vendors are recorded in the period the related advertising expenditure is incurred. The
following table summarizes advertising costs and cooperative reimbursements for the years ended
December 31, 2004, 2003 and 2002, respectively (in thousands): 2004
    
    
    2003
    
    
    2002Gross advertising expenses
    
    $
    99,791
    
    
    $
    91,963
    
    
    $
    89,079Less cooperative reimbursements
    
    
    (8,989
    )
    
    
    (27,834
    )
    
    
    (85,033
    )Net advertising expenses
    
    $
    90,802
    
    
    $
    64,129
    
    
    $
    4,046
 36




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Cooperative reimbursements are lower in 2004 and 2003 than in prior years as $91.3 and $60.9
million of vendor consideration which would have previously been classified as cooperative
reimbursements were classified as a reduction of cost of sales due to the adoption of Emerging
Issues Task Force (EITF) Issue No. 02-16, Accounting for Consideration Received from a
Vendor by a Customer (Including a Reseller of the Vendors Products) (EITF 02-16) on January
1, 2003. Stock-Based Compensation At December 31, 2004, we had several stock-based employee compensation plans, which are
described more fully in Note 10. In accordance with Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), we account for our
stock-based compensation programs according to the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Accordingly,
compensation expense is recognized to the extent of employee or director services rendered
based on the intrinsic value of compensatory options or shares granted under the plans. The
following table illustrates the effect on net income and earnings per share if we had applied
the fair value recognition provisions of SFAS 123 to stock-based employee compensation for the
years ended December 31, 2004, 2003 and 2002, respectively (in thousands, except per share
amounts): 2004
    
    
    2003
    
    
    2002Net income, as reported
    
    $
    241,445
    
    
    $
    175,186
    
    
    $
    185,249Add stock-based employee compensation
expense included in reported net
income, net of related tax effects
    
    
    190
    
    
    
    344
    
    
    
    649Deduct total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects
    
    
    (26,795
    )
    
    
    (24,709
    )
    
    
    (26,123
    )Pro forma net income
    
    $
    214,840
    
    
    $
    150,821
    
    
    $
    159,775Basic earnings per share, as reported
    
    $
    2.90
    
    
    $
    2.10
    
    
    $
    2.18Diluted earnings per share, as reported
    
    $
    2.79
    
    
    $
    2.03
    
    
    $
    2.10Pro forma basic earnings per share
    
    $
    2.58
    
    
    $
    1.81
    
    
    $
    1.88Pro forma diluted earnings per share
    
    $
    2.47
    
    
    $
    1.75
    
    
    $
    1.81
 Fair Value of Financial Instruments We estimate that the fair market value of all of our financial instruments at December 31, 2004
and 2003 are not materially different from the aggregate carrying value due to the short-term
nature of these instruments or the nature of the underlying securities. Treasury Shares We intend to hold repurchased shares in treasury for general corporate purposes, including
issuances under various employee stock option plans. We account for the treasury shares using
the cost method. Foreign Currency Translation Our functional currency is the U.S. dollar. The functional currency of our Canadian subsidiary
is the local currency, the Canadian dollar. Assets and liabilities of this subsidiary are
translated at the spot rate in 37




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##### Table of Contents



effect at the applicable reporting date and the results of operations are translated at the
average exchange rates in effect during the applicable period. The resulting foreign currency
translation adjustment is recorded as accumulated other comprehensive income, which is
reflected as a separate component of shareholders equity.3.
    Recently Issued or Newly Adopted Accounting StandardsIn December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 123R, Share-Based Payment (SFAS 123R), which requires
the Company to measure all share-based payments to coworkers under our stock-based compensation
plans using a fair-value-based method and record compensation expense related to these payments
in our consolidated financial statements. SFAS 123R is effective for the first interim or
annual period beginning after June 15, 2005, therefore, we are required to adopt SFAS 123R in
the third quarter of 2005. The pro forma disclosures previously required under SFAS 123 will
no longer be an alternative to financial statement recognition. Note 2 presents pro forma net
income and earnings per share amounts as if we had applied the fair value recognition
provisions of SFAS 123 to stock-based employee compensation, which would have reduced reported
diluted earnings per share by $0.32, $0.28 and $0.29 for the years ended December 31, 2004,
2003 and 2002, respectively. We are currently evaluating the requirements of SFAS 123R and
have not yet determined whether the adoption of SFAS 123R will result in compensation expense
of an amount similar to the current pro forma disclosures under SFAS 123. We intend to use the
modified prospective application transition method, which allows for prospective recognition of
compensation expense without restatement of prior interim periods in the year of adoption.Emerging Issues Task Force (EITF) Issue No. 02-16, Accounting for Consideration Received
from a Vendor by a Customer (Including a Reseller of the Vendors Products) (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 recognized in the resellers income statement unless certain conditions are
met showing that the funds are used for a specific program entirely funded by an individual
vendor. If these specific requirements related to individual vendors are met, the
consideration is accounted for as a reduction in the related expense category, such as
advertising or selling and administrative expense. EITF 02-16 applies to all agreements
modified or entered into on or after January 1, 2003. As a result of adopting EITF 02-16, we
recorded $95.4 and $62.7 million of vendor consideration as a reduction of cost of sales during
the years ended December 31, 2004 and 2003, respectively. Adopting EITF 02-16 had no impact on
our income from operations, as the vendor consideration recorded as a reduction of cost of
sales would previously have been recorded as a reduction of advertising expense and selling and
administrative expense.In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, an interpretation of ARB 51 (FIN 46). In December 2003, the FASB issued
a revised version of FIN 46, FASB Interpretation No. 46 (revised December 2003), Consolidation
of Variable Interest Entities, an interpretation of ARB 51 (FIN 46R), to clarify some of the
provisions of FIN 46 and to exempt certain entities from its requirements. FIN 46R requires
that the assets, liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the company that has the controlling financial
interest. FIN 46R also provides the framework for determining whether a variable interest
entity should be consolidated based on voting interests or significant financial support
provided to it. FIN 46R was effective for the Company on February 1, 2003 for variable
interest entities created after January 31, 2003. For variable interest entities or potential
variable interest entities commonly referred to as special-purpose entities created prior to
February 1, 2003, the FASB deferred the implementation date of FIN 46R to the period ending
after December 15, 2003. For potential variable interest entities that are not special-purpose
entities, FIN 46R was effective for the period ending after March 15, 2004. In accordance with
FIN 46R, the assets and liabilities of CDW-L were consolidated into our balance sheet as of
December 31, 2003, and we recorded a minority interest for our partners 50% interest in CDW-L.
We consolidated approximately $7.8 million and $3.4 million of assets and liabilities,
respectively, from CDW-L that were classified primarily as miscellaneous receivables and
accrued expenses at December 31, 2003. In a transaction that was effective August 1, 2004, we
sold our 50 percent interest in CDW-L. CDW-Ls results 38




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##### Table of Contents



of operations subsequent to December 31, 2003 and through the date of sale are included in our
statement of income with a minority interest for our partners 50% interest in CDW-L reflected
in other expense, net.4.
    Marketable SecuritiesThe amortized cost and estimated fair values of our investments in marketable securities at
December 31, 2004 and 2003 were (in thousands): GrossUnrealizedEstimated
    
    
    Holding
    
    
    AmortizedSecurity Type
    
    Fair Value
    
    
    Gains
    
    
    Losses
    
    
    CostDecember 31, 2004Available-for-sale:Municipal bonds
    
    $
    165,688
    
    
    $
    
    
    
    $
    (237
    )
    
    $
    165,925Corporate fixed income securities
    
    
    44,600
    
    
    
    
    
    
    
    
    
    
    
    44,600Total available-for-sale
    
    
    210,288
    
    
    
    
    
    
    
    (237
    )
    
    
    210,525Held-to-maturity:U.S. Government and Government
agency securities
    
    
    236,938
    
    
    
    
    
    
    
    (1,541
    )
    
    
    238,479Corporate fixed income securities
    
    
    6,003
    
    
    
    
    
    
    
    (49
    )
    
    
    6,052Total held-to-maturity
    
    
    242,941
    
    
    
    
    
    
    
    (1,590
    )
    
    
    244,531Total marketable securities
    
    $
    453,229
    
    
    $
    
    
    
    $
    (1,827
    )
    
    $
    455,056December 31, 2003Available-for-sale:Municipal bonds
    
    $
    112,600
    
    
    $
    
    
    
    $
    
    
    
    $
    112,600Corporate fixed income securities
    
    
    24,600
    
    
    
    
    
    
    
    
    
    
    
    24,600Total available-for-sale
    
    
    137,200
    
    
    
    
    
    
    
    
    
    
    
    137,200Held-to-maturity:U.S. Government and Government
agency securities
    
    
    195,507
    
    
    
    215
    
    
    
    
    
    
    
    195,292Municipal securities
    
    
    1,005
    
    
    
    
    
    
    
    (1
    )
    
    
    1,006Corporate fixed income securities
    
    
    6,434
    
    
    
    
    
    
    
    (3
    )
    
    
    6,437Total held-to-maturity
    
    
    202,946
    
    
    
    215
    
    
    
    (4
    )
    
    
    202,735Total marketable securities
    
    $
    340,146
    
    
    $
    215
    
    
    $
    (4
    )
    
    $
    339,935
 Estimated fair values of marketable securities are based on quoted market prices. The
amortized cost and estimated fair value of our investments in marketable securities at December
31, 2004 and 2003 by contractual maturity were (in thousands): Estimated
    
    
    AmortizedFair Value
    
    
    CostDecember 31, 2004Due in one year or less
    
    $
    328,613
    
    
    $
    329,393Due in greater than one year
    
    
    124,616
    
    
    
    125,663Total investments in marketable securities
    
    $
    453,229
    
    
    $
    455,056December 31, 2003Due in one year or less
    
    $
    175,316
    
    
    $
    175,210Due in greater than one year
    
    
    164,830
    
    
    
    164,725Total investments in marketable securities
    
    $
    340,146
    
    
    $
    339,935
 39




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##### Table of Contents



As of December 31, 2004 all of the marketable securities that are due after one year have
maturity dates prior to December 1, 2006.The gross unrealized holding gains and losses on available-for-sale securities are recorded as
accumulated other comprehensive income, which is reflected as a separate component of
shareholders equity. The gross realized gains and losses on marketable securities that are
included in other expense in the Consolidated Statements of Income are not material.5.
    Property and EquipmentProperty and equipment consists of the following (in thousands): December 31,2004
    
    
    2003Land
    
    $
    10,367
    
    
    $
    10,367Machinery and equipment
    
    
    38,215
    
    
    
    35,395Building and leasehold improvements
    
    
    33,519
    
    
    
    31,836Computer and data processing equipment
    
    
    36,501
    
    
    
    30,215Computer software
    
    
    22,658
    
    
    
    14,588Furniture and fixtures
    
    
    10,411
    
    
    
    8,392Construction in progress
    
    
    3,145
    
    
    
    2,361Total property and equipment
    
    
    154,816
    
    
    
    133,154Less accumulated depreciation
    
    
    86,221
    
    
    
    70,831Net property and equipment
    
    $
    68,595
    
    
    $
    62,323
  We own approximately 45 acres of land at our Vernon Hills, Illinois headquarters site, of which
approximately 11 acres are vacant.6.
    Financing ArrangementsWe have an aggregate $70 million available pursuant to two $35 million unsecured lines of
credit with two financial institutions. One line of credit expires in June 2005, at which time
we intend to renew the line, and the other does not have a fixed expiration date. Borrowings
under the first credit facility bear interest at the prime rate less 2.5%, LIBOR plus 0.5% or
the federal funds rate plus 0.5%, as determined by the Company. Borrowings under the second
credit facility bear interest at the prime rate less 2.5%, LIBOR plus 0.45% or the federal
funds rate plus 0.45%, as determined by the Company. At December 31, 2004, there were no
borrowings under either of the credit facilities.7.
    Trade Financing AgreementsWe have entered into security agreements with certain financial institutions in order to
facilitate the purchase of inventory from various suppliers under certain terms and
conditions. The agreements allow for a maximum credit line of $70.0 million collateralized by
inventory purchases financed by the financial institutions. At December 31, 2004 and 2003 we
owed the financial institutions approximately $29.3 million and $19.6 million, respectively,
which is included in trade accounts payable.8.
    Operating Leases and Exit CostsWe are obligated under various operating lease agreements, for sales office facilities that
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, 2004, 2003 and 2002, rent expense was $13.8 million, $11.3
million and $9.8 million, respectively. Future minimum lease payments are as follows (in
thousands): 40




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##### Table of Contents



Years Ended December 31,
    
    Amount2005
    
    $
    7,2682006
    
    
    7,9962007
    
    
    8,2882008
    
    
    8,4932009
    
    
    8,691Thereafter
    
    
    13,417Total future minimum lease payments
    
    $
    54,153
  In 1996, we recorded a $4.0 million pre-tax charge to operating results for exit costs relating
to our leased Buffalo Grove, Illinois facility. The exit costs consisted primarily of the
estimated cost to the Company of subleasing the vacated facility, including holding costs, the
estimated costs of restoring the building to its original condition and certain asset
write-offs resulting from the relocation. During 2004, 2003 and 2002, we charged approximately
$167,000, $898,000 and $764,000 against the exit accrual, respectively. These amounts include
cash payments for rent, real estate taxes and restoration, net of sublease payments.We discontinued use of the Buffalo Grove facility in the fourth quarter of 2002 and sales
personnel were relocated to the Mettawa, Illinois office. The Buffalo Grove lease term expired
in December 2003. We completed the restoration of the facility during 2004.9.
    Income TaxesPretax income from continuing operations for the years ended December 31, 2004, 2003 and 2002
was taxed under the following jurisdictions (in thousands): 2004
    
    
    2003
    
    
    2002Domestic
    
    $
    400,585
    
    
    $
    289,641
    
    
    $
    306,197Foreign
    
    
    (725
    )
    
    
    (77
    )
    
    
    Total
    
    $
    399,860
    
    
    $
    289,564
    
    
    $
    306,197
 Components of the provision (benefit) for income taxes for the years ended December 31, 2004,
2003 and 2002 consist of (in thousands): 2004
    
    
    2003
    
    
    2002Current:Federal
    
    $
    128,527
    
    
    $
    91,361
    
    
    $
    101,449State
    
    
    27,671
    
    
    
    21,244
    
    
    
    20,945Total current
    
    
    156,198
    
    
    
    112,605
    
    
    
    122,394Deferred
    
    
    2,217
    
    
    
    1,773
    
    
    
    (1,446
    )Provision for income taxes
    
    $
    158,415
    
    
    $
    114,378
    
    
    $
    120,948
 The current income tax liabilities for 2004, 2003 and 2002 were reduced by $19.6 million, $36.5
million and $69.5 million, respectively, for tax benefits recorded directly to paid-in capital
relating to the exercise and vesting of shares pursuant to the CDW Stock Option Plan, the MPK
Stock Option Plan and the MPK Restricted Stock Plan as described in Note 10. The reconciliation between the statutory tax rate expressed as a percentage of income before
income taxes and the actual effective tax rate for the years ended December 31, 2004, 2003 and
2002 is as follows (dollars in thousands): 41




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##### Table of Contents



2004
    
    
    2003
    
    
    2002Statutory federal income tax rate
    
    $
    139,951
    
    
    
    35.0
    %
    
    $
    101,347
    
    
    
    35.0
    %
    
    $
    107,169
    
    
    
    35.0
    %State taxes, net of federal benefit
    
    
    18,268
    
    
    
    4.6
    
    
    
    13,921
    
    
    
    4.8
    
    
    
    13,411
    
    
    
    4.4Change in valuation allowance
    
    
    290
    
    
    
    0.0
    
    
    
    31
    
    
    
    0.0
    
    
    
    
    
    
    
    0.0Other
    
    
    (94
    )
    
    
    0.0
    
    
    
    (921
    )
    
    
    (0.3
    )
    
    
    368
    
    
    
    0.1Effective tax rates
    
    $
    158,415
    
    
    
    39.6
    %
    
    $
    114,378
    
    
    
    39.5
    %
    
    $
    120,948
    
    
    
    39.5
    %
 The tax effect of temporary differences that give rise to the net deferred income tax asset at
December 31, 2004 and 2003 is presented below (in thousands): 2004
    
    
    2003Assets:Accounts receivable
    
    $
    4,142
    
    
    $
    4,824Payroll and benefits
    
    
    7,184
    
    
    
    5,399Employee stock plans
    
    
    3,118
    
    
    
    4,110Merchandise inventory
    
    
    860
    
    
    
    1,467Accrued expenses
    
    
    1,531
    
    
    
    457Exit charge
    
    
    
    
    
    
    130Loss carryforwards
    
    
    321
    
    
    
    31Other
    
    
    1,454
    
    
    
    638Gross deferred assets
    
    
    18,610
    
    
    
    17,056Liabilities:Property and equipment
    
    
    4,019
    
    
    
    538Gross deferred liabilities
    
    
    4,019
    
    
    
    538Deferred tax asset valuation allowance
    
    
    321
    
    
    
    31Net deferred tax asset
    
    $
    14,270
    
    
    $
    16,487
  The portion of the net deferred tax asset relating to employee stock plans results primarily
from the compensatory stock option grants under the CDW Stock Option Plans. Compensation
expense related to these plans is deductible for income tax purposes in the year the options
are exercised.The net operating loss in Canada of $0.8 million may be
carried forward to 2010-2011.10.
    Stock-Based CompensationCDW Stock Option PlansWe have established certain stock-based compensation plans for the benefit of our directors and
coworkers. Pursuant to these plans, as of December 31, 2004, we have reserved a total of
5,017,658 common shares for future stock option grants. The plans generally include vesting
requirements from one to 10 years and option lives of up to 10 years. Options may be granted
at exercise prices ranging from $0.01 to the market price of the common stock at the date of
grant.Option activity for the years ended December 31, 2002, 2003 and 2004 was as follows: 42




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##### Table of Contents



Weighted-AverageShares
    
    
    Exercise Price
    
    
    Options ExercisableBalance at January 1, 2002
    
    
    12,648,876
    
    
    $
    24.01
    
    
    
    1,300,460Options granted
    
    
    1,169,464
    
    
    
    55.15
    
    
    
    Options exercised
    
    
    (1,203,031
    )
    
    
    15.45
    
    
    
    Options forfeited
    
    
    (1,235,600
    )
    
    
    28.11
    
    
    
    Balance at December 31, 2002
    
    
    11,379,709
    
    
    
    27.79
    
    
    
    1,803,103Options granted
    
    
    1,282,434
    
    
    
    43.49
    
    
    
    Options exercised
    
    
    (1,228,854
    )
    
    
    21.07
    
    
    
    Options forfeited
    
    
    (505,140
    )
    
    
    29.09
    
    
    
    Balance at December 31, 2003
    
    
    10,928,149
    
    
    
    30.33
    
    
    
    2,462,206Options granted
    
    
    1,386,765
    
    
    
    66.64
    
    
    
    Options exercised
    
    
    (1,304,965
    )
    
    
    27.17
    
    
    
    Options forfeited
    
    
    (288,413
    )
    
    
    38.18
    
    
    
    Balance at December 31, 2004
    
    
    10,721,536
    
    
    $
    35.19
    
    
    
    3,228,679
 For the years ended December 31, 2004, 2003 and 2002, the weighted-average fair value of
options granted was as follows: 2004
    
    
    2003
    
    
    2002Exercise price equals market price at time of grant
    
    $
    34.85
    
    
    $
    23.74
    
    
    $
    30.82Exercise price is less than market price at time of grant (1)
    
    $
    15.38
    
    
    $
    11.75
    
    
    $
    
 (1) Relates to the Employee Stock Purchase Plan, whereby eligible coworkers may purchase our
common stock at less than market prices. The Employee Stock Purchase Plan is discussed in more
detail later in this footnote. 43




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##### Table of Contents



The following table summarizes the status of outstanding stock options as of December 31, 2004: Options Outstanding
    
    
    Options ExercisableWeighted-AverageRemaining
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Number of
    
    
    Contractual
    
    
    Average
    
    
    Number of
    
    
    AverageRange of
    
    Options
    
    
    Life (in
    
    
    Exercise
    
    
    Options
    
    
    ExerciseExercise Prices
    
    Outstanding
    
    
    years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$0.003 - 0.01
    
    
    203,548
    
    
    
    16.2
    
    
    $
    0.01
    
    
    
    
    
    
    $
    $  5.68 - 6.75
    
    
    41,217
    
    
    
    10.8
    
    
    $
    6.54
    
    
    
    41,217
    
    
    $
    6.54$10.00 - 14.83
    
    
    1,750,154
    
    
    
    12.5
    
    
    $
    13.68
    
    
    
    730,222
    
    
    $
    13.82$16.20 - 23.99
    
    
    1,342,131
    
    
    
    14.0
    
    
    $
    23.98
    
    
    
    403,328
    
    
    $
    23.99$24.31 - 34.52
    
    
    1,525,887
    
    
    
    14.3
    
    
    $
    26.49
    
    
    
    320,326
    
    
    $
    28.59$36.62  54.75
    
    
    3,875,430
    
    
    
    9.2
    
    
    $
    39.93
    
    
    
    1,495,776
    
    
    $
    38.70$54.97  68.00
    
    
    1,983,169
    
    
    
    8.5
    
    
    $
    63.42
    
    
    
    237,810
    
    
    $
    55.83$0.003  68.00
    
    
    10,721,536
    
    
    
    11.1
    
    
    $
    35.19
    
    
    
    3,228,679
    
    
    $
    31.08
 Had we elected to apply the provisions of SFAS 123 regarding recognition of compensation
expense to the extent of the calculated fair value of stock options, reported net income and
earnings per share would have been reduced as follows (in thousands, except per share amounts): 2004
    
    
    2003
    
    
    2002Net income, as reported
    
    $
    241,445
    
    
    $
    175,186
    
    
    $
    185,249Add stock-based employee compensation
expense included in reported net
income, net of related tax effects
    
    
    190
    
    
    
    344
    
    
    
    649Deduct total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects
    
    
    (26,795
    )
    
    
    (24,709
    )
    
    
    (26,123
    )Pro forma net income
    
    $
    214,840
    
    
    $
    150,821
    
    
    $
    159,775Basic earnings per share, as reported
    
    $
    2.90
    
    
    $
    2.10
    
    
    $
    2.18Diluted earnings per share, as reported
    
    $
    2.79
    
    
    $
    2.03
    
    
    $
    2.10Pro forma basic earnings per share
    
    $
    2.58
    
    
    $
    1.81
    
    
    $
    1.88Pro forma diluted earnings per share
    
    $
    2.47
    
    
    $
    1.75
    
    
    $
    1.81
 44




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##### Table of Contents



The effects of applying SFAS 123 in the above pro forma disclosure are not likely to be
representative of the effects disclosed in future years because the pro forma calculations
exclude stock options granted before 1995. For purposes of the SFAS 123 pro forma net income and earnings per share calculations, the fair
value of each option grant is estimated as of the date of grant using the Black-Scholes
option-pricing model. The weighted-average assumptions used in determining fair value as
disclosed for SFAS 123 are shown in the following table: 2004
    
    
    2003
    
    
    2002Risk-free interest rate
    
    
    3.2
    %
    
    
    3.0
    %
    
    
    4.4
    %Dividend yield
    
    
    0.6
    %
    
    
    0.0
    %
    
    
    0.0
    %Option life (years)
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0Stock price volatility
    
    
    58.8
    %
    
    
    59.0
    %
    
    
    61.2
    %
 MPK Stock Option Plan Effective December 31, 1992, the Companys then majority shareholder established the MPK Stock
Option Plan pursuant to which he granted non-forfeitable options to certain officers to
purchase 16,573,500 shares of common stock owned by him at an exercise price of $.004175 per
share. Options were exercised as follows: Transaction Year
    
    Number of Options Exercised1994
    
    1,844,8921995
    
    1,353,2581997
    
    545,7461998
    
    659,7521999
    
    1,743,9922000
    
    4,180,8882001
    
    2,751,7322002
    
    2,384,3762003
    
    1,108,864Total
    
    16,573,500
 All options granted under the MPK Stock Option Plan were fully exercised as of December 31,
2003. MPK Restricted Stock Plan Effective upon the closing of our initial public offering in 1993, the then majority
shareholder established the MPK Restricted Stock Plan. Pursuant to this plan, the majority
shareholder allocated 2,674,416 shares of his common stock to be held in escrow for the benefit
of those persons employed by the Company as of December 31, 1992. The number of shares
allocated to each employee was dependent upon the employees years of service and salary
history. As a result of these grants, which provided for vesting based upon continuous
employment with the Company or our subsidiaries through January 1, 2000, we recorded a capital
contribution and offsetting deferred charge of approximately $2.8 million for unearned
compensation equal to the number of shares granted, times $1.0425 per share. We filed a Registration Statement on Form S-3, which was effective in 1997, to modify the terms
of the MPK Restricted Stock Plan and provide participants the option to accelerate the vesting
on 25% of their shares in exchange for the extension of the vesting period on their remaining shares
through January 1, 2003. Under the terms of this modification, participants who elected
the acceleration were granted options by us equal to the number of shares which became vested
with an exercise price of $14.75 per share, the market price of the stock on the acceleration
date. As of December 31, 2003, all of these shares were vested under the modified terms. 45




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##### Table of Contents



Tax Benefits The exercise and vesting of shares pursuant to all stock-based compensation plans, including
the MPK Stock Option Plan, MPK Restricted Stock Plan and the CDW Incentive Stock Option Plan,
resulted in the realization by the Company of tax benefits of $20.7 million in 2004, $37.2
million in 2003, and $71.0 million in 2002, of which $1.1 million, $0.7 million, and $1.5
million, respectively, were previously recorded in deferred taxes. The incremental tax
benefits of $19.6 million in 2004, $36.5 million in 2003 and $69.5 million in 2002 were
recorded to paid-in capital. Restricted Stock On January 28, 2001, we granted a restricted stock award of 100,000 shares of common stock to
our Chairman and Chief Executive Officer that will vest in equal annual installments on the
first four anniversaries of the date of grant. Compensation expense related to this restricted
stock award is recognized over the vesting period. As of
December 31, 2004, 25,000 of such shares had not yet vested. On November 10, 2004, we granted a restricted stock award of 1,000 shares of common stock to
Stephan A. James in connection with his appointment to the Board of Directors under the 2004
Non-Employee Director Equity Compensation Plan. The fair market value of these shares as of
the grant date was $62.43 per share. Employee Stock Purchase Plan On October 1, 2002, we established an Employee Stock Purchase Plan (ESPP) which provides that
eligible coworkers may contribute up to 15% of their eligible compensation towards the
quarterly purchase of our common stock. The coworkers purchase price is 85% of the lesser of
the fair market value of the stock on the first business day or the last business day of the
quarterly offering period. Coworkers may purchase shares having a fair market value of up to
$25,000 (measured on the first day of the quarterly offering period for each calendar year) or
325 shares per quarter. No compensation expense is recorded in connection with the plan. The
total number of shares issuable under the ESPP is 500,000. Under the ESPP, we issued 100,435
shares, 78,318 shares, and 20,300 shares to coworkers in 2004, 2003, and 2002, respectively.  11.
    Earnings Per Share At December 31, 2004, we had 83,284,754 outstanding common shares. We have granted options to
purchase common shares to the directors and coworkers of the Company as discussed in Note 10.
These options have a dilutive effect on the calculation of earnings per share. The following
table is a reconciliation of the numerators and denominators of the basic and diluted earnings
per share computations as required by SFAS 128 (in thousands, except per share amounts): 46




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##### Table of Contents



Years Ended December 31,2004
    
    
    2003
    
    
    2002Basic earnings per share:Income available to
common shareholders (numerator)
    
    $
    241,445
    
    
    $
    175,186
    
    
    $
    185,249Weighted-average common
shares outstanding (denominator)
    
    
    83,391
    
    
    
    83,329
    
    
    
    84,862Basic earnings per share
    
    $
    2.90
    
    
    $
    2.10
    
    
    $
    2.18Diluted earnings per share:Income available to
common shareholders (numerator)
    
    $
    241,445
    
    
    $
    175,186
    
    
    $
    185,249Weighted-average common
shares outstanding
    
    
    83,391
    
    
    
    83,329
    
    
    
    84,862Effect of dilutive securities:Options on common stock
    
    
    3,161
    
    
    
    2,846
    
    
    
    3,434Total common shares and
dilutive securities (denominator)
    
    
    86,552
    
    
    
    86,175
    
    
    
    88,296Diluted earnings per share
    
    $
    2.79
    
    
    $
    2.03
    
    
    $
    2.10Additional options to purchase common shares were outstanding during the years ended December
31, 2004 and 2003 but were not included in the computation of diluted earnings per share
because the exercise prices of these options were greater than the average market price of
common shares during the respective periods. The following table summarizes the
weighted-average number, and the weighted-average exercise price, of those options which were
excluded from the calculation:Years Ended December 31,2004
    
    
    2003Weighted-average number of options (in 000s)
    
    
    1,091
    
    
    
    987Weighted-average exercise price
    
    $
    68.00
    
    
    $
    55.69
  12.
    Profit Sharing and 401(k) Plan We have a profit sharing plan that includes a salary reduction feature established under the
Internal Revenue Code Section 401(k) covering substantially all employees. Company
contributions to the profit sharing plan are made in cash and determined at the discretion of
the Board of Directors. For the years ended December 31, 2004, 2003 and 2002, amounts charged
to expense for this plan totaled $5.5 million, $3.1 million, and $4.5 million, respectively.  13.
    Leasing Joint Venture CDW-L was a joint venture that was 50 percent owned by each of CDWCC, a wholly-owned subsidiary
of the Company, and First Portland Corporation (FIRSTCORP), an unrelated third party leasing
company. In a transaction that was effective August 1, 2004, CDWCC sold its 50 percent
interest in CDW-L to FIRSTCORP for $2.7 million. The sale of $2.4 million of net assets,
including $5.0 million in cash, resulted in a gain of $0.3 million which is included in income
from operations. In accordance with FASB Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Entities, an interpretation of ARB 51, we consolidated CDW-L on December 31,
2003. CDW-Ls results of operations subsequent to December 31, 2003 and through the date of
sale are included in our statement of income with a minority interest for FIRSTCORPs 50
percent interest in this joint venture reflected in other expense, net. CDW-L had a $40
million financing commitment from a financial 47




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##### Table of Contents



institution, of which $1.5 million was outstanding at December 31, 2003. During the first
quarter of 2004, the balance of $1.5 million was repaid and the financing commitment was
terminated.  14.
    Contingencies On September 9, 2003, CDW completed the purchase of certain assets of Bridgeport Holdings,
Inc., Micro Warehouse, Inc., Micro Warehouse, Inc. of Ohio, and Micro Warehouse Gov/Ed, Inc.
(collectively, Micro Warehouse). On September 10, 2003, Micro Warehouse filed voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the Bankruptcy
Code) in the United States Bankruptcy Court for the District of Delaware (Case No. 03-12825).
On January 20, 2004, the Official Committee of Unsecured Creditors (the Committee) appointed
in the Micro Warehouse bankruptcy proceedings filed a motion with the court seeking the
production of certain documents for review and certain representatives of CDW for depositions.
On February 12, 2004, the Bankruptcy Court entered an order approving a stipulation between the
Committee and CDW whereby CDW consented to the Committees production requests. Pursuant to
the stipulation, CDW produced the requested documents and certain CDW representatives were
deposed. In a subsequent filing with the Bankruptcy Court, the Committee stated its belief
that the Micro Warehouse estate has a claim against CDW for a transfer of assets for less than
reasonably equivalent value arising from the sale of such assets to CDW. The Bankruptcy Court
confirmed a plan of distribution with respect to Micro Warehouse which became effective on
October 14, 2004. In connection therewith, any such claim that the estate had against CDW was
transferred to the Bridgeport Holdings, Inc. Liquidating Trust (the Liquidating Trust). On
March 3, 2005, the Liquidating Trust filed a civil claim against CDW in the United States
Bankruptcy Court for the District of Delaware. The Liquidating Trust alleges that CDW did not
pay reasonably equivalent value for the assets it acquired from Micro Warehouse and seeks to
have CDWs purchase of Micro Warehouse set aside and an amount of damages, to be determined at
trial, paid to it. CDW believes that it paid reasonably equivalent value for the assets it
acquired from Micro Warehouse and believes that the outcome of this claim will not have a
material adverse effect on CDWs financial condition. It is not possible for CDW to estimate a
range of possible loss that could result from this litigation. 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 these preference items will not have a material 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, such as the purchase of certain assets from Micro Warehouse described
above, and in the ordinary course of our business. We do not believe that any currently
pending or threatened litigation will have a material adverse effect on our financial position.
Litigation, however, involves uncertainties and it is possible that the eventual outcome of
litigation could adversely affect our results of operations for a particular period.  15.
    Segment Information We are engaged in the sale of multi-brand computers and related technology products and
services, primarily through direct marketing activities. We have two operating segments:
corporate, which is primarily comprised of business customers, but also includes consumers, and
public sector, which is comprised of federal, state and local government entities and
educational institutions. 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. The accounting policies of the segments are the same as those described in Note 2, Summary of
Significant Accounting Policies. We allocate resources to and evaluate performance of our
segments based on both sales and operating income. Our corporate segment provides purchasing,
merchandising, financial, information technology, marketing, distribution and fulfillment
services to the public sector segment. 48




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##### Table of Contents



Certain elements of gross margin and operating expenses are subject to intercompany service
agreements which provide for, among other things, a mark-up on intercompany sales and
allocation of indirect expenses such as occupancy, operations and other support, payroll,
training and benefits. The table below presents information about our reportable segments: Year Ended December 31, 2004 (in 000s)Corporate
    
    
    Public Sector
    
    
    Eliminations
    
    
    ConsolidatedExternal customer sales
    
    $
    4,407,339
    
    
    $
    1,330,435
    
    
    $
    
    
    
    $
    5,737,774Transfers between segments
    
    
    1,259,812
    
    
    
    
    
    
    
    (1,259,812
    )
    
    
    Total net sales
    
    $
    5,667,151
    
    
    $
    1,330,435
    
    
    $
    (1,259,812
    )
    
    $
    5,737,774Income from operations
    
    $
    354,119
    
    
    $
    38,640
    
    
    $
    
    
    
    $
    392,759Net interest income and
other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,101Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    399,860Total assets
    
    $
    1,454,141
    
    
    $
    194,700
    
    
    $
    (127,906
    )
    
    $
    1,520,935
 Year Ended December 31, 2003 (in 000s)Corporate
    
    
    Public Sector
    
    
    Eliminations
    
    
    ConsolidatedExternal customer sales
    
    $
    3,575,483
    
    
    $
    1,089,133
    
    
    $
    
    
    
    $
    4,664,616Transfers between segments
    
    
    1,030,704
    
    
    
    
    
    
    
    (1,030,704
    )
    
    
    Total net sales
    
    $
    4,606,187
    
    
    $
    1,089,133
    
    
    $
    (1,030,704
    )
    
    $
    4,664,616Income from operations
    
    $
    256,557
    
    
    $
    27,901
    
    
    $
    
    
    
    $
    284,458Net interest income and
other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,106Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    289,564Total assets
    
    $
    1,309,970
    
    
    $
    175,034
    
    
    $
    (173,372
    )
    
    $
    1,311,632
 49




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##### Table of Contents



Year Ended December 31, 2002 (in 000s)Corporate
    
    
    Public Sector
    
    
    Eliminations
    
    
    ConsolidatedExternal customer sales
    
    $
    3,399,118
    
    
    $
    865,461
    
    
    $
    
    
    
    $
    4,264,579Transfers between segments
    
    
    823,086
    
    
    
    
    
    
    
    (823,086
    )
    
    
    Total net sales
    
    $
    4,222,204
    
    
    $
    865,461
    
    
    $
    (823,086
    )
    
    $
    4,264,579Income from operations
    
    $
    281,911
    
    
    $
    16,267
    
    
    $
    
    
    
    $
    298,178Net interest income and
other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,019Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    306,197Total assets
    
    $
    1,034,795
    
    
    $
    64,348
    
    
    $
    (3,479
    )
    
    $
    1,095,664
 The results of operations for our Canadian subsidiary are included in our corporate segment.
Our assets are primarily managed as part of the corporate segment, including all inventory and
the majority of all property and equipment. As a result, capital expenditures and related
depreciation are immaterial for the public sector segment. The public sector segment assets
consist principally of cash and cash equivalents and accounts receivable. No single customer accounted for more than 1% of net sales in fiscal years 2004, 2003 or 2002.
During 2004, approximately 1% of our sales were to customers outside of the continental United
States, primarily in Canada.  16.
    Share Repurchase Programs In January 2001, our Board of Directors authorized the purchase of up to 5,000,000 shares of
our common stock. From January 2001 though September 2002, we purchased the 5,000,000 shares
authorized to be repurchased at a total cost of $204.6 million (an average price of $40.92 per
share). In July 2002, our Board of Directors authorized a share repurchase program of up to 2,500,000
shares of our common stock. This repurchase program was completed during March 2004. Under
this repurchase program, we purchased 139,200 shares of our common stock at a total cost of
$9.3 million (an average price of $66.83 per share) during 2004. From July 2002 through March
2004, we purchased the 2,500,000 shares authorized to be repurchased at a total cost of $107.5
million (an average price of $42.99 per share). In July 2003, our Board of Directors authorized another share repurchase program of up to
2,500,000 shares of our common stock. We purchased shares under this repurchase program from
March 2004 until the authorization of the new repurchase program in July 2004 as described
below. Under this repurchase program, we purchased 1,011,800 shares of our common stock at a
total cost of $64.9 million (an average price of $64.15 per share) during 2004. In July 2004, our Board of Directors authorized a new share repurchase program of 3,988,200
shares of our common stock, comprised of 1,488,200 shares previously authorized for repurchase
under the July 2003 program and authorization to repurchase an additional 2,500,000 shares.
These purchases may be made from time to time in both open market and private transactions, as
conditions warrant. This new repurchase program is expected to remain in effect through July
2006, unless earlier terminated by the Board or completed. Under this repurchase program, we
purchased 201,300 shares of our common stock at a total cost of $11.8 million (an average price
of $58.64 per share) during 2004. 50




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##### Table of Contents



Repurchased shares are held in treasury pending use for general corporate purposes, including
issuances under various employee stock plans.  17.
    Public Offering of Common Shares In March 2002, Gregory C. Zeman, former director and vice chairman of the Company, sold a total
of 2,000,000 shares of common stock at a price of $48.00 per share. 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 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 Mr. Zeman pursuant to the MPK Stock Option Plan. The exercise of options by Mr.
Zeman resulted in the realization by the Company of an income tax benefit of approximately
$37.9 million in 2002, of which approximately $0.4 million had been previously recorded to
deferred taxes. We recorded the incremental tax benefit of $37.5 million as an increase to
paid-in capital. In addition, we recorded incremental payroll tax expense related to the
option exercise of approximately $1.4 million, which reduced diluted earnings per share in 2002
by approximately $0.01 per share. In May 2003, Mr. Zeman 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 Mr. Krasny 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 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 in 2003 by less than $0.01 per share.  18.
    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 were 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 as discussed below. 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 in 2003. During the year ended December 31, 2004, we recorded $3.9 million of transaction and
integration expenses associated with these transactions. These expenses were primarily
comprised of payroll expenses for former Micro Warehouse employees performing transition
services, legal fees and an adjustment to the reserve 51




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##### Table of Contents



established for the equipment in the Wilmington, Ohio distribution center leased by Micro
Warehouse as discussed below. These expenses are included in selling and administrative
expenses in the Consolidated Statements of Income in 2004. In February 2004, we purchased the equipment in the Wilmington, Ohio distribution center leased
by Micro Warehouse and forfeited leasing the facility in exchange for $8.25 million. During
2003, we recorded a $5.0 million reserve related to the purchased equipment in accordance with
FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. At March 31, 2004, we increased this
reserve by $2.0 million due to a change in the scenarios used in estimating the Companys
exposure. During the third quarter of 2004, substantially all of this equipment was liquidated
at values in line with our expectations.  19.
    Subsequent Event In February 2005, we signed a lease for a new 513,240 square foot distribution center to be
constructed in North Las Vegas, Nevada. We expect the new facility to be completed and
operational by the end of 2005. The lease agreement provides for an initial lease term of 15 years. The base rent per month to
be paid by CDW under the lease agreement during the initial lease term is as follows: Monthly Net Rent Per Square Foot ofPeriod
    
    Rentable Area of the Leased PremisesMonths 1-3
    
    $0.000Months 4-63
    
    $0.375Months 64-123
    
    $0.425Months 124-180
    
    $0.481
 In addition to the base rent, the lease agreement requires CDW to pay certain operating costs
and taxes. Also, the lease agreement grants CDW the option to purchase the real property on
which the distribution center will be located, including all buildings and improvements, for a
purchase price of $29.5 million at any time during the first two years.  20.
    Selected Quarterly Financial Data (Unaudited) The following information is for the years ended December 31, 2004 and 2003 (in thousands,
except per share data): 52




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First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterDecember 31, 2004Net sales
    
    $
    1,336,689
    
    
    $
    1,382,904
    
    
    $
    1,511,054
    
    
    $
    1,507,127Gross profit
    
    
    204,463
    
    
    
    214,530
    
    
    
    227,956
    
    
    
    223,175Income before income taxes
    
    
    91,606
    
    
    
    96,597
    
    
    
    107,975
    
    
    
    103,682Net income
    
    
    55,293
    
    
    
    58,275
    
    
    
    65,178
    
    
    
    62,699Earnings per share:Basic
    
    $
    0.66
    
    
    $
    0.70
    
    
    $
    0.78
    
    
    $
    0.75Diluted
    
    $
    0.63
    
    
    $
    0.67
    
    
    $
    0.76
    
    
    $
    0.73December 31, 2003Net sales
    
    $
    1,017,619
    
    
    $
    1,075,296
    
    
    $
    1,222,785
    
    
    $
    1,348,916Gross profit
    
    
    147,388
    
    
    
    156,458
    
    
    
    176,224
    
    
    
    193,722Income before income taxes
    
    
    70,092
    
    
    
    72,103
    
    
    
    73,726
    
    
    
    73,643Net income
    
    
    42,406
    
    
    
    43,622
    
    
    
    44,604
    
    
    
    44,554Earnings per share:Basic
    
    $
    0.51
    
    
    $
    0.52
    
    
    $
    0.54
    
    
    $
    0.54Diluted
    
    $
    0.49
    
    
    $
    0.51
    
    
    $
    0.52
    
    
    $
    0.51
 53




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Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 
 Item 9A.Controls and Procedures. Evaluation of Disclosure Controls and Procedures The Companys Chief Executive Officer and its Chief Financial Officer, after evaluating
the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules
13a-14(c) and 15d-14(c)) as of the end of the period covered by this annual report (the
Evaluation Date), have concluded that as of the Evaluation Date, the Companys disclosure
controls and procedures were adequate and effective to ensure that material information
relating to the Company would be made known to them by others within the Company, particularly
during the period in which this annual report was being prepared. Design and Evaluation of Internal Control Over Financial Reporting We have included Managements Report on Internal Control Over Financial Reporting as part of this
Annual Report on Form 10-K. This report, which is found on page 27 herein, contains managements
assessment of the effectiveness of the Companys internal control over financial reporting as of
December 31, 2004. The Companys independent registered public accounting firm has audited
managements assessment of the effectiveness of the Companys internal control over financial
reporting as of December 31, 2004 and the effectiveness of our internal control over financial
reporting as of December 31, 2004 as stated in its report which is included on page 28 herein. Changes in Internal Control Over Financial Reporting There was no change in the Companys internal control over financial reporting that
occurred during the Companys fiscal quarter ended December 31, 2004 that materially affected,
or is reasonably likely to materially affect, the Companys internal control over financial
reporting. 
 Item 9B.Other Information. None. 
 PART III 
 Item 10.Directors and Executive Officers of the Registrant. Except for the discussion in the following paragraph regarding the code of ethical
conduct, the information required by this item regarding directors and executive officers is
incorporated by reference from the discussion in our proxy statement (the Proxy Statement)
for the 2005 Annual Meeting of Shareholders under the headings Proposal 1  Election of
Directors; Corporate Governance; Shareholder Recommendations of Candidates for the Board of
Directors; Compliance withSection 16(a)of the Securities Exchange Act of 1934;and
Management. We have adopted a code of ethical conduct for directors, executive officers and other
senior financial personnel which is available on our Web site at CDW.com. 54




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##### Table of Contents



Item 11.Executive Compensation. The information required by this item is incorporated by reference from the discussion in
our Proxy Statement under the headings Director Compensation; Employment Related
Agreements; Executive Compensation; Summary Compensation Table; Option Grants in 2004;
and 2004 Option Exercises and Fiscal Year-End Option Values. 
 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item is incorporated by reference from the discussion in
our Proxy Statement under the headings Stock Beneficially Owned by Directors, Certain
Executive Officers and Our Largest Shareholders; Equity Compensation Plan Information;
Employment Related Agreements;and Certain Arrangements with Other Executive Officers. 
 Item 13.Certain Relationships and Related Transactions. The information required by this item is incorporated by reference from the discussion in
our Proxy Statement under the headings Certain Arrangements with Other Executive Officers;
and Certain Transactions. 
 Item 14.Principal Accounting Fees and Services. The information required by this item is incorporated by reference from the discussion in
our Proxy Statement under the heading Proposal 2  Ratification of the Selection of
Independent Registered Public Accounting Firm. 
 PART IV 
 Item 15.Exhibits, Financial Statement Schedules. (a)
    
    The following documents are filed as part of this report:1.
    
    
    Financial Statements (See Index to Consolidated
Financial Statements on page 26 of this Report);2.
    
    
    Index to Financial Statement Schedule:
    
    PageSchedule II  Valuation and Qualifying Accounts
    
    S-1All other schedules are omitted since the required
information is not present or is not present in amounts
sufficient to require submission of the schedule, or
because the information required is included in the
consolidated financial statements or notes thereto.
 55




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##### Table of Contents



3.
    
    
    Exhibits required by Securities and Exchange
Commission Regulation S-K, Item 601:
 Exhibit
    
    Description of Document3(a)
    
    Restated Articles of Incorporation of the Company, incorporated by
reference from the exhibits filed with the Companys Quarterly
Report (000-21796) on Form 10-Q for the quarter ended June 30,
2003.3(b)
    
    Amended and Restated Bylaws of the Company, incorporated by
reference from the exhibits filed with the Companys Quarterly
Report (000-21796) on Form 10-Q for the quarter ended March 31,
2004.4(a)
    
    Specimen of common stock
certificate, incorporated by
reference from the exhibits filed with the Companys Annual
Report (000-21796) on Form 10-K for the year ended
December 31, 2003.10(a)*
    
    CDW Computer Centers, Inc. Employees Defined Contribution
Retirement Plan and Trust, incorporated by reference from the
exhibits filed with the Companys Registration Statement
(33-59802) on Form S-1 filed under the Securities Act of 1933
filed on May 11, 1993.10(b)*
    
    CDW Incentive Stock Option Plan, incorporated by reference from
the exhibits filed with the Companys Registration Statement
(33-59802) on Form S-1 filed under the Securities Act of 1933
filed on May 11, 1993.10(c)*
    
    First Amendment to CDW Incentive Stock Option Plan, incorporated
by reference from the exhibits filed with the Companys Annual
Report (000-21796) on Form 10-K for the year ended December 31,
1998.10(d)*
    
    MPK Restricted Stock Plan and Agreement, incorporated by reference
from the exhibits filed with the Companys Registration Statement
(33-59802) on Form S-1 filed under the Securities Act of 1933
filed on May 11, 1993.10(e)
    
    Lease Agreement dated January 25, 1995 between the Company, as
lessee, and IJM Management Limited Partnership, as agent for the
owner, as lessor, relating to the premises located in Chicago,
Illinois, incorporated by reference from the exhibits filed with
the Companys Quarterly Report (000-21796) on Form 10-Q for the
quarter ended June 30, 1995.10(f)*
    
    CDW 1996 Incentive Stock Option Plan, incorporated by reference
from the exhibits filed with the Companys Registration Statement
(333-20935) on Form S-3 filed under the Securities Act of 1933 on
January 31, 1997.10(g)*
    
    First Amendment to CDW 1996 Incentive Stock Option Plan,
incorporated by reference from the exhibits filed with the
Companys Annual Report (000-21796) on Form 10-K for the year
ended December 31, 1998.10(h)
    
    Lease Agreement dated October 11, 1999 between the Company as
Lessee and Solano Associates as Lessor relating to the office
space located at 120 S. Riverside Plaza, Chicago, Illinois,
incorporated by reference from the exhibits filed with the
Companys Quarterly Report (000-21796) on Form 10-Q for the
quarter ended September 30, 1999.10(i)
    
    Lease Agreement dated June 19, 2000 between the Company as Lessee
and Solano Associates as Lessor relating to the office space
located at 10 S. Riverside Plaza, Chicago, Illinois, incorporated
by reference from the exhibits filed with the Companys Quarterly
Report(000-21796) on Form 10-Q for the quarter ended June 30, 2000.10(j)
    
    Lease Agreement dated October 3, 2000 between the Company as
Lessee and Hamilton Partners as Lessor relating to the office
space located at Woodland Falls I, Mettawa, Illinois, incorporated
by reference from the exhibits filed with the Companys Quarterly
Report
 56




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##### Table of Contents



Exhibit
    
    Description of Document(000-21796) on Form 10-Q for
the quarter ended September 30, 2000.10(k)*
    
    CDW 2000 Incentive Stock Option Plan, as amended through May 20,
2004, incorporated by reference from the exhibits filed with the
Companys Quarterly Report (000-21796) on Form 10-Q for the
quarter ended June 30, 2004.10(l)*
    
    CDW Senior Management Incentive Plan, incorporated by reference
from the exhibits accompanying the Companys Notice of Annual
Meeting of Shareholders and Proxy Statement filed March 31, 2000.10(m)*
    
    Employment Agreement dated as of January 28, 2001 between the
Company and John A. Edwardson, incorporated by reference from the
exhibits filed with the Companys Annual Report (000-21796) on
Form 10-K for the year ended December 31, 2000.10(n)*
    
    Transitional Compensation Agreement dated as of January 28, 2001
between the Company and John A. Edwardson, incorporated by
reference from the exhibits filed with the Companys Annual Report
(000-21796) on Form 10-K for the year ended December 31, 2000.10(o)*
    
    Award Notice of Stock Option Grant dated as of January 28, 2001
between the Company and John A. Edwardson, incorporated by
reference from the exhibits filed with the Companys Annual Report
(000-21796) on Form 10-K for the year ended December 31, 2000.10(p)
    
    Second Lease Amendment dated April 15, 2001 between the Company as
Lessee and IJM Management Limited Partnership as Lessor relating
to the retail sales space located at 317 West Grand Avenue,
Chicago, Illinois, incorporated by reference from the exhibits
filed with the Companys Quarterly Report (000-21796) on Form 10-Q
for the quarter ended June 30, 2001.10(q)
    
    Line of Credit Demand Note between the Company and Northern Trust
Company dated July 25, 2001, incorporated by reference from the
exhibits filed with the Companys Quarterly Report (000-21796) on
Form 10-Q for the quarter ended September 30, 2001.10(r)*
    
    CDW Compensation Protection Plan adopted as of December 10, 2002,
applicable to the Companys executive officers, incorporated by
reference from the exhibits filed with the Companys Annual Report
(000-21796) on Form 10-K for the year ended December 31, 2002.10(s)*
    
    Form of Transitional Compensation Agreement, effective December
2002, entered into with each of the Companys executive officers,
incorporated by reference from the exhibits filed with the
Companys Annual Report (000-21796) on Form 10-K for the year
ended December 31, 2002.10(t)*
    
    Form of Noncompetition Agreement, effective December 2002, entered
into with each of the Companys executive officers, incorporated
by reference from the exhibits filed with the Companys Annual
Report (000-21796) on Form 10-K for the year ended December 31,
2002.10(u)
    
    CDW Employee Stock Purchase Plan, incorporated by reference from
the exhibits accompanying the Companys Definitive Proxy Statement
filed April 16, 2002.10(v)
    
    Revolving Note between the Company and LaSalle National Bank dated
June 30, 2004, incorporated by reference from the exhibits filed
with the Companys Quarterly Report (000-21796) on Form 10-Q for
the quarter ended June 30, 2004.10(w)*
    
    2004 Non-Employee Director Equity Compensation Plan, incorporated
by reference from the exhibits filed with the Companys Quarterly
Report (000-21796) on Form 10-Q for the quarter ended June 30,
2004.
 57




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##### Table of Contents



Exhibit
    
    Description of Document10(x)*
    
    Form of Stock Option Agreement for awards to coworkers under the
CDW 2000 Incentive Stock Option Plan, incorporated by reference
from the exhibits filed with the Companys Quarterly Report
(000-21796) on Form 10-Q for the quarter ended September 30, 2004.10(y)*
    
    Form of Stock Option Agreement for awards to non-employee
directors under the 2004 Non-Employee Director Equity Compensation
Plan, incorporated by reference from the exhibits filed with the
Companys Quarterly Report (000-21796) on Form 10-Q for the
quarter ended September 30, 2004.10(z)*
    
    Form of Restricted Stock Award for awards to non-employee
directors under the 2004 Non-Employee Director Equity Compensation
Plan, incorporated by reference from the exhibits filed with the
Companys Quarterly Report (000-21796) on Form 10-Q for the
quarter ended September 30, 2004.10(aa)
    
    Industrial Lease, dated as of February 22, 2005, between CDW
Logistics Inc., as Tenant, and DP Industrial, LLC, as Landlord.10(bb)
    
    Guaranty Agreement, dated as of February 22, 2005, executed by CDW
Corporation in favor of DP Industrial, LLC.21
    
    Subsidiaries of the Registrant23
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 193431.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 193432.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. 135032.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350
  *
    Indicates management contract or compensatory plan or arrangement.(b)
    The Exhibits required by Item 601 of Regulation S-K are reflected above in
Section (a) 3. of this Item.(c)
    The financial statement schedule is included as reflected in Section (a) 2. of this
Item. 58




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized. CDW CORPORATIONDate:  March 15, 2005
    By:
    /s/ John A. EdwardsonJohn A. EdwardsonChairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated. Signature
    
    Title
    
    Date/s/ John A. Edwardson
    
    Chairman and
    
    March 15, 2005Chief Executive OfficerJohn A. Edwardson/s/ Barbara A. Klein
    
    Senior Vice President and
    
    March 15, 2005Chief Financial OfficerBarbara A. Klein
    
    (principal financial officer)/s/ Sandra M. Rouhselang
    
    Vice President and Controller
    
    March 15, 2005(principal accounting officer)Sandra M. Rouhselang/s/ Michelle L. Collins
    
    Director
    
    March 15, 2005Michelle L. Collins/s/ Casey G. Cowell
    
    Director
    
    March 15, 2005Casey G. Cowell/s/ Daniel S. Goldin
    
    Director
    
    March 15, 2005Daniel S. Goldin/s/ Donald P. Jacobs
    
    Director
    
    March 15, 2005Donald P. Jacobs/s/ Stephan A. James
    
    Director
    
    March 15, 2005Stephan A. James/s/ Michael P. Krasny
    
    Director
    
    March 15, 2005Michael P. Krasny/s/ Terry L. Lengfelder
    
    Director
    
    March 15, 2005Terry L. Lengfelder/s/ Susan D. Wellington
    
    Director
    
    March 15, 2005Susan D. Wellington/s/ Brian E. Williams
    
    Director
    
    March 15, 2005Brian E. Williams
 59




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CDW CORPORATION
SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2004, 2003 and 2002
(in thousands) Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EBalance at
    
    
    Charged to
    
    
    Charged
    
    
    
    
    
    
    Balance atBeginning
    
    
    Costs and
    
    
    to Other
    
    
    
    
    
    
    End ofDescription
    
    of Period
    
    
    Expenses
    
    
    Accounts
    
    
    Deductions
    
    
    PeriodYear ended December
31, 2004Deducted in the
balance sheet
from the asset to
which it applies:Allowance for
doubtful accounts
    
    $
    10,057
    
    
    $
    2,813
    
    
    $
    
    
    
    $
    2,980
    (a)
    
    $
    9,890Year ended December
31, 2003Deducted in the
balance sheet from
the asset to which
it applies:Allowance for
doubtful accounts
    
    $
    10,500
    
    
    $
    2,414
    
    
    $
    
    
    
    $
    2,857
    (a)
    
    $
    10,057Year ended December
31, 2002Deducted in the
balance sheet from
the asset to which
it applies:Allowance for
doubtful accounts
    
    $
    9,500
    
    
    $
    5,833
    
    
    $
    
    
    
    $
    4,833
    (a)
    
    $
    10,500
  Note:(a)
    Uncollectible items written off, less recoveries of items previously written off. S-1