##### Table of Contents



UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 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
(State or other jurisdiction of
incorporation or organization)
    
    36-3310735
(I.R.S. Employer
Identification No.)200 N. Milwaukee Ave.
Vernon Hills, Illinois
(Address of principal executive offices)
    
    60061
(Zip Code)
 (847) 465-6000
 None
 Common Stock
 Yes þ No o
 Yes o No þ
 Yes
þ No o
 o
 Large accelerated filer þ  Accelerated filer
o  Non-accelerated filer o
 Yes o No þ
   Documents Incorporated by Reference




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CDW CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2005
INDEX
 10-K Page NoPART IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    7Item 1B.
    
    Unresolved Staff Comments
    
    
    10Item 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 and
Issuer Purchases of Equity Securities
    
    
    12Item 6.
    
    Selected Financial Data
    
    
    14Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    15Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 8.
    
    Financial Statements and Supplementary Data
    
    
    27Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    56Item 9A.
    
    Controls and Procedures
    
    
    56Item 9B.
    
    Other Information
    
    
    56PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    56Item 11.
    
    Executive Compensation
    
    
    57Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    57Item 13.
    
    Certain Relationships and Related Transactions
    
    
    57Item 14.
    
    Principal Accounting Fees and Services
    
    
    57PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    57Signatures
    
    
    60CDW 2000 Incentive Stock Option PlanCDW Senior Management Incentive Plan2004 Non-Employee Director Equity Compensation PlanForm of Stock Option AgreementSubsidiaries of the RegistrantConsent of Independent Registered Public Accounting FirmCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
 i




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##### Table of Contents



PART I
 
 Item 1.
    
    Business.
 General
      CDW.com CDWG.com, macwarehouse.com CDW.ca CDW@work CDWG@work
 1




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ä ä ä ä
 CDW.com
 Business Strategy
  Multi-Branded Solutions.
 Customer Focus. CDW@work CDWG@work
 Competitive Pricing
 Marketing.
 Customer Service.
 2




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##### Table of Contents



Custom Configuration.
 Technical Support.
 Proprietary Information Technology Systems. CDW.com CDWG.com, macwarehouse.com CDW.ca
 Effective Inventory Control.
 High Quality Coworkers.
 Purchasing and Vendor Relationships
    3




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Inventory Management/Distribution
     Marketing and Advertising Activities
    E-commerce
  4




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CDW@work CDWG@work
 Sales Activities and Order Fulfillment
   Customers
   Custom Configuration and Technical Support
  5




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Information Technology Systems
   Coworkers, Training and Culture
    Incentive and Regular Compensation Arrangements
 Compensation Arrangements
 Stock Incentive Plans.
 6




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Trademarks and Trade Names
 ® ® ® ® ® ®
 
 Item 1A.
    
    Risk Factors.
  Our sales and profitability may be affected by changes in the economic environment and other
factors.
 
    
    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;
    
    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.
   7




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##### Table of Contents



The success of our business depends on the continuing development, maintenance and operation
of our information technology systems.
 
    
    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.
  Our sales are dependent on the continued development of new technologies and products.
 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.
 Substantial competition could reduce our market share and significantly harm our financial
performance.
 
    
    national direct marketers, such as Insight Enterprises, PC Connection, PC Mall and Zones;
    
    value-added resellers;
    
    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;
    
    corporate resellers; and
    
    Web resellers, such as Amazon.com, Buy.com and Newegg.com.
  8




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##### Table of Contents



We are exposed to inventory risks.
 Our future operating results may fluctuate significantly.
 
    
    our pricing strategies;
    
    changes in product costs from vendors;
    
    the availability of price protection, purchase discounts and incentive 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 delivery costs that we cannot pass on to customers.
 A natural disaster or other adverse occurrence at our primary facility could damage our
business.
 We are heavily dependent on commercial delivery services.
 9




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Our earnings and growth rate could be adversely affected by changes in general economic
conditions and uncertain geopolitical conditions.
 We could be exposed to additional risks if we make acquisitions or alliances.
 The failure to comply with our public sector contracts could result in, among other things,
fines or other liabilities.
 We are exposed to the risks of a global market.
 We are exposed to litigation risk.
 
 Item 1B.
    
    Unresolved Staff Comments.
  10




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Item 2.
    
    Properties.
  Square
    
    
    Owned /Location
    
    Footage
    
    
    Leased
    
    Purpose10 S. Riverside, Chicago, Illinois
    
    
    72,000
    
    
    Leased
    
    Sales Office120 S. Riverside, Chicago, Illinois
    
    
    180,000
    
    
    Leased
    
    Sales OfficeEatontown, 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 OfficeNorth Las Vegas, Nevada
    
    
    513,000
    
    
    Leased (1)
    
    Distribution CenterShelton, Connecticut
    
    
    18,000
    
    
    Leased
    
    Sales Office200 N. Milwaukee, Vernon Hills, Illinois
    
    
    550,000
    
    
    Owned
    
    Corporate Office / Distribution Center /Business Technology Center300 N. Milwaukee, Vernon Hills, Illinois
    
    
    75,000
    
    
    Leased
    
    Corporate OfficeVoorhees, New Jersey
    
    
    18,000
    
    
    Leased
    
    Sales Office
 
 (1)
    
    The Company has an option to purchase the building and the real property on
which the building is located for a purchase price of $29.5 million at any time during
the first two years of the lease. 
 Item 3.
    
    Legal Proceedings.
  11




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##### Table of Contents



Item 4.
    
    Submission of Matters 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.
 ®
 2005
    
    
    2004Quarter Ended
    
    Low
    
    
    High
    
    
    Low
    
    
    HighMarch 31
    
    $
    55.46
    
    
    $
    66.97
    
    
    $
    58.06
    
    
    $
    74.45June 30
    
    $
    51.86
    
    
    $
    60.58
    
    
    $
    61.30
    
    
    $
    70.93September 30
    
    $
    56.00
    
    
    $
    64.15
    
    
    $
    56.07
    
    
    $
    65.20December 31
    
    $
    53.51
    
    
    $
    61.00
    
    
    $
    56.61
    
    
    $
    68.26
  Dividend Per
    
    
    Total DividendDate Paid
    
    Share
    
    
    (in thousands)June 30, 2005
    
    $
    0.43
    
    
    $
    35,114June 30, 2004
    
    $
    0.36
    
    
    $
    30,027
  12




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##### Table of Contents



(c)(a)
    
    
    
    
    
    
    Total number of
    
    
    (d)Total
    
    
    (b)
    
    
    shares purchased as
    
    
    Maximum number ofnumber of
    
    
    Average
    
    
    part of publicly
    
    
    shares that may yetshares
    
    
    price paid
    
    
    announced plans or
    
    
    be purchased underPeriod
    
    purchased
    
    
    per share
    
    
    programs
    
    

the plans or programsOctober 1, 2005
throughOctober 31, 2005
    
    
    694,000
    
    
    $
    55.18
    
    
    
    694,000
    
    
    
    2,226,600November 1, 2005
throughNovember 30, 2005
    
    
    10,000
    
    
    $
    55.34
    
    
    
    10,000
    
    
    
    2,216,600December 1, 2005
throughDecember 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,216,600Total
    
    
    704,000
    (2)
    
    $
    55.18
    
    
    
    704,000
 
 (1)
    
    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 a July 2003 program and authorization to repurchase an additional 2,500,000 shares.In April 2005, our Board of Directors authorized a share repurchase program of 4,529,600 shares
of our common stock, comprised of 1,529,600 shares previously authorized for repurchase under
the July 2004 program and authorization to purchase an additional 3,000,000 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 April
2007, unless earlier terminated by the Board or completed.(2)
    
    All shares were purchased pursuant to the publicly announced programs. 13




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Item 6. Selected Financial Data
 CDW Corporation and Subsidiaries
Selected Financial Data
 Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Income Statement Data:Net sales
    
    $
    6,291,845
    
    
    $
    5,737,774
    
    
    $
    4,664,616
    
    
    $
    4,264,579
    
    
    $
    3,961,545Income from operations
    
    $
    419,634
    
    
    $
    392,759
    
    
    $
    284,458
    
    
    $
    298,178
    
    
    $
    268,198Net income
    
    $
    272,092
    
    
    $
    241,445
    
    
    $
    175,186
    (1)
    
    $
    185,249
    
    
    $
    168,686Earnings per share:Basic
    
    $
    3.35
    
    
    $
    2.90
    
    
    $
    2.10
    (1)
    
    $
    2.18
    
    
    $
    1.97Diluted
    
    $
    3.26
    
    
    $
    2.79
    
    
    $
    2.03
    (1)
    
    $
    2.10
    
    
    $
    1.89Dividends per share
    
    $
    0.43
    
    
    $
    0.36
    
    
    $
    0.30
    
    
    $
    0.00
    
    
    $
    0.00
 December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Financial Position:Cash, cash
equivalents and
marketable securities
    
    $
    610,926
    
    
    $
    603,623
    
    
    $
    562,360
    
    
    $
    504,614
    
    
    $
    394,381Total assets
    
    $
    1,649,056
    
    
    $
    1,520,935
    
    
    $
    1,311,632
    
    
    $
    1,095,664
    
    
    $
    937,029Total 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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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
 CDW.com CDWG.com macwarehouse.com CDW.ca
    Revenue recognition.
 15




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Inventory valuation.
 Vendor transactions.
  Recently Issued or Newly Adopted Accounting Pronouncements
    16




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
    
    CDW officers, directors and managers will participate in the Companys employee stock
option plan on an annual basis. Except as noted below, these grants will be determined in
a manner consistent with how prior grants have been determined.
    
    Coworkers below manager level will no longer be granted options on an annual basis.
There may be minor, discrete grants made to specific coworkers below manager level in
recognition of outstanding performance or significant contribution to the Company.
    
    All coworkers will be eligible for an additional discretionary profit-sharing
contribution from the Company to the CDW Corporation Employees Profit Sharing Plan (the
Plan). The amount of the discretionary contribution, if any, will be determined annually
by the Committee. The Committee approved a $1,000 profit sharing contribution with respect
to each coworker who was eligible to participate in the Plan and was employed on December
31, 2005. The cost of this 2005 contribution was approximately $4 million (pre-tax) and
was recognized equally over the months of April through December 2005. In 2005, CDW
officers, directors and managers have, as an offset to the increased contribution,
received slightly fewer options than they otherwise would have received.
    
    All unvested options granted prior to January 1, 2005 held by coworkers at the manager
level and below who were employed on December 31, 2005 became fully vested effective
December 31, 2005. In connection with the acceleration of vesting, the Company recorded a
charge of $3.7 million (pre-tax) in the fourth quarter of 2005.
    17




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Results of Operations
  Percentage of Net SalesFinancial Results
    
    Years Ended December 31,2005
    
    
    2004
    
    
    2003Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    84.6
    
    
    
    84.8
    
    
    
    85.6Gross profit
    
    
    15.4
    
    
    
    15.2
    
    
    
    14.4Selling and
administrative expenses
    
    
    6.9
    
    
    
    6.7
    
    
    
    7.0Net advertising expenses
    
    
    1.8
    
    
    
    1.6
    
    
    
    1.3Income from operations
    
    
    6.7
    
    
    
    6.9
    
    
    
    6.1Interest and other income
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1Income before income taxes
    
    
    6.9
    
    
    
    7.0
    
    
    
    6.2Income tax provision
    
    
    2.6
    
    
    
    2.8
    
    
    
    2.4Net income
    
    
    4.3
    %
    
    
    4.2
    %
    
    
    3.8
    %
  Operating Statistics
    
    Years Ended December 31,2005
    
    
    2004
    
    
    2003% of sales to commercial customers (1)
    
    
    98.9
    %
    
    
    98.1
    %
    
    
    97.9
    %Sales force, end of period
    
    
    2,153
    
    
    
    2,012
    
    
    
    1,924Annualized inventory turnover (2)
    
    
    24
    
    
    
    24
    
    
    
    24Accounts receivable  days sales outstanding
    
    
    37
    
    
    
    37
    
    
    
    35Direct web sales (000s)
    
    
    $1,769,032
    
    
    
    $1,525,712
    
    
    
    $1,056,761Net sales per coworker (000s)
    
    
    $1,545
    
    
    
    $1,504
    
    
    
    $1,402Return on shareholders equity
    
    
    22.4
    %
    
    
    21.1
    %
    
    
    17.8
    %
 
 (1)
    
    Commercial customers is defined as public sector and corporate sector 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. 18




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Analysis of Product Mix
    
    Years Ended December 31,2005
    
    
    2004
    
    
    2003Notebook computers and accessories
    
    
    12.7
    %
    
    
    13.7
    %
    
    
    12.9
    %Desktop computers and servers
    
    
    14.1
    
    
    
    13.7
    
    
    
    13.1Subtotal computer products
    
    
    26.8
    
    
    
    27.4
    
    
    
    26.0Software
    
    
    17.3
    
    
    
    16.8
    
    
    
    16.8Data storage devices
    
    
    13.8
    
    
    
    13.4
    
    
    
    14.1Printers
    
    
    12.2
    
    
    
    12.7
    
    
    
    13.8NetComm products
    
    
    10.1
    
    
    
    9.7
    
    
    
    10.0Video
    
    
    9.2
    
    
    
    9.4
    
    
    
    9.0Add-on boards/memory
    
    
    4.5
    
    
    
    4.6
    
    
    
    4.4Input devices
    
    
    3.3
    
    
    
    3.3
    
    
    
    3.4Other
    
    
    2.8
    
    
    
    2.7
    
    
    
    2.5Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Analysis of Product Category Growth
    
    Years Ended December 31,2005
    
    
    2004
    
    
    2003Notebook computers and accessories
    
    
    1.2
    %
    
    
    32.6
    %
    
    
    8.9
    %Desktop computers and servers
    
    
    12.6
    
    
    
    30.3
    
    
    
    6.7Subtotal computer products
    
    
    6.9
    
    
    
    31.5
    
    
    
    7.8Software
    
    
    13.2
    
    
    
    24.5
    
    
    
    1.5Data storage devices
    
    
    13.4
    
    
    
    17.8
    
    
    
    7.2Printers
    
    
    5.2
    
    
    
    14.7
    
    
    
    12.4NetComm products
    
    
    14.5
    
    
    
    20.7
    
    
    
    6.7Video
    
    
    7.8
    
    
    
    29.6
    
    
    
    10.0Add-on boards/memory
    
    
    8.0
    
    
    
    29.2
    
    
    
    12.5Input devices
    
    
    7.9
    
    
    
    23.2
    
    
    
    16.3Other
    
    
    18.0
    
    
    
    26.8
    
    
    
    25.8
 19




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Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
     
    
    Payroll costs increased $38.3 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 to 2,153 at December 31, 2005, from 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. In addition, payroll costs for 2005 include $3.7
million of compensation expense in connection with the acceleration of vesting of stock
options for coworkers through the manager level. Payroll costs for 2004 included $1.5
million 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 $2.8 million, primarily due to $4.0 million of additional profit
sharing expense (discussed in Note 3 to the Consolidated Financial Statements) related to
the additional contribution to the 401(k) plan in conjunction with a modification to the
Companys stock option program and increased expenses to support a larger number of
coworkers. These expenses were partially offset by a reduction of $5.3 million in an
accrual for a company-wide incentive bonus program. The accrual was adjusted based on
certain program modifications which provided for specific payout levels for partial
achievement of full year financial objectives.
    
    Occupancy costs increased $1.7 million. This increase was primarily due to increased
depreciation related to asset additions for new sales offices and new financial systems,
partially offset by reduced rent. Occupancy costs for 2004 included $0.8 million of
facility expenses related to the Micro Warehouse transactions.
 20




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##### Table of Contents




    
    Other selling and administrative costs increased $4.1 million. The increase was
primarily due to increased administrative expenses required to support a larger business,
such as professional fees and travel and entertainment expenses. Other selling and
administrative costs for 2004 included $1.6 million of costs related to the Micro
Warehouse transactions.
      21




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##### Table of Contents



Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
    
    
    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
 22




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##### Table of Contents



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 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.
     Seasonality
  Legal Proceedings
  Liquidity and Capital Resources
 Working Capital
  23




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##### Table of Contents



AmountYear
    
    Shares
    
    

(in thousands)2005
    
    
    4,570,300
    
    
    $
    258,2982004
    
    
    1,352,300
    
    
    $
    86,0102003
    
    
    1,852,424
    
    
    $
    76,324
   Dividend Per
    
    
    Total DividendDate Paid
    
    Share
    
    
    (in thousands)June 30, 2005
    
    $
    0.43
    
    
    $
    35,114June 30, 2004
    
    $
    0.36
    
    
    $
    30,027September 26, 2003
    
    $
    0.30
    
    
    $
    24,867
   24




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##### Table of Contents



Cash Flows
    Aggregate Contractual Obligations
    Less than
    
    
    
    
    
    
    
    
    
    
    Over 5Total
    
    

1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    yearsOperating leases
    
    $
    145,131
    
    
    $
    9,780
    
    
    $
    24,600
    
    
    $
    25,801
    
    
    $
    84,950
 25




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##### Table of Contents



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, cooperative advertising reimbursements, gross profit as a percentage of sales,
selling and administrative expenses, advertising expense, operating income as a percentage of
sales, and effective tax rate. In addition, words such as likely, may, would, could,
should, anticipate, believe, estimate, expect, intend, plan, objective, 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.
  26




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageManagements Report on Internal Control Over Financial Reporting
    
    
    28Report of Independent Registered Public Accounting Firm
    
    
    29Consolidated Balance Sheets as of
December 31, 2005 and 2004
    
    
    31Consolidated Statements of Income for the years ended
December 31, 2005, 2004 and 2003
    
    
    32Consolidated Statements of Shareholders Equity for the years ended
December 31, 2005, 2004 and 2003
    
    
    33Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003
    
    
    34Notes to Consolidated Financial Statements
    
    
    35
 27




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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
   
 28




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  Consolidated financial statements and financial statement schedule
  Internal control over financial reporting
 Internal Control -
Integrated Framework Internal Control - Integrated Framework
  29




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##### Table of Contents



/s/ PricewaterhouseCoopers LLPPricewaterhouseCoopers
LLPChicago, IllinoisMarch 3, 2006
 30




---



##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    201,250
    
    
    $
    148,804Marketable securities
    
    
    370,500
    
    
    
    329,393Accounts receivable, net of allowance for doubtful
accounts of $9,564 and $9,890, respectively
    
    
    637,245
    
    
    
    580,035Merchandise inventory
    
    
    243,564
    
    
    
    213,222Miscellaneous receivables
    
    
    27,848
    
    
    
    24,364Deferred income taxes
    
    
    12,562
    
    
    
    13,718Prepaid expenses
    
    
    8,274
    
    
    
    6,901Total current assets
    
    
    1,501,243
    
    
    
    1,316,437Marketable securities
    
    
    39,176
    
    
    
    125,426Property and equipment, net
    
    
    97,277
    
    
    
    68,595Other assets
    
    
    11,360
    
    
    
    10,477Total assets
    
    $
    1,649,056
    
    
    $
    1,520,935Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    245,201
    
    
    $
    167,877Accrued expenses:Compensation
    
    
    42,585
    
    
    
    41,178Income taxes
    
    
    7,409
    
    
    
    14,661Sales taxes
    
    
    21,473
    
    
    
    6,236Advertising
    
    
    18,193
    
    
    
    17,535Other
    
    
    32,900
    
    
    
    23,377Total current liabilities
    
    
    367,761
    
    
    
    270,864Long-term liabilities
    
    
    16,730
    
    
    
    8,654Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Preferred shares, $1.00 par value; 5,000 shares authorized;
none issued
    
    
    
    
    
    
    Common shares, $.01 par value; 500,000 shares authorized;
93,447 and 92,197 shares issued, respectively
    
    
    934
    
    
    
    922Paid-in capital
    
    
    507,832
    
    
    
    462,953Retained earnings
    
    
    1,405,263
    
    
    
    1,168,285Unearned compensation
    
    
    (400
    )
    
    
    (17
    )Accumulated other comprehensive income
    
    
    163
    
    
    
    2031,913,792
    
    
    
    1,632,346Less cost of common shares in treasury; 13,483 shares and
8,913 shares, respectively
    
    
    (649,227
    )
    
    
    (390,929
    )Total shareholders equity
    
    
    1,264,565
    
    
    
    1,241,417Total liabilities and shareholders equity
    
    $
    1,649,056
    
    
    $
    1,520,935
  31




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 Years Ended December 31,2005
    
    
    2004
    
    
    2003Net sales
    
    $
    6,291,845
    
    
    $
    5,737,774
    
    
    $
    4,664,616Cost of sales
    
    
    5,324,215
    
    
    
    4,867,650
    
    
    
    3,990,824Gross profit
    
    
    967,630
    
    
    
    870,124
    
    
    
    673,792Selling and administrative expenses
    
    
    433,482
    
    
    
    386,563
    
    
    
    325,205Net advertising expense
    
    
    114,514
    
    
    
    90,802
    
    
    
    64,129Income from operations
    
    
    419,634
    
    
    
    392,759
    
    
    
    284,458Interest income
    
    
    15,155
    
    
    
    8,968
    
    
    
    7,225Other expense, net
    
    
    (1,831
    )
    
    
    (1,867
    )
    
    
    (2,119
    )Income before income taxes
    
    
    432,958
    
    
    
    399,860
    
    
    
    289,564Income tax provision
    
    
    160,866
    
    
    
    158,415
    
    
    
    114,378Net income
    
    $
    272,092
    
    
    $
    241,445
    
    
    $
    175,186Earnings per share:Basic
    
    $
    3.35
    
    
    $
    2.90
    
    
    $
    2.10Diluted
    
    $
    3.26
    
    
    $
    2.79
    
    
    $
    2.03Weighted-average number of
common shares outstanding:Basic
    
    
    81,128
    
    
    
    83,391
    
    
    
    83,329Diluted
    
    
    83,566
    
    
    
    86,552
    
    
    
    86,175Dividends per share
    
    $
    0.43
    
    
    $
    0.36
    
    
    $
    0.30
  32




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AccumulatedTotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherShareholders
    
    Common
    
    Paid-in
    
    Retained
    
    Unearned
    
    Treasury
    
    Comprehensive
    
    ComprehensiveEquity
    
    Shares
    
    Capital
    
    Earnings
    
    Compensation
    
    Shares
    
    Income
    
    IncomeBalance 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
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    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
    )
    
    
    203Amortization of unearned
compensation
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    3,794
    
    
    
    
    
    
    
    4,256
    
    
    
    
    
    
    
    (462
    )
    
    
    
    
    
    
    Exercise of stock options
    
    
    23,158
    
    
    
    11
    
    
    
    23,147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock in
connection
with Employee Stock Purchase Plan
    
    
    6,525
    
    
    
    1
    
    
    
    6,524
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax benefit from stock option and
restricted stock transactions
    
    
    10,952
    
    
    
    
    
    
    
    10,952
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury shares
    
    
    (258,298
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (258,298
    )
    
    
    Cash dividends
    
    
    (35,114
    )
    
    
    
    
    
    
    
    
    
    
    (35,114
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    272,092
    
    
    
    
    
    
    
    
    
    
    
    272,092
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    272,092Net unrealized losses on
marketable securities, net of tax
    
    
    (155
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (155
    )
    
    
    (155
    )Foreign currency translation
adjustment
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    115Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    272,052Balance at December 31, 2005
    
    $
    1,264,565
    
    
    $
    934
    
    
    $
    507,832
    
    
    $
    1,405,263
    
    
    $
    (400
    )
    
    $
    (649,227
    )
    
    $
    163
  33




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    272,092
    
    
    $
    241,445
    
    
    $
    175,186Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    21,493
    
    
    
    16,998
    
    
    
    15,135Accretion of marketable securities
    
    
    (53
    )
    
    
    392
    
    
    
    1,031Stock-based compensation expense
    
    
    3,873
    
    
    
    314
    
    
    
    568Allowance for doubtful accounts
    
    
    (326
    )
    
    
    (167
    )
    
    
    (789
    )Deferred income taxes
    
    
    1,059
    
    
    
    2,217
    
    
    
    1,773Tax benefit from stock option and restricted stock transactions
    
    
    10,952
    
    
    
    19,625
    
    
    
    36,479Minority interest
    
    
    
    
    
    
    446
    
    
    
    Gain on sale of investment in CDW Leasing, LLC
    
    
    
    
    
    
    (287
    )
    
    
    Changes in assets and liabilities, net of assets acquired:Accounts receivable
    
    
    (56,884
    )
    
    
    (135,868
    )
    
    
    (105,723
    )Miscellaneous receivables and other assets
    
    
    (5,383
    )
    
    
    1,208
    
    
    
    (12,180
    )Merchandise inventory
    
    
    (30,342
    )
    
    
    (29,332
    )
    
    
    (17,025
    )Prepaid expenses
    
    
    (1,373
    )
    
    
    (2,907
    )
    
    
    218Accounts payable
    
    
    60,903
    
    
    
    55,899
    
    
    
    8,371Accrued compensation
    
    
    1,407
    
    
    
    1,932
    
    
    
    5,476Accrued income taxes and other expenses
    
    
    18,166
    
    
    
    9,481
    
    
    
    15,152Long-term liabilities
    
    
    8,076
    
    
    
    2,810
    
    
    
    1,746Net cash provided by operating activities
    
    
    303,660
    
    
    
    184,206
    
    
    
    125,418Cash flows from investing activities:Purchases of available-for-sale securities
    
    
    (392,058
    )
    
    
    (528,820
    )
    
    
    (337,044
    )Redemptions and sales of available-for-sale securities
    
    
    382,099
    
    
    
    453,307
    
    
    
    331,074Purchases of held-to-maturity securities
    
    
    (30,000
    )
    
    
    (110,000
    )
    
    
    (269,900
    )Redemptions of held-to-maturity securities
    
    
    85,000
    
    
    
    70,000
    
    
    
    282,375Purchase of property and equipment
    
    
    (49,062
    )
    
    
    (22,113
    )
    
    
    (11,380
    )Investment in and advances to joint venture
    
    
    
    
    
    
    
    
    
    
    (118
    )Repayment of advances from joint venture
    
    
    
    
    
    
    
    
    
    
    3,500Purchase of selected U.S. assets of Micro Warehouse
    
    
    
    
    
    
    
    
    
    
    (20,000
    )Purchase of Canadian operations of Micro Warehouse
    
    
    
    
    
    
    
    
    
    
    (2,744
    )Consolidation of joint venture
    
    
    
    
    
    
    
    
    
    
    2,254Sale of investment in CDW Leasing, LLC, net of cash sold
    
    
    
    
    
    
    (2,321
    )
    
    
    Net cash used in investing activities
    
    
    (4,021
    )
    
    
    (139,947
    )
    
    
    (21,983
    )Cash flows from financing activities:Purchase of treasury shares
    
    
    (258,298
    )
    
    
    (86,010
    )
    
    
    (76,324
    )Proceeds from exercise of stock options
    
    
    23,158
    
    
    
    30,348
    
    
    
    22,879Issuance of common stock in connection with Employee Stock
Purchase Plan
    
    
    6,525
    
    
    
    4,518
    
    
    
    3,013Dividends paid
    
    
    (35,114
    )
    
    
    (30,027
    )
    
    
    (24,867
    )Change in book overdrafts
    
    
    16,421
    
    
    
    (36,966
    )
    
    
    36,966Net cash used in financing activities
    
    
    (247,308
    )
    
    
    (118,137
    )
    
    
    (38,333
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    115
    
    
    
    257
    
    
    
    183Net increase/(decrease) in cash
    
    
    52,446
    
    
    
    (73,621
    )
    
    
    65,285Cash and cash equivalents  beginning of period
    
    
    148,804
    
    
    
    222,425
    
    
    
    157,140Cash and cash equivalents  end of period
    
    $
    201,250
    
    
    $
    148,804
    
    
    $
    222,425Supplementary disclosure of cash flow information:Taxes paid
    
    $
    155,871
    
    
    $
    134,769
    
    
    $
    80,614
  34




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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 information 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, sales offices in Illinois, Virginia, Connecticut, New
Jersey, and Toronto, Canada, and a distribution center in North Las Vegas, Nevada.
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, until our interest was sold.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.
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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.ReclassificationsCertain reclassifications have been made to the prior year financial statements to conform to
the current year presentation.Earnings Per ShareWe 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 EquivalentsCash 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 SecuritiesWe 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.
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Accounts ReceivableTrade 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 InventoryInventory is valued at the lower of cost or market. Cost is determined on the first-in,
first-out method.Property and EquipmentProperty and equipment are stated at cost. We calculate depreciation using the straight-line
method over the useful lives of the assets. Leasehold improvements are amortized over the
shorter of their useful lives or the initial lease term. 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 25 yearsComputer and data processing equipment
    
    2 to 5 yearsComputer software
    
    3 to 5 yearsFurniture and fixtures
    
    5 years
 Revenue RecognitionWe 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.AdvertisingAdvertising costs are charged to expense in the period incurred. Cooperative reimbursements
from vendors are recorded in the period the related advertising expenditure is incurred.Net advertising expense was $114.5 million, $90.8 million and $64.1 million in 2005, 2004 and
2003, respectively. Net advertising expense has increased, as vendor consideration which would
have previously been classified as cooperative reimbursements, is classified as a reduction of
cost of sales due to the adoption of 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) on January
1, 2003. In 2005,
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100% of cooperative advertising reimbursements were classified as a reduction of cost of
sales rather than a reduction of advertising expense.Stock-Based CompensationAt December 31, 2005, we had several stock-based employee compensation plans, which are
described more fully in Note 10. We have adopted the disclosure provision of Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure, which amends Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS 123). As allowed by 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.In preparation for the adoption of Statement of Financial Accounting Standards No. 123R,
Share-Based Payment (SFAS 123R) on January 1, 2006, the Company changed its option
valuation model from the Black-Scholes model to a binomial model effective for options granted
after April 1, 2005. The binomial model considers additional variables and assumptions when
calculating the fair value of options as compared to the Black-Scholes model. We have also
evaluated the variables used in the option valuation models and, as a result, we have refined
the manner in which several were calculated. The most significant of the changes was in the
calculation of expected stock price volatility, which was based solely on historic stock price
volatility, and was changed to include a combination of the historic volatility over the most
recent period equal to the expected option life, the long-term mean reversion, and 180 day
average implied volatility.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, 2005, 2004 and 2003 (in thousands, except per share amounts):
 2005
    
    
    2004
    
    
    2003Net income, as reported
    
    $
    272,092
    
    
    $
    241,445
    
    
    $
    175,186Add stock-based employee compensation
expense included in reported net
income, net of related tax effects
    
    
    2,434
    
    
    
    190
    
    
    
    344Deduct total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects
    
    
    (29,614
    )
    
    
    (26,795
    )
    
    
    (24,709
    )Pro forma net income
    
    $
    244,912
    
    
    $
    214,840
    
    
    $
    150,821Basic earnings per share, as reported
    
    $
    3.35
    
    
    $
    2.90
    
    
    $
    2.10Diluted earnings per share, as reported
    
    $
    3.26
    
    
    $
    2.79
    
    
    $
    2.03Pro forma basic earnings per share
    
    $
    3.02
    
    
    $
    2.58
    
    
    $
    1.81Pro forma diluted earnings per share
    
    $
    2.91
    
    
    $
    2.47
    
    
    $
    1.75
 The effects of applying SFAS 123 in the above pro forma disclosure are likely not
representative of the level of expense that will be recognized in future periods under SFAS
123R due to the changes in the stock-based compensation plans that were made in 2005 (as described in Note 3), the potential
for future changes to these
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plans, the adoption of a binomial option valuation model, changes
in how certain variables used in the model are determined, which may be subject to additional
refinements in the future, and the fact that the variables, such as the stock price and stock
price volatility, can vary from year-to-year, which will impact the option valuation.Fair Value of Financial InstrumentsWe estimate that the fair market value of all of our financial instruments at December 31, 2005
and 2004 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 SharesWe intend to hold repurchased shares in treasury for general corporate purposes, including
issuances under various stock plans. We account for the treasury shares using the cost method.Foreign Currency TranslationOur 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 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 StandardsStatement of Financial Accounting Standards No. 123R, Share-Based Payment (SFAS
123R)In December 2004, the Financial Accounting Standards Board (FASB) issued 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
annual period beginning after June 15, 2005; therefore, we are required to adopt SFAS 123R for
the year beginning January 1, 2006. The pro forma disclosures previously required under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
will no longer be an alternative to financial statement recognition. We intend to use the
modified prospective application transition method upon adopting SFAS 123R, which allows for
prospective recognition of compensation expense without restatement of prior periods in the
year of adoption.As discussed in Note 2 to the Consolidated Financial Statements, we have accounted 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.Historically, stock options have been granted annually to all CDW coworkers as part of the
Companys overall compensation plan. As announced on April 29, 2005, after studying the
potential impact of SFAS 123R and taking into consideration the results of coworker surveys and
focus groups, the Compensation and Stock Option Committee (the Committee) of the Companys
Board of Directors approved certain modifications to the Companys compensation structure. As
modified, the Companys compensation structure for coworkers includes the following features:
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
    
    CDW officers, directors and managers will participate in the Companys employee stock
option plan on an annual basis. Except as noted below, these grants will be determined in
a manner consistent with how prior grants have been determined.
    
    Coworkers below manager level will no longer be granted options on an annual basis.
There may be minor, discrete grants made to specific coworkers below manager level in
recognition of outstanding performance or significant contribution to the Company.
    
    All coworkers will be eligible for an additional discretionary profit-sharing
contribution from the Company to the CDW Corporation Employees Profit Sharing Plan (the
Plan). The amount of the discretionary contribution, if any, will be determined annually
by the Committee. The Committee approved a $1,000 profit sharing contribution with respect
to each coworker who was eligible to participate in the Plan and was employed on December
31, 2005. The cost of this 2005 contribution was approximately $4 million (pre-tax) and
was recognized equally over the months of April through December 2005. In 2005, CDW
officers, directors and managers have, as an offset to the increased contribution,
received slightly fewer options than they otherwise would have received.
    
    All unvested options granted prior to January 1, 2005 held by coworkers at the manager
level and below who were employed on December 31, 2005 became fully vested effective
December 31, 2005. In connection with the acceleration of vesting, the Company recorded a
charge of $3.7 million (pre-tax) in the fourth quarter of 2005.
 The acceleration of vesting was undertaken primarily so that compensation expense for the
accelerated options will not be recognized in the Companys income statement in future periods
upon adoption of SFAS 123R. It is estimated that the compensation expense for stock options
will be approximately $16 to $17 million (pre-tax) in 2006. This estimate is based on an
assumption regarding the number of stock options that would be forfeited and an assumption of
the number of options that would be granted in 2006 and the valuation of such stock options at
the time of grant. The estimated stock-based compensation expense for 2006 does not include
the expense for any additional discretionary profit-sharing contribution the Company may make
to the Plan for 2006 similar to the contribution to be made for 2005, as described above.In addition, after studying the potential impact of SFAS 123R, certain modifications to the
Companys Employee Stock Purchase Plan (ESPP) were approved. The ESPP provided that eligible
coworkers may contribute up to 15% of their eligible compensation towards the quarterly
purchase of our common stock. Historically, the coworkers purchase price was 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. Effective January 1, 2006, the coworkers purchase price
will be 95% of the fair market value of the stock on the last business day of the quarterly
offering period.FASB Staff Position Nos. 115-1 and 124-1, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments (FSP 115-1 and 124-1)FSP 115-1 and 124-1 addresses the determination as to when an investment is considered
impaired, whether the impairment is other-than-temporary, and the measurement of an
impairment loss. The investment is impaired if the fair value is less than cost. The
impairment is other-than-temporary for equity securities and debt securities that can
contractually be prepaid or otherwise settled in such a way that the investor would not recover
substantially all of its cost. If other-than-temporary, an impairment loss shall be
recognized in earnings equal to the difference between the investments cost and its fair
value. The guidance in FSP 115-1 and 124-1 is effective in reporting periods beginning after
December 15, 2005. We are reviewing FSP 115-1 and 124-1 but do not expect that the adoption of
this standard will have a material impact on our consolidated financial statements.
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FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations
(FIN 47)In March 2005, the FASB issued FIN 47. FIN 47 clarifies that the term conditional asset
retirement obligation as used in FASB Statement No. 143, Accounting for Asset Retirement
Obligations refers to a legal obligation to perform an asset retirement activity in which the
timing and/or method of settlement are conditional on a future event that may or may not be
within the control of the entity. Accordingly, an entity is required to recognize a liability
for the fair value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. We adopted FIN 47 during the fourth quarter of 2005 and
it did not have a material impact on our consolidated financial statements.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)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. 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.4.
    
    Marketable SecuritiesEstimated fair values of marketable securities are based on quoted market prices.The following table summarizes our investments in marketable securities at December 31, 2005
and 2004 (in thousands):
 GrossUnrealizedEstimated
    
    
    Holding
    
    
    AmortizedSecurity Type
    
    Fair Value
    
    
    Gains
    
    
    Losses
    
    
    CostDecember 31, 2005Available-for-sale:State and municipal bonds
    
    $
    232,804
    
    
    $
    
    
    
    $
    (111
    )
    
    $
    232,915Corporate fixed income securities
    
    
    3,900
    
    
    
    
    
    
    
    (14
    )
    
    
    3,914U.S. Government and Government
agency securities
    
    
    72,972
    
    
    
    
    
    
    
    (508
    )
    
    
    73,480Total available-for-sale
    
    
    309,676
    
    
    
    
    
    
    
    (633
    )
    
    
    310,309Held-to-maturity:U.S. Government and Government
agency securities
    
    
    99,291
    
    
    
    
    
    
    
    (709
    )
    
    
    100,000Total held-to-maturity
    
    
    99,291
    
    
    
    
    
    
    
    (709
    )
    
    
    100,000Total marketable securities
    
    $
    408,967
    
    
    $
    
    
    
    $
    (1,342
    )
    
    $
    410,309December 31, 2004Available-for-sale:Municipal bonds
    
    $
    165,688
    
    
    $
    
    
    
    $
    (237
    )
    
    $
    165,925Corporate fixed income securities
    
    
    50,652
    
    
    
    
    
    
    
    
    
    
    
    50,652U.S Government and Government
agency securities
    
    
    83,479
    
    
    
    
    
    
    
    
    
    
    
    83,479Total available-for-sale
    
    
    299,819
    
    
    
    
    
    
    
    (237
    )
    
    
    300,056Held-to-maturity:U.S Government and Government
agency securities
    
    
    153,963
    
    
    
    
    
    
    
    (1,037
    )
    
    
    155,000Total held-to-maturity
    
    
    153,963
    
    
    
    
    
    
    
    (1,037
    )
    
    
    155,000Total marketable securities
    
    $
    453,782
    
    
    $
    
    
    
    $
    (1,274
    )
    
    $
    455,056
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The following table presents the gross unrealized losses and fair values of our
investments in marketable securities, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position as of December 31,
2005 and 2004 (in thousands):
 Less Than 12 Months
    
    
    12 Months or Greater
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedSecurity Type
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesDecember 31, 2005State and municipal bonds
    
    $
    9,931
    
    
    $
    (69
    )
    
    $
    14,958
    
    
    $
    (42
    )
    
    $
    24,889
    
    
    $
    (111
    )Corporate fixed income
securities
    
    
    
    
    
    
    
    
    
    
    3,900
    
    
    
    (14
    )
    
    
    3,900
    
    
    
    (14
    )U.S Government and
Government
agency securities
    
    
    76,225
    
    
    
    (555
    )
    
    
    96,038
    
    
    
    (662
    )
    
    
    172,263
    
    
    
    (1,217
    )Total
    
    $
    86,156
    
    
    $
    (624
    )
    
    $
    114,896
    
    
    $
    (718
    )
    
    $
    201,052
    
    
    $
    (1,342
    )December 31, 2004State and municipal bonds
    
    $
    14,763
    
    
    $
    (237
    )
    
    $
    
    
    
    $
    
    
    
    $
    14,763
    
    
    $
    (237
    )U.S Government and
Government
agency securities
    
    
    153,963
    
    
    
    (1,037
    )
    
    
    
    
    
    
    
    
    
    
    153,963
    
    
    
    (1,037
    )Total
    
    $
    168,726
    
    
    $
    (1,274
    )
    
    $
    
    
    
    $
    
    
    
    $
    168,726
    
    
    $
    (1,274
    )
 Because the Company believes that unrealized losses on fixed income securities are
primarily attributable to changes in interest rates, and because the Company has the ability
and intent to hold these investments until a recovery of fair value, which may be maturity, the
Company does not consider those investments to be other-than-temporarily impaired as of
December 31, 2005.The net unrealized holding losses on available-for-sale securities are determined by specific
identification and are included in accumulated other comprehensive income, which is reflected
as a separate component of shareholders equity. The gross realized losses on marketable
securities that are included in other expense in the Consolidated Statements of Income are not
material.The following table summarizes the maturities of our fixed income securities as of December 31,
2005 and 2004 (in thousands):
 Estimated
    
    
    AmortizedFair Value
    
    
    CostDecember 31, 2005Due in one year or less
    
    $
    370,003
    
    
    $
    370,990Due in greater than one year
    
    
    38,964
    
    
    
    39,319Total investments in marketable securities
    
    $
    408,967
    
    
    $
    410,309December 31, 2004Due in one year or less
    
    $
    328,865
    
    
    $
    329,393Due in greater than one year
    
    
    124,917
    
    
    
    125,663Total investments in marketable securities
    
    $
    453,782
    
    
    $
    455,056
 As of December 31, 2005 all of the marketable securities that are due after one year have
maturity dates prior to September 15, 2007.
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5.
    
    Property and EquipmentProperty and equipment consists of the following (in thousands):
 December 31,2005
    
    
    2004Land
    
    $
    10,367
    
    
    $
    10,367Machinery and equipment
    
    
    40,829
    
    
    
    38,215Building and leasehold improvements
    
    
    34,970
    
    
    
    33,519Computer and data processing equipment
    
    
    35,972
    
    
    
    36,501Computer software
    
    
    29,651
    
    
    
    22,658Furniture and fixtures
    
    
    9,843
    
    
    
    10,411Construction in progress
    
    
    28,102
    
    
    
    3,145Total property and equipment
    
    
    189,734
    
    
    
    154,816Less accumulated depreciation
    
    
    92,457
    
    
    
    86,221Net property and equipment
    
    $
    97,277
    
    
    $
    68,595
 We own approximately 45 acres of land at our Vernon Hills, Illinois headquarters site, of which
approximately 11 acres are undeveloped.During 2005, we recorded an adjustment to remove $12.8 million of fully depreciated assets that
were no longer in use from property and equipment and accumulated depreciation.6.
    
    Financing ArrangementsWe have an aggregate $70.0 million available pursuant to two $35.0 million unsecured lines of
credit with two financial institutions. One line of credit was renewed in June 2005, and now
expires in June 2006. The other line 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. The Company does not incur any facility fees
associated with either line of credit. At December 31, 2005, 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 $80.0 million collateralized by
inventory purchases financed by the financial institutions. We do not incur any interest
expenses associated with these agreements, as we pay the balances when they are due. At
December 31, 2005 and 2004, we owed the financial institutions approximately $43.8 million and
$29.3 million, respectively, which is included in trade accounts payable.8.
    
    Operating LeasesWe are obligated under various operating lease agreements 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, 2005, 2004 and 2003, rent expense was $11.4 million, $13.8
million and $11.3 million, respectively. Future minimum lease payments are as follows (in
thousands):
 43




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##### Table of Contents



Years Ended December 31,
    
    
    Amount2006
    
    
    $
    9,7802007
    
    
    
    11,9672008
    
    
    
    12,6332009
    
    
    
    12,9242010
    
    
    
    12,877Thereafter
    
    
    
    84,950Total future minimum lease payments
    
    
    $
    145,131
 9.
    
    Income TaxesPretax income from continuing operations for the years ended December 31, 2005, 2004 and 2003
was taxed under the following jurisdictions (in thousands):
 2005
    
    
    2004
    
    
    2003Domestic
    
    $
    432,923
    
    
    $
    400,585
    
    
    $
    289,641Foreign
    
    
    35
    
    
    
    (725
    )
    
    
    (77
    )Total
    
    $
    432,958
    
    
    $
    399,860
    
    
    $
    289,564
 Components of the provision for income taxes for the years ended December 31, 2005, 2004 and
2003 consist of (in thousands):
 2005
    
    
    2004
    
    
    2003Current:Federal
    
    $
    143,805
    
    
    $
    128,527
    
    
    $
    91,361State
    
    
    15,762
    
    
    
    27,671
    
    
    
    21,244Total current
    
    
    159,567
    
    
    
    156,198
    
    
    
    112,605Deferred
    
    
    1,299
    
    
    
    2,217
    
    
    
    1,773Provision for income taxes
    
    $
    160,866
    
    
    $
    158,415
    
    
    $
    114,378
 The current income tax liabilities for 2005, 2004 and 2003 were reduced by $11.0 million, $19.6
million and $36.5 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, 2005, 2004 and
2003 is as follows (dollars in thousands):
 2005
    
    
    2004
    
    
    2003Statutory federal income tax
rate
    
    $
    151,535
    
    
    
    35.0
    %
    
    $
    139,951
    
    
    
    35.0
    %
    
    $
    101,347
    
    
    
    35.0
    %State taxes, net of federal
benefit
    
    
    9,066
    
    
    
    2.1
    
    
    
    18,268
    
    
    
    4.6
    
    
    
    13,921
    
    
    
    4.8Change in valuation allowance
    
    
    (12
    )
    
    
    0.0
    
    
    
    290
    
    
    
    0.0
    
    
    
    31
    
    
    
    0.0Other
    
    
    277
    
    
    
    0.1
    
    
    
    (94
    )
    
    
    0.0
    
    
    
    (921
    )
    
    
    (0.3
    )Effective tax rates
    
    $
    160,866
    
    
    
    37.2
    %
    
    $
    158,415
    
    
    
    39.6
    %
    
    $
    114,378
    
    
    
    39.5
    %
 44




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##### Table of Contents



The tax effect of temporary differences that give rise to the net deferred income tax asset at
December 31, 2005 and 2004 is presented below (in thousands):
 2005
    
    
    2004Assets:Payroll and benefits
    
    $
    5,523
    
    
    $
    7,184Accounts receivable
    
    
    4,769
    
    
    
    4,142Employee stock plans
    
    
    2,484
    
    
    
    3,118Rent
    
    
    1,491
    
    
    
    1,454Accrued expenses
    
    
    1,192
    
    
    
    1,531Merchandise inventory
    
    
    1,021
    
    
    
    860Loss carryforwards
    
    
    291
    
    
    
    321Unrealized losses on marketable securities
    
    
    240
    
    
    
    Gross deferred assets
    
    
    17,011
    
    
    
    18,610Liabilities:Property and equipment
    
    
    3,380
    
    
    
    4,019Other
    
    
    129
    
    
    
    Gross deferred liabilities
    
    
    3,509
    
    
    
    4,019Deferred tax asset valuation allowance
    
    
    291
    
    
    
    321Net deferred tax asset
    
    $
    13,211
    
    
    $
    14,270
 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 portion of the net deferred tax asset relating to unrealized losses on marketable
securities was recorded as a partial offset to the loss recorded in other comprehensive income.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, 2005, we have reserved a total of
5,095,130 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.
 45




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##### Table of Contents



Option activity for the years ended December 31, 2003, 2004 and 2005 was as follows:
 Weighted-Average
    
    
    OptionsShares
    
    
    Exercise Price
    
    
    ExercisableBalance at January 1, 2003
    
    
    11,379,709
    
    
    $
    27.79
    
    
    
    1,803,103Options granted
    
    
    1,282,434
    
    
    
    43.49
    
    
    
    Options exercised
    
    
    (1,228,854
    )
    
    
    21.07
    
    
    
    Options forfeited/cancelled
    
    
    (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/cancelled
    
    
    (288,413
    )
    
    
    38.18
    
    
    
    Balance at December 31, 2004
    
    
    10,721,536
    
    
    
    35.19
    
    
    
    3,228,679Options granted
    
    
    981,587
    
    
    
    54.21
    
    
    
    Options exercised
    
    
    (1,243,563
    )
    
    
    23.98
    
    
    
    Options forfeited/cancelled
    
    
    (260,060
    )
    
    
    40.26
    
    
    
    Balance at December 31, 2005
    
    
    10,199,500
    
    
    $
    38.26
    
    
    
    6,840,437
 For the years ended December 31, 2005, 2004 and 2003, the weighted-average fair value of
options granted was as follows:
 2005
    
    
    2004
    
    
    2003Exercise price equals market price at time of grant
    
    $
    18.79
    
    
    $
    34.85
    
    
    $
    23.74Exercise price is less than market price at time of grant (1)
    
    $
    13.78
    
    
    $
    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 note. 46




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##### Table of Contents



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$
    0.00 - 0.01
    
    
    49,051
    
    
    
    16.0
    
    
    $
    0.01
    
    
    
    
    
    
    $
    $
    5.68 - 6.75
    
    
    24,941
    
    
    
    9.8
    
    
    $
    6.51
    
    
    
    24,941
    
    
    $
    6.51$
    12.06 - 14.83
    
    
    1,315,624
    
    
    
    11.5
    
    
    $
    13.64
    
    
    
    1,135,341
    
    
    $
    13.66$
    22.12 - 33.13
    
    
    2,383,136
    
    
    
    13.2
    
    
    $
    25.05
    
    
    
    1,530,833
    
    
    $
    25.15$
    33.37 - 49.74
    
    
    3,600,539
    
    
    
    8.0
    
    
    $
    39.23
    
    
    
    2,796,127
    
    
    $
    39.00$
    50.54 - 68.00
    
    
    2,826,209
    
    
    
    8.1
    
    
    $
    60.58
    
    
    
    1,353,195
    
    
    $
    62.52$
    0.01 - 68.00
    
    
    10,199,500
    
    
    
    9.8
    
    
    $
    38.26
    
    
    
    6,840,437
    
    
    $
    36.23
 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):
 2005
    
    
    2004
    
    
    2003Net income, as reported
    
    $
    272,092
    
    
    $
    241,445
    
    
    $
    175,186Add stock-based employee compensation
expense included in reported net
income, net of related tax effects
    
    
    2,434
    
    
    
    190
    
    
    
    344Deduct total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects
    
    
    (29,614
    )
    
    
    (26,795
    )
    
    
    (24,709
    )Pro forma net income
    
    $
    244,912
    
    
    $
    214,840
    
    
    $
    150,821Basic earnings per share, as reported
    
    $
    3.35
    
    
    $
    2.90
    
    
    $
    2.10Diluted earnings per share, as reported
    
    $
    3.26
    
    
    $
    2.79
    
    
    $
    2.03Pro forma basic earnings per share
    
    $
    3.02
    
    
    $
    2.58
    
    
    $
    1.81Pro forma diluted earnings per share
    
    $
    2.91
    
    
    $
    2.47
    
    
    $
    1.75
  47




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##### Table of Contents



2005
    
    2004
    
    2003Risk-free interest rate
    
    
    4.0
    %
    
    
    3.2
    %
    
    
    3.0
    %Dividend yield
    
    
    0.7
    %
    
    
    0.6
    %
    
    
    0.0
    %Option life (years)
    
    
    4.5
    
    
    
    5.0
    
    
    
    5.0Stock price volatility
    
    
    39.62
    %
    
    
    58.80
    %
    
    
    59.00
    %
 MPK Stock Option Plan
  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
  MPK Restricted Stock Plan
  48




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##### Table of Contents



Tax Benefits
  Restricted Stock
     Employee Stock Purchase Plan
  49




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##### Table of Contents



Earnings Per Share
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Basic earnings per share:Income available to
common shareholders (numerator)
    
    $
    272,092
    
    
    $
    241,445
    
    
    $
    175,186Weighted-average common
shares outstanding (denominator)
    
    
    81,128
    
    
    
    83,391
    
    
    
    83,329Basic earnings per share
    
    $
    3.35
    
    
    $
    2.90
    
    
    $
    2.10Diluted earnings per share:Income available to
common shareholders (numerator)
    
    $
    272,092
    
    
    $
    241,445
    
    
    $
    175,186Weighted-average common
shares outstanding
    
    
    81,128
    
    
    
    83,391
    
    
    
    83,329Effect of dilutive securities:Options on common stock
    
    
    2,438
    
    
    
    3,161
    
    
    
    2,846Total common
shares and dilutive securities (denominator)
    
    
    83,566
    
    
    
    86,552
    
    
    
    86,175dilutive securities (denominator)Diluted earnings per share
    
    $
    3.26
    
    
    $
    2.79
    
    
    $
    2.03
  Years Ended December 31,2005
    
    2004Weighted-average number of options (in 000s)
    
    
    1,226
    
    
    
    1,091Weighted-average exercise price
    
    $
    67.64
    
    
    $
    68.00
 Profit Sharing and 401(k) Plan
  Leasing Joint Venture
  50




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##### Table of Contents



Contingencies
    Segment Information
  51




---



##### Table of Contents



Year Ended December 31, 2005Corporate
    
    
    Public
    
    
    Headquarters /Sector
    
    
    Sector
    
    
    Other
    
    
    ConsolidatedNet sales
    
    $
    4,410,708
    
    
    $
    1,881,137
    
    
    $
    
    
    
    $
    6,291,845Income (loss) from operations
    
    $
    341,810
    
    
    $
    110,425
    
    
    $
    (32,601
    )
    
    $
    419,634Net interest income and
other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,324Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    432,958Total assets
    
    $
    461,416
    
    
    $
    285,709
    
    
    $
    901,931
    
    
    $
    1,649,056
 52




---



##### Table of Contents



Year Ended December 31, 2004Corporate
    
    
    Public
    
    
    Headquarters /Sector
    
    
    Sector
    
    
    Other
    
    
    ConsolidatedNet sales
    
    $
    4,105,090
    
    
    $
    1,632,684
    
    
    $
    
    
    
    $
    5,737,774Income (loss) from operations
    
    $
    327,520
    
    
    $
    93,411
    
    
    $
    (28,172
    )
    
    $
    392,759Net interest income and
other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,101Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    399,860Total assets
    
    $
    411,381
    
    
    $
    237,686
    
    
    $
    871,868
    
    
    $
    1,520,935
 Year Ended December 31, 2003Corporate
    
    
    Public
    
    
    Headquarters /Sector
    
    
    Sector
    
    
    Other
    
    
    ConsolidatedNet sales
    
    $
    3,327,945
    
    
    $
    1,336,671
    
    
    $
    
    
    
    $
    4,664,616Income (loss) from operations
    
    $
    265,208
    
    
    $
    61,865
    
    
    $
    (42,615
    )
    
    $
    284,458Net interest income and
other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,106Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    289,564Total assets
    
    $
    353,281
    
    
    $
    205,148
    
    
    $
    753,203
    
    
    $
    1,311,632
   Share Repurchase Programs
  53




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##### Table of Contents



Year
    
    Shares
    
    Amount2005
    
    
    4,570,300
    
    
    $
    258,2982004
    
    
    1,352,300
    
    
    $
    86,0102003
    
    
    1,852,424
    
    
    $
    76,324
  Public Offering of Common Shares
  Micro Warehouse Transactions
    54




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##### Table of Contents



Selected Quarterly Financial Data (Unaudited)
  First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterDecember 31, 2005Net sales
    
    $
    1,475,082
    
    
    $
    1,539,595
    
    
    $
    1,670,204
    
    
    $
    1,606,964Gross profit
    
    
    226,429
    
    
    
    237,478
    
    
    
    254,943
    
    
    
    248,780Income before income taxes
    
    
    100,539
    
    
    
    105,998
    
    
    
    115,808
    
    
    
    110,613Net income
    
    
    61,397
    
    
    
    67,061
    
    
    
    73,124
    
    
    
    70,510Earnings per share:Basic
    
    $
    0.74
    
    
    $
    0.82
    
    
    $
    0.91
    
    
    $
    0.88Diluted
    
    $
    0.72
    
    
    $
    0.80
    
    
    $
    0.88
    
    
    $
    0.86December 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
    
    
    $
    0.73
 55




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Design and Evaluation of Internal Control Over Financial Reporting
  Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
 Proposal 1  Election of
Directors; Corporate Governance; Shareholder Recommendations of Candidates for the Board of
Directors; Compliance with Section 16(a) of the Securities Exchange Act of 1934; Management.
 CDW.com
 56




---



##### Table of Contents



Item 11. Executive Compensation.
 Director Compensation; Employment Related
Agreements; Executive Compensation; Summary Compensation Table; Option Grants in 2005; 2005 Option Exercises and Fiscal Year-End Option Values.
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
 Stock Beneficially Owned by Directors, Certain
Executive Officers and Our Largest Shareholders; Equity Compensation Plan Information;
Employment Related Agreements; Certain Arrangements with Other Executive Officers.
 
 Item 13. Certain Relationships and Related Transactions.
 Certain Arrangements with Other Executive Officers; Certain Transactions.
 
 Item 14. Principal Accounting Fees and Services.
 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 27 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 notpresent in amounts sufficient to require submission of the schedule, or because theinformation required is included in the consolidated financial statements or notes thereto.
 57




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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 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(b)*
    
    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(c)*
    
    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(d)*
    
    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(e)*
    
    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(f)*
    
    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(g)*
    
    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(h)
    
    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(i)*
    
    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(j)*
    
    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(k)*
    
    Form of Noncompetition Agreement, effective December 2002,
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##### Table of Contents



Exhibit
    
    Description of Documententered
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(l)*
    
    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(m)*
    
    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(n)
    
    Industrial Lease, dated as of February 22, 2005, between CDW
Logistics Inc., as Tenant, and DP Industrial, LLC, as Landlord,
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, 2004.10(o)
    
    Guaranty Agreement, dated as of February 22, 2005, executed by CDW
Corporation in favor of DP Industrial, LLC,
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, 2004.10(p)
    
    Revolving Note between the Company and LaSalle National Bank dated
June 30, 2005, 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, 2005.10(q)*
    
    CDW 2000 Incentive Stock Option Plan, as amended and restated
effective January 1, 2006.10(r)*
    
    CDW Senior Management Incentive Plan, as amended and restated
effective January 1, 2006.10(s)*
    
    2004 Non-Employee Director Equity Compensation Plan, as amended
and restated effective January 1, 2006.10(t)*
    
    Form of Stock Option Agreement for awards to coworkers under the
CDW 2000 Incentive Stock Option Plan21
    
    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.
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##### Table of Contents



SIGNATURES
  CDW CORPORATIONDate: March 3, 2006
    
    By:
    
    /s/ John A. Edwardson

John A. EdwardsonChairman and Chief Executive Officer
  Signature
    
    Title
    
    Date/s/ John A. Edwardson
    
    Chairman and
    
    March 3, 2006John A. Edwardson
    
    Chief Executive Officer/s/ Barbara A. Klein
    
    Senior Vice President and
    
    March 3, 2006Barbara A. Klein
    
    Chief Financial Officer(principal financial officer)/s/ Sandra M. Rouhselang
    
    Vice President and Controller
    
    March 3, 2006Sandra M. Rouhselang
    
    (principal accounting officer)/s/ Michelle L. Collins
    
    Director
    
    March 3, 2006Michelle L. Collins/s/ Casey G. Cowell
    
    Director
    
    March 3, 2006Casey G. Cowell/s/ Daniel S. Goldin
    
    Director
    
    March 3, 2006Daniel S. Goldin/s/ Thomas J. Hansen
    
    Director
    
    March 3, 2006Thomas J. Hansen/s/ Donald P. Jacobs
    
    Director
    
    March 3, 2006Donald P. Jacobs/s/ Stephan A. James
    
    Director
    
    March 3, 2006Stephan A. James/s/ Michael P. Krasny
    
    Director
    
    March 3, 2006Michael P. Krasny/s/ Terry L. Lengfelder
    
    Director
    
    March 3, 2006Terry L. Lengfelder/s/ Susan D. Wellington
    
    Director
    
    March 3, 2006Susan D. Wellington/s/ Brian E. Williams
    
    Director
    
    March 3, 2006Brian E. Williams
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##### Table of Contents



CDW CORPORATION
SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2005, 2004 and 2003
 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, 2005Deducted in the
balance sheet
from the asset to
which it applies:Allowance for
doubtful accounts
    
    $
    9,890
    
    
    $
    2,475
    
    
    $
    
    
    
    $
    2,801
    (a)
    
    $
    9,564Year 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)
    
    $
    10,057
 
 S-1