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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 Form 10-K
 (Mark One)[X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2003OR[   ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the transition period from  to
 Commission file number     0-21796 CDW Corporation  Illinois
    
    36-3310735(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)200 N. Milwaukee Ave.
    
    60061Vernon Hills, Illinois
    
    (Zip Code)(Address of principal executive offices)
 Registrants telephone number, including area code: (847) 465-6000 Securities registered pursuant to Section 12(b) of the Act:Title of each class
    
    Name of each exchange on which registeredNone
    
    N/A
 Securities registered pursuant to Section 12 (g) of the Act: Common Stock Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [ X ]  No [     ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K.  [ X ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)  Yes [ X ]  No [     ] As of June 30, 2003, the last business day of the registrants most recently
completed second fiscal quarter, the aggregate market value of the common stock
held by non-affiliates was approximately $2.740 billion, based upon the closing
market price per share of $45.81. As of March 9, 2004, the registrant had 84,120,776 shares of common stock,
$0.01 par value, outstanding. Documents Incorporated by Reference Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 20, 2004, to be filed not later than April 29,
2004, are incorporated by reference into Part III.




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CDW CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2003
INDEX PART I
    
    10-K Page NoItem 1.
    
    Business
    
    
    1Item 2.
    
    Properties
    
    
    11Item 3.
    
    Legal Proceedings
    
    
    12Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    12PART IIItem 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    12Item 6.
    
    Selected Financial Data
    
    
    13Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    14Item 7A.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    25Item 8.
    
    Financial Statements and Supplementary Data
    
    
    26Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    53Item 9A.
    
    Controls and Procedures
    
    
    53PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    53Item 11.
    
    Executive Compensation
    
    
    53Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    53Item 13.
    
    Certain Relationships and Related Transactions
    
    
    53Item 14.
    
    Principal Accounting Fees and Services
    
    
    54PART IVItem 15.
    
    Exhibits, Financial Statement Schedule and Reports on Form 8-K
    
    
    54Signatures
    
    
    58Stock CertificateSubsidiariesConsent of Independent AccountantsCertification of CEOCertification of CFOCertification of CEOCertification of CFO
  i




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PART I 
 Item 1.     Business. General CDW Corporation (collectively with its subsidiaries, CDW or the
Company) is a leading direct marketer of multi-brand computers and related
technology products and services in the United States. The Company was founded
in 1984 and reincorporated in 1995 in Illinois. In May 2003, our shareholders
approved changing the name of the Company to CDW Corporation from CDW Computer
Centers, Inc. The name change became effective on June 18, 2003. Our
extensive offering of products, including hardware and peripherals, software,
accessories and other products, combined with our service offerings, provide
comprehensive solutions for our customers technology needs. We offer
customers a broad range of technology products from leading vendors such as
Apple, Cisco, Hewlett-Packard, IBM, Intel, Microsoft, Sony and Toshiba, among
others. Our high volume, cost-efficient operations, supported by our
proprietary information technology systems, enable us to offer these products
at competitive prices combined with a high level of service. We provide a
variety of value-added services and web-based tools to our customers, including
the ability to custom configure multi-branded solutions, manage software
licenses through our Software License Tracker tool and track tagged assets
through our IT Asset Management Tracking Database. We also offer technical
support 24 hours a day, 7 days a week to our customers. During September 2003, we purchased selected U.S. assets and the Canadian
operations of Micro Warehouse, a reseller of computers, software and
peripheral products. The U.S. transaction was completed on September 9, 2003.
The purchase price of the assets acquired in the U.S. transaction, including
inventory, fixed assets and customer lists, was $20.0 million. The purchase of
the Canadian operations was completed on September 23, 2003, for a purchase
price of $2.7 million. Building
on the Micro Warehouse transactions, we expanded our customer base, increased our
penetration in the public sector and the eastern half of the U.S., and extended
our growth platform into Canada. For financial reporting purposes, we have two operating segments,
corporate and public sector. Our corporate customers are concentrated
in the small to medium business (SMB) category, which is
generally comprised of businesses that have less than
1,000 employees at a single location. Our public sector customers are
comprised of federal, state and local government entities and
educational institutions
who are served by CDW Government, Inc. (CDW-G), a wholly-owned
subsidiary. (See Note 17 to the Consolidated Financial Statements for certain
financial information regarding our two operating segments.) For the year ended December 31, 2003, we served approximately 416,000
commercial customers, defined as public sector and corporate customers
excluding consumers, which comprised 98% of our total net sales. We focus on
generating repeat sales from existing customers while also generating sales
from new customers. We create a high degree of customer loyalty through our
relationship-focused account managers. These account managers become
knowledgeable about customer needs and assist customers by providing advice on
the selection and configuration of multi-branded technology solutions. We market to current and prospective customers through our catalogs, other
direct mail programs, product advertisements in computer trade magazines and
other publications, our Web sites and various Web advertising vehicles.
Additionally, we promote the CDW brand on a national basis through our branding
campaign, which includes television, print media and other activities. Our
marketing efforts are integrated with a proactive outbound calling program by
our account managers. We also focus significant efforts on developing and
expanding our E-business initiatives. These initiatives include CDW.com, CDWG.com and macwarehouse.com (our Web sites), and CDW@work and CDWG@work (our extranets), which are customized Web
sites for our commercial customers. 1




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We adhere to a core philosophy known as the CDW CIRCLE OF SERVICE, which
places the customer at the center of all of the Companys actions. The
philosophy is based on the premise that People Do Business With People They
Like. The CDW CIRCLE OF SERVICE is a graphic reminder to our coworkers that
good service leads to good experiences and increased sales. A fundamental
element of the CDW CIRCLE OF SERVICE is our coworkers, who are highly
motivated and incented to share in the Companys success. Electronic versions of CDWs Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and amendments to these reports are
available free of charge through our Web site, CDW.com, as soon as
reasonably practicable after we electronically file these reports with the
Securities and Exchange Commission. Business Strategy Our business strategy is to be a high volume, cost-efficient direct
marketer of multi-brand, competitively-priced computers and related technology
products and services, while providing a high level of support to our customers.
We believe that the following factors are of principal importance in our
ability to implement this business strategy: Multi-Branded Solutions.We offer more than 80,000 products, which
include a wide range of products from leading manufacturers including Apple,
Cisco, Hewlett-Packard, IBM, Intel, Microsoft, Sony, Toshiba and others. With
this broad selection of products, we can provide our customers with
fully-integrated, multi-branded technology solutions and the convenience of
one-stop shopping. We also continuously review and enhance our product mix
based on new product introductions and the needs of our customers. Customer Focus.We focus our sales and marketing efforts on attracting
and serving commercial customers. We believe commercial customers typically
have ongoing requirements to purchase sophisticated products and systems and
value our relationship-based approach and high level of service. Our field
sales force actively calls on commercial customers and prospects in person
to augment our inside sales force. We also reach our customers through our
customized Web sites, CDW@work and CDWG@work. Competitive Pricing. We are able to offer our customers competitive
prices due to our low cost structure, efficient distribution methods, ability
to purchase products directly from manufacturers and economies of scale in
purchasing products. Our size and financial strength allow us to negotiate
advantageous purchasing terms and earn vendor rebates and incentives. Marketing.We use a marketing mix of direct response activities,
including our catalogs and trade magazine advertising, combined with a
multifaceted branding campaign, including national television advertising.
These activities are intended to generate customer response and a high level of
awareness of CDW. Our marketing activities are directed to commercial
customers and the decision makers in commercial organizations. Customer Service.We have over 1,900 account managers and sales
specialists who are highly trained in the Companys products, systems and
philosophies, enabling them to provide a high level of customer service. We
assign an account manager to each customer. Account managers obtain an
understanding of their customers businesses and technology systems and are
able to recommend integrated product solutions based on customer needs, past
purchases and technological developments. Our account managers provide a high
level of customer service utilizing CDWs proprietary customer relationship
management system. Customers also benefit from specialty sales support teams
that have in-depth knowledge of and experience with complex technology products
and applications, such as network solutions, storage applications and software
licenses. Custom Configuration.We offer custom configuration services such as the
installation of accessories and expansion products, loading of software,
imaging for custom applications and configuration of network operating systems.
Our custom configuration services benefit our customers by reducing the cost
and time necessary to deploy new products into their existing technology
environment. 2




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Technical Support.Our technical staff is well-trained and maintains high
levels of professional certification from product manufacturers. We employ a
technical staff of more than 140 with over 400 manufacturer certifications to
assist our customers with technical questions and issues during regular
business hours. We offer technical support services by telephone 24 hours a
day, 7 days a week. We believe that our commitment to service at the time of
sale and after the purchase maximizes sales opportunities and encourages repeat
customers. Information Technology.We use proprietary, real-time information
technology systems which centralize management of key functions and generate
daily operating reports enabling management to identify and respond quickly to
internal changes and trends in the industry and to provide high levels of
customer satisfaction. We integrate our real-time systems with CDW.com, CDWG.com and macwarehouse.com, our Web sites, providing
real-time information for our customers. Effective Inventory Control.Our management information systems,
purchasing system, radio frequency-based cycle counting system and use of
vendor stock balancing and price protection programs allow us to minimize our
investment in inventory and to reduce inventory discrepancies and the risk of
obsolescence while meeting customer needs. High Quality Coworkers.We strive to attract, retain and motivate high
quality coworkers and provide our coworkers with financial incentives designed
to maximize performance and productivity. Our objective is, whenever possible,
to promote coworkers from within the Company to positions of increased
responsibility. Examples of rewards and motivations for our coworkers include
short-term incentive programs, stock-based compensation and an on-site
childcare and fitness center facility at our Vernon Hills, Illinois
headquarters. Product Offering We sell multi-brand computers and related technology products, including
hardware and peripherals, software, accessories and other products, for use
with microcomputers based on a variety of operating platforms, including
Microsoft, Apple, Linux, Novel, Unix and others. Aggressive inventory
management allows us to limit our on-hand inventory and ship orders generally
on a same-day basis. We continually seek to expand and improve our relationships with
manufacturers as well as increase the number of products which we are
authorized to sell. Purchasing and Vendor Relationships We purchase products for resale both directly from manufacturers and
indirectly through distributors and other sources, all of whom we consider our
vendors. During 2003, we purchased approximately 53% of the products
we sold directly
from manufacturers and the remaining amount from distributors and other
sources. We believe that effective purchasing from a diverse vendor base is a
key element of our business strategy. For the year ended December 31, 2003,
purchases from distributors Tech Data and Ingram Micro each represented
approximately 15% of our total purchases. Additionally, in 2003, sales of
products manufactured by Hewlett-Packard comprised approximately 28% of our
total sales. Our marketing and purchasing staffs work together to identify reliable,
high-quality suppliers of products, then actively negotiate to achieve the
lowest possible cost and expand vendor incentive programs. We seek to establish
strong relationships with our vendors, and employ a policy of paying vendors
within stated terms and taking advantage of all appropriate discounts. Several
of our leading vendors, such as Hewlett-Packard, IBM and Microsoft, have
full-time product specialists on-site at our facilities. We are authorized by manufacturers to sell via direct marketing all or
selected products offered by the manufacturer. Our authorization with each
manufacturer provides for certain terms and conditions, which may include one
or more of the following: product return privileges, price protection policies,
purchase discounts and vendor incentive programs, such as purchase or sales
rebates, and cooperative advertising reimbursements. Vendors also periodically
offer us opportunities to purchase a large amount of product at reduced prices. 3




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Vendor
incentive programs are at the discretion of the vendors and usually
require the achievement of a specified sales volume or growth rate to qualify
for all, or some, of the incentive programs. Inventory Management/Distribution We apply our proprietary information technology systems to manage our
inventory in an aggressive, cost-efficient manner, resulting in a rapid-turn
inventory model. Our information technology systems provide information on
each item of inventory from the time it is ordered until it is shipped to a
customer. We generally only stock items that have attained a minimum sales
volume. All of our inventory items contain UPC bar codes that are matched to
our internal product codes which allow the systems to track and discern trends
with respect to product movement and inventory obsolescence. We also use
vendor stock balancing and price protection programs to minimize our investment
in inventory. Our distribution process is highly automated. Once a customer order is
received, either by phone, online or by fax, it is processed for credit approval.
After credit approval is received, orders are automatically routed to our
warehouse for shipping. All product picking is performed using bar-coded
labels, UPC bar codes and radio frequency scanning. All product shipments
travel through our warehouse on automatic conveyor systems with in-line
scanning and are subject to numerous quality control checks. Our sorting
system automatically provides a final quality control check and directs boxes
to the appropriate commercial carrier. We believe that the Chicago metropolitan area is an excellent location for
our distribution center as it is centrally located for purposes of shipping
products throughout the United States and provides timely access to our
principal distributors. Our location enables us to obtain non-stocked items
for same-day shipping. We believe that competitive sources of supply are
available in substantially all of the merchandise categories we carry. Marketing and Advertising Activities We market to our current and prospective customers using catalogs,
promotional mail campaigns, advertising and a proactive outbound calling
program. In addition, we promote the CDW brand through a national branding
campaign, which includes print media, television advertisements and other
activities. Catalogs are one of our main advertising vehicles and our catalog strategy
has evolved to include specialty catalogs for products such as networking
communications and software. Our main catalog also includes articles about
noteworthy technology developments and interviews with industry executives. We
also hold a Customer Technology Seminar Series, hosting representatives from
industry manufacturers and influential persons in the technology field who
discuss the latest information technology issues with our customers. Customers
who are unable to attend the series can access the presentations on the
Companys Web sites. As a result of our relationships with our vendors, a substantial portion
of our advertising and marketing expenses are reimbursed through cooperative
advertising reimbursement programs. These cooperative advertising programs are
at the discretion of our vendors and are typically tied to sales or purchasing
volumes and other commitments required to be met by the Company. To measure
the effectiveness of our various marketing activities, we track responses to
our efforts by a variety of means. We use this information to further refine
our marketing strategy and to develop more effective programs. E-business We utilize our Web sites and extranets to implement our business strategy.
Our objective is to make it easy for our customers to transact business with
the Company and ultimately to enhance our customer relationships. Our Web
sites include many advanced features to attract new customers and produce
sales, including more than 80,000 computer products to search and order online,
advanced search capabilities, product specifications, and information on
product availability and pricing. During 2003 and 2002, we generated $1,056.8
million and $829.2 million, respectively, of direct online sales over our Web
sites, representing approximately 23% and 19% of total sales, respectively. We
also offer side-by-side product comparisons, links to product reviews, 4




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newsworthy announcements, personalized access and customized two-way
interaction that allows our customers to check the status of their orders. We continue to enhance our award-winning, customized Web sites, marketed
as CDW@work and CDWG@work extranets. These sites give
customers online access to information such as order and shipping status,
payment details, purchase history and details about their dedicated CDW or
CDW-G account team. Customers may also use their sites to automate technology
purchasing procedures, manage software licenses, inventory asset-tagged items, reprint invoices and
retrieve quotes prepared by their account managers. In addition, we have,
through our strong relationships with vendors, arranged for links between
vendors Web sites and our own. Many customers use the extranets to gather
product information, including pricing and availability, and then follow up
with their account managers to access the account managers knowledge base
regarding product compatibility and other information. In 2003 and 2002, sales
to customers with active extranets, including online orders and those placed
directly with account managers, totaled approximately $3.2 billion and $3.0
billion, respectively, representing approximately 68% and 70% of total sales,
respectively. Sales Activities and Order Fulfillment Our success is due in part to the strength of the relationships our
account managers develop with our customers by responding to customer
inquiries, providing advice on products, and proactively calling existing and
potential new customers. Our account managers are trained in Company systems
and philosophies, have in-depth product knowledge and are motivated to maximize
gross profit and provide high levels of customer service. All account managers
are graduates of our proprietary sales training program which is part of CDW
University, our company-wide training program with colleges of specialization.
New account managers are immersed in the Universitys College of Sales and
complete an intensive sales consulting, product training, systems and customer
service curriculum. We seek to build customer relationships by
generally assigning each
customer to the account manager who first serves the customer. Upon subsequent
calls to CDW, the customer is directed to its account manager for assistance.
In the spirit of teamwork, account managers are encouraged to cooperate and
work together to maximize gross profit and customer satisfaction. Each catalog and advertisement distributed by the Company bears a
toll-free number and Web site address to be used by customers in contacting CDW
to place a product order. Telephone calls are answered by account managers who
utilize on-line computer terminals to retrieve information regarding product
characteristics, cost and availability and to enter customer orders. Account
managers enter orders on-line into a computerized order fulfillment system
which updates our customer purchase history. Computer processing of orders is
performed immediately following the placement of the order and upon receipt of
credit approval. We ship most credit approved orders on the day the order is
received. We generally ship products to customers by Airborne, A.I.T., DHL,
Eagle, FedEx, FedEx Ground, United Parcel Service and other commercial delivery
services and invoice customers for shipping charges. Customers We served approximately 416,000 commercial customers for the year ended
December 31, 2003 and sales to our commercial customers accounted for
approximately 98% of total net sales. We are not dependent on any one
customer. For the year ended December 31, 2003, our largest customer comprised
only .39% of net sales and our top five customers comprised approximately 1.18%
of net sales. Our corporate customers are primarily small and medium size
businesses that generally have less than 1,000 employees at a single location.
We also serve larger corporate customers, including FORTUNE 1000 companies, as
either a primary or secondary vendor. CDW-G, which conducts the Companys
public sector business, focuses on meeting the technology needs of federal,
state and local governments, and educational institutions. Our customers are located almost entirely in the United States. In 2003,
approximately 10% of our net sales were to customers in Illinois, approximately
34% were to customers in the eastern United States, approximately 20% were to
customers in the southern United States, approximately 20% were to customers in
the western United States and approximately 15% were to customers in the
midwestern United States (excluding Illinois). Approximately 1% of our sales
in 2003 were to customers outside of the continental United States. 5




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Custom Configuration and Technical Support We offer custom configuration services, including installation of
accessories or expansion products, software loading, network configuration and
custom applications imaging. Custom configurations provide additional value to
our customers because they reduce the cost and time necessary to deploy new
products into their existing technology environments. The ability to configure
products to customer specifications enables CDW to generate incremental sales. Our technical support staff is well trained and maintains high levels of
professional certification from manufacturers relating to the products we sell,
including that of Microsoft Certified Systems Engineer (MCSE) and Novell
Certified Network Engineer. Our technical support staff is motivated to obtain
high certification levels, as they are compensated, in part, on the
levels of
those certifications. Technical support is available by telephone 24 hours a
day, 7 days a week to assist customers with technical problems or answer
questions in order to increase customer satisfaction and reduce product
returns. We have developed a proprietary customer service tracking system to
ensure that customer-initiated service requests are responded to rapidly. As a
result, substantially all customer service calls are answered in one minute or
less. Information Technology Systems Our information technology systems are a key element in our ability to
maintain what we believe is the lowest cost structure among multi-brand direct
marketers of computers and related technology products and services in the U.S.
We have developed and operate customized information technology and telephony
systems. Collectively, these systems allow for centralized management of key
functions, including inventory management, collection of accounts receivable,
purchasing, sales and distribution. Additionally, our systems enable the
preparation of daily operating reports which provide thorough, detailed and
timely information regarding key aspects of our business. Our proprietary
information technology systems enable us to enhance productivity, ship customer
orders on a same-day basis, respond quickly to industry changes and provide
high levels of customer service. Historical customer orders are tracked within
our system so that we can provide our customers with updates regarding product
upgrades and other information relating to the products they purchase from the
Company. Our success is dependent on the accuracy and proper utilization of our
information technology and telephony systems. We anticipate that we will
continue to upgrade the software and hardware for our current information
technology systems. In addition, our ability to adapt our systems to changes
in the competitive environment or to take advantage of additional automation is
dependent on our ability to recruit and retain qualified information technology
professionals. Coworkers, Training and Culture At December 31, 2003, we employed approximately 3,700 coworkers. We
consider our coworker relations to be excellent. No coworkers are covered by
collective bargaining agreements. We emphasize the recruiting, training and development of high quality
coworkers throughout our organization. Our objective is to promote coworkers
from within the Company to positions of increased responsibility, whenever
possible. We develop our coworkers through CDW University, our company-wide
training program with colleges of specialization. The colleges of CDW
University provide specialized training in sales and relationship-building
techniques, technical certifications, leadership development skills and
interpersonal and professional skills. We strive to create a supportive and rewarding work environment. In 2004,
we were named by FORTUNE magazine as one of the 100 Best Places to Work in
America for the sixth consecutive year. For the second consecutive year, we
were the highest ranked FORTUNE 500 company on this list. Our Vernon Hills
facility offers an on-site childcare and fitness center, on-site dry cleaning,
private rooms for nursing mothers and a series of English language classes for
coworkers who speak English as a second language. CDW coworkers are 6




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encouraged to provide their thoughts and concerns regarding the Company
directly to management, including through our whistleblower hotline. Incentive and Regular Compensation Arrangements Compensation Arrangements. Our coworkers are compensated on a basis that
rewards performance and the achievement of identified goals. For example,
account managers generally receive compensation pursuant to a monthly
commission schedule which is based on the gross profit they generate. Account
managers have the authority to negotiate and adjust prices for products,
provided that the product is sold at a price which meets
established management guidelines and pursuant to various contracted prices,
where applicable. Account managers have the opportunity to achieve relatively
high compensation levels and have historically shown increased productivity as
training and experience levels increase. In addition, most coworkers,
excluding the Companys sales force, are eligible for monthly, quarterly or
annual bonus programs that are tied to achieving certain goals. We believe
that these incentives positively impact the Companys performance and
profitability. Coworker Bonus, Stock Option and Restricted Stock Plans.In addition to
regular compensation, we provide coworkers with additional long-term incentives
designed to maximize performance and productivity. To this end, we have
adopted various stock-based compensation plans which enable coworkers to share
in the Companys success through appreciation in the value of the Companys
stock. We reward every coworker with an annual stock option grant as a part of
their compensation. Business Technology Centers We currently operate two Business Technology Centers allowing local
customers an opportunity to examine products prior to purchase, meet
face-to-face with our sales or technical coworkers and pick up products they
have ordered over the phone or online. One of these centers is located at our
main facility in Vernon Hills, Illinois, and the other is located in Chicago,
Illinois. These centers occupy approximately 5,100 square feet each. Trademarks and Trade Names We conduct business under a number of trademarks, trade names and service
marks, some of which are registered, including CDW, CDW. The Right
Technology. Right Away., CDW@work, CDW-G, CDW-G@work, and CDW Mac
Warehouse. We have taken steps to register and protect these marks and
believe they have significant value and are important factors in our marketing
programs. Certain Factors Affecting CDWs Business There are many factors that affect our business and the results of
operations, some of which are beyond our control. The following is a
description of some important factors that may cause the actual results of
operations in future periods to differ materially from those currently expected
or desired. Our sales and profitability may be affected by changes in the economic
environment and other factors.There are many factors which could affect our
business, including:  
    
    the capital and technology spending patterns of existing and prospective customers;
    
    general economic trends;
    
    the addition of new customers and further penetration of our existing customer base;
    
    the productivity and retention of our account managers;
    
    the optimization of our product mix;
    
    the availability of products from our vendors;
    
    the successful development of new technology and products by
equipment manufacturers and software developers; and 7




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
    
    new competitors and new forms of competition. Our business depends on our vendor relationships and the availability of
products.We purchase products for resale both directly from manufacturers and
indirectly through distributors and other sources, all of whom we consider our
vendors. During 2003, we purchased approximately 53% of the products
we sold directly from manufacturers and the remaining amount from
distributors and other sources. We are authorized by manufacturers to sell all or some of their
products via direct marketing activities. Our authorization with each
manufacturer is subject to specific terms and conditions regarding such things
as product return privileges, price protection policies, purchase discounts and
vendor incentive programs including purchase rebates, sales volume rebates and
cooperative advertising reimbursements. From time to time, vendors may
terminate our right to sell some or all of their products or change these terms
and conditions or reduce or discontinue the incentives that they offer us. Any
such termination or the implementation of such changes could have a negative
impact on our operating income. Additionally, some products are subject to
manufacturer allocation, which limits the number of units of those products
that are available to resellers, including us. Sales of Cisco,
Hewlett-Packard, IBM, Microsoft, Sony and Toshiba products comprise a
substantial portion of our sales. In 2003, sales of products manufactured by
Hewlett-Packard represented approximately 28% of our total sales and,
therefore, we are dependent on the economic condition and product
competitiveness of, and our business relationship with, this manufacturer in particular. In addition, although we
purchase from a diverse vendor base, in 2003, products we purchased from
distributors Tech Data and Ingram Micro each represented approximately 15% of
our total purchases. The loss of, or change in business relationship with, any
of these or any other key vendors, or the diminished availability of their
products, could reduce the supply and increase the costs of products we sell
and negatively impact our competitive position. Additionally, the relocation
of key distributors utilized in our purchasing model could adversely impact our
results of operations. Although to date mergers among manufacturers have not
had an adverse impact on our business and results of operations, further
consolidation could adversely impact us. The success of our business depends on the continuing development,
maintenance and operation of our information technology systems.Our success
is dependent on the accuracy, proper utilization and continuing development of
our information technology systems, including our business application systems,
Web servers and telephony system. The quality and our utilization of the
information generated by our information technology systems, and our
success in implementing new systems and upgrades, affects, among
other things, our ability to:  
    
    conduct business with our customers;
    
    manage our inventory and accounts receivable;
    
    purchase, sell, ship and invoice our products efficiently and
on a timely basis; and
    
    maintain our cost-efficient operating model. The integrity of our information technology systems is vulnerable to
certain forms of disaster including, but not limited to, natural disasters such
as tornadoes. While we have taken steps to protect our information technology
systems from a variety of threats, including computer viruses and malicious
hackers, there can be no guarantee that those steps will be effective.
Furthermore, although we have redundant systems at a separate location to back
up our primary application systems, there can be no assurance that these
redundant systems will operate properly if and when required. Any disruption
to or infiltration of our information technology systems could significantly
harm our business and results of operations. Our sales are dependent on the continued development of new technologies
and products.The market for computers and related technology products and
services has evolved as a result of the development of new technologies that
are transformed by manufacturers into new products and applications. We have
been and will continue to be dependent on the development of new technologies
and products by manufacturers, as well as the acceptance of those technologies
and products by customers. A decrease in the rate of development of new
technologies and new products by manufacturers, or the lack of acceptance of
those technologies and products by customers, could have an adverse effect on
our business and results of operations. We would be adversely affected if we are not able to expand or retain our
sales force or if we are not able to maintain or increase their productivity.
Our statistics show that the level of sales achieved by our account managers
increases with the number of years of experience they have with us. Our rate
of sales growth and our 8




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




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
    
    increases in shipping costs that we cannot pass on to customers. A natural disaster or other adverse occurrence at our primary facility
could damage our business.We operate our business from a primary facility in
Vernon Hills, Illinois. Although we have multiple sales office locations,
substantially all of our corporate, warehouse and distribution functions are
located at our Vernon Hills facility. If the warehouse and distribution
equipment at our Vernon Hills facility were to be seriously damaged by a
natural disaster or other adverse occurrence, we could utilize third-party
distributors to ship products to our customers. However, this may not be
sufficient to avoid interruptions in our service and may not enable us to meet
all of the needs of our customers. Additionally, this would cause us to incur
incremental operating costs. As a result, a natural disaster or other adverse
occurrence at our primary facility in Vernon Hills could negatively impact our
business and profitability. We are heavily dependent on commercial delivery services.We generally
ship our products to customers by Airborne, A.I.T., DHL, Eagle, FedEx, FedEx
Ground, United Parcel Service and other commercial delivery services and
invoice customers for shipping charges. If we are unable to pass on to our
customers future increases in the cost of commercial delivery services, our
profitability could be adversely affected. Additionally, strikes or other
service interruptions by such shippers could adversely affect our ability to
deliver products on a timely basis. Our earnings and growth rate could be adversely affected by changes in
general economic conditions and uncertain political conditions.Weak general
economic conditions, along with uncertainties in political conditions, could
adversely impact our revenues and growth rate. In addition, our revenues,
gross margins and earnings could deteriorate in the future as a result of
unfavorable economic or political conditions. We could be exposed to additional risks when we make acquisitions or
alliances.We may pursue transactions, including acquisitions or alliances, to
extend or complement our existing business. These types of transactions
involve numerous risks, including investor acceptance, finding suitable
transaction partners and negotiating terms that are acceptable to us, the
diversion of managements attention from other business concerns, entering
product or geographic markets in which we have limited experience, the
potential loss of key employees or business relationships and successfully
integrating acquired businesses, any of which could adversely affect our
operations or the price of our stock. The failure to comply with our public sector contracts could result in,
among other things, fines or other liabilities.Revenues from the public
sector segment are derived from sales to federal, state and local governmental
departments and agencies, as well as to educational institutions, through
various contracts and open market sales. Government contracting is a highly
regulated area. Noncompliance with government procurement regulations or
contract provisions could result in civil, criminal, and administrative
liability, including substantial monetary fines or damages, termination of
government contracts, and suspension, debarment or ineligibility from doing
business with the government. The effect of any of these possible actions by
any governmental department or agency could adversely affect our business and
results of operations. State and local sales/use tax collection obligations could reduce our
sales and adversely affect our operating results.Based upon current law,
certain of the Companys subsidiaries currently collect and remit sales tax
only on sales of products into states in which the subsidiaries have a physical
presence. The United States Supreme Court has ruled that the states, absent
Congressional legislation, may not impose an obligation to collect sales/use
taxes on a direct marketer whose only contacts with the taxing state are the
distribution of catalogs and other advertisement materials through the mail and
the delivery of purchased goods by U.S. mail or interstate common carriers. We
cannot predict the level of contact, including Web activities, with any state
which would give rise to future or past tax collection obligations within the
parameters of the Supreme Court cases. Additionally, on several occasions in
the past several years, including recently, legislation has been introduced in
the United States Congress which, if passed, could impose state or local
sales/use tax collection obligations on direct marketers such as us. If
Congress enacts legislation that permits states to impose tax collection
obligations on direct marketers, or we are deemed to have a physical presence
in one or more states, additional tax collection obligations may be imposed on
us. Furthermore, states have aggressively implemented measures to
force out-of-state direct marketers such as us to collect sales taxes
voluntarily, even in the absence of a legal obligation to do so. If
we were required to collect sales taxes, this would likely result in additional costs and 10




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administrative expenses to
us, price increases to our customers and may reduce demand for our products, any or all of which would adversely affect our
operating results. We are exposed to the risks of a global market.Portions of our products
are either produced, or have major components produced, in the Asia Pacific
region. We engage in U.S. dollar denominated transactions with U.S. divisions
and subsidiaries of companies located in this region. As a result, we may be
indirectly affected by risks associated with international events, including
economic and labor conditions, political instability, tariffs and taxes,
availability of products and currency fluctuations in the U.S. dollar versus
the regional currencies. In the past, countries in the Asia Pacific region have experienced volatility in their currency, banking and
equity markets. Future volatility could adversely affect the supply and price
of products and components and ultimately, our results of operations. 
 Item 2.     Properties. We own our primary location and headquarters in Vernon Hills, Illinois,
which includes our warehouse and distribution center, a Business Technology
Center and corporate offices. The facility consists of approximately 450,000
square feet of warehouse and distribution center space and 100,000 square feet
of office space. We own a total of 45 acres of land at the Vernon Hills site,
of which approximately 11 acres are vacant and available for future expansion. We have executed various operating lease agreements for sales office
facilities that generally provide for minimum rent and a proportionate share of
operating expenses and property taxes, and include certain renewal and
expansion options. The following table summarizes our significant lease
agreements and the related financial commitment: Lease Agreements and Related Financial CommitmentAggregate
    
    AverageFuture
    
    AnnualSquare
    
    
    Lease
    
    Lease
    
    Minimum
    
    LeaseLocation
    
    Footage
    
    
    Commencement
    
    Term
    
    Lease Payments
    
    Expense120 S. Riverside
Chicago, IL
    
    
    72,000
    
    
    April and
August 2000
    
    10 years
    
    $8.4 million
    
    $1.2 million10 S. Riverside
Chicago, IL
    
    
    72,000
    
    
    February and
August 2001
    
    10 years
    
    $10.7 million
    
    $1.4 millionMettawa, IL
    
    
    156,000
    
    
    March 2001
    
    10 years
    
    $27.5 million
    
    $3.8 millionShelton, CT
    
    
    18,000
    
    
    March 2004 (1)
    
    87 months
    
    $2.1 million
    
    $0.3 million(1)  The lease commencement date is estimated, as we have not yet occupied this facility.
 As a result of the purchase of selected U.S. assets of Micro Warehouse in
September 2003, we obtained the use of facilities, primarily sales offices in
Connecticut, New Jersey, and Virginia, that are leased by Micro
Warehouse. Because we intend to use these facilities only on a short-term basis we are
evaluating our future needs and expect to move into new locations
during 2004. 11




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##### Table of Contents



Item 3.     Legal Proceedings. The Company is not currently party to any material legal proceedings. On September 9, 2003, CDW completed the purchase of certain assets of
Bridgeport Holdings, Inc., Micro Warehouse, Inc., Micro Warehouse, Inc. of
Ohio, and Micro Warehouse Gov/Ed, Inc. (collectively, Micro Warehouse). On
September 10, 2003, Micro Warehouse filed voluntary petitions for relief under
chapter 11 of title 11 of the United States Code (the Bankruptcy Code) in the
United States Bankruptcy Court for the District of Delaware (Case No.
03-12825). On January 20, 2004, the Official Committee of Unsecured Creditors
(the Committee) appointed in the Micro Warehouse bankruptcy proceedings filed
a motion with the court seeking the production of certain documents for review
and certain representatives of CDW for depositions. CDW believes that
the purpose of the motion is to explore whether the purchase of assets of Micro Warehouse by
CDW involved fraudulent transfers under the Bankruptcy Code. On February 12, 2004, the Bankruptcy Court
entered an order approving a stipulation between the Committee and CDW whereby
CDW consented to the Committees production requests. CDW believes that its
transaction with Micro Warehouse did not constitute a fraudulent transfer as
it believes that it paid reasonably equivalent value for such assets. CDW
expects that the outcome of the Committees inquiry in this
matter will have no material effect on CDWs financial condition. 
 Item 4.     Submission of Matters to a Vote of Security Holders. There were no matters submitted during the fourth quarter of 2003 to a
vote of security holders. 
 PART II 
 Item 5.     Market for Registrants Common Equity and Related Stockholder Matters. The following table sets forth for the periods indicated the high and low
sales prices for the Companys common stock, which is traded on The Nasdaq
Stock Market® under the symbol CDWC. We believe that as of February 27, 2004
there were approximately 14,613 beneficial owners of the Companys common
stock. On July 23, 2003, our Board of Directors declared an annual cash
dividend of $0.30 per share, totaling $24.9 million, payable on September 26,
2003, to shareholders of record on September 12, 2003. No dividends were paid
in 2002. Although in future years we plan to announce any dividend following the
annual shareholders meeting, typically held in May, the timing and amount of
any future dividends will depend upon the earnings, cash requirements and
financial condition of the Company and other factors deemed relevant by our
Board of Directors. 2003
    
    
    2002Quarter Ended
    
    Low
    
    
    High
    
    
    Low
    
    
    HighMarch 31
    
    $
    36.30
    
    
    $
    47.45
    
    
    $
    46.32
    
    
    $
    60.00June 30
    
    $
    38.86
    
    
    $
    46.65
    
    
    $
    41.40
    
    
    $
    56.90September 30
    
    $
    44.93
    
    
    $
    60.55
    
    
    $
    40.25
    
    
    $
    52.35December 31
    
    $
    55.91
    
    
    $
    63.65
    
    
    $
    40.50
    
    
    $
    56.58
 12




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##### Table of Contents



Item 6.      Selected Financial Data CDW Corporation and Subsidiaries
Selected Financial and Operating Data
(in thousands, except per share and selected operating data) Year Ended December 31,2003
    
    
    
    
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999Income Statement Data:Net sales
    
    $
    4,664,616
    
    
    
    
    
    
    $
    4,264,579
    
    
    $
    3,961,545
    
    
    $
    3,842,452
    
    
    $
    2,561,239Cost of sales
    
    
    3,990,824
    
    
    
    
    
    
    
    3,700,744
    
    
    
    3,434,510
    
    
    
    3,352,609
    
    
    
    2,237,700Gross profit
    
    
    673,792
    
    
    
    
    
    
    
    563,835
    
    
    
    527,035
    
    
    
    489,843
    
    
    
    323,539Selling,
administrative and net
advertising expenses
    
    
    389,334
    
    
    
    
    
    
    
    265,657
    
    
    
    258,837
    
    
    
    230,235
    
    
    
    165,627Income from operations
    
    
    284,458
    
    
    
    
    
    
    
    298,178
    
    
    
    268,198
    
    
    
    259,608
    
    
    
    157,912Interest income, net
    
    
    7,225
    
    
    
    
    
    
    
    9,548
    
    
    
    12,637
    
    
    
    9,739
    
    
    
    4,931Other expense, net
    
    
    (2,119)
    
    
    
    
    
    
    
    (1,529)
    
    
    
    (859)
    
    
    
    (690)
    
    
    
    (450)Income before income taxes
    
    
    289,564
    
    (1)
    
    306,197
    
    
    
    279,976
    
    
    
    268,657
    
    
    
    162,393Income tax provision
    
    
    114,378
    
    
    
    
    
    
    
    120,948
    
    
    
    111,290
    
    
    
    106,388
    
    
    
    64,308Net income
    
    $
    175,186
    
    (1)
    $
    185,249
    
    
    $
    168,686
    
    
    $
    162,269
    
    
    $
    98,085Earnings per share:Basic
    
    $
    2.10
    
    (1)
    $
    2.18
    
    
    $
    1.97
    
    
    $
    1.87
    
    
    $
    1.14Diluted
    
    $
    2.03
    
    (1)
    $
    2.10
    
    
    $
    1.89
    
    
    $
    1.79
    
    
    $
    1.11Weighted-average
number of common
shares outstanding:Basic
    
    
    83,329
    
    
    
    
    
    
    
    84,862
    
    
    
    85,803
    
    
    
    87,003
    
    
    
    86,270Diluted
    
    
    86,175
    
    
    
    
    
    
    
    88,296
    
    
    
    89,136
    
    
    
    90,860
    
    
    
    88,304Dividends per share
    
    $
    0.30
    
    
    
    
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00Selected Operating Data:Number of invoices processed
(in 000s)
    
    
    5,431
    
    
    
    
    
    
    
    4,995
    
    
    
    4,394
    
    
    
    3,810
    
    
    
    2,934Average invoice size
    
    $
    916
    
    
    
    
    
    
    $
    935
    
    
    $
    964
    
    
    $
    1,054
    
    
    $
    918Commercial customers served
(in 000s) (2)
    
    
    416
    
    
    
    
    
    
    
    361
    
    
    
    357
    
    
    
    309
    
    
    
    285% of sales to commercial customers
    
    
    98%
    
    
    
    
    
    
    
    97%
    
    
    
    97%
    
    
    
    96%
    
    
    
    93%Net sales per coworker (in 000s)
    
    $
    1,420
    
    
    
    
    
    
    $
    1,508
    
    
    $
    1,436
    
    
    $
    1,634
    
    
    $
    1,462Inventory turnover
    
    
    24
    
    (3)
    
    27
    
    
    
    30
    
    
    
    28
    
    
    
    23Accounts receivable  days sales
outstanding
    
    
    35
    
    (3)
    
    29
    
    
    
    29
    
    
    
    32
    
    
    
    33
 December 31,2003
    
    
    
    
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999Financial Position:Cash, cash equivalents and
marketable securities
    
    $
    562,360
    
    
    
    
    
    
    $
    504,614
    
    
    $
    394,381
    
    
    $
    202,621
    
    
    $
    82,975Working capital
    
    $
    986,445
    
    
    
    
    
    
    $
    846,942
    
    
    $
    695,786
    
    
    $
    561,697
    
    
    $
    340,117Total assets
    
    $
    1,311,632
    
    
    
    
    
    
    $
    1,095,664
    
    
    $
    937,029
    
    
    $
    748,437
    
    
    $
    505,915Total debt and capitalized lease
obligations
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Total shareholders equity
    
    $
    1,061,184
    
    
    
    
    
    
    $
    924,070
    
    
    $
    778,657
    
    
    $
    636,251
    
    
    $
    390,984Return on shareholders equity (4)
    
    
    17.8%
    
    
    
    
    
    
    
    22.8%
    
    
    
    24.7%
    
    
    
    31.0%
    
    
    
    30.1%
  (1)
    
    Includes $22.3 million ($13.5 million after tax) of transaction and
integration expenses recorded in connection with the Micro Warehouse transactions.
This had a $0.16 per share impact on basic and diluted earnings per share.(2)
    
    Commercial customers is defined as public sector and corporate customers
excluding consumers.(3)
    
    Annualized inventory turnover and accounts receivable  days sales
outstanding for 2003 were impacted by the Micro Warehouse transactions in
September 2003. For the fourth quarter of 2003, annualized inventory
turnover was 25 and accounts receivable  days sales outstanding was 30,
which the Company believes provides a more meaningful comparison to reported results of prior
periods.(4)
    
    Return on shareholders equity is calculated as net income for the
period divided by average shareholders equity. 13




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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 We
are a leading direct marketer of multi-brand computers and related
technology products and services in the United States. Our primary business is
conducted from a combined corporate office and distribution center located in
Vernon Hills, Illinois, and sales offices in Illinois, Virginia, Connecticut,
New Jersey, and Toronto, Canada. Additionally, we market and sell products
through CDW.com, CDWG.com and macwarehouse.com, our
Web sites. For financial reporting purposes, we have two operating segments:
corporate, which is primarily comprised of business customers, but also
includes consumers (which generated approximately 2% of net sales in
2003); and
public sector, which is comprised of federal, state and local
government entities and
educational institutions who are served by CDW Government, Inc.
(CDW-G), a wholly-owned subsidiary. CDW management monitors a number of financial and non-financial measures
and ratios on a daily, weekly, and monthly basis in order to track the progress
of the business and make adjustments as necessary. We believe that
the most important of these measures and ratios include daily sales, by
business segment and total company, gross margin, number of orders shipped per
day, number of orders shipped complete per day, inventory balance and turnover,
cash and cash equivalents balance, and accounts receivable balance and aging.
The measures and ratios are compared to standards or targets set by management,
so that actions can be taken, as necessary, in order to achieve the standards and
targets. Financial Reporting Release No. 60, released by the Securities and
Exchange Commission, encourages all registrants to include a discussion of
critical accounting policies or methods used in the preparation of financial
statements. We present in the notes to our consolidated financial statements a
summary of these accounting policies. Our most significant accounting policies
relate to the sale, purchase, distribution and promotion of our products.
Therefore, our accounting principles in the areas of revenue recognition, trade
accounts receivable valuation, inventory valuation, vendor transactions and
marketing activities are the most significant. The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make use of certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses during the reported periods. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results could differ
from those estimates, and revisions to estimates are included in our results
for the period in which the actual amounts become known. Significant estimates in our 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. 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. 14




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Sales returns and pricing disputes.At the time of sale, we record an
estimate for sales returns and pricing disputes based on historical experience.
If actual sales returns and pricing disputes are greater than estimated by
management, additional expense may be incurred. Net realizable value of inventories.Inventory is valued at the lower of
cost or market value. We decrease the value of inventory for estimated
obsolescence equal to the difference between the cost of inventory and the
estimated market value, based upon an aging analysis of the inventory on hand,
specifically known inventory-related risks, and assumptions about future demand
and market conditions. If future demand or actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required. Vendor transactions.We receive incentives from vendors related to
cooperative advertising allowances, rebates, price protection and other
programs. These incentives generally relate to agreements with the vendors and
are recorded as adjustments to gross margin or net advertising expense, as
appropriate. If market conditions were to deteriorate, vendors may change the
terms of some or all of these programs. Loss contingencies.We accrue for contingent obligations when a loss is
probable and the amount can be reasonably estimated. As facts concerning
contingencies become known, we reassess our position and make appropriate
adjustments to the financial statements. Intangible assets.We purchased intangible assets, such as customer
lists, in connection with the Micro Warehouse transactions described below.
These intangible assets have finite lives, and are amortized using the
straight-line method over the estimated economic lives, generally seven years. During September 2003, we purchased selected U.S. assets and the Canadian
operations of Micro Warehouse, a reseller of computers, software and
peripheral products. The U.S. transaction, completed on September 9, 2003, was
accounted for as a purchase of assets, with the $20.0 million purchase price
allocated to the assets purchased, including inventory, fixed assets, and
customer lists, based upon their fair values at the date of purchase.
Subsequent to the completion of the U.S. transaction, sales made by former
members of the Micro Warehouse U.S. sales force who joined CDW in conjunction
with this transaction, along with the associated costs, are included in the
accompanying consolidated financial statements. The Canadian transaction,
completed on September 23, 2003, was accounted for as the purchase of a
business and, accordingly, the results of operations of the acquired business
subsequent to the date of purchase are included in the accompanying
consolidated financial statements, and the assumed assets and liabilities were
recorded based upon their fair values at the date of purchase. The Canadian
operations were purchased for $2.7 million. Total
recorded transaction and integration expenses associated with these
transactions were $22.3 million, with $8.0 million recorded in the third
quarter of 2003 and $14.3 million recorded in the fourth quarter of 2003.
These expenses are primarily comprised of severance and outplacement costs,
payroll expenses for former Micro Warehouse employees performing transition
services, customer satisfaction expenses, customer communications and
advertising expenses, legal and accounting advisory fees and a reserve
established for the equipment in a Wilmington, Ohio distribution center leased
by Micro Warehouse. These expenses are included in cost of sales ($0.3
million), selling and administrative expenses ($20.2 million), net advertising
expenses ($1.5 million) and other expense ($0.3 million) in the Consolidated
Statements of Income. 15




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Results of Operations The following table sets forth for the periods indicated information
derived from our consolidated statements of income expressed as a percentage of
net sales: Percentage of Net SalesFinancial Results
    
    
    Years Ended December 31,2003
    
    
    2002
    
    
    2001Net sales
    
    
    
    100.0%
    
    
    
    
    100.0%
    
    
    
    
    100.0%Cost of sales
    
    
    
    85.6
    
    
    
    
    86.8
    
    
    
    
    86.7Gross profit
    
    
    
    14.4
    
    
    
    
    13.2
    
    
    
    
    13.3Selling and
administrative expenses
    
    
    
    7.0
    
    
    
    
    6.1
    
    
    
    
    6.4Net advertising expenses
    
    
    
    1.3
    
    
    
    
    0.1
    
    
    
    
    0.1Income from operations
    
    
    
    6.1
    
    
    
    
    7.0
    
    
    
    
    6.8Interest and other income
    
    
    
    0.1
    
    
    
    
    0.2
    
    
    
    
    0.3Income before income taxes
    
    
    
    6.2
    
    
    
    
    7.2
    
    
    
    
    7.1Income tax provision
    
    
    
    2.4
    
    
    
    
    2.8
    
    
    
    
    2.8Net income
    
    
    
    3.8%
    
    
    
    
    4.4%
    
    
    
    
    4.3%
 The following table sets forth for the periods indicated a summary of
certain of our consolidated operating statistics: Operating Statistics
    
    
    Years Ended December 31,2003
    
    
    2002
    
    
    2001Number of invoices processed
    
    
    
    5,431,041
    
    
    
    
    4,995,459
    
    
    
    
    4,394,157Average invoice size
    
    
    
    $916
    
    
    
    
    $935
    
    
    
    
    $964Commercial customers served (1)
    
    
    
    415,998
    
    
    
    
    361,052
    
    
    
    
    356,769% of sales to commercial customers
    
    
    
    97.9%
    
    
    
    
    97.4%
    
    
    
    
    96.7%Sales force, end of period
    
    
    
    1,924
    
    
    
    
    1,320
    
    
    
    
    1,301Annualized inventory turnover (2)
    
    
    
    24
    
    
    
    
    27
    
    
    
    
    30Accounts receivable  days sales outstanding (2)
    
    
    
    35
    
    
    
    
    29
    
    
    
    
    29Direct web sales (000s)
    
    
    
    $1,056,761
    
    
    
    
    $829,233
    
    
    
    
    $615,316
  (1)
    
    Commercial customers is defined as public sector and corporate customers
excluding consumers.(2)
    
    Annualized inventory turnover and accounts receivable  days sales
outstanding for 2003 were impacted by the Micro Warehouse transactions in
September 2003. For the fourth quarter of 2003, annualized inventory
turnover was 25 and accounts receivable  days sales outstanding was 30,
which the Company believes provides a more meaningful comparison to reported results of prior
periods. 16




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The following table presents net sales dollars by product category as a
percentage of total net sales dollars. Product lines are based upon internal
product code classifications. Product mix for the years ended December 31,
2002 and 2001 has been retroactively adjusted for certain changes in individual
product categorization. Analysis of Product Mix
    
    
    Years Ended December 31,2003
    
    
    2002
    
    
    2001Notebook computers and accessories
    
    
    
    12.6
    %
    
    
    
    12.5
    %
    
    
    
    14.8
    %Desktop computers and servers
    
    
    
    13.2
    
    
    
    
    13.4
    
    
    
    
    13.4Subtotal computer products
    
    
    
    25.8
    
    
    
    
    25.9
    
    
    
    
    28.2Software
    
    
    
    16.8
    
    
    
    
    17.9
    
    
    
    
    16.9Data storage devices
    
    
    
    14.1
    
    
    
    
    14.2
    
    
    
    
    14.5Printers
    
    
    
    13.8
    
    
    
    
    13.3
    
    
    
    
    12.9NetComm products
    
    
    
    9.2
    
    
    
    
    9.4
    
    
    
    
    9.4Video
    
    
    
    9.0
    
    
    
    
    8.8
    
    
    
    
    8.4Add-on boards/memory
    
    
    
    4.4
    
    
    
    
    4.2
    
    
    
    
    4.3Input devices
    
    
    
    3.5
    
    
    
    
    3.2
    
    
    
    
    2.8Other
    
    
    
    3.4
    
    
    
    
    3.1
    
    
    
    
    2.6Total
    
    
    
    100.0
    %
    
    
    
    100.0
    %
    
    
    
    100.0
    %
 The following table represents the change in year-over-year sales dollars
by product category for each of the periods indicated. Product lines are based
upon internal product code classifications. The rates of change for the years
ended December 31, 2002 and 2001 have been retroactively adjusted for certain
changes in individual product categorization. Analysis of Product Category Growth
    
    
    Years Ended December 31,2003
    
    
    2002
    
    
    2001Notebook computers and accessories
    
    
    
    10.4
    %
    
    
    
    (8.3)
    %
    
    
    
    (22.0)
    %Desktop computers and servers
    
    
    
    8.2
    
    
    
    
    7.4
    
    
    
    
    (12.5)Subtotal computer products
    
    
    
    9.3
    
    
    
    
    (0.8)
    
    
    
    
    (17.8)Software
    
    
    
    2.7
    
    
    
    
    14.0
    
    
    
    
    42.1Data storage devices
    
    
    
    8.7
    
    
    
    
    5.1
    
    
    
    
    7.9Printers
    
    
    
    13.9
    
    
    
    
    11.1
    
    
    
    
    16.2NetComm products
    
    
    
    7.4
    
    
    
    
    6.6
    
    
    
    
    5.1Video
    
    
    
    11.7
    
    
    
    
    13.3
    
    
    
    
    11.5Add-on boards/memory
    
    
    
    14.1
    
    
    
    
    5.7
    
    
    
    
    (26.2)Input devices
    
    
    
    17.7
    
    
    
    
    20.7
    
    
    
    
    14.5Other
    
    
    
    20.3
    
    
    
    
    27.0
    
    
    
    
    26.3
 Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Net sales in 2003 increased 9.4% to a record $4.665 billion, compared to
$4.265 billion in 2002. Of the 9.4% growth in sales, approximately half is
attributed to the addition of customers as a result of the Micro Warehouse
transactions. The other half is due to a more favorable I.T. spending
environment, particularly toward the end of 2003, and our investment in our
sales force, with the addition of 191 new account managers in 2003 (excluding
former members of the Micro Warehouse sales force who joined CDW in conjunction
with the Micro Warehouse transactions). Sales of notebook computers and
accessories, printers, video, add-on boards/memory, and input devices each
increased over 10% in 2003 over 2002. Corporate segment sales increased 5.2%
from $3.399 billion in 2002 to $3.575 billion in 2003, and comprised 76.7% of
our total sales 17




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for 2003. Public sector segment sales increased 25.8%, from $865 million
in 2002 to $1.089 billion in 2003, and comprised 23.3% of our total sales for
2003. In general, the average selling price of most of our product categories
decreased from 2002. We believe there may be future decreases in pricing for
technology products in 2004, resulting in a lower average invoice size. Such
decreases require us to generate more orders and sell more units in order to
maintain or increase the level of sales. On a forward-looking basis, our core strategies to grow our business
include: further penetrate existing accounts, expand our customer
base, enhance the productivity and increase the number of our account
managers, optimize our product mix, strengthen national brand awareness and selectively
pursue strategic transactions. Gross profit increased 19.5% to $673.8 million in 2003, compared to $563.8
million in 2002. As a percentage of net sales, gross profit was 14.4% in 2003,
compared to 13.2% in 2002. The increase in the gross profit percentage was
primarily due to the adoption in January 2003 of a new accounting
pronouncement, 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). The income statement classification provisions of EITF 02-16 cover vendor
consideration related to agreements entered into or modified after January 1,
2003. This pronouncement requires that consideration from vendors, such as
advertising support funds, be accounted for as a reduction of cost of sales
unless certain requirements are met showing that the funds are used for a
specific program entirely funded by an individual vendor. If these specific
requirements related to individual vendors are met, the consideration is
accounted for as a reduction in the related expense category, such as
advertising or selling and administrative expense. We provide numerous
advertising programs to support vendors, including catalogs, television, radio,
Internet, magazine, and newspaper advertising for which we receive
consideration. Some of these programs relate to multiple vendors, while others
are performed on behalf of individual vendors for specific projects. As a consequence of adopting EITF 02-16, we recorded $62.7 million of
vendor consideration as a reduction of cost of sales in 2003, which would have
previously been recorded as a reduction of advertising expense ($60.9 million)
and selling and administrative expense ($1.8 million). Excluding the impact of
EITF 02-16, and therefore on a non-GAAP basis, the gross profit margin would
have been 13.1% in 2003 compared to 13.2% in 2002. The non-GAAP gross profit
margin is included in this discussion because the Company believes it
provides a meaningful comparison to
reported results of prior periods. Our gross profit objective as a percentage of net sales is between 12.50%
and 13.25%, excluding the impact of EITF 02-16. The gross profit margin
depends on various factors, including vendor inventory price protection and
rebate programs, product mix, including third party services, pricing
strategies, market conditions, and other factors, any of which could result in
a fluctuation of gross margins below recent experience. Selling and administrative expenses increased 24.3% to $325.2 million in
2003, compared to $261.6 million in 2002. Included in selling and
administrative expenses in 2003 were $20.2 million of transaction and
integration expenses related to the Micro Warehouse transactions. The primary
drivers of the increase in selling and administrative expenses are discussed
below.  
    
    Payroll costs increased $43.0 million, including $4.9 million of
expenses for former Micro Warehouse employees performing transition
services. The remainder of the increase in payroll costs was due to an
increase in our sales force from 1,320 at December 31, 2002 to 1,924 at
December 31, 2003, including 413 former members of the Micro Warehouse
sales force who joined CDW in September 2003 in conjunction with the
Micro Warehouse transactions. Our sales force consists of account
managers (including field sales representatives) as well as product
category specialists who provide consultation in areas requiring
technical or specialized product expertise such as networking,
security, data storage, and volume software licensing. 18




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
    
    Employee-related costs (which includes items such as profit
sharing, incentive awards, and insurance) increased $2.3 million,
including $1.6 million in employee benefits related to the Micro
Warehouse transactions.
    
    Occupancy costs increased $1.6 million, including $0.7 million in
facility expenses related to the Micro Warehouse transactions.
    
    Other selling and administrative costs increased $16.7 million,
including $13.0 million of costs related to the Micro Warehouse
transactions. Of the $13.0 million of costs, $8.0 million relates to
severance and outplacement costs, customer satisfaction expenses, and
legal and accounting advisory fees. The remaining $5.0 million relates
to a reserve established for the equipment in a Wilmington, Ohio
distribution center leased by Micro Warehouse. In September 2003, in
conjunction with our purchase of selected U.S. assets of Micro
Warehouse, we agreed to assume the lease for the distribution center
and purchase the equipment in the facility for $8.0 million if
requested by Micro Warehouse. In February 2004, under the terms of a modified agreement, we purchased the equipment and
forfeited leasing the distribution center in exchange for $8.25
million. The purchase price of the equipment in the facility of $8.0
million, net of the reserve of $5.0 million, reflects the estimated
realizable value of the equipment to CDW. Selling and administrative expenses increased to 7.0% of net sales in 2003
versus 6.1% in 2002. Transaction and integration expenses recorded in
connection with the
Micro Warehouse transactions, totaling $20.2 million, accounted for 0.5% of the
increase in selling and administrative expenses as a percentage of net sales.
The remainder of the increase was primarily due to the increase in payroll
costs described above resulting from additions to our sales force. Net advertising expense increased to $64.1 million in 2003, compared to
$4.0 million in 2002. This increase is primarily due to the adoption of EITF
02-16, which resulted in the reclassification of $60.9 million of vendor
consideration to a reduction of cost of sales, which would previously have been
recorded as a reduction of advertising expense. Additionally, $1.5 million of
the increase is due to customer communication and advertising costs related to
the Micro Warehouse transactions. Gross advertising expense increased
slightly, to $92.0 million in 2003, compared to $89.1 million in 2002, while
decreasing as a percentage of net sales to 2.0% versus 2.1% in 2002. Excluding
the impact of EITF 02-16, and therefore on a non-GAAP basis, cooperative
advertising reimbursements increased 4.4% to $88.7 million in 2003, compared to
$85.0 million in 2002. This non-GAAP measurement is included to
because the Company believes it provides a more meaningful comparison to reported results of prior periods. Consolidated operating income was $284.5 million in 2003, a 4.6% decrease
from $298.2 million in 2002. Consolidated operating income as a percentage of
net sales decreased to 6.1% in 2003, compared to 7.0% in 2002. Corporate
segment operating income was $256.6 million in 2003, a 9.0% decrease from
$281.9 million in 2002. The decrease in corporate segment operating income was
due to $22.0 million of cost of sales, selling and administrative, and net
advertising expenses related to the Micro Warehouse transactions, and increased
payroll costs related to the investment in our sales force and former members
of the Micro Warehouse sales force who joined CDW. Public sector segment
operating income was $27.9 million in 2003, a 71.5% increase from $16.3 million
in 2002. As a percentage of net sales, public sector segment operating income
increased to 2.6% in 2003, compared to 1.9% in 2002. The increase in public
sector operating income was due to increased sales and higher gross margin.
Our operating income objective as a percentage of net sales is between 6.5% and
7.0%. Interest income, net of other expenses, decreased to $5.1 million in 2003,
compared to $8.0 million in 2002, as higher levels of cash available for
investing were offset by decreases in the rates of interest earned. The higher
levels of cash were due to cash flows from operations, primarily net income,
and tax benefits from stock options and restricted stock transactions. The effective income tax rate, expressed as a percentage of income before
income taxes, was 39.5% in 2003 and 2002. 19




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Net income in 2003 was $175.2 million, a 5.4% decrease from $185.2 million
in 2002. Diluted earnings per share were $2.03 in 2003, a decrease of 3.3%
from $2.10 in 2002. These results include $22.3 million ($13.5 million after
tax) of transaction and integration expenses recorded in connection with the Micro
Warehouse transactions, or a $0.16 per share impact on basic and diluted
earnings per share. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Net sales in 2002 increased 7.6% to $4.265 billion, compared to $3.962
billion in 2001. Sales of software, input devices, video and printers each
increased over 10% in 2002 over 2001. Corporate segment sales increased 3.6%
from $3.281 billion in 2001 to $3.399 billion in 2002, and comprised 79.7% of
our total sales for 2002. Public sector segment sales increased 27.1%, from
$681 million in 2001 to $865 million in 2002 and comprised 20.3% of our total
sales for 2002. The growth in our public sector segment was due in part to
focused sales and marketing efforts in the federal, state and local government,
and educational institution markets. In general, the average selling price of most of our product categories
decreased from 2001. Such decreases require us to generate more orders and
sell more units in order to maintain or increase the level of sales. Gross profit increased 7.0% to $563.8 million in 2002 from $527.0 million
in 2001. As a percentage of net sales, gross profit decreased to 13.2% in
2002, compared with 13.3% in 2001. The gross profit margin depends on various
factors, including vendor inventory price protection and rebate programs,
product mix, including third party services, pricing strategies, market
conditions and other factors. Selling and administrative expenses increased 3.3% to $261.6 million in
2002, compared to $253.3 million in 2001. This increase resulted primarily
from $3.9 million of increased employee-related costs (which included items
such as profit sharing, incentive awards and insurance), $3.7 million of
increased payroll costs and $1.6 million of increased occupancy costs. Selling
and administrative expenses decreased to 6.1% of net sales in 2002 versus 6.4%
in 2001. Net advertising expense decreased to $4.0 million in 2002, compared to
$5.5 million in 2001. The decrease in net advertising expense was the result
of an increase in cooperative advertising income, which more than offset the
increase in gross advertising expense. As a percentage of net sales, net
advertising expense was 0.1% in both 2002 and 2001. Gross advertising expense
increased $1.7 million to $89.1 million in 2002 while decreasing as a
percentage of net sales to 2.1% versus 2.2% in 2001. Cooperative advertising
reimbursements increased to $85.0 million in 2002, compared to $81.8 million in
2001. As a percentage of net sales, cooperative advertising reimbursements
decreased to 2.0% in 2002, compared to 2.1% in 2001. Consolidated operating income was $298.2 million in 2002, an 11.2%
increase from $268.2 million in 2001. This increase was primarily a result of
the increase in net sales and gross profit in 2002, partially offset by the
increase in operating expenses. Consolidated operating income as a percentage
of net sales increased to 7.0% in 2002, compared to 6.8% in 2001. Corporate
segment operating income was $281.9 million in 2002, a 14.8% increase from
$245.5 million in 2001. The increase in corporate segment operating income was
primarily due to increased sales. Public sector segment operating income was
$16.3 million in 2002, a 28.2% decrease from $22.7 million in 2001. Public
sector segment operating income as a percentage of net sales decreased to 1.9%
in 2002, compared to 3.3% in 2001. The decrease in public sector segment
operating income was due to lower gross margin and higher operating expenses,
consisting primarily of payroll and coworker costs incurred to support current
and future projected growth in our public sector business. Interest income, net of other expenses, decreased to $8.0 million in 2002,
compared to $11.8 million in 2001, as higher levels of cash available for
investing were offset by decreases in the rates of interest earned. The higher
levels of cash were due to cash flows from operations, primarily net income,
and tax benefits from stock options and restricted stock transactions. 20




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The effective income tax rate, expressed as a percentage of income before
income taxes, was 39.5% in 2002 and 39.75% in 2001. Net income in 2002 was $185.2 million, a 9.8% increase from $168.7 million
in 2001. Diluted earnings per share were $2.10 in 2002 and $1.89 in 2001, an
increase of 11.1%. Seasonality Sales
in our corporate segment, which serves primarily business and, to a
small extent, consumer
markets, have not historically experienced significant seasonality throughout
the year. In contrast, sales in our public sector segment have historically been higher in
the third quarter than in other quarters due to the buying patterns of federal
government and education customers. If sales to public sector customers
continue to increase as a percentage of overall sales, the Company as a whole
may experience increased seasonality in future periods. Liquidity and Capital Resources Working Capital We have historically financed our operations and capital expenditures
primarily through cash flow from operations. At December 31, 2003, we had
cash, cash equivalents, and marketable securities of $562.4 million and working
capital of $986.4 million, representing an increase of $57.7 million in cash,
cash equivalents, and marketable securities and an increase of $139.5 million
in working capital from December 31, 2002. The increase in working capital was
a result of increases in cash, cash equivalents, and marketable securities,
accounts receivable and merchandise inventory, partially offset by increases in
accounts payable and accrued expenses. The increases in these categories are
primarily due to our sales growth. We have an aggregate $70 million available pursuant to two $35 million
unsecured lines of credit with two financial institutions. One line of credit
expires in June 2004, at which time we intend to renew the line, and the other
does not have a fixed expiration date. Borrowings under the first credit
facility bear interest at the prime rate less 2.5%, LIBOR plus 0.5% or the
federal funds rate plus 0.5%, as determined by the Company. Borrowings under
the second credit facility bear interest at the prime rate less 2.5%, LIBOR
plus 0.45% or the federal funds rate plus 0.45%, as determined by the Company.
At December 31, 2003, there were no borrowings under either of the credit
facilities. We have entered into security agreements with certain financial
institutions (Flooring Companies) 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 $68.0 million collateralized by
inventory purchases financed by the Flooring Companies. At December 31, 2003
and 2002, we owed the Flooring Companies approximately $19.6 million and $17.6
million, respectively, which is included in trade accounts payable. In January 2001, our Board of Directors authorized the purchase of up to
5,000,000 shares of our common stock. From January 2001 though September 2002,
we purchased the 5,000,000 shares authorized to be repurchased at a total cost
of $204.6 million (an average price of $40.92 per share). In
July 2002, our Board of Directors authorized a new share repurchase
program of up to 2,500,000 shares of our common stock. These purchases may be
made from time to time in both the open market and private transactions, as
conditions warrant. This program will remain in effect through July 2004
unless earlier terminated by the Board or completed. Under this repurchase
program, we purchased 1,852,424 shares of our common stock at a total cost of
$76.3 million (an average price of $41.20 per share) during the year ended
December 31, 2003. From July 2002 through December 31,
2003, we purchased a total of 2,360,800 shares of our common stock under this program at a total cost of
$98.2 million (an average price of $41.59 per share). 21




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In July 2003, our Board of Directors authorized a new share repurchase
program of up to 2,500,000 shares of our common stock. These purchases may be
made from time to time in both open market and private transactions, as
conditions warrant. This new repurchase program is expected to remain in
effect through July 2005, unless earlier terminated by the Board or completed.
During the year ended December 31, 2003, no purchases were made under this new
program. Repurchased shares are held in treasury pending use for general corporate
purposes, including issuances under various employee stock plans. On July 23, 2003, our Board of Directors declared an annual cash dividend
to shareholders. This dividend of $0.30 per share, totaling $24.9
million, was paid on September 26, 2003, to shareholders of record on September
12, 2003. In future years, we plan to announce any dividend following the
annual shareholders meeting, typically held in May. We
currently have one distribution center, located with our
corporate headquarters, in Vernon Hills, Illinois. The capacity of this
distribution center should be sufficient to handle our expected growth in sales
and shipments at least through 2005, based on current projections. We will continue to make investments in this distribution center to
further automate the facility and increase its efficiency. We anticipate that a second distribution center may be required in order to
continue to support the companys growth beyond 2005, unless the capacity of
the existing distribution center can be expanded through automation, additional
shifts for receiving and shipping, or other actions. Accordingly, we have
begun evaluating possible locations for a second distribution
center. We will consider in our evaluation factors such as concentration of customers, shipping
patterns for product received from our vendors as well as shipments to our
customers and work force availability. Because the
evaluation is in process, we do not have an estimate of the cost for a second
distribution center, but we believe that our internally generated cash flow
will be sufficient to cover the capital expenditures for the distribution
center. Our current and anticipated uses of our cash, cash equivalents and
marketable securities are to fund growth in working capital and capital
expenditures necessary to support future growth in sales, our stock buyback
program, potential dividends and possible expansion through acquisitions. We believe
that the funds held in cash, cash equivalents and marketable securities, and
funds available under the credit facilities, will be sufficient to fund our
working capital and cash requirements for the foreseeable future. Cash Flows Net cash provided by operating activities in 2003 was $125.4 million
compared to $231.4 million in 2002. The primary factors that affected our cash
flow from operations were net income, accounts receivable, and tax benefits
from stock options and restricted stock transactions. Accounts receivable
increased from $333.1 million at December 31, 2002 to $444.0 million at
December 31, 2003. The increase in accounts receivable was due to higher sales
in the fourth quarter of 2003 and sales added as a result of the Micro Warehouse
transactions. Cash provided by operating activities in 2003 was positively
impacted by a $36.5 million tax benefit recorded to paid-in capital, relating
to the exercise of options pursuant to the MPK Stock Option Plan and the CDW
Incentive Stock Option Plan, and the vesting of shares related to the MPK
Restricted Stock Plan. Net cash used in investing activities for the year ended December 31, 2003
was $22.0 million. This includes $22.7 million used to purchase selected U.S.
assets and the Canadian operations of Micro Warehouse and $11.4 million used
for capital expenditures, partially offset by $6.5 million in proceeds from
redemptions of investments in marketable securities, and $5.6 million related
to our investment in CDW Leasing, L.L.C., primarily repayments of advances and
the consolidation of this joint venture into our balance sheet. Capital expenditures
related primarily to computer software and computer and data processing
equipment. In accordance with a new accounting standard, FASB Interpretation No. 46
(revised December 2003), Consolidation of Variable Interest Entities, an
interpretation of ARB 51, the assets and liabilities of CDW Leasing, L.L.C.
(CDW-L) were consolidated into our balance sheet as of December 31, 2003.
CDW-L is a joint venture, formed in April 1999, that is 50 percent owned by
each of CDW Capital Corporation (CDWCC), a 22




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wholly-owned subsidiary of the Company, and First Portland Corporation
(FIRSTCORP), an unrelated third party leasing company. During the first
quarter of 2003, FIRSTCORP was acquired by IFC Credit Corporation. Effective
May 1, 2002, we decided to stop originating new leases with this venture and
began to refer customers to independent leasing sources, including FIRSTCORP
and several manufacturer captive entities. The existing leases in CDW-Ls
portfolio will be held until maturity, with the majority expiring prior to
December 31, 2004. CDW-L has a $40 million financing commitment from a
financial institution, of which $1.5 million was outstanding at December 31,
2003. The financing commitment is collateralized by lease receivables
(included in miscellaneous receivables on the balance sheet) of $4.6 million at
December 31, 2003, requires CDW-L to meet certain financial covenants, and is
without recourse to CDWCC or the Company. At December 31, 2003, the present
value of CDW-Ls borrowing base was $4.5 million and CDW-L was in compliance
with all of the covenants under the agreement with the financial institution. Net cash used in financing activities for the year ended December 31, 2003
was $38.3 million. This includes the repurchase of 1,852,424 shares of our
common stock at a total cost of $76.3 million and the payment of cash dividends
totaling $24.9 million. These payments were partially offset by proceeds of
$22.9 million from the exercise of stock options under our various stock option
plans, $3.0 million from the issuance of common stock in connection with the
Employee Stock Purchase Plan, and $37.0 million of book overdrafts at December
31, 2003. In
May 2003, Gregory C. Zeman, former director and vice chairman of the
Company, and Daniel B. Kass, former director and executive vice president of
the Company, sold a total of 1,108,864 shares of common stock. We did not receive any
proceeds from the sale of shares and the number of outstanding common shares
was not impacted. The shares sold by Mr. Zeman and Mr. Kass were acquired from
Michael P. Krasny, the chairman emeritus, principal shareholder, and a director
of the Company, through the exercise of options previously granted to them
pursuant to the MPK Stock Option Plan. The exercise of options by Mr. Zeman
and Mr. Kass resulted in the realization by the Company of an income tax
benefit of approximately $17.7 million in the second quarter of 2003, of which
approximately $0.3 million had been previously recorded to deferred taxes. We
recorded the incremental tax benefit of $17.4 million as an increase to paid-in
capital. In addition, we recorded incremental payroll tax expense related to
the option exercise of approximately $0.7 million, which reduced diluted
earnings per share by less than $0.01 per share. Aggregate Contractual Obligations At December 31, 2003, we were obligated under various operating lease
agreements, primarily for sales office facilities that expire at various dates
through 2011. These lease agreements generally provide for minimum rent
payments and a proportionate share of operating expenses and property taxes and
include certain renewal and expansion options. For the years ended December
31, 2003, 2002 and 2001, rent expense was $11.3 million, $9.8 million and $7.6
million, respectively. We expect to fulfill these commitments from our working
capital. The following table summarizes our contractual commitments under
these operating lease agreements as of December 31, 2003 (in thousands): Less than
    
    
    
    
    
    
    
    
    
    
    OverTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsOperating leases
    
    $
    49,616
    
    
    $
    6,727
    
    
    $
    13,386
    
    
    $
    13,749
    
    
    $
    15,754
 Recently Issued or Newly Adopted Accounting Pronouncements 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 23




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##### Table of Contents



vendors are met, the consideration is accounted for as a reduction in the
related expense category, such as advertising or selling and administrative
expense. EITF 02-16 applies to all agreements modified or entered into on or
after January 1, 2003. As a result of prospectively adopting EITF 02-16, we
recorded $62.7 million of vendor consideration as a reduction of cost of sales
during the year ended December 31, 2003. Adopting EITF 02-16 had no impact on
our operating profit, as the $62.7 million of vendor consideration recorded as
a reduction of cost of sales would previously have been recorded as a reduction
of advertising expense ($60.9 million) and selling and administrative expense
($1.8 million). In November 2002, the EITF published Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21), which addresses
certain aspects of the accounting by a vendor for arrangements under which it
will perform multiple revenue-generating activities. EITF 00-21 addresses how
to determine whether an arrangement involving multiple deliverables contains
more than one unit of accounting. EITF 00-21 was effective for the Company for
revenue arrangements entered into beginning July 1, 2003. The adoption of EITF
00-21 had no impact on our 2003 consolidated financial statements. In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of ARB 51 (FIN 46). In December 2003, the FASB issued a
revised version of FIN 46, FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities, an interpretation of ARB 51
(FIN 46R), to clarify some of the provisions of FIN 46 and to exempt certain
entities from its requirements. FIN 46R requires that the assets, liabilities
and results of the activity of variable interest entities be consolidated into
the financial statements of the company that has the controlling financial
interest. FIN 46R also provides the framework for determining whether a
variable interest entity should be consolidated based on voting interests or
significant financial support provided to it. FIN 46R was effective for the
Company on February 1, 2003 for variable interest entities created after
January 31, 2003. For variable interest entities or potential variable
interest entities commonly referred to as special-purpose entities created
prior to February 1, 2003, the FASB deferred the implementation date of FIN 46R
to the period ending after December 15, 2003. For potential variable interest
entities that are not special-purpose entities, FIN 46R is effective for the
period ending after March 15, 2004. In accordance with FIN 46R, the assets and
liabilities of CDW-L were consolidated into our balance sheet as of December
31, 2003, and we recorded a minority interest for our partners 50% interest in
CDW-L. We consolidated approximately $7.8 million and $3.4 million of assets
and liabilities, respectively, from CDW-L that are classified primarily as
miscellaneous receivables and accrued expenses. Beginning on December 31,
2003, we will consolidate the future results of operations of CDW-L into our
statement of income and record a minority interest for our partners 50%
interest in CDW-L. In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with the Characteristics
of Both Liabilities and Equity (SFAS 150). SFAS 150 requires that certain
financial instruments, which under previous guidance were accounted for as
equity, must now be accounted for as liabilities. The financial instruments
affected include mandatory redeemable stock, certain financial instruments that
require or may require the issuer to buy back some of its shares in exchange
for cash or other assets and certain obligations that can be settled with
shares of stock. SFAS 150 is effective for all financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 had no impact on our 2003 consolidated financial
statements. Any statements in this report that are forward-looking (that is, not
historical in nature) are made pursuant to the safe harbor provisions of The
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements include, for example, statements concerning the Companys sales
growth, gross profit as a percentage of sales, advertising expense and
cooperative advertising reimbursements. In addition, words such as likely,
may, would, could,
should, anticipate, believe, estimate, expect,
intend, plan, and similar expressions, may identify forward-looking
statements in this report. Forward-looking statements in this report are based
on the Companys beliefs and expectations as of the date of this report and are
subject to risks and uncertainties, including those outlined in detail in this
report in Item 1  Business under the heading Certain Factors Affecting CDWs
Business and other factors identified from time to time in the Companys
filings with the Securities and Exchange Commission. Such risks and
uncertainties may have a significant impact on the Companys business,
operating results or financial condition. Investors are cautioned that these 24




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##### Table of Contents



forward-looking statements are inherently uncertain. Should one or more
of the risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results or outcomes may vary materially from those
described herein. 
 Item 7A.     Quantitative and Qualitative Disclosures About Market Risk. The Companys investments in marketable securities as of December 31, 2003
all mature before December 31, 2005 and are concentrated in U.S. Government and
Government agency securities, municipal bonds and corporate fixed income
securities. As such, the risk of significant changes in the value of these
securities as a result of a change in market interest rates is minimal. 25




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##### Table of Contents



Item 8.     Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageManagements Responsibility for Financial Statements
    
    
    27Report of Independent Auditors
    
    
    28Consolidated Balance Sheets as of
December 31, 2003 and 2002
    
    
    29Consolidated Statements of Income for the years ended
December 31, 2003, 2002 and 2001
    
    
    30Consolidated Statements of Shareholders Equity for the years ended
December 31, 2003, 2002 and 2001
    
    
    31Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001
    
    
    32Notes to Consolidated Financial Statements
    
    
    33
 26




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##### Table of Contents



MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS Management is responsible for the preparation, integrity and objectivity of the
consolidated financial statements and other financial information presented in
this report. The accompanying consolidated financial statements were prepared
in accordance with accounting principles generally accepted in the United
States of America, applying certain estimates and judgments as required. CDW Corporations internal controls are designed to provide reasonable
assurance as to the integrity and reliability of the financial statements and
to adequately safeguard, verify and maintain accountability of assets. Such
controls are based on established operating and written policies and
procedures, are implemented by trained, skilled personnel with an appropriate
segregation of duties and are monitored through a comprehensive business
process assurance program. These policies and procedures prescribe that the
Company and all its coworkers are to maintain the highest ethical standards and
that its business practices are to be conducted in a manner which is above
reproach. PricewaterhouseCoopers LLP, independent auditors, are retained to audit CDW
Corporations financial statements. Their accompanying report is based on
audits conducted in accordance with auditing standards generally accepted in
the United States of America, which include the consideration of the Companys
internal controls to establish a basis for reliance thereon in determining the
nature, timing and extent of the audit tests. The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of independent
Board members. The Audit Committee meets periodically with the independent
auditors and with the Companys Business Process Assurance director, both
privately and with management present, to review accounting, auditing, internal
control and financial reporting matters. /s/ John A. Edwardson
    
    /s/ Barbara A. KleinJohn A. Edwardson
    
    Barbara A. KleinChairman and Chief Executive Officer
    
    Senior Vice President and Chief Financial Officer
 27




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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS To Board of Directors and
Shareholders of CDW Corporation: In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders equity and cash flows present
fairly, in all material respects, the financial position of CDW Corporation and
its subsidiaries at December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion. As discussed in Note 4 to the Consolidated Financial Statements, on January 1,
2003, the Company adopted Emerging Issues Task Force Issue No. 02-16,
Accounting by a Customer (including a Reseller) for Certain Consideration
Received from a Vendor. As discussed in Note 16 to the Consolidated Financial
Statements, on January 1, 2003, the Company adopted Financial Accounting
Standards Board Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees. As discussed in Note 4 to the Consolidated
Financial Statements, during 2003 the Company adopted Financial Accounting
Standards Board Interpretation No. 46 (revised December 2003), Consolidation
of Variable Interest Entities, an interpretation of ARB 51. /s/ PricewaterhouseCoopers LLPPricewaterhouseCoopers LLPChicago, IllinoisJanuary 16,
2004, except for Note 15, as to which the date is
  February 12, 2004
 28




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands) December 31,2003
    
    
    2002AssetsCurrent assets:Cash and cash equivalents
    
    $
    222,425
    
    
    $
    157,140Marketable securities
    
    
    339,935
    
    
    
    347,474Accounts receivable, net of allowance for doubtful
accounts of $10,057 and $10,500, respectively
    
    
    444,000
    
    
    
    333,084Merchandise inventory
    
    
    183,890
    
    
    
    150,785Miscellaneous receivables
    
    
    28,517
    
    
    
    14,084Deferred income taxes
    
    
    12,147
    
    
    
    11,757Prepaid expenses
    
    
    3,994
    
    
    
    4,212Total current assets
    
    
    1,234,908
    
    
    
    1,018,536Property and equipment, net
    
    
    62,323
    
    
    
    64,088Other assets
    
    
    14,401
    
    
    
    13,040Total assets
    
    $
    1,311,632
    
    
    $
    1,095,664Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    157,079
    
    
    $
    102,786Accrued expenses:Compensation
    
    
    39,246
    
    
    
    33,057Income taxes
    
    
    14,419
    
    
    
    17,945Exit costs
    
    
    324
    
    
    
    1,223Other
    
    
    37,395
    
    
    
    16,583Total current liabilities
    
    
    248,463
    
    
    
    171,594Commitments and contingencies
    
    
    
    
    
    
    Minority interest
    
    
    1,985
    
    
    
    Shareholders equity:Preferred shares, $1.00 par value; 5,000 shares authorized;
none issued
    
    
    
    
    
    
    Common shares, $.01 par value; 500,000 shares authorized;
90,903 and 89,669 shares issued, respectively
    
    
    909
    
    
    
    897Paid-in capital
    
    
    408,413
    
    
    
    346,054Retained earnings
    
    
    956,867
    
    
    
    806,548Unearned compensation
    
    
    (269)
    
    
    
    (837)Accumulated other comprehensive income
    
    
    183
    
    
    
    31,366,103
    
    
    
    1,152,665Less cost of common shares in treasury; 7,561 shares and
5,708 shares, respectively
    
    
    (304,919)
    
    
    
    (228,595)Total shareholders equity
    
    
    1,061,184
    
    
    
    924,070Total liabilities and shareholders equity
    
    $
    1,311,632
    
    
    $
    1,095,664
 The accompanying notes are an integral part of the consolidated financial statements. 29




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data) Years Ended December 31,2003
    
    
    2002
    
    
    2001Net sales
    
    $
    4,664,616
    
    
    $
    4,264,579
    
    
    $
    3,961,545Cost of sales
    
    
    3,990,824
    
    
    
    3,700,744
    
    
    
    3,434,510Gross profit
    
    
    673,792
    
    
    
    563,835
    
    
    
    527,035Selling and administrative expenses
    
    
    325,205
    
    
    
    261,611
    
    
    
    253,328Net advertising expense
    
    
    64,129
    
    
    
    4,046
    
    
    
    5,509Income from operations
    
    
    284,458
    
    
    
    298,178
    
    
    
    268,198Interest income
    
    
    7,225
    
    
    
    9,548
    
    
    
    12,637Other expense, net
    
    
    (2,119)
    
    
    
    (1,529)
    
    
    
    (859)Income before income taxes
    
    
    289,564
    
    
    
    306,197
    
    
    
    279,976Income tax provision
    
    
    114,378
    
    
    
    120,948
    
    
    
    111,290Net income
    
    $
    175,186
    
    
    $
    185,249
    
    
    $
    168,686Earnings per share:Basic
    
    $
    2.10
    
    
    $
    2.18
    
    
    $
    1.97Diluted
    
    $
    2.03
    
    
    $
    2.10
    
    
    $
    1.89Weighted-average number of
common shares outstanding:Basic
    
    
    83,329
    
    
    
    84,862
    
    
    
    85,803Diluted
    
    
    86,175
    
    
    
    88,296
    
    
    
    89,136Dividends per share
    
    $
    0.30
    
    
    $
    0.00
    
    
    $
    0.00
 The accompanying notes are an integral part of the consolidated financial statements. 30




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands) AccumulatedTotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherShareholders'
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Unearned
    
    
    Treasury
    
    
    Comprehensive
    
    
    ComprehensiveEquity
    
    
    Shares
    
    
    Capital
    
    
    Earnings
    
    
    Compensation
    
    
    Shares
    
    
    Income
    
    
    IncomeBalance at December 31, 2000
    
    $
    636,251
    
    
    $
    875
    
    
    $
    185,054
    
    
    $
    452,613
    
    
    $
    (202)
    
    
    $
    (2,089)
    
    
    
    MPK Restricted Stock Plan forfeitures
    
    
    
    
    
    
    
    
    
    
    (2)
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Amortization of unearned
compensation
    
    
    1,932
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,932
    
    
    
    
    
    
    
    Compensatory stock option grants
    
    
    2,741
    
    
    
    
    
    
    
    2,741
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compensatory restricted stock grant
    
    
    
    
    
    
    1
    
    
    
    3,662
    
    
    
    
    
    
    
    (3,663)
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    9,136
    
    
    
    9
    
    
    
    9,127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax benefit from stock option and
restricted stock transactions
    
    
    58,126
    
    
    
    
    
    
    
    58,126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury shares
    
    
    (98,215)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (98,215)
    
    
    
    Net income
    
    
    168,686
    
    
    
    
    
    
    
    
    
    
    
    168,686
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2001
    
    
    778,657
    
    
    
    885
    
    
    
    258,708
    
    
    
    621,299
    
    
    
    (1,931)
    
    
    
    (100,304)
    
    
    
    MPK Restricted Stock Plan forfeitures
    
    
    
    
    
    
    
    
    
    
    (22)
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    Amortization of unearned
compensation
    
    
    1,072
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,072
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    17,837
    
    
    
    12
    
    
    
    17,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax benefit from stock option and
restricted stock transactions
    
    
    69,543
    
    
    
    
    
    
    
    69,543
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury shares
    
    
    (128,291)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (128,291)
    
    
    
    Net income
    
    
    185,249
    
    
    
    
    
    
    
    
    
    
    
    185,249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    185,249Net unrealized gains on marketable
securities
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    185,252Balance at December 31, 2002
    
    
    924,070
    
    
    
    897
    
    
    
    346,054
    
    
    
    806,548
    
    
    
    (837)
    
    
    
    (228,595)
    
    
    
    3Amortization of unearned
compensation
    
    
    568
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    568
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    22,878
    
    
    
    11
    
    
    
    22,867
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock in
connection with Employee Stock
Purchase Plan
    
    
    3,014
    
    
    
    1
    
    
    
    3,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax benefit from stock option and
restricted stock transactions
    
    
    36,479
    
    
    
    
    
    
    
    36,479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury shares
    
    
    (76,324)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,324)
    
    
    
    Cash dividends
    
    
    (24,867)
    
    
    
    
    
    
    
    
    
    
    
    (24,867)
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    175,186
    
    
    
    
    
    
    
    
    
    
    
    175,186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    175,186Net unrealized (losses) on marketable
securities
    
    
    (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3)
    
    
    
    (3)Foreign currency translation
adjustment
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    183Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    175,366Balance at December 31, 2003
    
    $
    1,061,184
    
    
    $
    909
    
    
    $
    408,413
    
    
    $
    956,867
    
    
    $
    (269)
    
    
    $
    (304,919)
    
    
    $
    183
 The accompanying notes are an integral part of the consolidated financial statements. 31




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CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Years Ended December 31,2003
    
    
    2002
    
    
    2001Cash flows from operating activities:Net income
    
    $
    175,186
    
    
    $
    185,249
    
    
    $
    168,686Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    15,135
    
    
    
    15,564
    
    
    
    15,383Accretion of marketable securities
    
    
    1,031
    
    
    
    699
    
    
    
    (181)Stock-based compensation expense
    
    
    568
    
    
    
    1,072
    
    
    
    4,673Allowance for doubtful accounts
    
    
    (789)
    
    
    
    1,000
    
    
    
    2,500Deferred income taxes
    
    
    1,773
    
    
    
    (1,446)
    
    
    
    (3,438)Tax benefit from stock option and restricted stock transactions
    
    
    36,479
    
    
    
    69,543
    
    
    
    58,126Changes in assets and liabilities, net of assets acquired:Accounts receivable
    
    
    (105,723)
    
    
    
    (15,679)
    
    
    
    16,519Miscellaneous receivables and other assets
    
    
    (12,180)
    
    
    
    (5,391)
    
    
    
    3,360Merchandise inventory
    
    
    (17,025)
    
    
    
    (31,668)
    
    
    
    (8,915)Prepaid expenses
    
    
    218
    
    
    
    (757)
    
    
    
    (495)Accounts payable
    
    
    13,185
    
    
    
    (4,022)
    
    
    
    50,727Accrued compensation
    
    
    5,476
    
    
    
    4,944
    
    
    
    1,468Accrued income taxes and other expenses
    
    
    12,983
    
    
    
    12,664
    
    
    
    (5,734)Accrued exit costs
    
    
    (899)
    
    
    
    (364)
    
    
    
    (275)Net cash provided by operating activities
    
    
    125,418
    
    
    
    231,408
    
    
    
    302,404Cash flows from investing activities:Purchases of available-for-sale securities
    
    
    (1,846,161)
    
    
    
    (1,542,447)
    
    
    
    (1,895,807)Redemptions of available-for-sale securities
    
    
    1,870,230
    
    
    
    1,609,622
    
    
    
    1,790,862Purchases of held-to-maturity securities
    
    
    (533,873)
    
    
    
    (346,586)
    
    
    
    (94,249)Redemptions of held-to-maturity securities
    
    
    516,309
    
    
    
    179,645
    
    
    
    109,928Investment in and advances to joint venture
    
    
    (118)
    
    
    
    (8,956)
    
    
    
    (23,579)Repayment of advances from joint venture
    
    
    3,500
    
    
    
    9,510
    
    
    
    24,323Purchase of property and equipment
    
    
    (11,380)
    
    
    
    (10,579)
    
    
    
    (22,490)Purchase of selected U.S. assets of Micro Warehouse
    
    
    (20,000)
    
    
    
    
    
    
    
    Purchase of Canadian operations of Micro Warehouse
    
    
    (2,744)
    
    
    
    
    
    
    
    Consolidation of joint venture
    
    
    2,254
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (21,983)
    
    
    
    (109,791)
    
    
    
    (111,012)Cash flows from financing activities:Purchase of treasury shares
    
    
    (76,324)
    
    
    
    (128,291)
    
    
    
    (98,215)Proceeds from exercise of stock options
    
    
    22,879
    
    
    
    17,837
    
    
    
    9,136Issuance of common stock in connection with Employee Stock
Purchase Plan
    
    
    3,013
    
    
    
    
    
    
    
    Dividends paid
    
    
    (24,867)
    
    
    
    
    
    
    
    Change in book overdrafts
    
    
    36,966
    
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (38,333)
    
    
    
    (110,454)
    
    
    
    (89,079)Effect of exchange rate changes on cash and cash equivalents
    
    
    183
    
    
    
    
    
    
    
    Net increase in cash
    
    
    65,285
    
    
    
    11,163
    
    
    
    102,313Cash and cash equivalents  beginning of period
    
    
    157,140
    
    
    
    145,977
    
    
    
    43,664Cash and cash equivalents  end of period
    
    $
    222,425
    
    
    $
    157,140
    
    
    $
    145,977Supplementary disclosure of cash flow information:Taxes paid
    
    $
    80,614
    
    
    $
    42,684
    
    
    $
    66,763
 The accompanying notes are an integral part of the consolidated financial statements. 32




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    Description of BusinessCDW Corporation (collectively with its subsidiaries, CDW or the Company)
is a leading direct marketer of multi-brand computers and related
technology products and services in the United States. Our primary business
is conducted from a combined corporate office and distribution center
located in Vernon Hills, Illinois, and sales offices in Illinois, Virginia,
Connecticut, New Jersey, and Toronto, Canada. Additionally, we market and
sell products through CDW.com, CDWG.com and macwarehouse.com, our Web sites.2.
    
    Micro Warehouse TransactionsDuring September 2003, we purchased selected U.S. assets and the Canadian
operations of Micro Warehouse, a reseller of computers, software and
peripheral products. The U.S. transaction, completed on September 9, 2003,
was accounted for as a purchase of assets, with the $20.0 million purchase
price allocated to the assets purchased, including inventory, fixed assets
and customer lists, based upon their fair values at the date of purchase.
Subsequent to the completion of the U.S. transaction, sales made by former
members of the Micro Warehouse U.S. sales force who joined CDW in
conjunction with this transaction, along with the associated costs, are
included in the accompanying consolidated financial statements. The
Canadian transaction, completed on September 23, 2003, was accounted for as
the purchase of a business and, accordingly, the results of operations of
the acquired business subsequent to the date of purchase are included in the
accompanying consolidated financial statements, and the assumed assets and
liabilities were recorded based upon their fair values at the date of
purchase. The Canadian operations were purchased for $2.7 million.During the year ended December 31, 2003, we recorded $22.3 million of
transaction and integration expenses associated with these transactions.
These expenses are primarily comprised of severance and outplacement costs,
payroll expenses for former Micro Warehouse employees performing transition
services, customer satisfaction expenses, customer communications and
advertising expenses, legal and accounting advisory fees and a reserve
established for the equipment in a Wilmington, Ohio distribution center
leased by Micro Warehouse. These expenses are included in cost of sales
($0.3 million), selling and administrative expenses ($20.2 million), net
advertising expenses ($1.5 million) and other expense ($0.3 million) in the
Consolidated Statements of Income.3.
    
    Summary of Significant Accounting 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. One of our
wholly-owned subsidiaries, CDW Capital Corporation (CDWCC), owns a 50%
interest in CDW Leasing, LLC (CDW-L) (Note 14). In accordance with a new
accounting standard, FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities, an interpretation of ARB 51,
the assets and liabilities of CDW-L were consolidated into our balance sheet
as of December 31, 2003. 33




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##### Table of Contents



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.Net realizable value of inventories.Inventory is valued at the lower of
cost or market value. We decrease the value of inventory for estimated
obsolescence equal to the difference between the cost of inventory and the
estimated market value, based upon an aging analysis of the inventory on
hand, specifically known inventory-related risks, and assumptions about
future demand and market conditions. If future demand or actual market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.Vendor transactions.We receive incentives from vendors related to
cooperative advertising allowances, rebates, price protection and other
programs. These incentives generally relate to agreements with the vendors
and are recorded as adjustments to gross margin or net advertising expense,
as appropriate. If market conditions were to deteriorate, vendors may
change the terms of some or all of these programs.Loss contingencies.We accrue for contingent obligations when a loss is
probable and the amount can be reasonably estimated. As facts concerning
contingencies become known, we reassess our position and make appropriate
adjustments to the financial statements.Intangible assets.We purchased intangible assets, such as customer lists,
in connection with the Micro Warehouse transactions. These intangible assets
have finite lives, and are amortized using the straight-line method over the
estimated economic lives, generally seven years.Earnings Per 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 12. 34




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##### Table of Contents



Cash and Cash EquivalentsCash and cash equivalents include all deposits in banks and highly liquid
temporary cash investments purchased with original maturities of three
months or less at the time of purchase.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.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. 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
    

2 to 25 yearsComputer and data processing equipment
    
    2 to 3 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 maintenance 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. 101, Revenue Recognition and EITF 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 goods sold. 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 and price protection are recorded when earned as a reduction
to cost of sales or merchandise inventory, as applicable. 35




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##### Table of Contents



AdvertisingAdvertising costs are charged to expense in the period incurred.
Cooperative reimbursements from vendors, which are earned and available, are
recorded in the period the related advertising expenditure is incurred. The
following table summarizes advertising costs and cooperative reimbursements
for the years ended December 31, 2003, 2002 and 2001, respectively (in
thousands): 2003
    
    
    2002
    
    
    2001Gross advertising expenses
    
    $
    91,963
    
    
    $
    89,079
    
    
    $
    87,352Less cooperative reimbursements
    
    
    (27,834)
    
    
    
    (85,033)
    
    
    
    (81,843)Net advertising expenses
    
    $
    64,129
    
    
    $
    4,046
    
    
    $
    5,509
  Cooperative reimbursements are lower in 2003 than in prior years as
$60.9 million of vendor consideration which would have previously been
classified as cooperative reimbursements are now classified as a reduction
of cost of sales due to the adoption of Emerging Issues Task Force (EITF)
Issue No. 02-16, Accounting for Consideration Received from a Vendor by a
Customer (Including a Reseller of the Vendors Products) (EITF 02-16) on
January 1, 2003.Stock-Based CompensationAt December 31, 2003, we had several stock-based employee compensation
plans, which are described more fully in Note 11. In accordance with
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), we account for our stock-based
compensation programs according to the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees.
Accordingly, compensation expense is recognized to the extent of employee or
director services rendered based on the intrinsic value of compensatory
options or shares granted under the plans. The following table illustrates
the effect on net income and earnings per share if we had applied the fair
value recognition provisions of SFAS 123 to stock-based employee
compensation for the years ended December 31, 2003, 2002 and 2001,
respectively (in thousands, except per share amounts): 2003
    
    
    2002
    
    
    2001Net income, as reported
    
    $
    175,186
    
    
    $
    185,249
    
    
    $
    168,686Add stock-based employee compensation
expense included in reported net income,
net of related tax effects
    
    
    344
    
    
    
    649
    
    
    
    2,793Deduct total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects
    
    
    (24,709)
    
    
    
    (26,123)
    
    
    
    (25,911)Pro forma net income
    
    $
    150,821
    
    
    $
    159,775
    
    
    $
    145,568Basic earnings per share, as reported
    
    $
    2.10
    
    
    $
    2.18
    
    
    $
    1.97Diluted earnings per share, as reported
    
    $
    2.03
    
    
    $
    2.10
    
    
    $
    1.89Pro forma basic earnings per share
    
    $
    1.81
    
    
    $
    1.88
    
    
    $
    1.70Pro forma diluted earnings per share
    
    $
    1.75
    
    
    $
    1.81
    
    
    $
    1.63
 36




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##### Table of Contents



Fair Value of Financial InstrumentsWe estimate that the fair market value of all of our financial instruments
at December 31, 2003 and 2002 are not materially different from the
aggregate carrying value due to the short-term nature of these instruments.Treasury SharesWe intend to hold repurchased shares in treasury for general
corporate purposes, including issuances under various employee stock option
plans. We account for the treasury shares using the cost method.Foreign Currency 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.4.
    
    Recently Issued or Newly Adopted Accounting StandardsEmerging Issues Task Force (EITF) Issue No. 02-16, Accounting for
Consideration Received from a Vendor by a Customer (Including a Reseller of
the Vendors Products) (EITF 02-16) became effective for the Company on
January 1, 2003. EITF 02-16 requires that consideration received from
vendors, such as advertising support funds, be accounted for as a reduction
to cost of sales when recognized in the resellers income statement unless
certain conditions are met showing that the funds are used for a specific
program entirely funded by an individual vendor. If these specific
requirements related to individual vendors are met, the consideration is
accounted for as a reduction in the related expense category, such as
advertising or selling and administrative expense. EITF 02-16 applies to
all agreements modified or entered into on or after January 1, 2003. As a
result of prospectively adopting EITF 02-16, we recorded $62.7 million of
vendor consideration as a reduction of cost of sales during the year ended
December 31, 2003. Adopting EITF 02-16 had no impact on our operating
profit, as the $62.7 million of vendor consideration recorded as a reduction
of cost of sales would previously have been recorded as a reduction of
advertising expense ($60.9 million) and selling and administrative expense
($1.8 million).In November 2002, the EITF published Issue No. 00-21, Revenue Arrangements
with Multiple Deliverables (EITF 00-21), which addresses certain aspects
of the accounting by a vendor for arrangements under which it will perform
multiple revenue-generating activities. EITF 00-21 addresses how to
determine whether an arrangement involving multiple deliverables contains
more than one unit of accounting. EITF 00-21 was effective for the Company
for revenue arrangements entered into beginning July 1, 2003. The adoption
of EITF 00-21 had no impact on our 2003 consolidated financial statements.In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of ARB 51 (FIN 46). In December 2003, the FASB issued a
revised version of FIN 46, FASB Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities, an interpretation of
ARB 51 (FIN 46R), to clarify some of the provisions of FIN 46 and to
exempt certain entities from its requirements. FIN 46R requires that the
assets, liabilities and results of the activity of variable interest
entities be consolidated into the financial statements of the company that
has the controlling financial interest. FIN 46R also provides the framework
for determining whether a variable interest entity should be consolidated
based on voting interests or significant financial support provided to it.
FIN 46R was effective for the Company on February 1, 2003 for variable
interest entities created after January 31, 2003. For variable interest
entities or potential variable interest entities commonly referred to as
special-purpose entities created prior to February 1, 2003, the FASB 37




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##### Table of Contents



deferred the implementation date of FIN 46R to the period ending after
December 15, 2003. For potential variable interest entities that are not
special-purpose entities, FIN 46R is effective for the period ending after
March 15, 2004. In accordance with FIN 46R, the assets and liabilities of
CDW-L were consolidated into our balance sheet as of December 31, 2003, and
we recorded a minority interest for our partners 50% interest in CDW-L. We
consolidated approximately $7.8 million and $3.4 million of assets and
liabilities, respectively, from CDW-L that are classified primarily as
miscellaneous receivables and accrued expenses. Beginning on December 31,
2003, we will consolidate the future results of operations of CDW-L into our
statement of income and record a minority interest for our partners 50%
interest in CDW-L.In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with the Characteristics
of Both Liabilities and Equity (SFAS 150). SFAS 150 requires that
certain financial instruments, which under previous guidance were accounted
for as equity, must now be accounted for as liabilities. The financial
instruments affected include mandatory redeemable stock, certain financial
instruments that require or may require the issuer to buy back some of its
shares in exchange for cash or other assets and certain obligations that can
be settled with shares of stock. SFAS 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS 150 had no impact on our 2003 consolidated
financial statements.5.
    
    Marketable SecuritiesThe amortized cost and estimated fair values of our investments in
marketable securities at December 31, 2003 and 2002 were (in thousands): GrossUnrealizedEstimated
    
    
    Holding
    
    
    AmortizedSecurity Type
    
    Fair Value
    
    
    Gains
    
    
    Losses
    
    
    CostDecember 31, 2003Available-for-sale:Municipal bonds
    
    $
    100,550
    
    
    $
    
    
    
    $
    
    
    
    $
    100,550Total available-for-sale
    
    
    100,550
    
    
    
    
    
    
    
    
    
    
    
    100,550Held-to-maturity:U.S. Government and Government
agency securities
    
    
    195,507
    
    
    
    215
    
    
    
    
    
    
    
    195,292Municipal securities
    
    
    13,055
    
    
    
    
    
    
    
    (1)
    
    
    
    13,056Corporate fixed income securities
    
    
    31,034
    
    
    
    
    
    
    
    (3)
    
    
    
    31,037Total held-to-maturity
    
    
    239,596
    
    
    
    215
    
    
    
    (4)
    
    
    
    239,385Total marketable securities
    
    $
    340,146
    
    
    $
    215
    
    
    $
    (4)
    
    
    $
    339,935December 31, 2002Available-for-sale:Municipal bonds
    
    $
    124,674
    
    
    $
    3
    
    
    $
    
    
    
    $
    124,671Total available-for-sale
    
    
    124,674
    
    
    
    3
    
    
    
    
    
    
    
    124,671Held-to-maturity:U.S. Government and Government
agency securities
    
    
    193,306
    
    
    
    675
    
    
    
    
    
    
    
    192,631Corporate fixed income securities
    
    
    30,185
    
    
    
    16
    
    
    
    
    
    
    
    30,169Total held-to-maturity
    
    
    223,491
    
    
    
    691
    
    
    
    
    
    
    
    222,800Total marketable securities
    
    $
    348,165
    
    
    $
    694
    
    
    $
    
    
    
    $
    347,471
  Estimated fair values of marketable securities are based on quoted market
prices. The amortized cost and estimated fair value of our investments in
marketable securities at December 31, 2003 and 2002 by contractual maturity
were (in thousands): 38




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##### Table of Contents



Estimated
    
    
    AmortizedFair Value
    
    
    CostDecember 31, 2003Due in one year or less
    
    $
    175,316
    
    
    $
    175,210Due in greater than one year
    
    
    164,830
    
    
    
    164,725Total investments in marketable securities
    
    $
    340,146
    
    
    $
    339,935December 31, 2002Due in one year or less
    
    $
    243,095
    
    
    $
    242,761Due in greater than one year
    
    
    105,070
    
    
    
    104,710Total investments in marketable securities
    
    $
    348,165
    
    
    $
    347,471
  As of December 31, 2003, all of the marketable securities that are due after
one year have maturity dates prior to December 31, 2005.The gross unrealized holding gains and losses on available-for-sale
securities are recorded as accumulated other comprehensive income, which is
reflected as a separate component of shareholders equity. The gross
realized gains and losses on marketable securities that are included in
other expense in the Consolidated Statements of Income are not material.6.
    
    Property and EquipmentProperty and equipment consists of the following (in thousands): December 31,2003
    
    
    2002Land
    
    $
    10,367
    
    
    $
    10,367Machinery and equipment
    
    
    35,395
    
    
    
    32,662Building and leasehold improvements
    
    
    31,836
    
    
    
    31,418Computer and data processing equipment
    
    
    30,215
    
    
    
    24,126Computer software
    
    
    14,588
    
    
    
    10,368Furniture and fixtures
    
    
    8,392
    
    
    
    7,952Construction in progress
    
    
    2,361
    
    
    
    2,801Total property and equipment
    
    
    133,154
    
    
    
    119,694Less accumulated depreciation
    
    
    70,831
    
    
    
    55,606Net property and equipment
    
    $
    62,323
    
    
    $
    64,088
  We own approximately 45 acres of land at our Vernon Hills, Illinois
headquarters site, of which approximately 11 acres are vacant and available
for future expansion.7.
    
    Financing ArrangementsWe have an aggregate $70 million available pursuant to two $35 million
unsecured lines of credit with two financial institutions. One line of
credit expires in June 2004, at which time we intend to renew the line, and
the other does not have a fixed expiration date. Borrowings under the first
credit facility bear interest at the prime rate less 2.5%, LIBOR plus 0.5%
or the federal funds rate plus 0.5%, as determined by the Company.
Borrowings under the second credit facility bear interest at the prime rate
less 2.5%, LIBOR plus 0.45% or the federal funds rate plus 0.45%, as
determined by the Company. At December 31, 2003, there were no borrowings
under either of the credit facilities. 39




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##### Table of Contents



8.
    
    Trade Financing AgreementsWe have entered into security agreements with certain financial
institutions (Flooring Companies) 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 $68.0 million collateralized
by inventory purchases financed by the Flooring Companies. At December 31,
2003 and 2002, we owed the Flooring Companies approximately $19.6 million
and $17.6 million, respectively, which is included in trade accounts
payable.9.
    
    Operating Leases and Exit CostsWe are obligated under various operating lease agreements, for sales office
facilities that generally provide for minimum rent payments and a
proportionate share of operating expenses and property taxes and include
certain renewal and expansion options. For the years ended December 31,
2003, 2002 and 2001, rent expense was $11.3 million, $9.8 million and $7.6
million, respectively. Additionally, $888,000, $753,000 and $572,000 of
rental payments were charged to the exit liability in 2003, 2002 and 2001,
respectively.Future minimum lease payments are as follows (in thousands): Years Ended December 31,
    
    Amount2004
    
    $
    6,7272005
    
    
    6,6882006
    
    
    6,6982007
    
    
    6,7762008
    
    
    6,973Thereafter
    
    
    15,754Total future minimum lease payments
    
    $
    49,616
  The table above does not include facilities that we obtained use of as a
result of the purchase of selected U.S. assets of Micro Warehouse in
September 2003. These facilities, primarily sales offices in Connecticut,
New Jersey, and Virginia, are leased by Micro Warehouse. Because we intend to use
these facilities only on a short-term basis we are evaluating our
future needs and expect to move into new locations during 2004.In 1996, we recorded a $4.0 million pre-tax charge to operating results for
exit costs relating to our leased Buffalo Grove, Illinois facility. The
exit costs consist primarily of the estimated cost to the Company of
subleasing the vacated facility, including holding costs, the estimated
costs of restoring the building to its original condition and certain asset
write-offs resulting from the relocation. During 2003, 2002 and 2001, we
charged approximately $898,000, $764,000 and $565,000 against the exit
accrual, respectively. These amounts include cash payments for rent, real
estate taxes and restoration, net of sublease payments.We discontinued use of the Buffalo Grove facility in the fourth quarter of
2002 and sales personnel were relocated to the Mettawa, Illinois office. In
2002 and 2001, respectively, we recorded $400,000 and $290,000 of additional
pre-tax charges to operating results to cover additional exit costs we
anticipated relating to the Buffalo Grove facility. The Buffalo Grove lease
term expired in December 2003.10.
    
    Income TaxesPretax income from continuing operations for the years ended December 31,
2003, 2002 and 2001 was taxed under the following jurisdictions (in
thousands): 40




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##### Table of Contents



2003
    
    
    2002
    
    
    2001Domestic
    
    $
    289,641
    
    
    $
    306,197
    
    
    $
    279,976Foreign
    
    
    (77)
    
    
    
    
    
    
    
    Total
    
    $
    289,564
    
    
    $
    306,197
    
    
    $
    279,976
  Components of the provision (benefit) for income taxes for the years ended
December 31, 2003, 2002 and 2001 consist of (in thousands): 2003
    
    
    2002
    
    
    2001Current:Federal
    
    $
    91,361
    
    
    $
    101,449
    
    
    $
    95,503State
    
    
    21,244
    
    
    
    20,945
    
    
    
    19,224Total current
    
    
    112,605
    
    
    
    122,394
    
    
    
    114,727Deferred
    
    
    1,773
    
    
    
    (1,446)
    
    
    
    (3,437)Provision for income taxes
    
    $
    114,378
    
    
    $
    120,948
    
    
    $
    111,290
  The current income tax liabilities for 2003, 2002 and 2001 were reduced by
$36.5 million, $69.5 million and $58.1 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.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, 2003, 2002 and 2001 is as follows (dollars in
thousands): 2003
    
    2002
    
    2001Statutory federal income tax rate
    
    $
    101,347
    
    
    
    35.0
    %
    
    $
    107,169
    
    
    
    35.0
    %
    
    $
    97,992
    
    
    
    35.0
    %State taxes, net of federal benefit
    
    
    13,921
    
    
    
    4.8
    
    
    
    13,411
    
    
    
    4.4
    
    
    
    11,926
    
    
    
    4.3Other
    
    
    (890)
    
    
    
    (0.3
    )
    
    
    368
    
    
    
    0.1
    
    
    
    1,372
    
    
    
    0.5Effective tax rates
    
    $
    114,378
    
    
    
    39.5
    %
    
    $
    120,948
    
    
    
    39.5
    %
    
    $
    111,290
    
    
    
    39.8
    %
  The tax effect of temporary differences that give rise to the net deferred
income tax asset at December 31, 2003 and 2002 are presented below (in
thousands): 41




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##### Table of Contents



2003
    
    
    2002Assets:Accounts receivable
    
    $
    4,824
    
    
    $
    4,851Payroll and benefits
    
    
    5,399
    
    
    
    4,737Employee stock plans
    
    
    4,110
    
    
    
    5,014Merchandise inventory
    
    
    1,467
    
    
    
    734Accrued expenses
    
    
    457
    
    
    
    1,435Exit charge
    
    
    130
    
    
    
    489Property and equipment
    
    
    
    
    
    
    174Loss carryforwards
    
    
    31
    
    
    
    Other
    
    
    638
    
    
    
    825Gross deferred assets
    
    
    17,056
    
    
    
    18,259Liabilities:Property and equipment
    
    
    538
    
    
    
    Gross deferred liabilities
    
    
    538
    
    
    
    Deferred tax asset valuation allowance
    
    
    31
    
    
    
    Net deferred tax asset
    
    $
    16,487
    
    
    $
    18,259
  The portion of the net deferred tax asset relating to employee stock plans
results primarily from the compensatory stock option grants under the CDW
Stock Option Plans. Compensation expense related to these plans is
deductible for income tax purposes in the year the options are exercised.The net operating loss in Canada of $77,213 may be carried forward to 2010.11.
    
    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,
2003, we have reserved a total of 6,917,010 common shares for future stock
option grants. The plans generally include vesting requirements from one to
10 years and option lives of up to 20 years. Options may be granted at
exercise prices ranging from $0.01 to the market price of the common stock
at the date of grant.Option activity for the years ended December 31, 2001, 2002 and 2003 was as
follows: 42




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##### Table of Contents



Weighted-Average
    
    
    OptionsShares
    
    
    Exercise Price
    
    
    ExercisableBalance at January 1, 2001
    
    
    12,039,763
    
    
    $
    21.24
    
    
    
    1,202,352Options granted
    
    
    1,973,514
    
    
    
    35.01
    
    
    
    Options exercised
    
    
    (901,386)
    
    
    
    10.13
    
    
    
    Options forfeited
    
    
    (463,015)
    
    
    
    19.93
    
    
    
    Balance at December 31, 2001
    
    
    12,648,876
    
    
    
    24.01
    
    
    
    1,300,460Options granted
    
    
    1,169,464
    
    
    
    55.15
    
    
    
    Options exercised
    
    
    (1,203,031)
    
    
    
    15.45
    
    
    
    Options forfeited
    
    
    (1,235,600)
    
    
    
    28.11
    
    
    
    Balance at December 31, 2002
    
    
    11,379,709
    
    
    
    27.79
    
    
    
    1,803,103Options granted
    
    
    1,282,434
    
    
    
    43.49
    
    
    
    Options exercised
    
    
    (1,228,854)
    
    
    
    21.07
    
    
    
    Options forfeited
    
    
    (455,140)
    
    
    
    29.09
    
    
    
    Balance at December 31, 2003
    
    
    10,928,149
    
    
    $
    30.33
    
    
    
    2,462,206
  For the years ended December 31, 2003, 2002 and 2001, the weighted-average
fair value of options granted was as follows: 2003
    
    
    2002
    
    
    2001Exercise price equals market price at time of grant
    
    $
    23.74
    
    
    $
    30.82
    
    
    $
    20.51Exercise price is less than market price at time
of grant
    
    $
    11.75
    
    
    $
    
    
    
    $
    53.70
 43




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##### Table of Contents



The following table summarizes the status of outstanding stock options as of
December 31, 2003: Options Outstanding
    
    
    Options ExercisableWeighted-AverageRemaining
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Number of
    
    
    Contractual
    
    
    Average
    
    
    Number of
    
    
    AverageRange of
    
    
    Options
    
    
    Life (in
    
    
    Exercise
    
    
    Options
    
    
    ExerciseExercise Prices
    
    
    Outstanding
    
    
    years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$

0.003 - 0.01
    
    
    
    240,286
    
    
    
    17.1
    
    
    $
    0.01
    
    
    
    
    
    
    $
    $
    5.68 - 6.75
    
    
    
    58,468
    
    
    
    11.8
    
    
    $
    6.50
    
    
    
    58,468
    
    
    $
    6.50$
    10.00 - 14.83
    
    
    
    2,196,035
    
    
    
    13.5
    
    
    $
    13.70
    
    
    
    731,114
    
    
    $
    13.85$
    16.20 - 23.99
    
    
    
    1,608,612
    
    
    
    15.0
    
    
    $
    23.98
    
    
    
    388,042
    
    
    $
    23.99$
    24.31 - 34.52
    
    
    
    1,805,601
    
    
    
    15.3
    
    
    $
    26.45
    
    
    
    190,092
    
    
    $
    29.48$
    36.62 - 54.75
    
    
    
    4,158,861
    
    
    
    10.4
    
    
    $
    40.00
    
    
    
    934,944
    
    
    $
    37.84$
    54.97 - 63.38
    
    
    
    860,286
    
    
    
    8.6
    
    
    $
    56.08
    
    
    
    159,546
    
    
    $
    55.92$
    0.003 - 63.38
    
    
    
    10,928,149
    
    
    
    12.5
    
    
    $
    30.33
    
    
    
    2,462,206
    
    
    $
    28.31
  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): 2003
    
    
    2002
    
    
    2001Net income, as reported
    
    $
    175,186
    
    
    $
    185,249
    
    
    $
    168,686Add
stock-based employee compensationexpense included in reported net
income,net of related tax effects
    
    
    344
    
    
    
    649
    
    
    
    2,793Deduct total
stock-based employee
compensation expense determined under
fair value based method for all
awards,net of related tax effects
    
    
    (24,709)
    
    
    
    (26,123)
    
    
    
    (25,911)Pro forma net income
    
    $
    150,821
    
    
    $
    159,775
    
    
    $
    145,568Basic earnings per share, as reported
    
    $
    2.10
    
    
    $
    2.18
    
    
    $
    1.97Diluted earnings per share, as reported
    
    $
    2.03
    
    
    $
    2.10
    
    
    $
    1.89Pro forma basic earnings per share
    
    $
    1.81
    
    
    $
    1.88
    
    
    $
    1.70Pro forma diluted earnings per share
    
    $
    1.75
    
    
    $
    1.81
    
    
    $
    1.63
 44




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##### Table of Contents



The effects of applying SFAS 123 in the above pro forma disclosure are not
likely to be representative of the effects disclosed in future years because
the pro forma calculations exclude stock options granted before 1995.For purposes of the SFAS 123 pro forma net income and earnings per share
calculations, the fair value of each option grant is estimated as of the
date of grant using the Black-Scholes option-pricing model. The
weighted-average assumptions used in determining fair value as disclosed for
SFAS 123 are shown in the following table: 2003
    
    
    2002
    
    
    2001Risk-free interest rate
    
    
    3
    .0%

    
    
    4
    .4%

    
    
    4
    .8%Dividend yield
    
    
    0
    .0%
    
    
    0
    .0%
    
    
    0
    .0%Option life (years)
    
    
    5
    .0
    
    
    5
    .0
    
    
    4
    .8Stock price volatility
    
    
    59
    .0%
    
    
    61
    .2%
    
    
    62
    .4%
  MPK Stock Option PlanEffective December 31, 1992, the Companys then majority shareholder
established the MPK Stock Option Plan pursuant to which he granted
non-forfeitable options to certain officers to purchase 16,573,500 shares of
common stock owned by him at an exercise price of $.004175 per share.
Options were exercised as follows: Transaction Year
    
    Number of Options Exercised1994
    
    
    1,844,8921995
    
    
    1,353,2581997
    
    
    545,7461998
    
    
    659,7521999
    
    
    1,743,9922000
    
    
    4,180,8882001
    
    
    2,751,7322002
    
    
    2,384,3762003
    
    
    1,108,864Total
    
    
    16,573,500
  All options granted under the MPK Stock Option Plan were fully
exercised as of December 31, 2003.MPK Restricted Stock PlanEffective upon the closing of our initial public offering in 1993, the then
majority shareholder established the MPK Restricted Stock Plan. Pursuant to
this plan, the majority shareholder allocated 2,674,416 shares of his common
stock to be held in escrow for the benefit of those persons employed by the
Company as of December 31, 1992. The number of shares allocated to each
employee was dependent upon the employees years of service and salary
history. As a result of these grants, which provided for vesting based upon
continuous employment with the Company or our subsidiaries through January
1, 2000, we recorded a capital contribution and offsetting deferred charge
of approximately $2.8 million for unearned compensation equal to the number
of shares granted, times $1.0425 per share.We filed a Registration Statement on Form S-3, which was effective on
February 7, 1997, to modify the terms of the MPK Restricted Stock Plan and
provide participants the option to accelerate the vesting on 25% of
their shares in exchange for the extension of the vesting period on their
remaining shares through January 1, 2003. Under the terms of this
modification, participants who elected the acceleration were granted options
by us equal to the number of shares which became vested with an exercise
price of $14.75 per share, the market price of the stock on the acceleration
date.As of December 31, 2003, all of these shares were vested under the modified
terms. 45




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##### Table of Contents



Tax BenefitsThe exercise and vesting of shares pursuant to all stock-based compensation
plans, including the MPK Stock Option Plan, MPK Restricted Stock Plan and
the CDW Incentive Stock Option Plan resulted in the realization by the
Company of tax benefits of $37.2 million in 2003, $71.0 million in 2002, and
$59.2 million in 2001, of which $0.7 million, $1.5 million, and $1.1
million, respectively, were previously recorded in deferred taxes. The
incremental tax benefits of $36.5 million in 2003, $69.5 million in 2002 and
$58.1 million in 2001 were recorded to paid-in capital.Restricted StockOn January 28, 2001, we granted a restricted stock award of 100,000 shares
of common stock to our Chairman and Chief Executive Officer that will
vest in equal annual installments on the first four anniversaries of the
date of grant. Compensation expense related to this restricted stock award
is recognized over the vesting period. As of December 31, 2003, 50,000 of
such shares had not yet vested.Employee Stock Purchase PlanOn October 1, 2002, we established an Employee Stock Purchase Plan (ESPP)
which provides that eligible coworkers may contribute up to 15% of their
eligible compensation towards the quarterly purchase of our common stock.
The coworkers purchase price is 85% of the lesser of the fair market value
of the stock on the first business day or the last business day of the
quarterly offering period. Coworkers may purchase shares having a fair
market value of up to $25,000 (measured on the first day of the quarterly
offering period for each calendar year) or 325 shares per quarter. No
compensation expense is recorded in connection with the plan. The total
number of shares issuable under the ESPP is 500,000. Under the ESPP, we
issued 78,318 and 20,300 shares to coworkers in 2003 and 2002, respectively.12.
    
    Earnings Per ShareAt December 31, 2003, we had outstanding common shares totaling 83,342,433.
We have granted options to purchase common shares to the directors and
coworkers of the Company as discussed in Note 11. These options have a
dilutive effect on the calculation of earnings per share. The following
table is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations as required by SFAS 128 (in
thousands, except per share amounts): 46




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##### Table of Contents



Years Ended December 31,2003
    
    
    2002
    
    
    2001Basic earnings per share:Income available to
common shareholders (numerator)
    
    $
    175,186
    
    
    $
    185,249
    
    
    $
    168,686Weighted-average common
shares outstanding (denominator)
    
    
    83,329
    
    
    
    84,862
    
    
    
    85,803Basic earnings per share
    
    $
    2.10
    
    
    $
    2.18
    
    
    $
    1.97Diluted earnings per share:Income available to
common shareholders (numerator)
    
    $
    175,186
    
    
    $
    185,249
    
    
    $
    168,686Weighted-average common
shares outstanding
    
    
    83,329
    
    
    
    84,862
    
    
    
    85,803Effect of dilutive securities:Options on common stock
    
    
    2,846
    
    
    
    3,434
    
    
    
    3,333Total common shares and
dilutive securities (denominator)
    
    
    86,175
    
    
    
    88,296
    
    
    
    89,136Diluted earnings per share
    
    $
    2.03
    
    
    $
    2.10
    
    
    $
    1.89
  Additional options to purchase common shares were outstanding during the
years ended December 31, 2003 and 2002 but were not included in the
computation of diluted earnings per share because the exercise prices of
these options were greater than the average market price of common shares
during the respective periods. The following table summarizes the
weighted-average number, and the weighted-average exercise price, of those
options which were excluded from the calculation: Years Ended December 31,2003
    
    
    2002Weighted-average number of options (in 000s)
    
    
    987
    
    
    
    920Weighted-average exercise price
    
    $
    55.69
    
    
    $
    55.69
  13.
    
    Profit Sharing and 401(k) PlanWe have a profit sharing plan that includes a salary reduction feature
established under the Internal Revenue Code Section 401(k) covering
substantially all employees. Company contributions to the profit sharing
plan are made in cash and determined at the discretion of the Board of
Directors. For the years ended December 31, 2003, 2002 and 2001, amounts
charged to expense for this plan totaled $3,066,000, $4,506,000 and
$3,060,000, respectively.14.
    
    Leasing Joint VentureIn April 1999, CDWCC, a wholly-owned subsidiary of the Company, and First
Portland Corporation (FIRSTCORP), an unrelated third party leasing
company, formed CDW-L, a joint venture that is 50 percent owned by each of
CDWCC and FIRSTCORP. During the first quarter of 2003, FIRSTCORP was
acquired by IFC Credit Corporation. CDW-L provides captive leasing services
to our customers. Under the terms of an operating agreement, FIRSTCORP
provides leasing management services to CDW-L, with net earnings of the
venture allocated 50% to us and 50% to FIRSTCORP. CDWCC and FIRSTCORP each
contributed $600,000 to the capital of CDW-L, maintain equal operating
control over CDW-L and have an equal number of seats on the Board of
Managers of the joint venture. Effective May 1, 2002, we decided to stop
originating new leases with this venture and began to refer customers to
independent leasing sources, including FIRSTCORP and several manufacturer
captive entities. The existing leases in CDW-Ls portfolio will be held
until maturity, with the majority expiring prior to December 1, 2004. 47




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##### Table of Contents



In accordance with a new accounting standard, FASB Interpretation No. 46
(revised December 2003), Consolidation of Variable Interest Entities, an
interpretation of ARB 51, the assets and liabilities of CDW-L were
consolidated into our balance sheet as of December 31, 2003, and we recorded
a minority interest for FIRSTCORPs 50% interest in CDW-L. We consolidated
approximately $7.8 million and $3.4 million of assets and liabilities,
respectively, from CDW-L that are classified primarily as miscellaneous
receivables and accrued expenses. Beginning on December 31, 2003, we will
consolidate the future results of operations of CDW-L into our statement of
income and record a minority interest for our partners 50% interest in
CDW-L.In 2000, CDW-L obtained a financing commitment for $25 million from a
financial institution. This commitment was increased to $40 million in 2001,
of which $1.5 million was outstanding at December 31, 2003. The financing
commitment is collateralized by lease receivables (included in miscellaneous
receivables on the balance sheet) of $4.6 million at December 31, 2003,
requires CDW-L to meet certain financial covenants, and is without recourse
to CDWCC or the Company. Under the terms of the financing agreements,
CDW-Ls total loans outstanding are limited to a maximum of 90% of the
present value of the lease payments receivable, discounted at the prime
rate. At December 31, 2003, the present value of CDW-Ls borrowing base
was $4.5 million and CDW-L was in compliance with all of the covenants under
the agreement.15.
    
    ContingenciesAs of December 31, 2003, the Company was not a party to any material legal
proceedings.On September 9, 2003, CDW completed the purchase of certain assets of
Bridgeport Holdings, Inc., Micro Warehouse, Inc., Micro Warehouse, Inc. of
Ohio, and Micro Warehouse Gov/Ed, Inc. (collectively, Micro Warehouse).
On September 10, 2003, Micro Warehouse filed voluntary petitions for relief
under chapter 11 of title 11 of the United States Code (the Bankruptcy
Code) in the United States Bankruptcy Court for the District of Delaware
(Case No. 03-12825). On January 20, 2004, the Official Committee of
Unsecured Creditors (the Committee) appointed in the Micro Warehouse
bankruptcy proceedings filed a motion with the court seeking the production
of certain documents for review and certain representatives of CDW for
depositions. CDW believes that the purpose of the motion is to explore whether the
purchase of assets of Micro Warehouse by CDW involved fraudulent transfers
under the Bankruptcy Code.
On February 12, 2004, the Bankruptcy Court entered an order approving a
stipulation between the Committee and CDW whereby CDW consented to the
Committees production requests. CDW believes that its transaction with
Micro Warehouse did not constitute a fraudulent transfer as it believes
that it paid reasonably equivalent value for such assets. CDW expects that
the outcome of the Committees inquiry in this matter
will have no material effect on CDWs financial condition.16.
    
    GuaranteesIn accordance with FASB Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45), we recorded a $5.0 million reserve
related to the equipment in a Wilmington, Ohio distribution center leased by
Micro Warehouse. In September 2003, in conjunction with our purchase of
selected U.S. assets of Micro Warehouse, we agreed to assume the lease for
the distribution center and purchase the equipment in the facility for $8.0
million if requested by Micro Warehouse. In February 2004, under the terms
of a modified agreement, we purchased the equipment and forfeited leasing
the distribution center in exchange for $8.25 million. The purchase price
of the equipment in the facility of $8.0 million, net of the reserve of $5.0
million, reflects the estimated realizable value of the equipment to CDW.17.
    
    Segment InformationWe are engaged in the sale of multi-brand computers and related technology
products and services, primarily through direct marketing activities. We
have two operating segments: corporate, which is primarily comprised of
business customers, but also includes consumers, and public sector, which is 48




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##### Table of Contents



comprised of federal, state and local government
entities and educational institutions. In accordance with Statement of Financial Accounting Standards
No. 131, Disclosure about Segments of an Enterprise and Related
Information, the internal organization that is used by management for
making operating decisions and assessing performance is the source of our
reportable segments.



Year
Ended December 31, 2003 (in 000s)Corporate
    
    
    Public Sector
    
    
    Eliminations
    
    
    ConsolidatedExternal customer sales
    
    $
    3,575,483
    
    
    $
    1,089,133
    
    
    $
    
    
    
    $
    4,664,616Transfers between segments
    
    
    1,030,704
    
    
    
    
    
    
    
    (1,030,704)
    
    
    
    Total net sales
    
    $
    4,606,187
    
    
    $
    1,089,133
    
    
    $
    (1,030,704)
    
    
    $
    4,664,616Income from operations
    
    $
    256,557
    
    
    $
    27,901
    
    
    $
    
    
    
    $
    284,458Net interest income and
other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,106Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    289,564Total assets
    
    $
    1,309,970
    
    
    $
    175,034
    
    
    $
    (173,372)
    
    
    $
    1,311,632




Year
Ended December 31, 2002 (in 000s)Corporate
    
    
    Public Sector
    
    
    Eliminations
    
    
    ConsolidatedExternal customer sales
    
    $
    3,399,118
    
    
    $
    865,461
    
    
    $
    
    
    
    $
    4,264,579Transfers between segments
    
    
    823,086
    
    
    
    
    
    
    
    (823,086)
    
    
    
    Total net sales
    
    $
    4,222,204
    
    
    $
    865,461
    
    
    $
    (823,086)
    
    
    $
    4,264,579Income from operations
    
    $
    281,911
    
    
    $
    16,267
    
    
    $
    
    
    
    $
    298,178Net interest income and
other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,019Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    306,197Total assets
    
    $
    1,034,795
    
    
    $
    64,348
    
    
    $
    (3,479)
    
    
    $
    1,095,664


49



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##### Table of Contents



Year Ended December 31, 2001 (in 000's)Corporate
    
    
    Public Sector
    
    
    Eliminations
    
    
    ConsolidatedExternal customer sales
    
    $
    3,280,632
    
    
    $
    680,913
    
    
    $
    
    
    
    $
    3,961,545Transfers between segments
    
    
    619,819
    
    
    
    
    
    
    
    (619,819)
    
    
    
    Total net sales
    
    $
    3,900,451
    
    
    $
    680,913
    
    
    $
    (619,819)
    
    
    $
    3,961,545Income from operations
    
    $
    245,539
    
    
    $
    22,659
    
    
    $
    
    
    
    $
    268,198Net interest income and
other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,778Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    279,976Total assets
    
    $
    891,857
    
    
    $
    74,753
    
    
    $
    (29,581)
    
    
    $
    937,029
  The results of operations for our Canadian subsidiary are included in our
corporate segment. Our assets are primarily managed as part of the
corporate segment, including all inventory and the majority of all property
and equipment. As a result, capital expenditures and related depreciation
are immaterial for the public sector segment. The public sector segment
assets consist principally of cash and cash equivalents and accounts
receivable.No single customer accounted for more than 1% of net sales in fiscal years
2003, 2002 or 2001. Approximately 1% of our revenues are comprised of sales
to customers outside of the continental United States.Sales and operating expenses relating to our investment in CDW-L, accounted
for under the equity method through December 31, 2003, are immaterial to the
Company as a whole and are evaluated by management for making operating
decisions and allocating resources as part of the corporate segment. The
net equity earnings relating to our investment in CDW-L, accounted for under
the equity method through December 31, 2003, were $646,244, $347,900 and
$322,100 for the years ended December 31, 2003, 2002 and 2001, respectively.
These amounts are included as an offset to selling and administrative
expenses in the Consolidated Statements of Income. As described in Note 14,
we will consolidate the future results of operations of CDW-L into our
statement of income beginning on December 31, 2003 and record a minority
interest for our partners 50% interest in CDW-L.18.
    
    Share Repurchase ProgramsIn January 2001, our Board of Directors authorized the purchase of up to
5,000,000 shares of our common stock. From January 2001 though September
2002, we purchased the 5,000,000 shares authorized to be repurchased at a
total cost of $204.6 million (an average price of $40.92 per share).In July 2002, our Board of Directors authorized a new share repurchase
program of up to 2,500,000 shares of our common stock. These purchases may
be made from time to time in both the open market and private transactions,
as conditions warrant. This program will remain in effect through July 2004
unless earlier terminated by the Board or completed. Under this repurchase
program, we purchased 1,852,424 shares of our common stock at a total cost
of $76.3 million (an average price of $41.20 per share) during the year
ended December 31, 2003. From July 2002 through December 31, 2003, we
purchased a total of 2,360,800 shares of our common stock under this program at a total
cost of $98.2 million (an average price of $41.59 per share). 50




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##### Table of Contents



In July 2003, our Board of Directors authorized a new share repurchase
program of up to 2,500,000 shares of our common stock. These purchases may
be made from time to time in both open market and private transactions, as
conditions warrant. This new repurchase program is expected to remain in
effect through July 2005, unless earlier terminated by the Board or
completed. During the year ended December 31, 2003, no purchases were made
under this new program.Repurchased shares are held in treasury pending use for general corporate
purposes, including issuances under various employee stock plans.19.
    
    Public Offering of Common SharesIn August 2001, Michael P. Krasny, the chairman emeritus, principal
shareholder and a director of the Company; Gregory C. Zeman, then vice
chairman and a director of the Company; and Daniel B. Kass, then an
executive vice president and a director of the Company, sold a total
of 10,562,500 shares of common stock through a secondary public offering at a price of
$40.00 per share. We did not receive any proceeds from the sale of their shares and the number of outstanding common shares was not impacted. The shares sold by Mr. Zeman and Mr. Kass were acquired from Mr. Krasny through
the exercise of options previously granted to them pursuant to the MPK Stock
Option Plan. The sale of shares by Mr. Zeman and Mr. Kass resulted in the
realization by the Company in the year ended December 31, 2001 of an income
tax benefit of approximately $43.5 million, of which approximately $0.6
million was previously recorded to deferred taxes. The incremental tax
benefit of $42.9 million was recorded as an increase to paid-in capital.
Additionally, we recorded incremental payroll tax expense related to the
option exercise of approximately $1.6 million, which reduced diluted
earnings per share by approximately $0.01 per share.In March 2002, Mr. Zeman sold a total of 2,000,000 shares of common stock at a price of
$48.00 per share. We did not receive any proceeds from the sale of shares
and the number of outstanding common shares was not impacted. The shares
sold by Mr. Zeman were acquired from Mr. Krasny through the exercise of
options previously granted to Mr. Zeman pursuant to the MPK Stock Option
Plan. The exercise of options by Mr. Zeman resulted in the realization by
the Company of an income tax benefit of approximately $37.9 million in the
first quarter of 2002, of which approximately $0.4 million had been
previously recorded to deferred taxes. We recorded the incremental tax
benefit of $37.5 million as an increase to paid-in capital. In addition, we
recorded incremental payroll tax expense related to the option exercise of
approximately $1.4 million, which reduced diluted earnings per share by
approximately $0.01 per share.In May 2003, Mr. Zeman and Mr. Kass sold a
total of 1,108,864 shares of common stock.
We did not receive any proceeds from the sale of shares and the number of
outstanding common shares was not impacted. The shares sold by Mr. Zeman
and Mr. Kass were acquired from Mr. Krasny through the exercise of options
previously granted to them pursuant to the MPK Stock Option Plan. The
exercise of options by Mr. Zeman and Mr. Kass resulted in the realization by
the Company of an income tax benefit of approximately $17.7 million in the
second quarter of 2003, of which approximately $0.3 million had been
previously recorded to deferred taxes. We recorded the incremental tax
benefit of $17.4 million as an increase to paid-in capital. In addition, we
recorded incremental payroll tax expense related to the option exercise of
approximately $0.7 million, which reduced diluted earnings per share by less
than $0.01 per share. 51




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##### Table of Contents



20.
    
    Selected Quarterly Financial Data (Unaudited)The following information is for the years ended December 31, 2003 and 2002
(in thousands, except per share data): First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterDecember 31, 2003Net sales
    
    $
    1,017,619
    
    
    $
    1,075,296
    
    
    $
    1,222,785
    
    
    $
    1,348,916Gross profit
    
    
    147,388
    
    
    
    156,458
    
    
    
    176,224
    
    
    
    193,722Income before income taxes
    
    
    70,092
    
    
    
    72,103
    
    
    
    73,726
    
    
    
    73,643Net income
    
    
    42,406
    
    
    
    43,622
    
    
    
    44,604
    
    
    
    44,554Earnings per share:Basic
    
    $
    0.51
    
    
    $
    0.52
    
    
    $
    0.54
    
    
    $
    0.54Diluted
    
    $
    0.49
    
    
    $
    0.51
    
    
    $
    0.52
    
    
    $
    0.51December 31, 2002Net sales
    
    $
    1,002,836
    
    
    $
    1,056,820
    
    
    $
    1,150,970
    
    
    $
    1,053,953Gross profit
    
    
    130,163
    
    
    
    137,248
    
    
    
    157,040
    
    
    
    139,384Income before income taxes
    
    
    67,366
    
    
    
    72,814
    
    
    
    90,734
    
    
    
    75,283Net income
    
    
    40,756
    
    
    
    44,053
    
    
    
    54,894
    
    
    
    45,546Earnings per share:Basic
    
    $
    0.47
    
    
    $
    0.51
    
    
    $
    0.65
    
    
    $
    0.54Diluted
    
    $
    0.45
    
    
    $
    0.49
    
    
    $
    0.63
    
    
    $
    0.52
 52




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##### Table of Contents



Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 
 Item 9A.    Controls and Procedures.  (a)
    
    The Companys Chief Executive Officer and its Chief
Financial Officer, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14(c) and 15d-14(c)) as of the end of the period covered
by this annual report (the Evaluation Date), have concluded that
as of the Evaluation Date, the Companys disclosure controls and
procedures were adequate and effective to ensure that material
information relating to the Company would be made known to them by
others within the Company, particularly during the period in which
this annual report was being prepared.(b)
    
    Changes in internal controls: There was no change in the
Companys internal control over financial reporting that occurred
during the Companys fiscal quarter ended December 31, 2003 that
materially affected, or is reasonably likely to materially affect,
the Companys internal control over financial reporting. 
 PART III 
 Item 10.     Directors and Executive Officers of the Registrant. Except
for the discussion in the following paragraph regarding the code of ethical conduct, the
information required hereunder is incorporated by reference from the
Registrants Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 20, 2004, to be filed pursuant to Regulation
14A not later than April 29, 2004 (the Definitive Proxy Statement). We have adopted a code of ethical conduct for directors, executive
officers and other senior financial personnel which is available on our Web
site at  CDW.com. 
 Item 11.     Executive Compensation. The information required under this item is incorporated by reference
herein from the Definitive Proxy Statement. 
 Item 12.     Security Ownership of Certain Beneficial Owners and Management. The information required under this item is incorporated by
reference herein from the Definitive Proxy Statement. 
 Item 13.     Certain Relationships and Related Transactions. The information required under this item is incorporated by reference
herein from the Definitive Proxy Statement. Information in the Definitive
Proxy Statement under the headings Report of the Compensation and 53




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##### Table of Contents



Stock Option Committee and Shareholder Return Performance Presentation
is specifically not incorporated by reference. 
 Item 14.     Principal Accounting Fees and Services. The information required under this item is incorporated by
reference herein from the Definitive Proxy Statement. 
 PART IV 
 Item 15.     Exhibits, Financial Statement Schedule and Reports on Form 8-K.  (a)
    
    The following documents are filed as part of this report: 1.
    
    
    Financial Statements (See Index to Consolidated Financial
Statements on page 26 of this Report);2.
    
    
    Index to Financial Statement Schedule:
    
    PageReport of Independent Auditors on Financial
Statement Schedule
    
    S-1Schedule II  Valuation and Qualifying Accounts
    
    S-2All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the schedule,
or because the information required is included in the consolidated financial
statements or notes thereto.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)
    
    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 June 30, 2003.4(a)
    
    Specimen of common stock
certificate.10(a)*
    
    CDW Computer Centers, Inc. Employees Defined Contribution
Retirement Plan and Trust, incorporated by reference from the
exhibits filed with the Companys Registration Statement
(33-59802) on Form S-1 filed under the Securities Act of 1933
filed on May 11, 1993.10(b)*
    
    CDW Incentive Stock Option Plan, incorporated by reference from
the exhibits filed with the Companys Registration Statement
(33-59802) on Form S-1 filed under the Securities Act of 1933
filed on May 11, 1993.10(c)*
    
    First Amendment to CDW Incentive Stock Option Plan, incorporated
by reference from the exhibits filed with the Companys Annual
Report (000-21796) on Form 10-K for the year ended December 31,
1998.10(d)*
    
    MPK Restricted Stock Plan and Agreement, incorporated by reference
from the exhibits filed with the Companys Registration Statement
(33-59802) on Form S-1 filed under the Securities Act of 1933
filed on
 54




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##### Table of Contents



May 11, 1993.10(e)*
    
    Employment and Non-Competition Agreement dated as of March 15,
1993 between the Company and Michael P. Krasny, 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(f)
    
    Tax Indemnification Agreement dated as of May 25, 1993 between the
Company and Michael P. Krasny, 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(g)*
    
    CDW Director 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(h)
    
    Lease Agreement dated January 25, 1995 between the Company, as
lessee, and IJM Management Limited Partnership, as agent for the
owner, as lessor, relating to the premises located in Chicago,
Illinois, incorporated by reference from the exhibits filed with
the Companys Quarterly Report (000-21796) on Form 10-Q for the
quarter ended June 30, 1995.10(i)*
    
    Non-statutory Stock Option Agreement dated September 5, 1996
between the Company and Harry J. Harczak, Jr., 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, 1996.10(j)*
    
    Non-statutory Stock Option Agreement dated September 5, 1996
between the Company and James R. Shanks, 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, 1996.10(k)*
    
    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(l)*
    
    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(m)*
    
    CDW Officer and Manager Plan dated April 21, 1998, incorporated by
reference from the exhibits accompanying the Companys Notice of
Annual Meeting of Shareholders and Proxy Statement filed March 26,
1999.10(n)
    
    Operating Agreement of CDW Leasing, L.L.C., 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,
1999.10(o)
    
    Loan and Security Agreement Between CDW Capital Corp. and CDW
Leasing, L.L.C., 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, 1999.10(p)
    
    Lease Agreement dated October 11, 1999 between the Company as
Lessee and Solano Associates as Lessor relating to the office
space located at 120 S. Riverside Plaza, Chicago, Illinois,
incorporated by
 55




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##### Table of Contents



reference from the exhibits filed with the
Companys Quarterly Report (000-21796) on Form 10-Q for the
quarter ended September 30, 1999.10(q)
    
    Lease Agreement dated June 19, 2000 between the Company as Lessee
and Solano Associates as Lessor relating to the office space
located at 10 S. Riverside Plaza, Chicago, Illinois, incorporated
by reference from the exhibits filed with the Companys Quarterly
Report (000-21796) on Form 10-Q for the quarter ended June 30,
2000.10(r)
    
    Lease Agreement dated October 3, 2000 between the Company as
Lessee and Hamilton Partners as Lessor relating to the office
space located at Woodland Falls I, Mettawa, Illinois, incorporated
by reference from the exhibits filed with the Companys Quarterly
Report (000-21796) on Form 10-Q for the quarter ended September
30, 2000.10(s)*
    
    CDW 2000 Incentive Stock Option Plan, as amended through April 2,
2002, incorporated by reference from the exhibits accompanying the
Companys Definitive Proxy Statement filed April 16, 2002.10(t)*
    
    CDW Senior Management Incentive Plan, incorporated by reference
from the exhibits accompanying the Companys Notice of Annual
Meeting of Shareholders and Proxy Statement filed March 31, 2000.10(u)*
    
    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(v)*
    
    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(w)*
    
    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(x)*
    
    Restricted Stock Award 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(y)
    
    Second Lease Amendment dated April 15, 2001 between the Company as
Lessee and IJM Management Limited Partnership as Lessor relating
to the retail sales space located at 317 West Grand Avenue,
Chicago, Illinois, incorporated by reference from the exhibits
filed with the Companys Quarterly Report (000-21796) on Form 10-Q
for the quarter ended June 30, 2001.10(z)
    
    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(aa)*
    
    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(bb)*
    
    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(cc)*
    
    Form of Noncompetition Agreement, effective December 2002, entered
into with each of the Companys executive officers,
 56




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##### Table of Contents



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(dd)
    
    CDW Employee Stock Purchase Plan, incorporated by reference from
the exhibits accompanying the Companys Definitive Proxy Statement
filed April 16, 2002.10(ee)
    
    Revolving Note between the Company and LaSalle National Bank dated
June 30, 2003, 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, 2003.21
    
    Subsidiaries of the Registrant23
    
    Consent of Independent Accountants31.1
    
    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)
    
    Reports on Form 8-K: (i)
    
    We filed a Current Report on Form 8-K on October 22, 2003 furnishing a
Press Release announcing our third quarter 2003 earnings under item
12.
  (c)
    
    The Exhibits required by Item 601 of Regulation S-K are
reflected above in Section (a) 3. of this Item.(d)
    
    The financial statement schedule is included as reflected in Section (a) 2. of this Item. 57




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized. CDW CORPORATIONDate: March 11, 2004By:
    
    /s/ John A. EdwardsonJohn A. Edwardson, Chairman and
Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ John A. Edwardson
    
    Chairman of the Board and
    
    March 11, 2004Chief Executive OfficerJohn A. Edwardson/s/ Barbara A. Klein
    
    Senior Vice President and
    
    March 11, 2004Chief Financial OfficerBarbara A. Klein
    
    (principal financial officer)/s/ Sandra M. Rouhselang
    
    Vice-President and Controller
    
    March 11, 2004(principal accounting officer)Sandra M. Rouhselang/s/ Michelle L. Collins
    
    Director
    
    March 11, 2004Michelle L. Collins/s/ Casey G. Cowell
    
    Director
    
    March 11, 2004Casey G. Cowell/s/ Daniel S. Goldin
    
    Director
    
    March 11, 2004Daniel S. Goldin/s/ Dr. Donald Jacobs
    
    Director
    
    March 11, 2004Dr. Donald Jacobs/s/ Michael P. Krasny
    
    Director
    
    March 11, 2004Michael P. Krasny/s/ Terry L. Lengfelder
    
    Director
    
    March 11, 2004Terry L. Lengfelder/s/ Susan D. Wellington
    
    Director
    
    March 11, 2004Susan D. Wellington/s/ Brian E. Williams
    
    Director
    
    March 11, 2004Brian E. Williams
 58




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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS ON
FINANCIAL STATEMENT SCHEDULE To Board of Directors of
CDW Corporation: Our audits of the consolidated financial statements referred to in our report
dated January 16, 2004, except for Note 15, as to which the
date is February 12, 2004, appearing on page 28 of this Form 10-K also included an
audit of the financial statement schedule listed in Item 15(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLPPricewaterhouseCoopers LLPChicago,
Illinois  January 16,
2004, except for Note 15, as to which the date is
  February 12, 2004
 S-1




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##### Table of Contents



CDW CORPORATION
SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2003, 2002 and 2001
(in thousands) Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EBalance at
    
    
    Charged to
    
    
    Charged
    
    
    
    
    
    
    Balance atBeginning
    
    
    Costs and
    
    
    to Other
    
    
    
    
    
    
    End ofDescription
    
    of Period
    
    
    Expenses
    
    
    Accounts
    
    
    Deductions
    
    
    PeriodYear ended December 31, 2003Deducted in the balance sheet
from the asset to which it
applies:Allowance for doubtful accounts
    
    $
    10,500
    
    
    $
    2,414
    
    
    $
    
    
    
    $
    2,857  (a)
    
    
    $
    10,057Year ended December 31, 2002Deducted in the balance sheet from
the asset to which it
applies:Allowance for doubtful accounts
    
    $
    9,500
    
    
    $
    5,833
    
    
    $
    
    
    
    $
    4,833  (a)
    
    
    $
    10,500Year ended December 31, 2001Deducted in the balance sheet
fromthe asset to which it
applies:Allowance for doubtful accounts
    
    $
    7,000
    
    
    $
    8,384
    
    
    $
    
    
    
    $
    5,884  (a)
    
    
    $
    9,500
  Note:(a)
    
    Uncollectible items written off, less recoveries of items previously
written off. S-2