##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
   [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
 Commission file number 0-21796
 CDW Corporation
  Illinois
(State or other jurisdiction of 
incorporation or organization)
    
    36-3310735
(I.R.S. Employer
Identification No.)200 N. Milwaukee Ave. 
Vernon Hills, Illinois
(Address of principal executive offices)
    
    60061
(Zip Code)
 (847) 465-6000
 Securities registered pursuant to Section 12(b) of the Act:
    
    Common StockSecurities registered pursuant to Section 12(g) of the Act:
    
    None
 Yes [ X ] No [  ]
 Yes [  ] No [ X ]
 Yes [ X ] No [  ]
 [ X ]
 
 Large accelerated filer [ X ]
    
    Accelerated filer [  ]
    
    Non-accelerated filer [  ]
 Yes [  ] No [ X ]
   Documents Incorporated by Reference




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CDW CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2006
INDEX
 PART IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    8Item 1B.
    
    Unresolved Staff Comments
    
    
    12Item 2.
    
    Properties
    
    
    12Item 3.
    
    Legal Proceedings
    
    
    12Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    13PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
    
    
    13Item 6.
    
    Selected Financial Data
    
    
    15Item 7.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    16Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 8.
    
    Financial Statements and Supplementary Data
    
    
    26Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    56Item 9A.
    
    Controls and Procedures
    
    
    56Item 9B.
    
    Other Information
    
    
    56PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    56Item 11.
    
    Executive Compensation
    
    
    57Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
    
    
    57Item 13.
    
    Certain Relationships and Related Transactions, and Director
Independence
    
    
    57Item 14.
    
    Principal Accounting Fees and Services
    
    
    57PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    57Signatures
    
    
    61Subsidiaries of the RegistrantConsent of Independent Registered Public Accounting FirmCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer




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PART I
 
 Item 1.
    
    Business
 General
      1




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CDW.com CDWG.com, CDW.ca CDW@work ® CDWG@work ®
  CDW.com
 Acquisitions
 Berbee.
   Micro Warehouse.
 Business Strategy
   2




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Multi-Branded Products.
 Customer Focus. CDW@work ® CDWG@work ®
 Competitive Pricing
 Marketing.
 Customer Service.
 Advanced Technology Solutions.
 Custom Configuration Services.
 3




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Technical Support.
 Proprietary Information Technology Systems. CDW.com CDWG.com, CDW.ca CDW@work ® CDWG@work ®
 Effective Inventory Control.
 High Quality Coworkers.
 Purchasing and Vendor Relationships
    Inventory Management/Distribution
  4




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Marketing and Advertising Activities
    E-commerce
  CDW@work ® CDWG@work ®
 5




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Sales Activities and Order Fulfillment
   Customers
   Custom Configuration and Technical Support
   6




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Information Technology Systems
    Coworkers, Training and Culture
    Incentive and Regular Compensation Arrangements
 Compensation Arrangements
 7




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Stock Incentive Plans.
 Trademarks and Trade Names
 ® ® ® ® ® ®
 
 Item 1A.
    
    Risk Factors
  Our sales and profitability may be affected by changes in the economic environment and other
factors.
 
    
    the capital and technology spending patterns of existing and prospective customers;
    
    general economic trends;
    
    the addition of new customers and further penetration of our existing customer base;
    
    the productivity and retention of our sales force;
    
    the optimization of our product mix and pricing strategies;
    
    the availability of products from our vendors;
    
    the successful development of new technology and products by equipment manufacturers
and software developers; and
    
    new competitors and new forms of competition.
 Our business depends on our vendor relationships and the availability of products.
   8




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##### Table of Contents



The success of our business depends on the continuing development, maintenance and operation
of our information technology systems.
 
    
    conduct business with our customers;
    
    manage our inventory and accounts receivable;
    
    purchase, sell, ship and invoice our products efficiently and on a timely basis; and
    
    maintain our cost-efficient operating model.
  Our sales are dependent on the continued development and application of new technologies
and products.
 We would be adversely affected if we are not able to expand or retain our sales force or if we
are not able to maintain or increase their productivity.
 Substantial competition could reduce our market share and significantly harm our financial
performance.
 9




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##### Table of Contents




    
    national direct marketers, such as Insight Enterprises, PC Connection, PC Mall and Zones;
    
    value-added resellers;
    
    manufacturers, such as Dell, Hewlett-Packard, and Apple, who sell directly to customers;
    
    computer superstores, such as CompUSA;
    
    government resellers, such as GTSI;
    
    software resellers, such as ASAP, Softchoice, and Software House International;
    
    consumer electronic and office supply superstores, such as Best Buy, Circuit City,
Office Depot, Office Max and Staples;
    
    corporate resellers;
    
    Web resellers, such as Amazon.com, Buy.com and Newegg.com;
    
    mass merchandisers, such as Wal-Mart and Costco; and
    
    managed service providers, such as IBM, Sungard, Vericenter, Verizon, AT&T, and EDS.
   We are exposed to inventory risks.
 Our future operating results may fluctuate significantly.
 
    
    our pricing strategies;
    
    changes in product costs from vendors;
    
    the availability of price protection, purchase discounts and incentive programs from vendors;
    
    the availability of cooperative advertising funds from vendors, which are classified as
a reduction of cost of sales;
    
    the risk of some of the items in our inventory becoming obsolete;
    
    the relative mix of products sold, and customers sold to, during the period;
 10




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
    
    general market and competitive conditions; and
    
    increases in delivery costs that we cannot pass on to customers.
 A natural disaster or other adverse occurrence at one of our primary facilities or data
centers could damage our business.
 We are heavily dependent on commercial delivery services.
 Our earnings and growth rate could be adversely affected by changes in general economic
conditions and uncertain geopolitical conditions.
 We could be exposed to additional risks if we make additional acquisitions or enter into
alliances.
 The failure to comply with our public sector contracts could result in, among other things,
fines or other liabilities.
 We are exposed to the risks of a global market.
 11




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We are exposed to litigation risk.
 
 Item 1B.
    
    Unresolved Staff Comments
  
 Item 2.
    
    Properties
   
 Item 3.
    
    Legal Proceedings
   12




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Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 ®
 2006
    
    
    2005Quarter Ended
    
    Low
    
    
    High
    
    
    Low
    
    
    HighMarch 31
    
    $
    54.80
    
    
    $
    61.20
    
    
    $
    55.46
    
    
    $
    66.97June 30
    
    $
    52.42
    
    
    $
    61.83
    
    
    $
    51.86
    
    
    $
    60.58September 30
    
    $
    50.28
    
    
    $
    64.26
    
    
    $
    56.00
    
    
    $
    64.15December 31
    
    $
    62.10
    
    
    $
    72.18
    
    
    $
    53.51
    
    
    $
    61.00
  Dividends Per
    
    
    Total DividendsDate Paid
    
    Share
    
    
    (in thousands)June 30, 2006
    
    $
    0.52
    
    
    $
    40,723June 30, 2005
    
    $
    0.43
    
    
    $
    35,114
   13




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##### Table of Contents



Stock Price Performance Graph
   
 12/31/2001
    
    12/31/2002
    
    12/31/2003
    
    12/31/2004
    
    12/31/2005
    
    12/31/2006CDW Corporation
    
    $
    100
    
    
    $
    82
    
    
    $
    108
    
    
    $
    125
    
    
    $
    109
    
    
    $
    135S&P Midcap 400 Index
    
    $
    100
    
    
    $
    85
    
    
    $
    116
    
    
    $
    135
    
    
    $
    152
    
    
    $
    168Peer Group
    
    $
    100
    
    
    $
    41
    
    
    $
    85
    
    
    $
    99
    
    
    $
    81
    
    
    $
    101
 14




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Item 6.
    
    Selected Financial Data
 CDW Corporation and Subsidiaries
Selected Financial Data
 Year Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Income Statement Data:Net sales
    
    $
    6,785,473
    
    
    $
    6,291,845
    
    
    $
    5,737,774
    
    
    $
    4,664,616
    
    
    $
    4,264,579Income from operations
    
    $
    396,399
    (1)
    
    $
    419,634
    
    
    $
    392,759
    
    
    $
    284,458
    
    
    $
    298,178Net income
    
    $
    266,080
    (1)
    
    $
    272,092
    
    
    $
    241,445
    
    
    $
    175,186
    (2)
    
    $
    185,249Earnings per share:Basic
    
    $
    3.37
    (1)
    
    $
    3.35
    
    
    $
    2.90
    
    
    $
    2.10
    (2)
    
    $
    2.18Diluted
    
    $
    3.30
    (1)
    
    $
    3.26
    
    
    $
    2.79
    
    
    $
    2.03
    (2)
    
    $
    2.10Dividends per share
    
    $
    0.52
    
    
    $
    0.43
    
    
    $
    0.36
    
    
    $
    0.30
    
    
    $
    0.00December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Financial Position:Cash, cash
equivalents, and
marketable securities
    
    $
    391,596
    
    
    $
    610,926
    
    
    $
    603,623
    
    
    $
    562,360
    
    
    $
    504,614Total assets
    
    $
    1,951,427
    
    
    $
    1,649,056
    
    
    $
    1,520,935
    
    
    $
    1,311,632
    
    
    $
    1,095,664Total debt and
capitalized lease
obligations
    
    $
    762
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
 (1)
    
    Includes one-time expense of $25.0 million
($15.4 million after-tax) for a negotiated
settlement of litigation involving the Companys 2003 purchase of selected assets of Micro
Warehouse. This expense impacted basic and diluted earnings per share by $0.20 and $0.19,
respectively.(2)
    
    Includes $22.3 million ($13.5 million after-tax) of transaction and integration expenses
recorded in connection with the Micro Warehouse transactions. These expenses impacted basic
and diluted earnings per share by $0.16 per share. 15




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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
     Revenue recognition.
 16




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Inventory valuation.
 Vendor transactions.
 Acquisition of Berbee Information Networks Corporation
  Recently Adopted and Newly Issued Accounting Standards
    17




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Results of Operations
  Percentage of Net SalesFinancial Results
    
    
    Years Ended December 31,2006
    
    
    
    2005
    
    
    
    2004Net sales
    
    
    
    100.0
    %
    
    
    
    100.0
    %
    
    
    
    100.0
    %Cost of sales
    
    
    
    84.2
    
    
    
    
    84.6
    
    
    
    
    84.8Gross profit
    
    
    
    15.8
    
    
    
    
    15.4
    
    
    
    
    15.2Selling and
administrative expenses
    
    
    
    7.8
    
    
    
    
    6.9
    
    
    
    
    6.7Advertising expense
    
    
    
    1.8
    
    
    
    
    1.8
    
    
    
    
    1.6Litigation settlement
    
    
    
    0.4
    
    
    
    
    -
    
    
    
    
    -Income from operations
    
    
    
    5.8
    
    
    
    
    6.7
    
    
    
    
    6.9Interest and other income
    
    
    
    0.3
    
    
    
    
    0.2
    
    
    
    
    0.1Income before income taxes
    
    
    
    6.1
    
    
    
    
    6.9
    
    
    
    
    7.0Income tax provision
    
    
    
    2.2
    
    
    
    
    2.6
    
    
    
    
    2.8Net income
    
    
    
    3.9
    %
    
    
    
    4.3
    %
    
    
    
    4.2
    %
  Operating Statistics
    
    
    Years Ended December 31,2006
    
    
    
    2005
    
    
    
    2004Sales force,
end of period (1)
    
    
    
    2,589
    
    
    
    
    2,153
    
    
    
    
    2,012Annualized inventory turnover
    
    
    
    23
    
    
    
    
    24
    
    
    
    
    24Accounts receivable  days sales
outstanding (2)
    
    
    
    46
    
    
    
    
    37
    
    
    
    
    37Direct Web sales (000s)
    
    
    $
    1,981,921
    
    
    
    $
    1,769,032
    
    
    
    $
    1,525,712Net sales
per coworker (000s) (2)
    
    
    $
    1,389
    
    
    
    $
    1,545
    
    
    
    $
    1,504Return on
shareholders equity (2)
    
    
    
    20.7
    %
    
    
    
    22.4
    %
    
    
    
    21.1
    %
 (1)
    
    Includes 206 Berbee sales force coworkers.(2)
    
    These statistics were negatively impacted, in part, by the acquisition of Berbee in October
2006. Berbee results were only included in our consolidated financial statements from the
date of acquisition through the end of the year. 18




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Analysis of Product Mix
    
    
    Years Ended December 31,2006
    
    
    
    2005
    
    
    
    2004Notebook computers and
accessories
    
    
    
    13.0
    %
    
    
    
    12.6
    %
    
    
    
    13.6
    %Desktop computers and servers
    
    
    
    13.2
    
    
    
    
    14.0
    
    
    
    
    13.7Subtotal computer products
    
    
    
    26.2
    
    
    
    
    26.6
    
    
    
    
    27.3Software
    
    
    
    17.2
    
    
    
    
    17.2
    
    
    
    
    16.8Data storage devices
    
    
    
    13.5
    
    
    
    
    13.7
    
    
    
    
    13.3Printers
    
    
    
    11.2
    
    
    
    
    12.1
    
    
    
    
    12.8NetComm products
    
    
    
    11.5
    
    
    
    
    10.1
    
    
    
    
    9.7Video
    
    
    
    9.2
    
    
    
    
    9.2
    
    
    
    
    9.4Add-on boards/memory
    
    
    
    4.6
    
    
    
    
    4.5
    
    
    
    
    4.6Input devices
    
    
    
    3.2
    
    
    
    
    3.2
    
    
    
    
    3.3Other
    
    
    
    3.4
    
    
    
    
    3.4
    
    
    
    
    2.8Total
    
    
    
    100.0
    %
    
    
    
    100.0
    %
    
    
    
    100.0
    %
  Analysis of Product CategoryGrowth
    
    
    Years Ended December 31,2006
    
    
    
    2005
    
    
    
    2004Notebook computers and
accessories
    
    
    
    10.7
    %
    
    
    
    1.5
    %
    
    
    
    30.5
    %Desktop computers and servers
    
    
    
    1.4
    
    
    
    
    12.5
    
    
    
    
    28.5Subtotal computer products
    
    
    
    5.8
    
    
    
    
    7.0
    
    
    
    
    29.5Software
    
    
    
    7.5
    
    
    
    
    12.4
    
    
    
    
    23.6Data storage devices
    
    
    
    5.8
    
    
    
    
    13.3
    
    
    
    
    16.1Printers
    
    
    
    (0.8
    )
    
    
    
    4.6
    
    
    
    
    13.5NetComm products
    
    
    
    22.1
    
    
    
    
    14.4
    
    
    
    
    18.6Video
    
    
    
    7.2
    
    
    
    
    7.1
    
    
    
    
    27.9Add-on boards/memory
    
    
    
    10.9
    
    
    
    
    7.5
    
    
    
    
    28.6Input devices
    
    
    
    7.2
    
    
    
    
    6.5
    
    
    
    
    23.2Other
    
    
    
    9.7
    
    
    
    
    30.4
    
    
    
    
    37.5
 19




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Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
    
    
    Payroll and employee-related costs increased $70.9 million. This increase was
primarily due to the continued investment in our sales force, increases in administrative
areas to support a larger and growing business, and increased sales commission expense due
to the achievement of a higher gross profit margin. Our sales force increased to 2,589 at
December 31, 2006 (including 206 Berbee sales force coworkers), from 2,153 at December 31,
2005. 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. Included in payroll costs in 2006 was $6.3
million related to the operation of our distribution center in North Las Vegas, Nevada,
which became operational in late 2005. In addition, we recorded $15.8 million in
share-based compensation expense during 2006 due to the adoption of SFAS 123R on January
1, 2006.
    
    Occupancy costs increased $8.7 million, primarily due to $12.0 million of depreciation
expense, rent and operating expenses, such as property taxes and utilities, related to our
distribution center in North Las Vegas, Nevada and additional leased office space in
Chicago and Vernon Hills, Illinois. These expenses were partially offset by $1.9 million
in increased local economic development incentives related to new office locations and
reductions in other areas.
    
    Other selling and administrative expenses increased $17.1 million. This includes $1.0
million in expenses related to our distribution center in North Las Vegas, Nevada. In
2006, we recorded severance expense of $2.8 million in connection with payments to several
individuals who left the Company. In addition, we had increased administrative expenses
required to support a larger business, such as professional fees, general insurance, and
travel and entertainment expenses.
   20




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Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
    21




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##### Table of Contents




    
    Payroll costs increased $38.3 million, primarily due to our continued investment in our
sales force and increases in administrative areas to support a larger and growing
business. Our sales force increased to 2,153 at December 31, 2005, from 2,012 at December
31, 2004. Our sales force consists of account managers (including field sales
representatives) as well as product category specialists who provide consultation in areas
requiring technical or specialized product expertise such as networking, security, data
storage, and volume software licensing. In addition, payroll costs for 2005 include $3.7
million of compensation expense in connection with the acceleration of vesting of stock
options for coworkers through the manager level. Payroll costs for 2004 included $1.5
million of expenses for former Micro Warehouse employees performing transition services.
    
    Employee-related costs (which include items such as profit sharing, incentive awards,
and insurance) increased $2.8 million, primarily due to $4.0 million of additional profit
sharing expense related to the additional contribution to the 401(k) plan in conjunction
with a modification to the Companys stock option program and increased expenses to
support a larger number of coworkers. These expenses were partially offset by a reduction
of $5.3 million in an accrual for a company-wide incentive bonus program. The accrual was
adjusted based on certain program modifications which provided for specific payout levels
for partial achievement of full year financial objectives.
    
    Occupancy costs increased $1.7 million. This increase was primarily due to increased
depreciation related to asset additions for new sales offices and new financial systems,
partially offset by reduced rent. Occupancy costs for 2004 included $0.8 million of
facility expenses related to the Micro Warehouse transactions.
    
    Other selling and administrative costs increased $4.1 million. The increase was
primarily due to increased administrative expenses required to support a larger business,
such as professional fees and travel and entertainment expenses. Other selling and
administrative costs for 2004 included $1.6 million of costs related to the Micro
Warehouse transactions.
    22




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Seasonality
  Legal Proceedings
  Liquidity and Capital Resources
 Working Capital
     23




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Year
    
    Shares
    
    Amount2006
    
    
    4,059
    
    
    $
    227,6692005
    
    
    4,570
    
    
    $
    258,2982004
    
    
    1,352
    
    
    $
    86,010
   Dividends Per
    
    
    Total DividendsDate Paid
    
    Share
    
    
    (in thousands)June 30, 2006
    
    $
    0.52
    
    
    $
    40,723June 30, 2005
    
    $
    0.43
    
    
    $
    35,114June 30, 2004
    
    $
    0.36
    
    
    $
    30,027
     Cash Flows
   24




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##### Table of Contents



Aggregate Contractual Obligations
    Less than
    
    
    
    
    
    
    
    
    
    
    Over 5Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    yearsOperating leases
    
    $
    103,187
    
    
    $
    11,888
    
    
    $
    25,172
    
    
    $
    20,079
    
    
    $
    46,048Capital leases
    
    
    830
    
    
    
    562
    
    
    
    268
    
    
    
    -
    
    
    
    -Total
    
    $
    104,017
    
    
    $
    12,450
    
    
    $
    25,440
    
    
    $
    20,079
    
    
    $
    46,048
 Any statements in this report that are forward-looking (that is, not historical in nature) are
made pursuant to the safe harbor provisions of The Private Securities Litigation Reform Act of
1995. Such forward-looking statements include, for example, statements concerning the Companys
sales growth, cooperative advertising reimbursements, vendor incentives, gross profit as a
percentage of sales, selling and administrative expenses, advertising expense, operating income as
a percentage of sales, and effective tax rate. In addition, words such as likely, may,
would, could, should, anticipate, believe, estimate, expect, intend, plan,
objective, and similar expressions, may identify forward-looking statements in this report.
Forward-looking statements in this report are based on the Companys beliefs and expectations as of
the date of this report and are subject to risks and uncertainties, including those outlined in
detail in this report in Item 1A  Risk Factors and other factors identified from time to time in
the Companys filings with the Securities and Exchange Commission. Such risks and uncertainties
may have a significant impact on the Companys business, operating results or financial condition.
Investors are cautioned that these forward-looking statements are inherently uncertain. Should one
or more of the risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described herein.
 
 Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
  25




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Item 8.
    
    Financial Statements and Supplementary Data
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageManagements Report on Internal Control Over Financial Reporting
    
    
    27Report of Independent Registered Public Accounting Firm
    
    
    28Consolidated Balance Sheets as of
December 31, 2006 and 2005
    
    
    30Consolidated Statements of Income for the years ended
December 31, 2006, 2005 and 2004
    
    
    31Consolidated Statements of Shareholders Equity for the years ended
December 31, 2006, 2005 and 2004
    
    
    32Consolidated Statements of Cash Flows for the years ended
December 31, 2006, 2005 and 2004
    
    
    33Notes to Consolidated Financial Statements
    
    
    34
 26




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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
    
 27




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  Consolidated financial statements and financial statement schedule
 
  Internal control over financial reporting
 Internal Control  Integrated
Framework Internal Control  Integrated Framework
 28




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/s/ PricewaterhouseCoopers LLPPricewaterhouseCoopers LLPChicago, IllinoisMarch 1, 2007
 29




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  December 31,Assets
    
    2006
    
    
    2005Current assets:Cash and cash equivalents
    
    $
    148,081
    
    
    $
    201,250Marketable securities
    
    
    203,515
    
    
    
    370,500Accounts receivable, net of allowance for doubtful
accounts of $9,995 and $9,564, respectively
    
    
    850,002
    
    
    
    637,245Merchandise inventory
    
    
    261,858
    
    
    
    243,564Miscellaneous receivables
    
    
    55,881
    
    
    
    27,848Deferred income taxes
    
    
    15,060
    
    
    
    12,562Prepaid expenses and other
    
    
    15,139
    
    
    
    8,274Total current assets
    
    
    1,549,536
    
    
    
    1,501,243Marketable securities
    
    
    40,000
    
    
    
    39,176Property and equipment, net
    
    
    171,448
    
    
    
    97,277Goodwill
    
    
    119,491
    
    
    
    -Other intangible assets, net
    
    
    63,603
    
    
    
    4,767Other assets
    
    
    7,349
    
    
    
    6,593Total assets
    
    $
    1,951,427
    
    
    $
    1,649,056Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    354,307
    
    
    $
    245,201Accrued expenses:Compensation
    
    
    54,301
    
    
    
    42,585Income taxes
    
    
    4,028
    
    
    
    7,409Sales taxes
    
    
    20,378
    
    
    
    21,473Advertising
    
    
    28,775
    
    
    
    18,193Other
    
    
    67,592
    
    
    
    32,900Total current liabilities
    
    
    529,381
    
    
    
    367,761Deferred income taxes
    
    
    10,762
    
    
    
    -Other liabilities
    
    
    24,119
    
    
    
    16,730Commitments and contingencies
    
    
    -
    
    
    
    -Shareholders equity:Preferred shares, $1.00 par value; 5,000 shares authorized;
none issued
    
    
    -
    
    
    
    -Common shares, $.01 par value; 500,000 shares authorized;
96,312 and 93,447 shares issued, respectively
    
    
    963
    
    
    
    934Paid-in capital
    
    
    631,984
    
    
    
    507,832Retained earnings
    
    
    1,630,620
    
    
    
    1,405,263Unearned compensation
    
    
    -
    
    
    
    (400
    )Accumulated other comprehensive income
    
    
    494
    
    
    
    1632,264,061
    
    
    
    1,913,792Less cost of common shares in treasury; 17,543 shares and
13,483 shares, respectively
    
    
    (876,896
    )
    
    
    (649,227
    )Total shareholders equity
    
    
    1,387,165
    
    
    
    1,264,565Total liabilities and shareholders equity
    
    $
    1,951,427
    
    
    $
    1,649,056
  30




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Net sales
    
    $
    6,785,473
    
    
    $
    6,291,845
    
    
    $
    5,737,774Cost of sales
    
    
    5,715,630
    
    
    
    5,324,215
    
    
    
    4,867,650Gross profit
    
    
    1,069,843
    
    
    
    967,630
    
    
    
    870,124Selling and administrative expenses
    
    
    530,120
    
    
    
    433,482
    
    
    
    386,563Advertising expense
    
    
    118,324
    
    
    
    114,514
    
    
    
    90,802Litigation settlement
    
    
    25,000
    
    
    
    -
    
    
    
    -Income from operations
    
    
    396,399
    
    
    
    419,634
    
    
    
    392,759Interest income
    
    
    19,796
    
    
    
    15,155
    
    
    
    8,968Other expense, net
    
    
    (1,844
    )
    
    
    (1,831
    )
    
    
    (1,867
    )Income before income taxes
    
    
    414,351
    
    
    
    432,958
    
    
    
    399,860Income tax provision
    
    
    148,271
    
    
    
    160,866
    
    
    
    158,415Net income
    
    $
    266,080
    
    
    $
    272,092
    
    
    $
    241,445Earnings per share:Basic
    
    $
    3.37
    
    
    $
    3.35
    
    
    $
    2.90Diluted
    
    $
    3.30
    
    
    $
    3.26
    
    
    $
    2.79Weighted-average number of
common shares outstanding:Basic
    
    
    78,874
    
    
    
    81,128
    
    
    
    83,391Diluted
    
    
    80,651
    
    
    
    83,566
    
    
    
    86,552Dividends per share
    
    $
    0.52
    
    
    $
    0.43
    
    
    $
    0.36
  31




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
  AccumulatedTotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherShareholders
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Unearned
    
    
    Treasury
    
    
    Comprehensive
    
    
    ComprehensiveEquity
    
    
    Shares
    
    
    Capital
    
    
    Earnings
    
    
    Compensation
    
    
    Shares
    
    
    Income
    
    
    IncomeBalance at December 31, 2003
    
    $
    1,061,184
    
    
    $
    909
    
    
    $
    408,413
    
    
    $
    956,867
    
    
    $
    (269
    )
    
    $
    (304,919
    )
    
    $
    183Amortization of unearned
compensation
    
    
    252
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    252
    
    
    
    -
    
    
    
    -Share-based compensation
    
    
    62
    
    
    
    -
    
    
    
    62
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Issuance of common stock under
share-based compensation plans
    
    
    34,866
    
    
    
    13
    
    
    
    34,853
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Tax benefit from stock option and
restricted stock transactions
    
    
    19,625
    
    
    
    -
    
    
    
    19,625
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Purchase of treasury shares
    
    
    (86,010
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (86,010
    )
    
    
    -Cash dividends
    
    
    (30,027
    )
    
    
    -
    
    
    
    -
    
    
    
    (30,027
    )
    
    
    -
    
    
    
    -
    
    
    
    -Net income
    
    
    241,445
    
    
    
    -
    
    
    
    -
    
    
    
    241,445
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    $
    241,445Net unrealized losses on marketable
securities
    
    
    (237
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (237
    )
    
    
    (237
    )Foreign currency translation
adjustment
    
    
    257
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    257
    
    
    
    257Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    241,465Balance at December 31, 2004
    
    
    1,241,417
    
    
    
    922
    
    
    
    462,953
    
    
    
    1,168,285
    
    
    
    (17
    )
    
    
    (390,929
    )
    
    
    203Amortization of unearned
compensation
    
    
    79
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    79
    
    
    
    -
    
    
    
    -Share-based compensation
    
    
    3,794
    
    
    
    -
    
    
    
    4,256
    
    
    
    -
    
    
    
    (462
    )
    
    
    -
    
    
    
    -Issuance of common stock under
share-based compensation plans
    
    
    29,683
    
    
    
    12
    
    
    
    29,671
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Tax benefit from stock option and
restricted stock transactions
    
    
    10,952
    
    
    
    -
    
    
    
    10,952
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Purchase of treasury shares
    
    
    (258,298
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (258,298
    )
    
    
    -Cash dividends
    
    
    (35,114
    )
    
    
    -
    
    
    
    -
    
    
    
    (35,114
    )
    
    
    -
    
    
    
    -
    
    
    
    -Net income
    
    
    272,092
    
    
    
    -
    
    
    
    -
    
    
    
    272,092
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    $
    272,092Net unrealized losses on marketable
securities, net of tax
    
    
    (155
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (155
    )
    
    
    (155
    )Foreign currency translation
adjustment
    
    
    115
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    115
    
    
    
    115Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    272,052Balance at December 31, 2005
    
    
    1,264,565
    
    
    
    934
    
    
    
    507,832
    
    
    
    1,405,263
    
    
    
    (400
    )
    
    
    (649,227
    )
    
    
    163Reclass upon adoption of SFAS 123R
    
    
    -
    
    
    
    -
    
    
    
    (400
    )
    
    
    -
    
    
    
    400
    
    
    
    -
    
    
    
    -Share-based compensation
    
    
    15,754
    
    
    
    -
    
    
    
    15,754
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Issuance of common stock under
share-based compensation plans
    
    
    78,337
    
    
    
    29
    
    
    
    78,308
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Excess tax benefit from stock option
and restricted stock transactions
    
    
    30,490
    
    
    
    -
    
    
    
    30,490
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Purchase of treasury shares
    
    
    (227,669
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (227,669
    )
    
    
    -Cash dividends
    
    
    (40,723
    )
    
    
    -
    
    
    
    -
    
    
    
    (40,723
    )
    
    
    -
    
    
    
    -
    
    
    
    -Net income
    
    
    266,080
    
    
    
    -
    
    
    
    -
    
    
    
    266,080
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    $
    266,080Net unrealized gains on marketable
securities, net of tax
    
    
    392
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    392
    
    
    
    392Foreign currency translation
adjustment
    
    
    (61
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (61
    )
    
    
    (61
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    266,411Balance at December 31, 2006
    
    $
    1,387,165
    
    
    $
    963
    
    
    $
    631,984
    
    
    $
    1,630,620
    
    
    $
    -
    
    
    $
    (876,896
    )
    
    $
    494
  32




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    266,080
    
    
    $
    272,092
    
    
    $
    241,445Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    28,138
    
    
    
    21,493
    
    
    
    16,998Accretion of marketable securities
    
    
    (149
    )
    
    
    (53
    )
    
    
    392Stock-based compensation expense
    
    
    15,754
    
    
    
    3,873
    
    
    
    314Allowance for doubtful accounts
    
    
    1
    
    
    
    (326
    )
    
    
    (167
    )Deferred income taxes
    
    
    (13,726
    )
    
    
    1,059
    
    
    
    2,217Gross excess tax benefits from share-based compensation
    
    
    (17,053
    )
    
    
    -
    
    
    
    -Tax benefit from stock option and restricted stock
transactions
    
    
    -
    
    
    
    10,952
    
    
    
    19,625Minority interest
    
    
    -
    
    
    
    -
    
    
    
    446Gain on sale of investment in CDW Leasing, LLC
    
    
    -
    
    
    
    -
    
    
    
    (287
    )Changes in assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (132,194
    )
    
    
    (56,884
    )
    
    
    (135,868
    )Merchandise inventory
    
    
    (17,813
    )
    
    
    (30,342
    )
    
    
    (29,332
    )Other assets
    
    
    (21,968
    )
    
    
    (6,756
    )
    
    
    (1,699
    )Accounts payable
    
    
    46,149
    
    
    
    60,903
    
    
    
    55,899Accrued expenses
    
    
    57,498
    
    
    
    19,573
    
    
    
    11,413Long-term liabilities
    
    
    5,996
    
    
    
    8,076
    
    
    
    2,810Net cash provided by operating activities
    
    
    216,713
    
    
    
    303,660
    
    
    
    184,206Cash flows from investing activities:Purchases of available-for-sale securities
    
    
    (327,323
    )
    
    
    (392,058
    )
    
    
    (528,820
    )Redemptions and sales of available-for-sale securities
    
    
    442,425
    
    
    
    382,099
    
    
    
    453,307Purchases of held-to-maturity securities
    
    
    (80,000
    )
    
    
    (30,000
    )
    
    
    (110,000
    )Redemptions of held-to-maturity securities
    
    
    131,600
    
    
    
    85,000
    
    
    
    70,000Purchase of property and equipment
    
    
    (85,567
    )
    
    
    (49,062
    )
    
    
    (22,113
    )Acquisition of businesses, net of cash acquired
    
    
    (180,742
    )
    
    
    -
    
    
    
    -Sale of investment in CDW Leasing, LLC, net of cash sold
    
    
    -
    
    
    
    -
    
    
    
    (2,321
    )Net cash used in investing activities
    
    
    (99,607
    )
    
    
    (4,021
    )
    
    
    (139,947
    )Cash flows from financing activities:Purchase of treasury shares
    
    
    (227,669
    )
    
    
    (258,298
    )
    
    
    (86,010
    )Proceeds from issuance of common stock under share-
based compensation plans
    
    
    78,337
    
    
    
    29,683
    
    
    
    34,866Dividends paid
    
    
    (40,723
    )
    
    
    (35,114
    )
    
    
    (30,027
    )Gross excess tax benefits from share-based compensation
    
    
    17,053Change in book overdrafts
    
    
    2,788
    
    
    
    16,421
    
    
    
    (36,966
    )Net cash used in financing activities
    
    
    (170,214
    )
    
    
    (247,308
    )
    
    
    (118,137
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (61
    )
    
    
    115
    
    
    
    257Net (decrease)/increase in cash
    
    
    (53,169
    )
    
    
    52,446
    
    
    
    (73,621
    )Cash and
cash equivalents  beginning of period
    
    
    201,250
    
    
    
    148,804
    
    
    
    222,425Cash and
cash equivalents  end of period
    
    $
    148,081
    
    
    $
    201,250
    
    
    $
    148,804Supplementary disclosure of cash flow information:Taxes paid
    
    $
    137,422
    
    
    $
    155,871
    
    
    $
    134,769
  33




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##### Table of Contents



CDW CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    Summary of Significant Accounting PoliciesCDW Corporation (collectively with its subsidiaries, CDW or the Company) is a leading
provider of multi-branded information technology products and services in the United States and
Canada. We focus on meeting the technology needs of our customers in business, government, and
education through our extensive offering of products from leading brands and a variety of
value-added services.Presented here is a summary of the most significant accounting policies used in the preparation
of our consolidated financial statements. Our most significant accounting policies relate to
the sale, purchase, distribution and promotion of our products. Therefore, our accounting
policies in the areas of revenue recognition, inventory valuation, vendor purchase and
merchandising arrangements and marketing activities, among others, are discussed.Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of CDW Corporation and
our wholly-owned subsidiaries. All intercompany transactions and accounts are eliminated in
consolidation. As described in Note 14, one of our wholly-owned subsidiaries, CDW Capital
Corporation (CDWCC), owned a 50 percent interest in CDW Leasing, LLC (CDW-L) until CDWCC
sold its interest in CDW-L effective August 1, 2004. In accordance with Financial Accounting
Standards Board (FASB) Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Entities, an interpretation of ARB 51, we consolidated CDW-L, beginning on
December 31, 2003, until our interest was sold.Use of EstimatesThe preparation of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make use of certain estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reported periods. We base our estimates on
historical experience and on various other assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about carrying values
of assets and liabilities that are not readily apparent from other sources. Significant
estimates in these financial statements include allowances for doubtful accounts receivable,
sales returns and pricing disputes, net realizable value of inventories, vendor transactions,
loss contingencies and intangible assets. Actual results could differ from those estimates.Allowance for doubtful accounts receivable.We provide allowances for doubtful accounts
related to accounts receivable for estimated losses resulting from the inability of our
customers to make required payments. We take into consideration the overall quality and aging
of the receivable portfolio along with specifically identified customer risks. If actual
customer payment performance were to deteriorate to an extent not expected, additional
allowances may be required.Sales returns and pricing disputes.At the time of sale, we record an estimate for sales
returns and pricing disputes based on historical experience. If actual sales returns and
pricing disputes are greater than estimated by management, additional expense may be incurred.
 34




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##### Table of Contents



Inventory valuation.Inventory is valued at the lower of cost or market value. We decrease
the value of inventory for estimated obsolescence equal to the difference between the cost of
inventory and the estimated market value, based upon an aging analysis of the inventory on
hand, specifically known inventory-related risks, and assumptions about future demand and
market conditions. If future demand or actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required.Vendor transactions.We receive incentives from vendors related to cooperative advertising
allowances, volume rebates, bid programs, price protection and other programs. These
incentives generally relate to written agreements with specified performance requirements with
the vendors and are recorded as adjustments to cost of sales or advertising expense, as
appropriate. Vendors may change the terms of some or all of these programs which could have an
impact on our results of operations.Loss contingencies.We accrue for contingent obligations when a loss is probable and the
amount can be reasonably estimated. As facts concerning contingencies become known, we
reassess our position and make appropriate adjustments to the financial statements.Intangible assets.We have recorded intangible assets, such as goodwill and customer
relationships, and account for these in accordance with Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 requires an
annual test of goodwill and indefinite-lived assets for impairment, unless circumstances
dictate more frequent assessments. SFAS 142 also requires that intangible assets with
determinable lives be amortized over their respective estimated useful lives and reviewed
annually for impairment in accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). If circumstances
change or a triggering event were to occur that would indicate impairment, we would be required
to review our intangible assets for impairment and write-downs may be required.ReclassificationsCertain reclassifications have been made to the prior year financial statements to conform to
the current year presentation.Cash and Cash EquivalentsCash and cash equivalents include all deposits in banks and short-term, highly liquid
investments that are readily convertible to known amounts of cash and are so near maturity that
there is insignificant risk of changes in value due to interest rate changes.Marketable SecuritiesWe classify securities with a stated maturity, which we intend to hold to maturity, as
held-to-maturity, and record such securities at amortized cost. Securities which do not have
stated maturities or which we do not intend to hold to maturity are classified as
available-for-sale and recorded at fair value, with unrealized holding gains or losses
recorded as a separate component of Shareholders Equity. We do not invest in trading
securities. All securities are accounted for on a specific identification basis.Our marketable securities are concentrated in securities of the U.S. Government, U.S.
Government agencies and municipal bonds. Such investments are supported by the financial
stability and credit standing of the U.S. Government or applicable U.S. Government agency or
municipality.
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Accounts ReceivableTrade accounts receivable are recorded at the invoiced amount and do not bear interest. As
previously discussed in this footnote, the allowance for doubtful accounts is our best estimate
of losses resulting from the inability of our customers to make required payments.Merchandise InventoryInventory is valued at the lower of cost or market. Cost is determined on the first-in,
first-out method.Property and EquipmentProperty and equipment are stated at cost. We calculate depreciation using the straight-line
method over the useful lives of the assets. Leasehold improvements are amortized over the
shorter of their useful lives or the initial lease term. Expenditures for major renewals and
improvements that extend the useful life of property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred. The following
table shows estimated useful lives of property and equipment:
 Classification
    
    Estimated Useful LivesMachinery and equipment
    
    5 to 15 yearsBuilding and leasehold improvements
    
    5 to 25 yearsComputer and data processing equipment
    
    3 to 5 yearsComputer software
    
    3 to 5 yearsFurniture and fixtures
    
    5 to 10 years
 Goodwill and Other Intangible AssetsWe account for goodwill and other intangible assets in accordance with SFAS 142. Under SFAS
142, goodwill and indefinite-lived intangible assets are not amortized but are tested for
impairment on an annual basis or if impairment indicators exist. Intangible assets with
definite lives are amortized on a straight-line basis over their estimated useful lives, which
range from 2-14 years.Revenue RecognitionWe record revenue 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 revenue relates to physical products and are
recognized on a gross basis with the selling price to the customer recorded as net sales and
the acquisition cost of the product recorded as cost of sales. At the time of sale, we also
record an estimate for sales returns based on historical experience. Software assurance
products, third party services and extended warranties that we sell (for which we are not the
primary obligor) are recognized on a net basis in accordance with SEC Staff Accounting Bulletin
No. 104, Revenue Recognition and Emerging Issues Task Force 99-19, Reporting Revenue Gross
as a Principal versus Net as an Agent. Accordingly, such revenue is recognized in net sales
either at the time of sale or over the contract period, based on the nature of the contract, at
the net amount retained by us, with no cost of sales. Revenue from information technology
consulting or professional services is either recognized as incurred for services billed at an
hourly rate or recognized using the percentage of completion method for services provided at a
fixed fee. Revenue for data center services, including Internet connectivity, Web hosting,
server co-location, and managed services, is recognized over the period service is provided.
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.
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Vendor rebates are recorded when earned as a reduction of cost of sales. Price protection is
recorded when earned as a reduction to cost of sales or merchandise inventory, as applicable.AdvertisingAdvertising expense was $118.3 million, $114.5 million and $90.8 million in 2006, 2005 and
2004, respectively. Advertising costs are generally charged to expense in the period incurred.
Cooperative reimbursements from vendors are recorded in the period the related advertising
expenditure is incurred. We classify vendor consideration as either a reduction of advertising
expense or as a reduction of cost of sales in accordance with Emerging Issues Task Force Issue
No. 02-16, Accounting for Consideration Received from a Vendor by a Customer (Including a
Reseller of the Vendors Products). Most vendor consideration received by CDW for cooperative
advertising is considered a reduction of cost of sales. Advertising expense is offset by
cooperative advertising funds when the reimbursement represents specific, incremental and
identifiable costs.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.Share-Based CompensationOn January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123R,
Share-Based Payment (SFAS 123R). SFAS 123R requires the Company to measure all share-based
payments to coworkers and directors using a fair-value-based method and record compensation
expense related to these payments in our consolidated financial statements. We have elected to
use the modified prospective method, which allows for prospective recognition of compensation
expense without restatement of prior periods in the year of adoption.See Note 11 for further information on the adoption of SFAS 123R and the related disclosures,
including pro forma information for prior periods as if we had recorded share-based
compensation expense.Fair Value of Financial InstrumentsWe estimate that the fair market value of all of our financial instruments at December 31, 2006
and 2005 are not materially different from the aggregate carrying value due to the short-term
nature of these instruments or the nature of the underlying securities.Treasury SharesWe intend to hold repurchased shares in treasury for general corporate purposes, including
issuances under various stock plans. We account for 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.
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2.
    
    Recently Issued Accounting StandardsFASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an Interpretation
of FASB Statement 109 (FIN 48)In June 2006, the Financial Accounting Standards Board (FASB) issued FIN 48. FIN 48
prescribes a two-step process for the financial statement measurement and recognition of a tax
position taken or expected to be taken in an income tax return. The first step involves the
determination of whether it is more likely than not that a tax position will be sustained upon
examination, based on the technical merits of the position. The second step requires that any
tax position that meets the more-likely-than-not recognition threshold be measured and
recognized in the financial statements at the largest amount of benefit that is greater than 50
percent likely of being realized upon ultimate settlement. FIN 48 also provides guidance on
the accounting for related interest and penalties, financial statement classification, and
disclosure. FIN 48 is effective for fiscal years beginning after December 15, 2006. We do not
expect the adoption of FIN 48 to have a material impact on our financial statements.Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS
157)In September 2006, the FASB issued SFAS 157. SFAS 157 defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value measurements.
SFAS 157 applies where other accounting pronouncements require or permit fair value
measurements; it does not require any new fair value measurements. The effects of adopting
SFAS 157 will be determined by the types of instruments carried at fair value in our financial
statements at the time of adoption as well as the method utilized to determine their fair
values prior to adoption. SFAS 157 is effective for fiscal years beginning after November 15,
2007. We are currently evaluating the impact SFAS 157 will have on our financial statements.3.
    
    Acquisition of Berbee Information Networks CorporationOn October 11, 2006, we completed the acquisition of Berbee Information Networks Corporation
(Berbee) for a total purchase price of $186.1 million, including an adjustment for working
capital. Through the purchase of Berbee, our business strategy has evolved to include providing
information technology solutions and engineering capabilities in advanced technologies.Berbee provides information technology solutions and engineering capabilities in advanced
technologies primarily across the Cisco, IBM, and Microsoft platforms. Areas of expertise
include strategic technology planning, network infrastructure and unified communications,
systems and storage, security, productivity applications and managed services. Berbees
customer base includes corporate, healthcare, education, and state and local government
customers. Berbee operates as a separate strategic business unit of CDW with its current
product and service offerings.The acquisition was accounted for as the purchase of a business and, accordingly, the results
of operations of the acquired business subsequent to the completion of the purchase are
included in the accompanying consolidated financial statements, and the acquired assets and
liabilities were recorded based upon their fair values at the date of acquisition. The excess
of the purchase price over the net assets acquired is recorded as goodwill. The following
table summarizes the purchase price and the fair values of the assets acquired and liabilities
assumed at the date of acquisition (in thousands):
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Cash consideration ($180,340 paid at closing; $4,741 paid in
January 2007)
    
    $
    185,081Direct acquisition costs
    
    
    993Total purchase price
    
    $
    186,074Current assets (including $3,400 of cash)
    
    $
    94,193Property and equipment
    
    
    14,023Intangible assets
    
    
    60,000Goodwill
    
    
    117,547Total assets acquired
    
    
    285,763Current liabilities
    
    
    73,371Long-term liabilities
    
    
    26,318Total liabilities assumed
    
    
    99,689Net assets acquired
    
    $
    186,074
 The following table presents details of purchased intangible assets (dollars in thousands):
 Weighted-Amount
    
    
    Average LifeCustomer relationships
    
    $
    49,000
    
    
    12.3 yearsPackaged technology
    
    
    5,000
    
    
    6.0 yearsLicense agreement
    
    
    3,000
    
    
    12.0 yearsTrade name
    
    
    3,000
    
    
    2.0 years$
    60,000
    
    
    11.3 years
 The $117.5 million of goodwill was assigned to the Berbee operating segment. None of this
goodwill is expected to be deductible for tax purposes.Pro Forma ResultsThe results of the Company include the results of Berbee from the date of acquisition. The
following unaudited pro forma financial results present the combined results of operations of
the Company and Berbee for the years ended December 31, 2006 and 2005 as if the acquisition had
occurred at January 1, 2005 (in thousands, except per share amounts).
 2006
    
    
    2005Net sales
    
    $
    7,118,427
    
    
    $
    6,600,251Net income
    
    
    271,605
    
    
    
    275,102Earnings per share:Basic
    
    
    3.44
    
    
    
    3.39Diluted
    
    
    3.37
    
    
    
    3.29
 The unaudited pro forma financial results are not intended to represent or be indicative of the
Companys consolidated results of operations that would have been reported had the acquisition
been completed as of the beginning of the periods presented and should not be taken as
indicative of the Companys future consolidated results of operations.
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4.
    
    Marketable SecuritiesEstimated fair values of marketable securities are based on quoted market prices.The following table summarizes our investments in marketable securities at December 31, 2006
and 2005 (in thousands):
 GrossUnrealizedEstimated
    
    
    Holding
    
    
    AmortizedSecurity Type
    
    Fair Value
    
    
    Gains
    
    
    Losses
    
    
    CostDecember 31, 2006Available-for-sale:State and municipal bonds
    
    $
    132,175
    
    
    $
    -
    
    
    $
    -
    
    
    $
    132,175Total available-for-sale
    
    
    132,175
    
    
    
    -
    
    
    
    -
    
    
    
    132,175Held-to-maturity:U.S. Government and Government
agency securities
    
    
    111,072
    
    
    
    -
    
    
    
    (268
    )
    
    
    111,340Total held-to-maturity
    
    
    111,072
    
    
    
    -
    
    
    
    (268
    )
    
    
    111,340Total marketable securities
    
    $
    243,247
    
    
    $
    -
    
    
    $
    (268
    )
    
    $
    243,515December 31, 2005Available-for-sale:State and municipal bonds
    
    $
    232,804
    
    
    $
    -
    
    
    $
    (111
    )
    
    $
    232,915Corporate fixed income securities
    
    
    3,900
    
    
    
    -
    
    
    
    (14
    )
    
    
    3,914U.S Government and Government
agency securities
    
    
    72,972
    
    
    
    -
    
    
    
    (508
    )
    
    
    73,480Total available-for-sale
    
    
    309,676
    
    
    
    -
    
    
    
    (633
    )
    
    
    310,309Held-to-maturity:U.S Government and Government
agency securities
    
    
    99,291
    
    
    
    -
    
    
    
    (709
    )
    
    
    100,000Total held-to-maturity
    
    
    99,291
    
    
    
    -
    
    
    
    (709
    )
    
    
    100,000Total marketable securities
    
    $
    408,967
    
    
    $
    -
    
    
    $
    (1,342
    )
    
    $
    410,309
 The following table presents the gross unrealized losses and fair values of our
investments in marketable securities, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position as of December 31,
2006 and 2005 (in thousands):
 Less Than 12 Months
    
    
    12 Months or Greater
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedSecurity Type
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesDecember 31, 2006U.S Government and
Government
agency securities
    
    $
    69,878
    
    
    $
    (122
    )
    
    $
    39,194
    
    
    $
    (146
    )
    
    $
    109,072
    
    
    $
    (268
    )Total
    
    $
    69,878
    
    
    $
    (122
    )
    
    $
    39,194
    
    
    $
    (146
    )
    
    $
    109,072
    
    
    $
    (268
    )December 31, 2005State and municipal bonds
    
    $
    9,931
    
    
    $
    (69
    )
    
    $
    14,958
    
    
    $
    (42
    )
    
    $
    24,889
    
    
    $
    (111
    )Corporate fixed income
securities
    
    
    -
    
    
    
    -
    
    
    
    3,900
    
    
    
    (14
    )
    
    
    3,900
    
    
    
    (14
    )U.S Government and
Government
agency securities
    
    
    76,225
    
    
    
    (555
    )
    
    
    96,038
    
    
    
    (662
    )
    
    
    172,263
    
    
    
    (1,217
    )Total
    
    $
    86,156
    
    
    $
    (624
    )
    
    $
    114,896
    
    
    $
    (718
    )
    
    $
    201,052
    
    
    $
    (1,342
    )
 Because the Company believes that unrealized losses on fixed income securities are
primarily attributable to changes in interest rates, and because the Company has the ability
and intent to hold
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these investments until a recovery of fair value, which may be maturity, the
Company does not consider those investments to be other-than-temporarily impaired as of
December 31, 2006.
 Net unrealized holding losses on available-for-sale securities are determined by specific
identification and are included in accumulated other comprehensive income, which is reflected
as a separate component of shareholders equity. The gross realized losses on marketable
securities that are included in other expense in the Consolidated Statements of Income are not
material.The following table summarizes the maturities of our fixed income securities as of December 31,
2006 and 2005 (in thousands):
 Estimated
    
    
    AmortizedFair Value
    
    
    CostDecember 31, 2006Due in one year or less
    
    $
    203,331
    
    
    $
    203,515Due in greater than one year
    
    
    39,916
    
    
    
    40,000Total investments in marketable securities
    
    $
    243,247
    
    
    $
    243,515December 31, 2005Due in one year or less
    
    $
    370,003
    
    
    $
    370,990Due in greater than one year
    
    
    38,964
    
    
    
    39,319Total investments in marketable securities
    
    $
    408,967
    
    
    $
    410,309
 As of December 31, 2006, all of the marketable securities that are due after one year have
maturity dates prior to December 31, 2008.5.
    
    Property and EquipmentProperty and equipment consists of the following (in thousands):
 December 31,2006
    
    
    2005Land
    
    $
    16,189
    
    
    $
    10,367Machinery and equipment
    
    
    69,482
    
    
    
    40,829Building and leasehold improvements
    
    
    87,572
    
    
    
    34,970Computer and data processing equipment
    
    
    35,361
    
    
    
    35,972Computer software
    
    
    33,748
    
    
    
    29,651Furniture and fixtures
    
    
    14,611
    
    
    
    9,843Construction in progress
    
    
    5,794
    
    
    
    28,102Total property and equipment
    
    
    262,757
    
    
    
    189,734Less accumulated depreciation
    
    
    91,309
    
    
    
    92,457Net property and equipment
    
    $
    171,448
    
    
    $
    97,277
 During 2006 and 2005, we recorded adjustments of $25.9 million and $12.8 million, respectively,
to remove fully depreciated assets that were no longer in use from property and equipment and
accumulated depreciation.Depreciation expense for the years ended December 31, 2006, 2005, and 2004 was $25.4 million,
$20.4 million, and $15.8 million, respectively.
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6.
    
    Goodwill and Intangible AssetsThe following table presents the changes in the carrying amount of goodwill by segment during
the year ended December 31, 2006 (in thousands):
 PublicSector
    
    
    Berbee
    
    
    TotalBalance as of January 1, 2006
    
    $
    -
    
    
    $
    -
    
    
    $
    -Acquisition of businesses
    
    
    1,944
    
    
    
    117,547
    
    
    
    119,491Balance as of December 31, 2006
    
    $
    1,944
    
    
    $
    117,547
    
    
    $
    119,491
 The goodwill assigned to the Berbee segment resulted from the acquisition of Berbee in October
2006, as described in Note 3. The goodwill assigned to the public sector segment resulted from
the acquisition of Technology Resource Center, Inc., an education
software reseller, in July
2006, for a total purchase price of $3.2 million.The following table presents a summary of intangible assets at December 31, 2006 and 2005 (in
thousands):
 GrossCarrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetDecember 31, 2006Customer relationships
    
    $
    56,760
    
    
    $
    3,984
    
    
    $
    52,776Packaged technology
    
    
    5,000
    
    
    
    184
    
    
    
    4,816License agreement
    
    
    3,000
    
    
    
    55
    
    
    
    2,945Trade name
    
    
    3,000
    
    
    
    331
    
    
    
    2,669Other
    
    
    1,175
    
    
    
    778
    
    
    
    397Total
    
    $
    68,935
    
    
    $
    5,332
    
    
    $
    63,603December 31, 2005Customer relationships
    
    $
    6,205
    
    
    $
    2,097
    
    
    $
    4,108Other
    
    
    1,175
    
    
    
    516
    
    
    
    659Total
    
    $
    7,380
    
    
    $
    2,613
    
    
    $
    4,767
 Amortization expense related to intangible assets for the years ended December 31, 2006, 2005,
and 2004 was $2.7 million, $1.1 million, and $1.2 million, respectively.Estimated amortization expense related to intangible assets for the next five years is as
follows (in thousands):
 Years Ended December 31,
    
    Amount2007
    
    $
    8,0412008
    
    
    7,6342009
    
    
    6,3052010
    
    
    6,0892011
    
    
    5,440Total
    
    $
    33,509
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7.
    
    Financing ArrangementsWe have an aggregate $70.0 million available pursuant to two $35.0 million unsecured lines of
credit with two financial institutions. One line of credit was renewed in June 2006 and expires
in June 2007. The other line does not have a fixed expiration date. Borrowings under the first
credit facility bear interest at the prime rate less 2.5%, LIBOR plus 0.45% or the federal
funds rate plus 0.5%, as determined by the Company. Borrowings under the second credit
facility bear interest at the prime rate less 2.5%, LIBOR plus 0.45% or the federal funds rate
plus 0.45%, as determined by the Company. The Company does not incur any facility fees
associated with either line of credit. At December 31, 2006, there were no borrowings under
either of the credit facilities.8.
    
    Trade Financing AgreementsWe have entered into security agreements with certain financial institutions in order to
facilitate the purchase of inventory from various suppliers under certain terms and
conditions. The agreements allow for a maximum credit line of $150 million collateralized by
the inventory purchases financed by the financial institutions and
certain other assets. We do not incur any interest
expenses associated with these agreements, as we pay the balances when they are due. At
December 31, 2006 and 2005, we owed the financial institutions approximately $108.1 million
and $43.8 million, respectively, which is included in trade accounts payable.9.
    
    Lease CommitmentsWe are obligated under various operating lease agreements for 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,
2006, 2005 and 2004, rent expense was $14.9 million, $11.4 million and $13.8 million,
respectively.In connection with the acquisition of Berbee, we assumed certain capital lease obligations for
office equipment. At the date of acquisition, the equipment subject to capital leases was
recorded in property and equipment at fair value, which was $0.9 million. From the date of
acquisition through December 31, 2006, we recorded $0.1 million of depreciation expense related
to this equipment.Future minimum lease payments are as follows (in thousands):
 Capital
    
    
    OperatingYears Ended December 31,
    
    Leases
    
    
    Leases2007
    
    $
    562
    
    
    $
    11,8882008
    
    
    211
    
    
    
    12,4282009
    
    
    57
    
    
    
    12,7442010
    
    
    -
    
    
    
    12,2922011
    
    
    -
    
    
    
    7,787Thereafter
    
    
    -
    
    
    
    46,048Total future minimum lease payments
    
    
    830
    
    
    $
    103,187Amounts representing interest
    
    
    (68
    )Present value of future minimum lease payments
    
    
    762Current portion of capital lease obligation
    
    
    (507
    )Long-term capital lease obligation
    
    $
    255
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10.
    
    Income TaxesPretax income from continuing operations for the years ended December
31, 2006, 2005 and 2004 was taxed under the following jurisdictions
(in thousands):
 2006
    
    
    2005
    
    
    2004Domestic
    
    $
    413,082
    
    
    $
    432,923
    
    
    $
    400,585Foreign
    
    
    1,269
    
    
    
    35
    
    
    
    (725
    )Total
    
    $
    414,351
    
    
    $
    432,958
    
    
    $
    399,860
 Components of the provision (benefit) for income taxes for the years ended December 31, 2006,
2005 and 2004 consist of (in thousands):
 2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    140,054
    
    
    $
    143,805
    
    
    $
    128,527State
    
    
    21,760
    
    
    
    15,762
    
    
    
    27,671Foreign
    
    
    417
    
    
    
    -
    
    
    
    -Total current
    
    
    162,231
    
    
    
    159,567
    
    
    
    156,198Deferred:Domestic
    
    
    (13,904
    )
    
    
    1,299
    
    
    
    2,217Foreign
    
    
    (56
    )
    
    
    -
    
    
    
    -Total deferred
    
    
    (13,960
    )
    
    
    1,299
    
    
    
    2,217Provision for income taxes
    
    $
    148,271
    
    
    $
    160,866
    
    
    $
    158,415
 The current income tax liabilities for 2006, 2005 and 2004 were reduced by $30.5 million, $11.0
million and $19.6 million, respectively, for tax benefits recorded directly to paid-in capital
relating to the exercise and vesting of shares pursuant to the CDW stock incentive plans as
described in Note 11.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, 2006, 2005 and
2004 is as follows (dollars in thousands):
 2006
    
    
    2005
    
    
    2004Statutory federal
income tax rate
    
    $
    145,023
    
    
    
    35.0
    %
    
    $
    151,535
    
    
    
    35.0
    %
    
    $
    139,951
    
    
    
    35.0
    %State taxes, net of
federal benefit
    
    
    12,605
    *
    
    
    3.0
    
    
    
    9,066
    
    
    
    2.1
    
    
    
    18,268
    
    
    
    4.6Release of reserves for
prior year federal
taxes
    
    
    (6,840
    )
    
    
    (1.6
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Other
    
    
    (2,914
    )
    
    
    (0.7
    )
    
    
    277
    
    
    
    0.1
    
    
    
    (94
    )
    
    
    0.0Change in valuation
allowance
    
    
    397
    
    
    
    0.1
    
    
    
    (12
    )
    
    
    0.0
    
    
    
    290
    
    
    
    0.0Effective tax rates
    
    $
    148,271
    
    
    
    35.8
    %
    
    $
    160,866
    
    
    
    37.2
    %
    
    $
    158,415
    
    
    
    39.6
    %
 *
    Includes a benefit of $1,044 attributable to the release of reserves for state income taxes
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The tax effect of temporary differences that give rise to the net deferred income tax asset at
December 31, 2006 and 2005 is presented below (in thousands):
 2006
    
    
    2005Assets:Payroll and benefits
    
    $
    7,606
    
    
    $
    5,523Employee stock plans
    
    
    6,419
    
    
    
    2,484Accounts receivable
    
    
    4,948
    
    
    
    4,769Other
    
    
    3,993
    
    
    
    5,069Loss carryforwards
    
    
    688
    
    
    
    291Gross deferred assets
    
    
    23,654
    
    
    
    18,136Liabilities:Software and intangibles
    
    
    11,530
    
    
    
    -Property and equipment
    
    
    7,138
    
    
    
    4,505Other
    
    
    -
    
    
    
    129Gross deferred liabilities
    
    
    18,668
    
    
    
    4,634Deferred tax asset valuation allowance
    
    
    688
    
    
    
    291Net deferred tax asset
    
    $
    4,298
    
    
    $
    13,211
 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 incentive plans. Compensation
expense related to these plans is deductible for income tax purposes in the year the options
are exercised.The net operating loss in Canada of $0.8 million was utilized in 2006. The state net operating
loss of $8.4 million, acquired with Berbee, may be carried forward to 2007  2022. The capital
loss of $0.9 million, acquired with Berbee, may be carried forward to 2010.The Company has not recognized deferred income taxes on undistributed earnings of its
international subsidiary. The earnings are considered to be reinvested permanently.11.
    
    Share-Based CompensationShare-Based Compensation Plan DescriptionsWe have established certain share-based compensation plans for the benefit of our coworkers and
directors. The Companys share-based compensation plans are intended to 1) align the interest
of the Companys shareholders and the recipients of awards under the plans, 2) attract,
motivate, and retain coworkers and directors, and 3) motivate such persons to act in the
long-term best interests of the Company and its shareholders.At the 2006 Annual Meeting of Shareholders, the CDW 2006 Stock Incentive Plan (2006 Plan) was
approved. The 2006 Plan allows our Compensation and Stock Option Committee to grant stock
options, restricted stock, restricted stock units and other equity-based awards to coworkers,
including executive officers, and consultants. The 2006 Plan replaces the CDW 2000 Incentive
Stock Option Plan (2000 Plan) and the equity award provisions of the CDW Senior Management
Incentive Plan (SMIP Plan). With the approval of the 2006 Plan, no additional awards are
allowed under the 2000 Plan or the SMIP Plan. Awards previously granted under these and prior
plans remain outstanding in accordance with the terms of the plans under which they were
granted. Upon adoption, there were 4,660,000 shares of common stock available for grants under
the 2006 Plan. Shares not issued due to the expiration, termination, cancellation or
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##### Table of Contents



forfeiture of either 1) outstanding options granted under the 2000 Plan or 2) equity-based
awards that have been or will be granted under the 2006 Plan shall be available for future
grants under the 2006 Plan.
 Grants to non-employee directors are made pursuant to the terms of the 2004 Non-Employee
Director Equity Compensation Plan (2004 Plan). The 2004 Plan provides for the grant of stock
options and restricted stock to non-employee directors on the terms set forth in the 2004 Plan.As of December 31, 2006, there were 4,250,159 shares of common stock available for future
grants under these plans.Stock OptionsStock options awarded under the 2004 Plan and the 2006 Plan have an exercise price equal to the
fair market value of a share of common stock on the date of grant. Option awards under these
plans vest ratably over five years and have a ten year contractual life. There are outstanding
options that were awarded under prior plans that have vesting periods of seven to ten years and
contractual lives of 20 years.Restricted StockUnder the terms of the 2004 Plan, newly elected or appointed directors receive a restricted
stock grant of 1,000 shares upon the commencement of service on the Board of Directors.
Restricted stock issued under the 2004 Plan vests in full after five years of continuous
service.Restricted stock awards granted under the 2006 Plan vest ratably over five years.Recipients of restricted stock awards granted under these plans possess the rights of
shareholders, including voting rights and the right to receive dividends.Restricted Stock UnitsThe restricted stock unit awards that have been granted under the 2006 Plan obligate the
Company to issue a specific number of shares of the Companys common stock upon the vesting of
the award. Restricted stock units vest ratably over five years from the date of grant.Employee Stock Purchase PlanWe have 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. Effective January 1, 2006, we changed the provisions of the ESPP
so that it is non-compensatory under the provisions of SFAS 123R. The coworkers purchase
price is 95% of the fair market value of the stock on the last business day of the quarterly
offering period. Coworkers may purchase shares having a fair market value of up to $25,000 per
year but not to exceed 325 shares per quarter. No compensation expense is recorded in
connection with the ESPP and the tables in this note exclude the impact of the ESPP unless
otherwise noted. At the 2006 Annual Meeting of Shareholders, the Companys shareholders
approved an amendment to the ESPP pursuant to which 500,000 additional shares were added to the
ESPP, increasing the number of shares available under the plan to 1,000,000. As of December
31, 2006, we had issued 393,992 shares over the life of the ESPP and the number of shares
available for future issuance under the ESPP was 606,008.
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Valuation and Expense Information under SFAS 123RUnder SFAS 123R, the value of share-based compensation awards must be attributed to the various
periods during which the recipient must perform services in order to vest in the award. Upon
adoption of SFAS 123R, the Company changed its method of attributing the value of share-based
compensation expense from the accelerated approach specified in FASB Interpretation No. 28,
Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans to
the straight-line method. Compensation expense for awards made prior to January 1, 2006 will
continue to be subject to the accelerated expense attribution method while compensation expense
for share-based awards made on or after January 1, 2006 will be recognized using a
straight-line method.The fair value of each stock option grant made after April 1, 2005 was estimated on the grant
date using a lattice-binomial model. The fair value of each stock option grant made prior to
April 2, 2005 was estimated on the grant date using the Black-Scholes model. The
weighted-average estimated grant date fair values and the assumptions used to value option
grants and compensatory stock purchase rights under the ESPP for the years ended December 31,
2004, 2005, and 2006 are as follows:
 2006

    
    2005

    
    2004Weighted-average grant
date fair values of
option awards
    
    $
    24.88
    
    
    $
    18.08
    
    
    $
    33.44Risk-free interest rate
    
    
    4.9
    %
    
    
    4.0
    %
    
    
    3.2
    %Dividend yield
    
    
    0.9
    %
    
    
    0.7
    %
    
    
    0.6
    %Expected life (years)
    
    
    6.7
    
    
    
    4.5
    
    
    
    5.0Stock price volatility
    
    
    37.07
    %
    
    
    39.62
    %
    
    
    58.80
    %
 The Company estimated the expected future volatility used in the lattice-binomial model
valuation based on a combination of historic and implied volatility of the Companys common
stock. The Company believes that this blended approach provides a better estimate of the
expected future volatility of the Companys common stock over the expected life of its stock
options. The lattice-binomial model takes into consideration early exercise behavior or
patterns based on stock price appreciation. The Company estimated early exercise behavior
patterns based on an analysis of historical exercise behavior. The risk-free interest rate
assumption was based upon observed interest rates appropriate for the term of the Companys
stock options. The expected life of the options granted is derived from the output of the
lattice-binomial option valuation model and represents the weighted-average period of time that
options granted are expected to be outstanding. The dividend yield is based on the Companys
history and expectation of dividend payouts.
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The following table sets forth the summary of stock option activity for the year ended December
31, 2006:
 Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicExercise
    
    
    Contractual
    
    
    ValueOptions
    
    Shares
    
    
    Price
    
    
    Term
    
    
    ($000) (1)Outstanding at January 1, 2006
    
    
    10,199,500
    
    
    $
    38.26Granted
    
    
    693,337
    
    
    $
    55.58Exercised
    
    
    (2,653,554
    )
    
    
    28.00Forfeited or expired
    
    
    (162,200
    )
    
    
    57.62Outstanding at December 31, 2006
    
    
    8,077,083
    
    
    $
    42.73
    
    
    
    8.07
    
    
    $
    222,856Vested at December 31, 2006
    
    
    5,392,718
    
    
    $
    40.35
    
    
    
    7.41
    
    
    $
    161,604Exercisable at December 31, 2006
    
    
    5,373,167
    
    
    $
    40.40
    
    
    
    7.40
    
    
    $
    160,771Expected to vest at December
31, 2006
    
    
    2,638,978
    
    
    $
    47.51
    
    
    
    9.40
    
    
    $
    60,206
 
 (1)
    
    These amounts are based on the difference between $70.32, the closing price of the
Companys common stock on December 31, 2006, and the exercise price. A summary of the status of our nonvested restricted stock and restricted stock units
(collectively, Restricted Stock) as of January 1, 2006, and changes through the year ended
December 31, 2006, is presented below:
 Weighted-AverageGrant-DateRestricted Stock
    
    Shares
    
    
    Fair ValueNonvested at January 1, 2006
    
    
    10,400
    
    
    $
    55.93Granted
    
    
    141,054
    
    
    $
    55.41Vested
    
    
    (2,800
    )
    
    
    55.05Forfeited
    
    
    (4,006
    )
    
    
    55.40Nonvested at December 31, 2006
    
    
    144,648
    
    
    $
    55.46
 Our net income for the year ended December 31, 2006 includes $15.8 million of compensation
expense and $6.0 million of income tax benefits related to our share-based compensation
arrangements. No portion of share-based compensation was capitalized.For the year ended December 31, 2006:
 
    
    Cash proceeds related to stock option exercises were $74.3 million.
    
    The intrinsic value of stock options exercised was $85.5 million.
    
    The fair value of Restricted Stock that vested was $0.2 million.
    
    The tax benefit realized from the exercise of stock options and the vesting of
Restricted Stock was $30.5 million.
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As of December 31, 2006, there was $32.2 million of total unrecognized compensation cost
related to nonvested share-based compensation awards granted under our plans. That cost is
expected to be recognized over a weighted-average period of 3.81 years.The Company has historically settled stock option exercises with newly issued common shares.In April 2006, our Board of Directors authorized a new share repurchase program of up to
5,000,000 shares. This repurchase program is expected to remain in effect through April 2008
unless earlier terminated by the Board or completed.Impact of Fair Value Recognition under SFAS 123 for the Years Ended December 31, 2004 and 2005In periods prior to our adoption of SFAS 123R, net income and earnings per share amounts
reported in our consolidated statements of income did not include share-based compensation
expense for stock options and stock purchases under the ESPP because the Company opted to
continue using the recognition provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) while providing required pro forma
disclosures under Statement of Financial Accounting Standards 123, Accounting for Stock-Based
Compensation (SFAS 123). The following table reflects the effect on net income and earnings
per share assuming the Company had elected to apply the fair value recognition provisions of
SFAS 123 (in thousands, except per share amounts). The results for the years ended December
31, 2004 and 2005, have not been restated.
 2005
    
    
    2004Net income, as reported
    
    $
    272,092
    
    
    $
    241,445Add share-based employee compensation expense
included in reported net income, net of related
tax effects
    
    
    2,434
    
    
    
    190Deduct total share-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    (29,614
    )
    
    
    (26,795
    )Pro forma net income
    
    $
    244,912
    
    
    $
    214,840Basic earnings per share, as reported
    
    $
    3.35
    
    
    $
    2.90Diluted earnings per share, as reported
    
    $
    3.26
    
    
    $
    2.79Pro forma basic earnings per share
    
    $
    3.02
    
    
    $
    2.58Pro forma diluted earnings per share
    
    $
    2.91
    
    
    $
    2.47
 The impact of accounting for share-based compensation under SFAS 123R for the year ended
December 31, 2006 was as follows (in thousands, except per share amounts):
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##### Table of Contents



2006Share-based compensation expense by type of award:Stock options
    
    $
    14,575Restricted Stock
    
    
    1,179Total share-based compensation
    
    
    15,754Tax effect on share-based compensation
    
    
    (6,049
    )Net effect on net income
    
    $
    9,705Tax effect on:Cash flows from operating activities
    
    $
    (17,053
    )Cash flows from financing activities
    
    $
    17,053Effect on earnings per share:Basic
    
    $
    0.12Diluted
    
    $
    0.12
 For the year ended December 31, 2006, the share-based compensation expense of $1.18 million
related to Restricted Stock would also have been recorded as an expense under APB 25. Prior to
the adoption of SFAS 123R, we presented all tax benefits for deductions resulting from the
exercise of stock options and disqualifying dispositions as operating cash flows in our
consolidated statement of cash flows. SFAS 123R requires the benefits from tax deductions in
excess of recognized compensation expense to be reported as a financing cash flow, rather than
as an operating cash flow. This requirement will reduce net operating cash flows and increase
net financing cash flows in periods after adoption. Total cash flows will remain unchanged
from what would have been reported under prior accounting rules.12.
    
    Earnings Per ShareAt December 31, 2006, we had 78,769,186 outstanding common shares. 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):
 Years Ended December 31,2006
    
    
    2005
    
    
    2004Basic earnings per share:Income available to
common shareholders (numerator)
    
    $
    266,080
    
    
    $
    272,092
    
    
    $
    241,445Weighted-average common
shares outstanding (denominator)
    
    
    78,874
    
    
    
    81,128
    
    
    
    83,391Basic earnings per share
    
    $
    3.37
    
    
    $
    3.35
    
    
    $
    2.90Diluted earnings per share:Income available to
common shareholders (numerator)
    
    $
    266,080
    
    
    $
    272,092
    
    
    $
    241,445Weighted-average common
shares outstanding
    
    
    78,874
    
    
    
    81,128
    
    
    
    83,391Effect of dilutive securities:Options on common stock
    
    
    1,777
    
    
    
    2,438
    
    
    
    3,161Total common shares and
dilutive securities (denominator)
    
    
    80,651
    
    
    
    83,566
    
    
    
    86,552Diluted earnings per share
    
    $
    3.30
    
    
    $
    3.26
    
    
    $
    2.79
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Additional options to purchase common shares and Restricted Stock were outstanding during the
years ended December 31, 2004, 2005, and 2006, but were not included in the computation of
diluted earnings per share because they were antidilutive in that either: 1) the exercise
price of the options were greater than the average market price of common shares during the
respective periods or 2) the deemed per share proceeds under the treasury stock method (the sum
of the option exercise price, if applicable, any future compensation expense under SFAS 123R,
and any related windfall tax benefits) for the options or Restricted Stock on a per share
basis exceeded the average market price of common shares during the respective periods.
 Years Ended December 31,2006
    
    
    2005
    
    
    2004Weighted-average number of options (in 000s)
    
    
    2,370
    
    
    
    1,226
    
    
    
    1,091Weighted-average exercise price
    
    $
    61.43
    
    
    $
    67.64
    
    
    $
    68.00Weighted-average number of Restricted Stock
(in 000s)
    
    
    86
    
    
    
    -
    
    
    
    -
 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, 2006, 2005 and 2004, amounts charged
to expense for this plan totaled $11.0 million, $10.9 million, and $5.5 million, respectively.14.
    
    Leasing Joint VentureCDW-L was a joint venture that was 50 percent owned by each of CDWCC, a wholly-owned subsidiary
of the Company, and First Portland Corporation (FIRSTCORP), an unrelated third party leasing
company. In a transaction that was effective August 1, 2004, CDWCC sold its 50 percent
interest in CDW-L to FIRSTCORP for $2.7 million. The sale of $2.4 million of net assets,
including $5.0 million in cash, resulted in a gain of $0.3 million which is included in income
from operations.In accordance with FASB Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Entities, an interpretation of ARB 51, we consolidated CDW-L on December 31,
2003. CDW-Ls results of operations subsequent to December 31, 2003 and through the date of
sale are included in our statement of income with a minority interest for FIRSTCORPs 50
percent interest in this joint venture reflected in other expense, net. CDW-L had a $40
million financing commitment from a financial institution, of which $1.5 million was
outstanding at December 31, 2003. During the first quarter of 2004, the balance of $1.5
million was repaid and the financing commitment was terminated.15.
    
    ContingenciesOn 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 in the United States Bankruptcy Court for the District of Delaware (the Bankruptcy
Court). The Bankruptcy Court confirmed a plan of distribution with respect to Micro Warehouse
which became effective on October 14, 2004. On March 3, 2005, the Bridgeport Holdings, Inc.
Liquidating Trust (the Liquidating Trust) filed a civil action in the Bankruptcy Court
entitled Bridgeport Holdings Liquidating Trust, Inc. vs. CDW Corporation and CDW SAC, Inc.
alleging that CDW did not pay reasonably equivalent value for the assets it acquired from Micro
Warehouse and seeking to have CDWs purchase of Micro Warehouse set aside and an
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amount of
damages, to be determined at trial, paid to it. On February 1, 2007, CDW entered into a
settlement agreement (the Settlement Agreement) to
resolve the above referenced action
pursuant to which CDW agreed to pay $25 million to the Liquidating Trust in return for a full
release and complete dismissal of the litigation, with prejudice. While CDW believed it had
good defenses to the claims by the Liquidating Trust, it agreed to settle the case in order to
avoid the substantial costs and uncertainties involved with further litigation. The Settlement
Agreement represents the compromise of a disputed claim and does not constitute an admission of
liability on behalf of CDW. A Motion to Approve the Settlement Agreement was filed in the
Bankruptcy Court by the Liquidating Trust on February 1, 2007. No objections were filed with
the Bankruptcy Court, and the time for filing objections has expired. An order approving the
Settlement Agreement was entered by the Bankruptcy Court on February 21, 2007. That order
becomes final and nonappealable on March 5, 2007. CDWs settlement payment, included in other
current liabilities on the Consolidated Balance Sheet as of December 31, 2006, and
a motion by the Liquidating Trust to dismiss the litigation with prejudice, are both due on
March 12, 2007.
 From time to time, customers of CDW file voluntary petitions for reorganization under the
United States bankruptcy laws. In such cases, certain pre-petition payments received by CDW
could be considered preference items and subject to return to the bankruptcy administrator. CDW
believes that the final resolution of any such preference items will not have a material
adverse effect on its financial condition.In addition, CDW is party to legal proceedings that arise from time to time, both with respect
to specific transactions and in the ordinary course of our business. CDW is also subject to
audit by federal, state and local tax authorities, by various government agencies relating to
sales under certain government contracts and by vendors relating to vendor incentive programs.We do not believe that any current audit or pending or threatened litigation will have a
material adverse effect on our financial condition. Litigation and audits, however, involve
uncertainties and it is possible that the eventual outcome of litigation or audits could
adversely affect our results of operations for a particular period.16.
    
    Segment InformationWe have three operating segments: corporate sector, which is primarily comprised of business
customers; public sector, which is comprised of federal, state and local government entities,
educational institutions, and healthcare institutions; and Berbee, a new segment as a result of
the Berbee acquisition in October 2006, which provides advanced technology solutions. In
accordance with Statement of Financial Accounting Standards No. 131, Disclosure about Segments
of an Enterprise and Related Information, the internal organization that is used by management
for making operating decisions and assessing performance is the source of our reportable
segments.In the first quarter of 2005, we revised the operating segments which reflect the basis for
making operating decisions and assessing performance. Under the revised structure, centralized
logistics and headquarters functions that were formerly provided by the corporate sector
segment to the public sector segment were separated from the corporate sector segment. The
logistics functions include purchasing, distribution, and fulfillment services to support both
the corporate and public sector segments, and costs and intercompany charges associated with
the logistics function are fully allocated to both of the operating segments based on a percent
of sales. The centralized headquarters functions provide services in areas such as accounting,
information technology, marketing, legal, and coworker services. Certain of the headquarters
function costs that are not allocated to the operating segments are included under the heading
of Headquarters/Other in the tables below.
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In July 2005, the Company announced the creation of a dedicated healthcare sales team. In
creating this team, we consolidated healthcare accounts from across our entire sales
organization and transferred these accounts to the new team in the public sector group. This
new team focuses on IT solutions addressing the unique needs of a range of customers within the
healthcare field. For financial reporting purposes, results of operations and assets related
to healthcare customers are reported as part of the public sector segment.The accounting policies of the segments are the same as those described in Note 1, Summary of
Significant Accounting Policies. We allocate resources to and evaluate performance of our
segments based on both sales and operating income.We have restated 2004 segment information to conform to our revised segment reporting
structure. The following tables present information about our reportable segments (in
thousands):
 Year Ended December 31, 2006Corporate
    
    
    Public
    
    
    
    
    
    
    Headquarters /Sector
    
    
    Sector
    
    
    Berbee
    
    
    Other
    
    
    ConsolidatedNet sales
    
    $
    4,514,106
    
    
    $
    2,162,378
    
    
    $
    108,989
    
    
    $
    -
    
    
    $
    6,785,473Income (loss) from
operations
    
    $
    350,588
    
    
    $
    106,717
    
    
    $
    3,839
    
    
    $
    (64,745
    )
    
    $
    396,399Net interest income and
other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,952Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    414,351Total assets
    
    $
    508,567
    
    
    $
    278,746
    
    
    $
    324,113
    
    
    $
    840,001
    
    
    $
    1,951,427
 Year Ended December 31, 2005Corporate
    
    
    Public
    
    
    
    
    
    
    Headquarters /Sector
    
    
    Sector
    
    
    Berbee
    
    
    Other
    
    
    ConsolidatedNet sales
    
    $
    4,410,708
    
    
    $
    1,881,137
    
    
    $
    -
    
    
    $
    -
    
    
    $
    6,291,845Income (loss) from
operations
    
    $
    341,810
    
    
    $
    110,425
    
    
    $
    -
    
    
    $
    (32,601
    )
    
    $
    419,634Net interest income and
other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,324Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    432,958Total assets
    
    $
    461,416
    
    
    $
    285,709
    
    
    $
    -
    
    
    $
    901,931
    
    
    $
    1,649,056
 53




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##### Table of Contents



Year Ended December 31, 2004Corporate
    
    
    Public
    
    
    
    
    
    
    Headquarters /Sector
    
    
    Sector
    
    
    Berbee
    
    
    Other
    
    
    ConsolidatedNet sales
    
    $
    4,105,090
    
    
    $
    1,632,684
    
    
    $
    -
    
    
    $
    -
    
    
    $
    5,737,774Income (loss) from
operations
    
    $
    327,520
    
    
    $
    93,411
    
    
    $
    -
    
    
    $
    (28,172
    )
    
    $
    392,759Net interest income and
other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,101Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    399,860Total assets
    
    $
    411,381
    
    
    $
    237,686
    
    
    $
    -
    
    
    $
    871,868
    
    
    $
    1,520,935
 The $25.0 million litigation settlement, as described in Note 15, is reflected in the
Headquarters/Other loss from operations in 2006.Our assets are primarily managed by our headquarters functions, including the majority of all
cash, cash equivalents, and marketable securities, inventory, and property and equipment. As a
result, capital expenditures and related depreciation are immaterial for the operating
segments. The operating segments assets consist principally of accounts receivable, and, for
the Berbee segment specifically, goodwill and other intangible assets.No single customer accounted for more than 1% of net sales in fiscal years 2006, 2005 or 2004.
During 2006, approximately 2% of our sales were to customers outside of the continental United
States, primarily in Canada.17.
    
    Share Repurchase ProgramsSince 1998, we have repurchased a total of 17.5 million shares of our common stock at a total
cost of $876.9 million under various share repurchase programs authorized by our Board of
Directors. The program authorizing the repurchase of 4,529,600 shares that was approved by our
Board of Directors in April 2005 was completed in March 2006. In April 2006, our Board of
Directors authorized a new share repurchase program of up to 5,000,000 shares of our common
stock. Share repurchases may be made from time to time in both open market and private
transactions, as conditions warrant. The new program is expected to remain in effect through
April 2008, unless earlier terminated by the Board or completed. The following table presents
share repurchases during the years ended December 31, 2006, 2005 and 2004 (in thousands):
 Year
    
    Shares
    
    
    Amount2006
    
    
    4,059
    
    
    $
    227,6692005
    
    
    4,570
    
    
    $
    258,2982004
    
    
    1,352
    
    
    $
    86,010
 As of December 31, 2006, 3.2 million shares remained available for repurchase under our current
program. Repurchased shares are held in treasury pending use for general corporate purposes,
including issuances under various employee stock plans.18.
    
    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
 54




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##### Table of Contents



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 were included in our 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 years ended December 31, 2003 and 2004, we recorded $22.3 million (pre-tax) and $3.9
million (pre-tax), respectively, of transaction and integration expenses associated with these
transactions. These expenses were primarily comprised of severance and outplacement costs,
payroll expenses for former Micro Warehouse employees performing transition services, customer
satisfaction expenses, customer communications and advertising expenses, legal and accounting
advisory fees and a reserve established for the equipment in a Wilmington, Ohio distribution
center leased by Micro Warehouse as discussed below.In February 2004, we purchased the equipment in the Wilmington, Ohio distribution center leased
by Micro Warehouse and forfeited leasing the facility in exchange for $8.25 million. During
2003, we recorded a $5.0 million reserve related to the purchased equipment in accordance with
FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. At March 31, 2004, we increased this
reserve by $2.0 million due to a change in the scenarios used in estimating the Companys
exposure. During the third quarter of 2004, substantially all of this equipment was liquidated
at values in line with our expectations.19.
    
    Selected Quarterly Financial Data (Unaudited)The following information is for the years ended December 31, 2006 and 2005 (in thousands,
except per share data):
 First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterDecember 31, 2006Net sales
    
    $
    1,588,629
    
    
    $
    1,633,458
    
    
    $
    1,739,457
    
    
    $
    1,823,929Gross profit
    
    
    253,889
    
    
    
    264,037
    
    
    
    267,871
    
    
    
    284,046Income before
income taxes
    
    
    98,491
    
    
    
    113,236
    
    
    
    116,297
    
    
    
    86,327Net income
    
    
    61,678
    
    
    
    73,111
    
    
    
    77,734
    
    
    
    53,557Earnings per share:Basic
    
    $
    0.77
    
    
    $
    0.93
    
    
    $
    1.00
    
    
    $
    0.68Diluted
    
    $
    0.75
    
    
    $
    0.91
    
    
    $
    0.98
    
    
    $
    0.67December 31, 2005Net sales
    
    $
    1,475,082
    
    
    $
    1,539,595
    
    
    $
    1,670,204
    
    
    $
    1,606,964Gross profit
    
    
    226,429
    
    
    
    237,478
    
    
    
    254,943
    
    
    
    248,780Income before
income taxes
    
    
    100,539
    
    
    
    105,998
    
    
    
    115,808
    
    
    
    110,613Net income
    
    
    61,397
    
    
    
    67,061
    
    
    
    73,124
    
    
    
    70,510Earnings per share:Basic
    
    $
    0.74
    
    
    $
    0.82
    
    
    $
    0.91
    
    
    $
    0.88Diluted
    
    $
    0.72
    
    
    $
    0.80
    
    
    $
    0.88
    
    
    $
    0.86
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##### Table of Contents



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




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##### Table of Contents



CDW.com
 
 Item 11.
    
    Executive Compensation
 Director Compensation; Employment Related
Agreements; Executive Compensation; Compensation and Stock Option Committee Report
provided that the Compensation and Stock Option Report shall not be deemed filed in this
Annual Report on Form 10-K .
 
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
 Stock Beneficially Owned by Directors, Certain
Executive Officers and Our Largest Shareholders; Equity Compensation Plan Information.
 
 Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
 Certain Transactions Director Independence.
 
 Item 14.
    
    Principal Accounting Fees and Services
 Proposal 2  Ratification of the Selection of
Independent Registered Public Accounting Firm.
 
 PART IV
 
 Item 15.
    
    Exhibits, Financial Statement Schedules
 (a)
    
    The following documents are filed as part of this report:
 1.
    
    Financial Statements (See Index to Consolidated Financial
Statements on page 26 of this Report);
 2.
    
    
    Index to Financial Statement Schedule:
    
    PageSchedule II  Valuation and Qualifying Accounts
    
    S-1
 All 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.
 57




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##### Table of Contents



3.
    
    Exhibits required by Securities and Exchange Commission
Regulation S-K, Item 601:
 Exhibit
    
    Description of Document3(a)
    
    
    Restated Articles of Incorporation of the Company, incorporated by
reference from the exhibits filed with the Companys Quarterly
Report (000-21796) on Form 10-Q for the quarter ended June 30,
2003.3(b)
    
    
    Amended and Restated Bylaws of the Company, incorporated by
reference from the exhibits filed with Companys Current Report
(000-21796) on Form 8-K filed on October 24, 2006.4(a)
    
    
    Specimen of common stock certificate, incorporated by reference
from the exhibits filed with the Companys Annual Report
(000-21796) on Form 10-K for the year ended December 31, 2003.10(a)*
    
    
    CDW Incentive Stock Option Plan, incorporated by reference from
the exhibits filed with the Companys Registration Statement
(33-59802) on Form S-1 filed under the Securities Act of 1933
filed on May 11, 1993.10(b)*
    
    
    First Amendment to CDW Incentive Stock Option Plan, incorporated
by reference from the exhibits filed with the Companys Annual
Report (000-21796) on Form 10-K for the year ended December 31,
1998.10(c)*
    
    
    Second Amendment to CDW Incentive Stock Option Plan, incorporated
by reference from the exhibits filed with the Companys Quarterly
Report (000-21796) on Form 10-Q for the quarter ended September
30, 2006.10(d)*
    
    
    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(e)*
    
    
    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(f)*
    
    
    Second Amendment to CDW 1996 Incentive Stock Option Plan,
incorporated by reference from the exhibits filed with the
Companys Quarterly Report (000-21796) on Form 10-Q for the
quarter ended September 30, 2006.10(g)*
    
    
    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(h)*
    
    
    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(i)*
    
    
    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.
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##### Table of Contents



10(j)
    
    
    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(k)*
    
    
    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(l)*
    
    
    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(m)*
    
    
    Form of Noncompetition Agreement, effective December 2002, entered
into with each of the Companys executive officers, incorporated
by reference from the exhibits filed with the Companys Annual
Report (000-21796) on Form 10-K for the year ended December 31,
2002.10(n)*
    
    
    Form of Stock Option Agreement for awards to non-employee
directors under the 2004 Non-Employee Director Equity Compensation
Plan, incorporated by reference from the exhibits filed with the
Companys Quarterly Report (000-21796) on Form 10-Q for the
quarter ended September 30, 2004.10(o)*
    
    
    Form of Restricted Stock Award for awards to non-employee
directors under the 2004 Non-Employee Director Equity Compensation
Plan, incorporated by reference from the exhibits filed with the
Companys Quarterly Report (000-21796) on Form 10-Q for the
quarter ended September 30, 2004.10(p)*
    
    
    CDW Senior Management Incentive Plan, as amended and restated
effective January 1, 2006, 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, 2005.10(q)*
    
    
    Form of Stock Option Agreement for awards to coworkers under the
CDW 2000 Incentive Stock Option Plan, incorporated by reference
from the exhibits filed with the Companys Annual Report
(000-21796) on Form 10-K for the year ended December 31, 2005.10(r)*
    
    
    CDW Computer Centers, Inc. Deferred Compensation Plan,
incorporated by reference from the exhibits filed with the
Companys Quarterly Report (000-21796) on Form 10-Q for the
quarter ended March 31, 2006.10(s)
    
    
    Revolving Note between the Company and LaSalle National Bank dated
June 30, 2006, 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, 2006.10(t)*
    
    
    Form of Stock Option Agreement for Coworkers under the CDW 2006
Stock Incentive Plan, incorporated by reference from the exhibits
filed with the Companys Current Report (000-21796) on Form 8-K
filed on May 19, 2006.10(u)*
    
    
    Form of Restricted Stock Award Agreement for Coworkers under the
CDW 2006 Stock Incentive Plan, incorporated by reference from the
exhibits filed with the Companys Current Report (000-21796) on
Form 8-K filed on May 19, 2006.
 59




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##### Table of Contents



10(v)*
    
    
    CDW 2000 Incentive Stock Option Plan, as amended and restated
effective October 19, 2006, 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, 2006.10(w)*
    
    
    2004 Non-Employee Director Equity Compensation Plan, as amended
and restated effective October 19, 2006, 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, 2006.10(x)*
    
    
    CDW 2006 Stock Incentive Plan, as amended and restated effective
October 19, 2006, 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, 2006.21
    
    
    Subsidiaries of the Registrant23
    
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 193431.2
    
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 193432.1
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. 135032.2
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350
 *
    
    Indicates management contract or compensatory plan or arrangement.
 (b)
    
    The Exhibits required by Item 601 of Regulation S-K are reflected above in
Section (a) 3. of this Item.(c)
    
    The financial statement schedule is included as reflected in Section (a) 2. of this
Item.
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##### Table of Contents



SIGNATURES
  CDW CORPORATIONDate: March 1, 2007
    
    By:
    
    /s/ John A. EdwardsonJohn A. EdwardsonChairman and Chief Executive Officer
  Signature
    
    Title
    
    Date/s/ John A. Edwardson
    
    Chairman and
    
    March 1, 2007John A. Edwardson
    
    Chief Executive Officer/s/ Barbara A. Klein
    
    Senior Vice President and
    
    March 1, 2007Barbara A. Klein
    
    Chief Financial Officer(principal financial officer)/s/ Sandra M. Rouhselang
    
    Vice President and Controller
    
    March 1, 2007Sandra M. Rouhselang
    
    (principal accounting officer)/s/ Michelle L. Collins
    
    Director
    
    March 1, 2007Michelle L. Collins/s/ Casey G. Cowell
    
    Director
    
    March 1, 2007Casey G. Cowell/s/ Daniel S. Goldin
    
    Director
    
    March 1, 2007Daniel S. Goldin/s/ Thomas J. Hansen
    
    Director
    
    March 1, 2007Thomas J. Hansen/s/ Donald P. Jacobs
    
    Director
    
    March 1, 2007Donald P. Jacobs/s/ Stephan A. James
    
    Director
    
    March 1, 2007Stephan A. James/s/ Michael P. Krasny
    
    Director
    
    March 1, 2007Michael P. Krasny/s/ Terry L. Lengfelder
    
    Director
    
    March 1, 2007Terry L. Lengfelder/s/ Susan D. Wellington
    
    Director
    
    March 1, 2007Susan D. Wellington/s/ Brian E. Williams
    
    Director
    
    March 1, 2007Brian E. Williams
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CDW CORPORATION
 
 SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 Years ended December 31, 2006, 2005 and 2004
  Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EChargedBalance at
    
    
    to Costs
    
    
    Charged to
    
    
    
    
    
    
    BalanceBeginning
    
    
    and
    
    
    Other
    
    
    
    
    
    
    at End ofDescription
    
    of Period
    
    
    Expenses
    
    
    Accounts
    
    
    Deductions
    
    
    PeriodYear ended
December 31, 2006Deducted in the
balance sheet
from the asset to
which it applies:Allowance for
doubtful accounts
    
    $
    9,564
    
    
    $
    2,759
    
    
    $
    430
    (a)
    
    $
    2,758
    (b)
    
    $
    9,995Year ended
December 31, 2005Deducted in the
balance sheetfrom
the asset to which
it applies:Allowance for
doubtful accounts
    
    $
    9,890
    
    
    $
    2,475
    
    
    $
    -
    
    
    $
    2,801
    (b)
    
    $
    9,564Year ended 
December 31, 2004Deducted in the
balance sheet from
the asset to which
it applies:Allowance for
doubtful accounts
    
    $
    10,057
    
    
    $
    2,813
    
    
    $
    -
    
    
    $
    2,980
    (b)
    
    $
    9,890
 Note:(a)
    
    Represents balance from businesses acquired.(b)
    
    Uncollectible items written off, less recoveries of items previously written off.
 S-1