CDW 2005 Annual Report Download

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2005 Annual Report2005 Annual Report

Table of contents

  • Page 1
    2005 2005 Annual Annual Report Report

  • Page 2
    The Road

  • Page 3
    2005 was another year of records for CDW. ahead We achieved record revenue of $6.3 billion.

  • Page 4
    ... wiring for seven miles of conveyors. Most important, when fully outfitted, it will be able to ship twice the number of boxes per hour of our 450,000 square foot Vernon Hills, Illinois, distribution center. The WDC team did an exceptional job at great personal sacrifice to accomplish this incredible...

  • Page 5
    ... the public sector. With this change, we expect to improve customer service, maximize coverage of our customer accounts, drive new business and better align our sales force with our vendor partners. We continued to develop our Canadian subsidiary in 2005. We increased the number of account managers...

  • Page 6
    ...- 100 Best Companies to Work For (FORTUNE® magazine) No. 1 - America's Most Admired Company for Wholesalers: Electronics and Office Equipment (FORTUNE® magazine) Financial Summary For the years ended December 31, 2005, 2004 and 2003 (in millions, except per share data) Operating Results Net sales...

  • Page 7
    ... period from_____ to _____ Commission file number 0-21796 CDW Corporation (Exact name of registrant as specified in its charter) Illinois (State or other jurisdiction of incorporation or organization) 200 N. Milwaukee Ave. Vernon Hills, Illinois (Address of principal executive offices) 36-3310735...

  • Page 8
    ...Procedures Other Information PART III Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions Principal Accounting Fees and Services PART IV...

  • Page 9
    ... to custom configure multi-branded solutions, manage software licenses through our Software License Tracker tool, track tagged assets through our IT Asset Management Tracking Database and generate online quotes. We also offer technical support and customer service 24 hours a day, 7 days a week to...

  • Page 10
    ... Securities and Exchange Commission. Business Strategy The Company's business strategy is to be a high volume, cost-efficient direct marketer of multi-brand, competitively-priced information technology products and services, while providing a high level of support to our customers. We believe that...

  • Page 11
    ... regular business hours. We offer technical support services by telephone 24 hours a day, 7 days a week. We believe that our commitment to service at the time of sale and after the purchase maximizes sales opportunities and encourages repeat customers. Proprietary Information Technology Systems. We...

  • Page 12
    ... second distribution center in North Las Vegas, Nevada became operational in late 2005 and will support the Company's growth beyond 2005. This new facility is targeted to handle 30% of our total shipping volume by the end of the first quarter of 2006 and will predominantly serve customers located in...

  • Page 13
    ... CDWG@work extranets. These sites give customers online access to information such as order and shipping status, payment details, purchase history and details about their dedicated account team. Customers may also use their sites to automate technology purchasing procedures, manage software licenses...

  • Page 14
    ... aspects of our business. Our proprietary information technology systems enable us to enhance productivity, ship customer orders on a same-day basis, respond quickly to industry changes and provide high levels of customer service. Historical customer orders are tracked within our system so that we...

  • Page 15
    ... terms and conditions regarding such things as product return privileges, price protection policies, purchase discounts and vendor incentive programs, including purchase rebates, sales volume rebates and cooperative advertising reimbursements. From time to time, vendors may terminate our right...

  • Page 16
    ..., our ability to conduct business with our customers; manage our inventory and accounts receivable; purchase, sell, ship and invoice our products efficiently and on a timely basis; and maintain our cost-efficient operating model. The integrity of our information technology systems is vulnerable to...

  • Page 17
    ... business. We operate our business from a primary facility in Vernon Hills, Illinois. Although we have multiple sales office locations and a second distribution center in North Las Vegas, Nevada, substantially all of our corporate, warehouse and distribution functions are located at our Vernon Hills...

  • Page 18
    .... Revenues from the public sector segment are derived from sales to federal, state and local governmental departments and agencies, as well as to educational institutions and healthcare customers, through various contracts and open market sales. Government contracting is a highly regulated...

  • Page 19
    ... Sales Office Corporate Office / Distribution Center / Business Technology Center Corporate Office Sales Office (1) The Company has an option to purchase the building and the real property on which the building is located for a purchase price of $29.5 million at any time during the first two years...

  • Page 20
    ... quarter of 2005 to a vote of security holders. PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The following table sets forth for the periods indicated the high and low sales prices for the Company's common stock...

  • Page 21
    ...of shares purchased as part of publicly announced plans or programs Period October 1, 2005 through October 31, 2005 November 1, 2005 through November 30, 2005 December 1, 2005 through December 31, 2005 Total (a) Total number of shares purchased (b) Average price paid per share (d) Maximum number...

  • Page 22
    ...Data CDW Corporation and Subsidiaries Selected Financial Data (in thousands, except per share amounts) 2005 Income Statement Data: Net sales Income from operations Net income Earnings per share: Basic Diluted Dividends per share... after tax) of transaction and integration expenses recorded in ...

  • Page 23
    ...in Vernon Hills, Illinois, sales offices in Illinois, Virginia, Connecticut, New Jersey, and Toronto, Canada, and a distribution center in North Las Vegas, Nevada. Additionally, we market and sell products through CDW.com, CDWG.com, macwarehouse.com and CDW.ca, our Web sites. For financial reporting...

  • Page 24
    ... 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...

  • Page 25
    ... day or the last business day of the quarterly offering period. Effective January 1, 2006, the coworkers' purchase price will be 95% of the fair market value of the stock on the last business day of the quarterly offering period. See Note 3 to our Consolidated Financial Statements for information...

  • Page 26
    ... statistics: Operating Statistics % of sales to commercial customers (1) Sales force, end of period Annualized inventory turnover (2) Accounts receivable - days sales outstanding Direct web sales (000's) Net sales per coworker (000's) Return on shareholders' equity Years Ended December 31, 2005 2004...

  • Page 27
    ... reflect the adjustment for products shipped but not received by the customer as described above. Analysis of Product Category Growth 2005 Notebook computers and accessories Desktop computers and servers Subtotal computer products Software Data storage devices Printers NetComm products Video Add-on...

  • Page 28
    ... 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...

  • Page 29
    ...a company-wide incentive bonus program. Our new distribution center in North Las Vegas, Nevada became operational in December 2005 (discussed in the "Working Capital" section). In addition, we will be adding leased office space, primarily in the Chicago area, for sales and support functions. The new...

  • Page 30
    ... force consists of account managers (including field sales representatives) as well as product category specialists who provide consultation in areas requiring technical or specialized product expertise such as networking, security, data storage, and volume software licensing. Payroll costs for 2004...

  • Page 31
    ...serves business customers, have not historically experienced significant seasonality throughout the year. In contrast, sales in our public sector segment have historically been higher in the third quarter than in other quarters due to the buying patterns of federal government and education customers...

  • Page 32
    ...In February 2005, we signed a lease for a new distribution center to be constructed in North Las Vegas, Nevada, to support the Company's growth beyond 2005. This new facility became operational in December 2005. Capital expenditures for machinery, equipment and leasehold improvements related to this...

  • Page 33
    ... and equipment related to the new North Las Vegas distribution center. Net cash used in financing activities for the year ended December 31, 2005 was $247.3 million. This included the payment of cash dividends totaling $35.1 million and the repurchase of 4,570,300 shares of our common stock at...

  • Page 34
    ... Affecting CDW's Business" and other factors identified from time to time in the Company's filings with the Securities and Exchange Commission. Such risks and uncertainties may have a significant impact on the Company's business, operating results or financial condition. Investors are cautioned...

  • Page 35
    ... Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Management's Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2005 and 2004 Consolidated Statements of Income for the years ended...

  • Page 36
    ... the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein. CDW Corporation Vernon Hills, Illinois March 3, 2006 28

  • Page 37
    ... statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial...

  • Page 38
    ... principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of...

  • Page 39
    ... expenses: Compensation Income taxes Sales taxes Advertising Other Total current liabilities Long-term liabilities Commitments and contingencies Shareholders' equity: Preferred shares, $1.00 par value; 5,000 shares authorized; none issued Common shares, $.01 par value; 500,000 shares authorized; 93...

  • Page 40
    CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) 2005 Net sales Cost of sales Gross profit Selling and administrative expenses Net advertising expense Income from operations Interest income Other expense, net Income before income taxes Income ...

  • Page 41
    ... unearned compensation Stock-based compensation Exercise of stock options Issuance of common stock in connection with Employee Stock Purchase Plan Tax benefit from stock option and restricted stock transactions Purchase of treasury shares Cash dividends Net income Net unrealized losses on marketable...

  • Page 42
    ...by operating activities: Depreciation and amortization Accretion of marketable securities Stock-based compensation expense Allowance for doubtful accounts Deferred income taxes Tax benefit from stock option and restricted stock transactions Minority interest Gain on sale of investment in CDW Leasing...

  • Page 43
    ... center located in Vernon Hills, Illinois, sales offices in Illinois, Virginia, Connecticut, New Jersey, and Toronto, Canada, and a distribution center in North Las Vegas, Nevada. Additionally, we market and sell products through CDW.com, CDWG.com, macwarehouse.com and CDW.ca, our Web sites...

  • Page 44
    ... 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...

  • Page 45
    ... and equipment Building and leasehold improvements Computer and data processing equipment Computer software Furniture and fixtures Revenue Recognition We record revenues from sales transactions when both risk of loss and title to products sold pass to the customer. Our shipping terms dictate...

  • Page 46
    ... to stock-based employee compensation for the years ended December 31, 2005, 2004 and 2003 (in thousands, except per share amounts): 2005 $ 272,092 2004 $ 241,445 2003 $ 175,186 Net income, as reported Add stock-based employee compensation expense included in reported net income, net of related tax...

  • Page 47
    ... of employee or director services rendered based on the intrinsic value of compensatory options or shares granted under the plans. Historically, stock options have been granted annually to all CDW coworkers as part of the Company's overall compensation plan. As announced on April 29, 2005, after...

  • Page 48
    ... the quarterly purchase of our common stock. Historically, the coworkers' purchase price was 85% of the lesser of the fair market value of the stock on the first business day or the last business day of the quarterly offering period. Effective January 1, 2006, the coworkers' purchase price will...

  • Page 49
    ... December 31, 2005 Available-for-sale: State and municipal bonds Corporate fixed income securities U.S. Government and Government agency securities Total available-for-sale Held-to-maturity: U.S. Government and Government agency securities Total held-to-maturity Total marketable securities December...

  • Page 50
    ... Losses $ (111) (14) Security Type December 31, 2005 State and municipal bonds Corporate fixed income securities U.S Government and Government agency securities Total December 31, 2004 State and municipal bonds U.S Government and Government agency securities Total Fair Value $ 24,889 3,900 $ 76...

  • Page 51
    ...accounts payable. 8. Operating Leases We are obligated under various operating lease agreements that generally provide for minimum rent payments and a proportionate share of operating expenses and property taxes and include certain renewal and expansion options. For the years ended December 31, 2005...

  • Page 52
    ... 2005, 2004 and 2003 were reduced by $11.0 million, $19.6 million and $36.5 million, respectively, for tax benefits recorded directly to paid-in capital relating to the exercise and vesting of shares pursuant to the CDW Stock Option Plan, the MPK Stock Option Plan and the MPK Restricted Stock Plan...

  • Page 53
    ...2005 Assets: Payroll and benefits Accounts receivable Employee stock plans Rent Accrued expenses Merchandise inventory Loss carryforwards Unrealized losses on marketable securities Gross deferred assets Liabilities: Property and equipment Other Gross deferred liabilities Deferred tax asset valuation...

  • Page 54
    ... follows: 2005 18.79 13.78 2004 34.85 15.38 2003 23.74 11.75 Exercise price equals market price at time of grant Exercise price is less than market price at time of grant (1) $ $ $ $ $ $ (1) Relates to the Employee Stock Purchase Plan, whereby eligible coworkers may purchase our common stock at...

  • Page 55
    ...(in thousands, except per share amounts): 2005 $ 272,092 2004 $ 241,445 2003 $ 175,186 Net income, as reported Add stock-based employee compensation expense included in reported net income, net of related tax effects Deduct total stock-based employee compensation expense determined under fair value...

  • Page 56
    ... plan, the majority shareholder allocated 2,674,416 shares of his common stock to be held in escrow for the benefit of those persons employed by the Company as of December 31, 1992. The number of shares allocated to each employee was dependent upon the employee's years of service and salary history...

  • Page 57
    ... the coworkers' purchase price will be 95% of the fair market value of the stock on the last business day of the quarterly offering period. Coworkers may purchase shares having a fair market value of up to $25,000 (measured on the first day of the quarterly offering period for each calendar year) or...

  • Page 58
    ...profit sharing plan are made in cash and determined at the discretion of the Board of Directors. As discussed in Note 3, an additional contribution for 2005 will be made to the 401(k) plan in conjunction with a modification to the Company's stock option program. For the years ended December 31, 2005...

  • Page 59
    .... 15. Segment Information We have two operating segments: corporate sector, which is primarily comprised of business customers, but also includes consumers, and public sector, which is comprised of federal, state and local government entities, educational institutions and healthcare customers. In...

  • Page 60
    ...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...

  • Page 61
    ...520,935 237,686 $ 871,868 $ Corporate Sector Net sales Income (loss) from operations Net interest income and other expense Income before income taxes Total assets $ 353,281 $ $ $ 3,327,945 265,208 $ $ Year Ended December 31, 2003 Public Headquarters / Other Sector 1,336,671 61,865 $ $ (42,615...

  • Page 62
    ... of December 31, 2005, 2.2 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. 17. Public Offering of Common Shares In May 2003, Gregory...

  • Page 63
    ...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, 2005 and 2004 (in thousands, except per share data): First Quarter December 31, 2005 Net sales Gross profit Income...

  • Page 64
    ... during the Company's fiscal quarter ended December 31, 2005 that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B. None. Other Information. PART III Item 10. Directors and Executive Officers of the Registrant...

  • Page 65
    ...officers and other senior financial personnel which is available on our Web site at CDW.com. Item 11. Executive Compensation. The information required by this item is incorporated by reference from the discussion in our Proxy Statement under the headings "Director Compensation;" "Employment Related...

  • Page 66
    ... 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. Employment Agreement dated as of January 28, 2001 between the Company and John A. Edwardson, incorporated...

  • Page 67
    ...Compensation Plan, as amended and restated effective January 1, 2006. Form of Stock Option Agreement for awards to coworkers under the CDW 2000 Incentive Stock Option Plan Subsidiaries of the Registrant Consent of Independent Registered Public Accounting Firm Certification of Chief Executive Officer...

  • Page 68
    ... of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CDW CORPORATION Date: March 3, 2006 By: /s/ John A. Edwardson John A. Edwardson Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange...

  • Page 69
    ... CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 2005, 2004 and 2003 (in thousands) Column A Column B Balance at Beginning of Period Column C Charged to Costs and Expenses Charged to Other Accounts Column D Column E Balance at End of Period Description Year...

  • Page 70
    ... CDW CORPORATION SUBSIDIARIES OF THE REGISTRANT Subsidiary CDW Canada, Inc. CDW Capital Corporation CDW Corporation CDW Direct, LLC CDW Government, Inc. CDW ISFC, LLC CDW Logistics, Inc. CDW SAC, Inc. Jurisdiction of Incorporation New Brunswick Illinois Delaware Illinois Illinois Delaware Illinois...

  • Page 71
    ...23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-120260, No. 333-43925, No. 333-48172, and No. 333-98123) of CDW Corporation of our report dated March 3, 2006 relating to the financial...

  • Page 72
    ... report financial information; and any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ John A. Edwardson John A. Edwardson Chairman and Chief Executive Officer CDW Corporation...

  • Page 73
    ... in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and any fraud, whether or not material, that involves management or other employees who...

  • Page 74
    ...OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE I, John A. Edwardson, the chief executive officer of CDW Corporation ("CDW"), certify that (i) the Annual Report on Form 10-K for the year ended December 31, 2005 (the "10-K") of CDW fully complies with the requirements of Section 13(a) or 15(d) of...

  • Page 75
    ... chief financial officer of CDW Corporation, ("CDW"), certify that (i) the Annual Report on Form 10-K for the year ended December 31, 2005 (the "10-K") of CDW fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in...

  • Page 76
    ... Information Officer Kevin P. Adams Vice President - Program Management, CDW Government, Inc. Kenneth B. Grimsley Vice President - Strategic Sales, CDW Government, Inc. Anne B. Ireland Vice President - Business Development Cindy T. Klimstra Vice President - Investor Relations James J. Lillis Vice...

  • Page 77
    ... Information Corporate Office 200 North Milwaukee Avenue Vernon Hills, Illinois 60061 847.465.6000 Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP Chicago, Illinois Transfer Agent and Registrar American Stock Transfer & Trust Company 59 Maiden Lane New York, New York...

  • Page 78
    CDW.com • 800.800.4CDW