CDW 2003 Annual Report Download - page 33

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The effective income tax rate, expressed as a percentage of income before income taxes, was 39.5% in 2003
and 2002.
Net income in 2003 was $175.2 million, a 5.4% decrease from $185.2 million in 2002. Diluted earnings
per share were $2.03 in 2003, a decrease of 3.3% from $2.10 in 2002. These results include $22.3 million
($13.5 million after tax) of transaction and integration expenses recorded in connection with the Micro
Warehouse transactions, or a $0.16 per share impact on basic and diluted earnings per share.
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Net sales in 2002 increased 7.6% to $4.265 billion, compared to $3.962 billion in 2001. Sales of software,
input devices, video and printers each increased over 10% in 2002 over 2001. Corporate segment sales
increased 3.6% from $3.281 billion in 2001 to $3.399 billion in 2002, and comprised 79.7% of our total sales
for 2002. Public sector segment sales increased 27.1%, from $681 million in 2001 to $865 million in 2002 and
comprised 20.3% of our total sales for 2002. The growth in our public sector segment was due in part to
focused sales and marketing efforts in the federal, state and local government, and educational institution
markets.
In general, the average selling price of most of our product categories decreased from 2001. Such decreases
require us to generate more orders and sell more units in order to maintain or increase the level of sales.
Gross profit increased 7.0% to $563.8 million in 2002 from $527.0 million in 2001. As a percentage of net
sales, gross profit decreased to 13.2% in 2002, compared with 13.3% in 2001. The gross profit margin depends
on various factors, including vendor inventory price protection and rebate programs, product mix, including
third party services, pricing strategies, market conditions and other factors.
Selling and administrative expenses increased 3.3% to $261.6 million in 2002, compared to $253.3 million
in 2001. This increase resulted primarily from $3.9 million of increased employee-related costs (which included
items such as profit sharing, incentive awards and insurance), $3.7 million of increased payroll costs and $1.6
million of increased occupancy costs. Selling and administrative expenses decreased to 6.1% of net sales in
2002 versus 6.4% in 2001.
Net advertising expense decreased to $4.0 million in 2002, compared to $5.5 million in 2001. The decrease
in net advertising expense was the result of an increase in cooperative advertising income, which more than
offset the increase in gross advertising expense. As a percentage of net sales, net advertising expense was 0.1%
in both 2002 and 2001. Gross advertising expense increased $1.7 million to $89.1 million in 2002 while
decreasing as a percentage of net sales to 2.1% versus 2.2% in 2001. Cooperative advertising reimbursements
increased to $85.0 million in 2002, compared to $81.8 million in 2001. As a percentage of net sales,
cooperative advertising reimbursements decreased to 2.0% in 2002, compared to 2.1% in 2001.
Consolidated operating income was $298.2 million in 2002, an 11.2% increase from $268.2 million in
2001. This increase was primarily a result of the increase in net sales and gross profit in 2002, partially offset
by the increase in operating expenses. Consolidated operating income as a percentage of net sales increased to
7.0% in 2002, compared to 6.8% in 2001. Corporate segment operating income was $281.9 million in 2002, a
14.8% increase from $245.5 million in 2001. The increase in corporate segment operating income was
primarily due to increased sales. Public sector segment operating income was $16.3 million in 2002, a 28.2%
decrease from $22.7 million in 2001. Public sector segment operating income as a percentage of net sales
decreased to 1.9% in 2002, compared to 3.3% in 2001. The decrease in public sector segment operating income
was due to lower gross margin and higher operating expenses, consisting primarily of payroll and coworker
costs incurred to support current and future projected growth in our public sector business.
Interest income, net of other expenses, decreased to $8.0 million in 2002, compared to $11.8 million in
2001, as higher levels of cash available for investing were offset by decreases in the rates of interest earned.