CDW 2006 Annual Report Download - page 33

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collecting sales taxes on sales to all corporate customers in all states that impose sales taxes. Prior
to April 1, 2005, we collected sales tax when applicable on sales to corporate customers only in
states where the requisite nexus existed. In conjunction with collecting state sales tax, we began
filing state income tax returns for all of our legal entities in all states. Due to differences in state
income tax laws, including differences in how income is apportioned, we expected our overall
effective tax rate to be lower in 2005 than 2004. The change in the effective tax rate increased
diluted earnings per share in 2005 by approximately $0.13 compared to 2004.
Net income in 2005 was $272.1 million, a 12.7% increase from $241.4 million in 2004. Diluted
earnings per share were $3.26 in 2005, an increase of 16.8% from $2.79 in 2004.
Seasonality
Sales in our corporate sector segment, which primarily 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. If sales to federal government and
education customers increase as a percentage of overall sales, the Company as a whole may
experience increased seasonality in future periods.
Legal Proceedings
For a description of certain legal proceedings, see Item 3 of Part I of this Form 10-K.
Liquidity and Capital Resources
Working Capital
We have historically financed our operations and capital expenditures primarily through cash flow
from operations. At December 31, 2006, we had cash, cash equivalents, and current marketable
securities of $351.6 million, representing a decrease of $220.2 million in cash, cash equivalents, and
current marketable securities from December 31, 2005. Our cash, cash equivalents, and current
marketable securities balances at December 31, 2006 were reduced primarily due to the cash
consideration paid to acquire Berbee in October 2006. Our working capital decreased $113.3 million,
to $1.020 billion at December 31, 2006 from $1.133 billion at December 31, 2005.
We 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. 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.
We 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 $150.0 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. The increase at December
31, 2006 compared to December 31, 2005 is primarily due to the acquisition of Berbee.
Since 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