CDW 2006 Annual Report Download - page 47

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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.
Advertising
Advertising 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 Share
We 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 Compensation
On 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 Instruments
We 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 Shares
We 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 Translation
Our 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.