CDW 10-Q 2007 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number 0-21796

CDW Corporation

(Exact name of registrant as specified in its charter)

Illinois	36-3310735
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
200 N. Milwaukee Ave.	60061
Vernon Hills, Illinois	(Zip Code)
(Address of principal executive offices)

(847) 465-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes [x] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [x]     Accelerated filer [  ]     Non-accelerated filer [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [  ] No [x]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of July 25, 2007, 97,374,427 common shares were issued and 79,568,708 were outstanding.

CDW CORPORATION AND SUBSIDIARIES
INDEX

			Page No.
PART I. Financial Information
	Item 1.	Financial Statements (unaudited):
		Consolidated Balance Sheets - June 30, 2007 and December 31, 2006		1
		Consolidated Statements of Income - Three and six months ended June 30, 2007 and 2006		2
		Consolidated Statement of Shareholders’ Equity - Six months ended June 30, 2007		3
		Consolidated Statements of Cash Flows - Six months ended June 30, 2007 and 2006		4
		Notes to Consolidated Financial Statements		5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
	Item 4.	Controls and Procedures		23
PART II. Other Information
	Item 1.	Legal Proceedings		23
	Item 1A.	Risk Factors		24
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25
	Item 4.	Submission of Matters to a Vote of Security Holders		25
	Item 6.	Exhibits		25
		Signature		26
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Section 1350 Certification of Chief Executive Officer
Section 1350 Certification of Chief Financial Officer

ii

Part I. Financial Information

Item 1. Financial Statements

CDW CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

	June 30,		December 31,
	2007		2006
Assets
Current assets:
Cash and cash equivalents	$	196,192	$	148,081
Marketable securities		384,128		203,515
Accounts receivable, net of allowance for doubtful accounts of $10,089 and $9,995, respectively		909,162		850,002
Merchandise inventory		290,615		261,858
Miscellaneous receivables		46,837		55,881
Deferred income taxes		15,047		15,060
Prepaid expenses and other		18,146		15,139
Total current assets		1,860,127		1,549,536
Marketable securities		-		40,000
Property and equipment, net		180,110		171,448
Goodwill		119,491		119,491
Other intangible assets, net		59,689		63,603
Other assets		8,370		7,349
Total assets	$	2,227,787	$	1,951,427
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	421,229	$	354,307
Accrued expenses:
Compensation		56,411		54,301
Income taxes		42,079		4,028
Sales taxes		17,235		20,378
Advertising		21,866		28,775
Other		46,249		67,592
Total current liabilities		605,069		529,381
Deferred income taxes		10,524		10,762
Other liabilities		24,927		24,119
Shareholders’ equity:
Preferred shares, $1.00 par value; 5,000 shares authorized; none issued		-		-
Common shares, $.01 par value; 500,000 shares authorized; 97,361 and 96,312 shares issued, respectively		974		963
Paid-in capital		691,461		631,984
Retained earnings		1,787,491		1,630,620
Accumulated other comprehensive income		1,065		494
		2,480,991		2,264,061
Less cost of common shares in treasury; 17,806 shares and 17,543 shares, respectively		(893,724)		(876,896)
Total shareholders’ equity		1,587,267		1,387,165
Total liabilities and shareholders’ equity	$	2,227,787	$	1,951,427

The accompanying notes are an integral part of the consolidated financial statements.

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CDW CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Net sales	$	2,032,838	$	1,633,458	$	3,891,956	$	3,222,087
Cost of sales		1,704,851		1,369,421		3,262,650		2,704,161
Gross profit		327,987		264,037		629,306		517,926
Selling and administrative expenses		172,117		126,192		326,302		254,940
Advertising expense		32,199		30,007		61,378		60,902
Income from operations		123,671		107,838		241,626		202,084
Interest income		5,336		5,492		9,700		10,699
Other income/(expense), net		234		(94)		(171)		(1,056)
Income before income taxes		129,241		113,236		251,155		211,727
Income tax provision		49,150		40,125		94,284		76,938
Net income	$	80,091	$	73,111	$	156,871	$	134,789
Earnings per share:
Basic	$	1.01	$	0.93	$	1.99	$	1.70
Diluted	$	0.99	$	0.91	$	1.95	$	1.66
Weighted-average number of common shares outstanding:
Basic		79,103		78,994		78,856		79,488
Diluted		80,995		80,564		80,621		81,268
Dividends per share	$	-	$	0.52	$	-	$	0.52

The accompanying notes are an integral part of the consolidated financial statements.

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CDW CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)

											Accumulated
	Total										Other
	Shareholders’		Common		Paid-in		Retained		Treasury		Comprehensive		Comprehensive
	Equity		Shares		Capital		Earnings		Shares		Income		Income
Balance at December 31, 2006		$1,387,165		$963		$631,984		$1,630,620		$(876,896)		$494
Share-based compensation		4,679		-		4,679		-		-		-
Issuance of common stock under share-based compensation plans		41,439		11		41,428		-		-		-
Excess tax benefit from stock option and restricted stock transactions		13,370		-		13,370		-		-		-
Purchase of treasury shares		(16,136)		-		-		-		(16,136)		-
Restricted stock withheld for taxes		(692)		-		-		-		(692)		-
Net income		156,871		-		-		156,871		-		-		$156,871
Foreign currency translation adjustment		571		-		-		-		-		571		571
Comprehensive income														$157,442
Balance at June 30, 2007		$1,587,267		$974		$691,461		$1,787,491		$(893,724)		$1,065

The accompanying notes are an integral part of the consolidated financial statements.

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CDW CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Six Months Ended June 30,
	2007		2006
Cash flows from operating activities:
Net income	$	156,871	$	134,789
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21,124		12,690
Accretion of marketable securities		(10)		(91)
Share-based compensation expense		4,679		7,936
Allowance for doubtful accounts		94		10
Deferred income taxes		(225)		(2,055)
Gross excess tax benefits from share-based compensation		(7,620)		(11,438)
Changes in assets and liabilities:
Accounts receivable		(59,254)		(52,589)
Merchandise inventory		(28,757)		(13,471)
Other assets		5,016		(27,355)
Accounts payable		80,411		36,666
Accrued expenses		21,444		33,048
Long-term liabilities		808		5,408
Net cash provided by operating activities		194,581		123,548
Cash flows from investing activities:
Purchases of available-for-sale securities		(596,023)		(168,260)
Redemptions and sales of available-for-sale securities		383,345		188,850
Purchases of held-to-maturity securities		(30,000)		(70,000)
Redemptions of held-to-maturity securities		102,075		74,900
Purchase of property and equipment		(25,872)		(30,625)
Acquisition of business, net of cash acquired		(4,741)		-
Net cash used in investing activities		(171,216)		(5,135)
Cash flows from financing activities:
Purchase of treasury shares		(16,136)		(211,968)
Proceeds from issuance of common stock under share-based compensation plans		41,439		45,487
Gross excess tax benefits from share-based compensation		7,620		11,438
Dividends paid		-		(40,723)
Change in book overdrafts		(8,748)		(4,550)
Net cash provided by/(used in) financing activities		24,175		(200,316)
Effect of exchange rate changes on cash and cash equivalents		571		186
Net increase/(decrease) in cash		48,111		(81,717)
Cash and cash equivalents – beginning of period		148,081		201,250
Cash and cash equivalents – end of period	$	196,192	$	119,533

The accompanying notes are an integral part of the consolidated financial statements.

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CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.	Summary of Significant Accounting Policies
	CDW 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.
	Basis of Presentation
	The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Such principles were applied on a basis consistent with those reflected in our Annual Report on Form 10-K for the year ended December 31, 2006 (“2006 Form 10-K”) and documents incorporated therein as filed with the Securities and Exchange Commission, except as disclosed in Note 2, “Recently Adopted and Newly Issued Accounting Standards.” The accompanying financial data should be read in conjunction with the notes to consolidated financial statements contained in the 2006 Form 10-K and documents incorporated therein. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of June 30, 2007 and December 31, 2006, the results of operations for the three and six month periods ended June 30, 2007 and 2006, the cash flows for the six month periods ended June 30, 2007 and 2006, and the changes in shareholders’ equity for the six month period ended June 30, 2007. The unaudited consolidated statements of income for such interim periods are not necessarily indicative of results for the full year.
	Use of Estimates
	The 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 revenues 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. Actual results could differ from those estimates. See the audited consolidated financial statements and notes thereto included in the 2006 Form 10-K for an additional discussion of the most significant accounting policies and estimates used in the preparation of our financial statements.
	Reclassifications
	Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.
2.	Recently Adopted and Newly Issued Accounting Standards
	FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109” (“FIN 48”)
	Effective January 1, 2007, we adopted FIN 48. See Note 4, “Income Taxes,” for further information on the adoption of FIN 48.

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	Emerging Issues Task Force (“EITF”) No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation)” (“EITF 06-3”)
	In June 2006, the EITF reached a consensus on EITF 06-3, which became effective for us on January 1, 2007. The EITF consensus was that the presentation of taxes on either a gross or net basis is an accounting policy decision that requires disclosure. Sales tax amounts collected from customers and remitted to governmental authorities are presented on a net basis in our income statement. The adoption of EITF 06-3 had no impact on our financial statements.
	Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”)
	In September 2006, the Financial Accounting Standards Board (“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.
	Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115” (“SFAS 159”)
	In February 2007, the FASB issued SFAS 159. SFAS 159 permits entities to choose to measure certain financial assets and liabilities at fair value that are otherwise not permitted to be accounted for at fair value under generally accepted accounting principles (the “fair value option”). Election of the fair value option is made on an instrument-by-instrument basis and is irrevocable. At the adoption date, unrealized gains and losses on financial assets and liabilities for which the fair value option is elected would be reported as a cumulative adjustment to beginning retained earnings and all subsequent changes in fair value would be recorded as unrealized gains and losses in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact SFAS 159 will have on our financial statements.
3.	Share-Based Compensation
	The Company recognized $3.0 million and $3.7 million in share-based compensation expense for the three month periods ended June 30, 2007 and 2006, respectively, and $4.7 million and $7.9 million for the six month periods ended June 30, 2007 and 2006, respectively.
	The following table sets forth the summary of stock option activity for the six months ended June 30, 2007:

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					Weighted –
			Weighted –		Average		Aggregate
			Average		Remaining		Intrinsic
			Exercise		Contractual		Value
Options	Shares		Price		Term		($000) (1)
Outstanding at January 1, 2007		8,077,083	$	42.73
Granted		-	$	-
Exercised		(1,023,679)	$	39.05
Forfeited or expired		(46,005)	$	50.16
Outstanding at June 30, 2007		7,007,399	$	43.22		7.38	$	292,580
Vested at June 30, 2007		4,947,546	$	42.30		6.53	$	211,122
Exercisable at June 30, 2007		4,929,695	$	42.36		6.51	$	210,053
Expected to vest as of June 30, 2007		1,914,267	$	45.34		9.41	$	75,854

    (1) These amounts represent the difference between $84.97, the closing price of the Company’s common stock on June 30, 2007, 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, 2007, and changes through the six months ended June 30, 2007, is presented below:

			Weighted-
			Average
			Grant-Date
Restricted Stock	Shares		Fair Value
Nonvested at January 1, 2007		144,648	$	55.46
Granted		4,275	$	71.79
Vested		(26,652)	$	55.40
Forfeited		(2,631)	$	55.40
Nonvested at June 30, 2007		119,640	$	56.05

	As of June 30, 2007, there was $24.5 million of unrecognized compensation cost related to nonvested share-based compensation awards which is expected to be recognized over a weighted-average period of 3.44 years.
4.	Income Taxes
	Effective January 1, 2007, we adopted FIN 48. FIN 48 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of income tax assets and liabilities, financial statement classification and disclosure, and accounting for related interest and penalties.
	In connection with adopting FIN 48, we have reviewed our recent income tax return filings and related workpapers, results from the examination of our tax returns and the items subject to examination to determine the extent and amount of any uncertain tax positions taken. The most recent IRS examination was for the years 2003 and 2004. In that examination, the tax treatment of one item was adjusted; the filing positions taken with respect to this item in 2005 and 2006 are consistent with the results of the final examination. Currently, only the 2005 and 2006 tax years are open to audit by the IRS. The Company has been subject to audit by several states. As of June 30, 2007, there are no on-going state income tax audits. The results of previous state income tax audits resulted in

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	immaterial adjustments to the tax reflected on our returns. While some of these audits involved significant (though not necessarily material) issues such as whether certain of our entities were required to file income taxes with a given state for certain years, the positions taken have been supported and sustained. In addition, we do not have any significant intercompany transactions with our sole international affiliate, CDW Canada. Therefore, as of June 30, 2007, we do not have any material reserves for income taxes and there is no material impact on our financial statements from the adoption of FIN 48. In addition, we did not have any material unrecognized tax benefits at the date of adoption of FIN 48 and do not have any as of June 30, 2007.
	It will be our policy going forward to record any income tax related interest income or expense and penalties as components of income tax expense.
5.	Marketable Securities
	Estimated fair values of marketable securities are based on quoted market prices.
	The following table summarizes our investments in marketable securities at June 30, 2007 (in thousands):

			Gross
			Unrealized
	Estimated		Holding				Amortized
Security Type	Fair Value		Gains		Losses		Cost
Available-for-sale:
State and municipal bonds	$	344,855	$	-	$	-	$	344,855
Total available-for-sale		344,855		-		-		344,855
Held-to-maturity:
U.S. Government and Government agency securities		39,203		-		(70)		39,273
Total held-to-maturity		39,203		-		(70)		39,273
Total marketable securities	$	384,058	$	-	$	(70)	$	384,128

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 June 30, 2007 (in thousands):

	Less Than 12 Months				12 Months or Greater				Total
			Gross				Gross				Gross
			Unrealized				Unrealized				Unrealized
Security Type	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S Government and Government agency securities	$	9,981	$	(19)	$	29,222	$	(51)	$	39,203	$	(70)
Total	$	9,981	$	(19)	$	29,222	$	(51)	$	39,203	$	(70)

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 these investments until a recovery of fair value, which may be at maturity, the Company does not consider those investments to be other-than-temporarily impaired as of June 30, 2007.

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.

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The following table summarizes the maturities of our fixed income securities as of June 30, 2007 (in thousands):

	Estimated		Amortized
	Fair Value		Cost
Due in one year or less	$	384,058	$	384,128
Due in greater than one year		-		-
Total investments in marketable securities	$	384,058	$	384,128

6.	Financing Arrangements
	We have a $35.0 million unsecured line of credit which does not have a fixed expiration date. Borrowings under the 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 this line of credit. At June 30, 2007, there were no borrowings under the credit facility.
	A second $35.0 million line of credit expired in June 2007, and we did not renew it.
	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 $240.0 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. All amounts owed the financial institutions are included in trade accounts payable.
7.	Earnings Per Share
	At June 30, 2007, we had 79,555,486 outstanding common shares. We have granted options to purchase common shares to the directors and coworkers of the Company under several stock option plans. 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 Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (in thousands, except per share amounts):

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Basic earnings per share:
Income available to common shareholders (numerator)	$	80,091	$	73,111	$	156,871	$	134,789
Weighted-average common shares outstanding (denominator)		79,103		78,994		78,856		79,488
Basic earnings per share	$	1.01	$	0.93	$	1.99	$	1.70
Diluted earnings per share:
Income available to common shareholders (numerator)	$	80,091	$	73,111	$	156,871	$	134,789
Weighted-average common shares outstanding		79,103		78,994		78,856		79,488
Effect of dilutive securities:
Options on common stock		1,892		1,570		1,765		1,780
Total common shares and dilutive securities (denominator)		80,995		80,564		80,621		81,268
Diluted earnings per share	$	0.99	$	0.91	$	1.95	$	1.66

Additional options to purchase common shares and Restricted Stock were outstanding during the three and six month periods ended June 30, 2007 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

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sum of the option exercise price, if applicable, any future compensation expense under Statement of Financial Accounting Standards No. 123R, “Share-Based Payment,” and any related “windfall” tax benefits) for the options on a per share basis exceeded the average market price of common shares during the respective periods. The following table summarizes the weighted-average number, and the weighted-average exercise price, of those options and Restricted Stock which were excluded from the calculations:

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Weighted-average number of options(in 000’s)		56		2,378		670		2,223
Weighted-average exercise price	$	57.63	$	61.49	$	55.95	$	61.97
Weighted-average number of Restricted Stock(in 000’s)		-		69		4		35

8.	Share Repurchase Programs
	Since 1998, we have repurchased a total of 17.8 million shares of our common stock at a total cost of $893.0 million under various share repurchase programs authorized by our Board of Directors. In April 2006, our Board of Directors authorized a share repurchase program of up to 5.0 million shares of our common stock. Share repurchases may be made from time to time in both open market and private transactions, as conditions warrant.
	No shares were repurchased under the current program during the three month period ended June 30, 2007. During the three month period ended June 30, 2006, we repurchased 1.5 million shares for $84.1 million. During the six month periods ended June 30, 2007 and 2006, we repurchased 0.3 million shares for $16.1 million and 3.8 million shares for $211.9 million, respectively.
	As of June 30, 2007, 2.9 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 stock plans.
9.	Segment Information
	We 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, and educational and healthcare institutions; and Berbee, a segment resulting from our acquisition of Berbee Information Networks Corporation 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.
	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.
	The following tables present information about our reportable segments (in thousands):

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	Three Months Ended June 30, 2007
	Corporate		Public				Headquarters /
	Sector		Sector		Berbee		Other		Consolidated
Net sales	$	1,236,516	$	643,603	$	152,719	$	-	$	2,032,838
Income (loss) from operations	$	97,807	$	36,185	$	5,784	$	(16,105)	$	123,671
Net interest income and other expense										5,570
Income before income taxes									$	129,241
Total assets	$	521,462	$	323,215	$	309,337	$	1,073,773	$	2,227,787
	Three Months Ended June 30, 2006
	Corporate		Public				Headquarters /
	Sector		Sector		Berbee		Other		Consolidated
Net sales	$	1,111,879	$	521,579	$	-	$	-	$	1,633,458
Income (loss) from operations	$	88,896	$	28,950	$	-	$	(10,008)	$	107,838
Net interest income and other expense										5,398
Income before income taxes									$	113,236
Total assets	$	596,065	$	250,747	$	-	$	808,899	$	1,655,711
	Six Months Ended June 30, 2007
	Corporate		Public				Headquarters /
	Sector		Sector		Berbee		Other		Consolidated
Net sales	$	2,455,557	$	1,140,999	$	295,400	$	-	$	3,891,956
Income (loss) from operations	$	195,043	$	61,408	$	10,988	$	(25,813)	$	241,626
Net interest income and other expense										9,529
Income before income taxes									$	251,155
Total assets	$	521,462	$	323,215	$	309,337	$	1,073,773	$	2,227,787

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	Six Months Ended June 30, 2006
	Corporate		Public				Headquarters /
	Sector		Sector		Berbee		Other		Consolidated
Net sales	$	2,262,063	$	960,024	$	-	$	-	$	3,222,087
Income (loss) from operations	$	178,194	$	43,653	$	-	$	(19,763)	$	202,084
Net interest income and other expense										9,643
Income before income taxes									$	211,727
Total assets	$	596,065	$	250,747	$	-	$	808,899	$	1,655,711

	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 10% of net sales in the three or six month periods ended June 30, 2007 or 2006. During the three and six month periods ended June 30, 2007 and 2006, approximately 2% of our net sales were to customers outside of the continental United States, primarily in Canada.
10.	Contingencies
	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 pending 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 various audits, including 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.
11.	Proposed Merger
	On May 29, 2007, we entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with VH Holdings, Inc. (“Holdings”) and VH MergerSub, Inc., a wholly owned subsidiary of Holdings (“Sub”). Holdings was formed by Madison Dearborn Partners, LLC (“Madison Dearborn”), a private equity investment firm. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Sub will merge with and into CDW, with CDW as the surviving corporation of the merger (the “Merger”). As a result of the Merger, CDW will become a wholly owned subsidiary of Holdings and each outstanding share of CDW common stock (other than shares held by Holdings and dissenting shares) will be converted into the right to receive $87.75 in cash, without interest. Upon closing of the Merger, CDW will be controlled by

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investment funds affiliated with Madison Dearborn and Providence Equity Partners Inc.

Consummation of the Merger is subject to customary closing conditions, including approval of the Merger Agreement by our shareholders and the absence of certain legal impediments to the consummation of the Merger. Our Board of Directors approved the Merger Agreement and has recommended that CDW’s shareholders approve the transaction. We have called a special meeting to be held on August 9, 2007 (the “Special Meeting”) for our shareholders of record on July 5, 2007 to vote on the Merger Agreement.

During the three and six month periods ended June 30, 2007, we recorded $8.0 million pre-tax ($4.9 million after-tax) of costs in connection with the proposed Merger. These costs are included in selling and administrative expenses in the Consolidated Statements of Income.

On May 31, 2007, three putative class-action complaints were filed by shareholders of CDW, and on June 26, 2007, a fourth complaint was filed. Two complaints were filed in the United States District Court for the Northern District of Illinois,Murphy v. CDW Corporation, et al., No. 07-CV-3033 andMartin, et al. v. CDW Corporation et al., No. 07-CV-3571. The other two complaints were filed in the Circuit Court of the Nineteenth Judicial District, Lake County, Illinois:Schuman v. CDW Corporation et al., No. 07-CH-1416, andFruchter v. CDW Corporation et al., No. 07-CH-1417. The complaints each name CDW and the individual members of the CDW board of directors as defendants, and, in general, allege purported class claims of breach of fiduciary duty against CDW and its directors challenging the process used to sell the company and for failure to ensure that CDW’s shareholders receive fair and adequate value for their shares, failure to value CDW properly and failure to disclose material information to CDW’s shareholders, including the details of competing offers. The complaints also allege self-dealing by directors, some of whom are alleged to have received financial benefits not shared by the class. TheSchumancomplaint names Madison Dearborn as an additional defendant, alleging that Madison Dearborn aided and abetted breaches of fiduciary duty by CDW’s directors. TheSchumancomplaint also alleges improper conflicts between CDW and its financial advisors, including conflicts based on alleged business and other relationships between CDW’s financial advisors and CDW and Madison Dearborn. TheFruchtercomplaint has been amended to name Madison Dearborn and Morgan Stanley, who acted as CDW’s financial advisor, as additional defendants, alleging that those defendants aided and abetted breaches of fiduciary duty by CDW’s directors, and to add allegations with respect to information that allegedly was not disclosed or was inadequately disclosed in the proxy statement relating to the Special Meeting. TheMurphy complaint has been amended to add claims under the federal securities laws with respect to allegedly false and misleading statements contained in the proxy statement relating to the Special Meeting. Among other things, all four complaints seek to enjoin the Merger. We believe the complaints are without merit. On July 30, 2007, the state court dismissed theSchumanandFruchteractions without prejudice on the ground that there was another action pending on behalf of the same class for the same cause in federal court.

Also on July 30, 2007, CDW and the other named defendants reached an agreement in principle with counsel for all of the plaintiffs who had filed putative class action lawsuits relating to the Merger. Under the terms of the agreement, CDW, the other named defendants, and plaintiffs have agreed to settle the actions subject to court approval. CDW and the other defendants deny the allegations made in the actions and deny having committed, or having aided and abetted, any breach of fiduciary duty or other violation of state or federal law. The agreement provides for dismissal of the federal actions with prejudice, for certification of a settlement class, and for releases of all claims in both the federal and state actions by the settlement class effective upon approval of a stipulation of settlement by the federal court. Under the terms of the agreement, CDW has agreed to make a supplemental filing concerning the Merger through a filing on Form 8-K and, provided the Merger closes and subject to the terms of the agreement, has agreed to pay certain attorneys’ fees, costs, and expenses incurred by plaintiffs. The agreement will not affect the amount of consideration to be paid to shareholders of CDW in connection with the Merger. In addition, the agreement will not affect the timing of the Special Meeting.

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Item 2. 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 unaudited consolidated financial statements and the notes thereto.

Overview

     CDW 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.

     For financial reporting purposes, we 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, and educational and healthcare institutions; and Berbee, a segment resulting from our acquisition of Berbee Information Networks Corporation (“Berbee”) in October 2006, which provides advanced information technology solutions. See Note 9, “Segment Information,” to the Consolidated Financial Statements for more information on our operating segments.

     CDW management monitors a number of financial and non-financial measures and ratios on a daily, weekly, and monthly basis in order to track the progress of the business and make adjustments as necessary. We believe that the most important of these measures and ratios include daily sales, by business segment and total company, gross margin, number of orders shipped per day, number of orders shipped complete per day, inventory balance, aging, and turnover, cash, cash equivalents, and marketable securities balance, accounts receivable balance and aging, accounts receivable days sales outstanding, operating expenses, operating margin, and coworker turnover. We also monitor certain measures and ratios specifically for the Berbee operating segment, such as realized bill rates and utilization of engineers and consultants. The measures and ratios are compared to standards or objectives set by management, so that actions can be taken, as necessary, in order to achieve the standards and objectives.

     In Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) of our Annual Report on Form 10-K for the year ended December 31, 2006 (“2006 Form 10-K”), which was filed with the Securities and Exchange Commission on March 1, 2007, we included a discussion of the most significant accounting policies and estimates used in the preparation of our financial statements. There has been no material change in the policies and estimates used by us in the preparation of our financial statements since the filing of the 2006 Form 10-K.

Proposed Merger

     On May 29, 2007, we entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with VH Holdings, Inc. (“Holdings”) and VH MergerSub, Inc., a wholly owned subsidiary of Holdings (“Sub”). Holdings was formed by Madison Dearborn Partners, LLC (“Madison Dearborn”), a private equity investment firm. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Sub will merge with and into CDW, with CDW as the surviving corporation of the merger (the “Merger”). As a result of the Merger, CDW will become a wholly owned subsidiary of Holdings and each outstanding share of CDW common stock (other than shares held by Holdings and dissenting shares) will be converted into the right to receive $87.75 in cash, without interest. Upon closing of the Merger, CDW will be controlled by investment funds affiliated with Madison Dearborn and Providence Equity Partners Inc.

     Consummation of the Merger is subject to customary closing conditions, including approval of the Merger Agreement by our shareholders and the absence of certain legal impediments to the consummation of the Merger. Our Board of Directors approved the Merger Agreement and has recommended that CDW’s shareholders approve the transaction. We have called a special meeting to be held on August 9, 2007 for our shareholders of record on July 5, 2007 to vote on the Merger Agreement.

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     During the three and six month periods ended June 30, 2007, we recorded $8.0 million pre-tax ($4.9 million after-tax) of costs in connection with the proposed Merger (“merger-related costs”). These costs are included in selling and administrative expenses in the Consolidated Statements of Income.

Recently Adopted and Newly Issued Accounting Standards

     Effective January 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109” (“FIN 48”). See Note 4, “Income Taxes,” to the Consolidated Financial Statements for further information on the adoption of FIN 48.

     In June 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation)” (“EITF 06-3”), which became effective for us on January 1, 2007. The EITF consensus was that the presentation of taxes on either a gross or net basis is an accounting policy decision that requires disclosure. Sales tax amounts collected from customers and remitted to governmental authorities are presented on a net basis in our income statement. The adoption of EITF 06-3 had no impact on our financial statements.

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“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.

     In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure certain financial assets and liabilities at fair value that are otherwise not permitted to be accounted for at fair value under generally accepted accounting principles (the “fair value option”). Election of the fair value option is made on an instrument-by-instrument basis and is irrevocable. At the adoption date, unrealized gains and losses on financial assets and liabilities for which the fair value option is elected would be reported as a cumulative adjustment to beginning retained earnings and all subsequent changes in fair value would be recorded as unrealized gains and losses in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact SFAS 159 will have on our financial statements.

Results Of Operations

     We completed the acquisition of Berbee in October 2006. As such, the results of operations discussed in this section, including in the four tables presented below, include Berbee activity for the three and six month periods ended June 30, 2007, but not for the three and six month periods ended June 30, 2006.

     The following table sets forth for the periods indicated information derived from our consolidated statements of income expressed as a percentage of net sales:

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	Percentage of Net Sales
	Three Months Ended June 30,						Six Months Ended June 30,
Financial Results	2007			2006			2007			2006
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		83.9			83.8			83.8			83.9
Gross profit		16.1			16.2			16.2			16.1
Selling and administrative expenses (1)		8.5			7.7			8.4			7.9
Advertising expense		1.5			1.9			1.6			1.9
Income from operations		6.1			6.6			6.2			6.3
Interest and other income/expense		0.2			0.3			0.2			0.3
Income before income taxes		6.3			6.9			6.4			6.6
Income tax provision		2.4			2.4			2.4			2.4
Net income		3.9	%		4.5	%		4.0	%		4.2	%

(1) Includes $8.0 million of merger-related costs in the three and six month periods ended June 30, 2007.

     The following table sets forth for the periods indicated a summary of certain of our consolidated operating statistics:

	Three Months Ended June 30,				Six Months Ended June 30,
Operating Statistics	2007		2006		2007		2006
Direct web sales (000’s)		$588,872		$493,522		$1,139,716		$994,489
Sales force, end of period		2,722		2,179		2,722		2,179
Annualized inventory turnover		26		23		26		23
Accounts receivable - days sales outstanding		41		38		42		39

     The following table presents net sales of products by product category as a percentage of total net sales of products. Net sales of products do not include items such as commission revenue or delivery charges to customers, and were approximately 96% of total net sales in the three and six month periods ended June 30, 2007, and approximately 97% of total net sales in the three and six month periods ended June 30, 2006.

     Product lines are based upon internal product code classifications. Product mix for the three and six month periods ended June 30, 2006 has been retroactively adjusted for certain changes in individual product classifications.

	Three Months Ended June 30,						Six Months Ended June 30,
Analysis of Product Mix	2007			2006			2007			2006
Notebook computers and accessories		12.4	%		13.2	%		12.9	%		12.9	%
Desktop computers and servers		13.9			13.4			13.4			13.5
Subtotal computer products		26.3			26.6			26.3			26.4
Software		15.6			17.0			16.0			17.2
Data storage devices		13.0			13.4			13.1			13.5
Printers		9.5			11.5			9.7			11.7
NetComm products		16.1			10.3			15.5			10.3
Video		8.6			9.8			8.4			9.7
Add-on boards/memory		4.2			4.8			4.3			4.7
Input devices		3.0			3.5			3.0			3.3
Other		3.7			3.1			3.7			3.2
Total		100.0	%		100.0	%		100.0	%		100.0	%

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     The following table represents the change in the Company’s year-over-year net sales of products by product category for each of the periods indicated. Product lines are based upon internal product code classifications. The rates of change for the three and six month periods ended June 30, 2006 have been retroactively adjusted for certain changes in individual product classifications.

	Three Months Ended June 30,						Six Months Ended June 30,
Analysis of Product Category Growth	2007			2006			2007			2006
Notebook computers and accessories		15.9	%		11.0	%		18.7	%		7.1	%
Desktop computers and servers		27.3			2.2			19.1			2.6
Subtotal computer products		21.6			6.4			18.9			4.7
Software		13.2			2.5			10.9			6.1
Data storage devices		19.8			4.3			15.6			5.9
Printers		1.3			(0.7	)		(0.5	)		0.1
NetComm products		92.1			8.6			79.0			11.3
Video		8.8			9.3			4.0			12.7
Add-on boards/memory		6.9			15.4			9.7			11.9
Input devices		6.5			8.7			9.0			7.0
Other		41.3			10.1			38.7			11.4

Three Month Period Ended June 30, 2007 Compared to Three Month Period Ended June 30, 2006

     Net sales in the second quarter of 2007 increased 24.4% to $2.033 billion, compared to $1.633 billion in the second quarter of 2006. Results for the second quarter of 2007 included sales made by Berbee, which was acquired in October 2006. Sales of notebook computers and accessories, desktop computers and servers, data storage devices, and netcomm products each increased more than 15% in the second quarter of 2007 over the second quarter of 2006. Corporate sector segment sales increased 11.2% to $1.237 billion in the second quarter of 2007 from $1.112 billion in the second quarter of 2006, and comprised 60.8% of our total net sales for the quarter. Public sector segment sales increased 23.4% to $643.6 million in the second quarter of 2007 from $521.6 million in the second quarter of 2006, and comprised 31.7% of our total net sales for the quarter. Berbee generated sales of $152.7 million in the second quarter of 2007, and comprised 7.5% of our total net sales for the quarter. Compared to the corporate sector and public sector segments, Berbee’s business model is more project oriented, which can result in a greater degree of variability in sales from period to period.

     Gross profit increased 24.2% to $328.0 million in the second quarter of 2007, compared to $264.0 million in the second quarter of 2006. As a percentage of net sales, gross profit was 16.1% in the second quarter of 2007, compared to 16.2% in the second quarter of 2006.

     Our objective for gross profit as a percentage of net sales is between 15.5% and 16.2%. The gross profit margin depends on various factors, including vendor incentive and inventory price protection programs, cooperative advertising funds classified as a reduction of cost of sales, product mix, net service contract revenue, commission revenue, pricing strategies, market conditions, and other factors, any of which could result in changes in gross margins from recent experience.

     Selling and administrative expenses increased 36.4% in the second quarter of 2007 to $172.1 million, compared to $126.2 million in the second quarter of 2006, while increasing as a percentage of net sales to 8.5% versus 7.7% in the second quarter of 2006. The primary factors that impacted selling and administrative expenses were:

• The inclusion of the Berbee segment operating expenses in the second quarter of 2007, as a result of the acquisition in October 2006.

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• Increased payroll costs, as a result of the continued investment in our sales force. Our sales force increased to 2,722 coworkers at June 30, 2007, compared to 2,179 coworkers at June 30, 2006.

• The inclusion of $8.0 million of merger-related costs as previously discussed.

     Advertising expense increased to $32.2 million in the second quarter of 2007, compared to $30.0 million in the same period of 2006. As a percentage of net sales, advertising expense was 1.5% in the second quarter of 2007 and 1.9% in the same period of 2006.

     Consolidated operating income was $123.7 million in the second quarter of 2007, an increase of 14.7% from $107.8 million in the second quarter of 2006. Consolidated operating income as a percentage of net sales was 6.1% in the second quarter of 2007, compared to 6.6% in the second quarter of 2006. Corporate sector segment operating income was $97.8 million in the second quarter of 2007, an increase of 10.0% from $88.9 million in the second quarter of 2006. The increase in corporate sector segment operating income was primarily due to an increase in sales and gross margin, partially offset by increased payroll costs as a result of the investment in selling resources. Public sector segment operating income was $36.2 million in the second quarter of 2007, an increase of 25.0% from $29.0 million in the second quarter of 2006. The increase in public sector segment operating income was primarily due to an increase in sales. Berbee operating income was $5.8 million in the second quarter of 2007. Headquarters expenses increased to $16.1 million in the second quarter of 2007 compared to $10.0 million in the second quarter of 2006. Headquarters expenses included the $8.0 million of merger-related costs in the second quarter of 2007.

     Our objective for operating income as a percentage of net sales is between 6.0% to 6.4%.

     The effective income tax rate, expressed as a percentage of income before income taxes, increased to 38.0% in the second quarter of 2007 compared to 35.4% in the second quarter of 2006. This increase was primarily attributable to a $2.3 million benefit related to the resolution of an audit of the Company’s 2003 federal income tax return in the second quarter of 2006 that did not repeat in the second quarter of 2007.

     Net income in the second quarter of 2007 was $80.1 million, a 9.5% increase from $73.1 million in the second quarter of 2006. Net income in the second quarter of 2007 included the merger-related costs of $4.9 million after-tax.

     Diluted earnings per share were $0.99 in the second quarter of 2007, an increase of 8.8% from $0.91 in the second quarter of 2006. The merger-related costs decreased diluted earnings per share by approximately $0.06 in the second quarter of 2007.

Six Month Period Ended June 30, 2007 Compared to Six Month Period Ended June 30, 2006

     Net sales in the six month period ended June 30, 2007 increased 20.8% to $3.892 billion, compared to $3.222 billion in the same period of 2006. Results for the first six months of 2007 included sales made by Berbee, which was acquired in October 2006. Sales of notebook computers and accessories, desktop computers and servers, data storage devices, and netcomm products each increased more than 15% in the first six months of 2007 over the first six months of 2006. Corporate sector segment sales increased 8.6% to $2.456 billion in the six month period ended June 30, 2007 from $2.262 billion in the six month period ended June 30, 2006, and comprised 63.1% of our total net sales for the period. Public sector segment sales increased 18.9% to $1,141.0 million in the six month period ended June 30, 2007 from $960.0 million in the six month period ended June 30, 2006, and comprised 29.3% of our total net sales for the period. Berbee generated sales of $295.4 million in the six month period ended June 30, 2007, and comprised 7.6% of our total net sales for the period. Compared to the corporate sector and public sector segments, Berbee’s business model is more project oriented, which can result in a greater degree of variability in sales from period to period.

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     Gross profit increased 21.5% to $629.3 million in the first six months of 2007, compared to $517.9 million in the first six months of 2006. As a percentage of net sales, gross profit was 16.2% in the first six months of 2007, compared to 16.1% in the same period of 2006.

     Our objective for gross profit as a percentage of net sales is between 15.5% and 16.2%. The gross profit margin depends on various factors, including vendor incentive and inventory price protection programs, cooperative advertising funds classified as a reduction of cost of sales, product mix, net service contract revenue, commission revenue, pricing strategies, market conditions, and other factors, any of which could result in changes in gross margins from recent experience.

     Selling and administrative expenses increased 28.0% in the first six months of 2007 to $326.3 million, compared to $254.9 million in the same period of 2006, while increasing as a percentage of net sales to 8.4% in the first six months of 2007 versus 7.9% in the first six months of 2006. The primary factors that impacted selling and administrative expenses were:

• The inclusion of the Berbee segment operating expenses in the first six months of 2007, as a result of the acquisition in October 2006.

• Increased payroll costs, as a result of the continued investment in our sales force. Our sales force increased to 2,722 coworkers at June 30, 2007, compared to 2,179 coworkers at June 30, 2006.

• The inclusion of $8.0 million of merger-related costs associated with the Merger as previously discussed.

     Advertising expense increased to $61.4 million in the six month period ended June 30, 2007, compared to $60.9 million in the same period of 2006. As a percentage of net sales, advertising expense decreased to 1.6% in the first six months of 2007, compared to 1.9% in the first six months of 2006.

     Consolidated operating income was $241.6 million in the six month period ended June 30, 2007, an increase of 19.6% from $202.1 million in the six month period ended June 30, 2006. Consolidated operating income as a percentage of net sales was 6.2% in the first six months of 2007, compared to 6.3% in the same period of 2006. Corporate sector segment operating income was $195.0 million in the first six months of 2007, an increase of 9.5% from $178.2 million in the first six months of 2006. The increase in corporate sector segment operating income was primarily due to an increase in sales and gross margin, partially offset by increased payroll costs as a result of the investment in selling resources. Public sector segment operating income was $61.4 million in the first six months of 2007, an increase of 40.7% from $43.7 million in the first six months of 2006. The increase in public sector segment operating income was primarily due to an increase in sales and gross margin. Berbee operating income was $11.0 million in the first six months of 2007. Headquarters expenses increased to $25.8 million in the six month period ended June 30, 2007 compared to $19.8 million in the same period of 2006. Headquarters expenses included the $8.0 million of merger-related costs in the six month period ended June 30, 2007.

     Our objective for operating income as a percentage of net sales is between 6.0% to 6.4%.

     The effective income tax rate, expressed as a percentage of income before income taxes, increased to 37.5% in the six month period ended June 30, 2007 compared to 36.3% in the six month period ended June 30, 2006. This increase was primarily attributable to a $2.3 million benefit related to the resolution of an audit of the Company’s 2003 federal income tax return in the first six months of 2006 that did not repeat in the first six months of 2007.

     Net income in the first six months of 2007 was $156.9 million, a 16.4% increase from $134.8 million in the first six months of 2006. Net income in the first six months of 2007 included the merger-related costs of $4.9 million after-tax.

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Diluted earnings per share were $1.95 in the first six months of 2007, an increase of 17.5% from $1.66 in the first six months of 2006. The merger-related costs decreased diluted earnings per share by approximately $0.06 in the first six months of 2007.

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 1 of Part II of this Form 10-Q.

Liquidity and Capital Resources

Working Capital

     We have historically financed our operations and capital expenditures primarily through cash flows from operations. At June 30, 2007, we had cash, cash equivalents, and current marketable securities of $580.3 million, representing an increase of $228.7 million in cash, cash equivalents, and current marketable securities from December 31, 2006. Our working capital increased $234.9 million, to $1.255 billion at June 30, 2007 from $1.020 billion at December 31, 2006. The increase in working capital was primarily due to the increase in cash, cash equivalents, and current marketable securities.

     We have a $35.0 million unsecured line of credit which does not have a fixed expiration date. Borrowings under the 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 this line of credit. At June 30, 2007, there were no borrowings under the credit facility.

     A second $35.0 million line of credit expired in June 2007, and we did not renew it.

     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 $240.0 million collateralized by the inventory purchases financed by the financial institutions and certain other assets. We are currently in the process of amending one of the agreements to reduce our maximum credit line by $40.0 million. In addition, if the proposed Merger is completed, we will be required to enter into new agreements and, under those new agreements, we expect our maximum credit line under these agreements to be $125.0 million. We do not incur any interest expenses associated with these agreements, as we pay the balances when they are due. All amounts owed the financial institutions are included in trade accounts payable.

     Since 1998, we have repurchased a total of 17.8 million shares of our common stock at a total cost of $893.0 million under various share repurchase programs authorized by our Board of Directors. In April 2006, our Board of Directors authorized a share repurchase program of up to 5.0 million shares of our common stock. Share repurchases may be made from time to time in both open market and private transactions, as conditions warrant.

     No shares were repurchased under the current program during the three month period ended June 30, 2007. During the three month period ended June 30, 2006, we repurchased 1.5 million shares for $84.1 million. During the six month periods ended June 30, 2007 and 2006, we repurchased 0.3 million shares for $16.1 million and 3.8 million shares for $211.9 million, respectively.

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     As of June 30, 2007, 2.9 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 stock plans.

     Capital expenditures in the first six months of 2007 were $25.9 million, primarily for improvements to our information technology systems. Total capital expenditures for 2007 are expected to be approximately $55 million to $60 million.

     We anticipate that the funds necessary for Holdings to complete the Merger will be funded by cash, cash equivalents, and marketable securities, new secured credit facilities, private and/or public offerings of debt securities, and equity financing. We currently expect total debt outstanding at the close of the Merger to be approximately $4.6 billion. Our capitalization, liquidity, and capital resources will change substantially if the Merger is approved by our shareholders, the Merger is completed, and the related debt and equity transactions are completed. Upon closing of the debt transactions, we will be highly leveraged with significant debt service requirements.

Cash Flows for the Six Month Period Ended June 30, 2007

     Net cash provided by operating activities was $194.6 million in the six month period ended June 30, 2007. The primary factors that affected our cash flow from operations were net income and an increase in accounts payable. The increase in accounts payable positively impacted cash flows by $80.4 million due to the timing of our normal cycle of payments at the end of the period.

     Net cash used in investing activities for the six month period ended June 30, 2007 was $171.2 million, including $626.0 million to purchase marketable securities and $25.9 million used for capital expenditures, partially offset by $485.4 million provided by redemptions and sales of marketable securities. In addition, we made a final working capital adjustment payment of $4.7 million in early 2007 related to the October 2006 acquisition of Berbee.

     Net cash provided by financing activities for the six month period ended June 30, 2007 was $24.2 million. The primary factor that affected our cash flow from financing activities was proceeds of $41.4 million from the issuance of common stock under share-based compensation plans.

     Statements in this report about the expected timing, completion, and effect of the proposed Merger between CDW and a subsidiary of Holdings and all other 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 described below, which 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. CDW may not be able to complete the Merger because of a number of factors, including, among other things, the failure to obtain shareholder approval, the failure to consummate the financing, or the failure to satisfy other conditions. The following factors, among others, may have an impact on the accuracy of the forward-looking statements concerning our business contained in this report: the continued acceptance of the Company’s distribution channel by vendors and customers, the timely availability and acceptance of new products, continuation of key vendor relationships and support programs, changes in pricing by our vendors, changes in the competitive environment, the continuing development, maintenance and operation of the Company’s I.T.

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systems, changes and uncertainties in economic and geopolitical conditions that could affect the rate of I.T. spending by the Company’s customers, the ability of the Company to hire and retain qualified account managers and any additional factors described from time to time in the Company’s filings with the Securities and Exchange Commission. These among other factors are discussed in further detail under Item 1A, Risk Factors, and elsewhere in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2006, which was filed with the Securities and Exchange Commission on March 1, 2007, and which discussion is incorporated by reference herein.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

     There has been no material change from the information provided in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s management carried out an evaluation, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the last fiscal quarter. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2007, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company (including its consolidated subsidiaries) in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control Over Financial Reporting

     There was no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended June 30, 2007 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

     On May 31, 2007, three putative class-action complaints were filed by shareholders of CDW, and on June 26, 2007, a fourth complaint was filed. Two complaints were filed in the United States District Court for the Northern District of Illinois,Murphy v. CDW Corporation, et al., No. 07-CV-3033 andMartin, et al. v. CDW Corporation et al., No. 07-CV-3571. The other two complaints were filed in the Circuit Court of the Nineteenth Judicial District, Lake County, Illinois:Schuman v. CDW Corporation et al., No. 07-CH-1416, andFruchter v. CDW Corporation et al., No. 07-CH-1417. The complaints each name CDW and the individual members of the CDW board of directors as defendants, and, in general, allege purported class claims of breach of fiduciary duty against CDW and its directors challenging the process used to sell the company and for failure to ensure that CDW’s shareholders receive fair and adequate value for their shares, failure to value CDW properly and failure to disclose material information to CDW’s shareholders, including the details of competing offers. The complaints also allege self-dealing by directors, some of whom are alleged to have received financial benefits not shared by the class. TheSchumancomplaint names Madison Dearborn as an additional defendant, alleging that Madison Dearborn aided and abetted breaches of fiduciary duty by CDW’s directors. TheSchumancomplaint also alleges improper conflicts between CDW and its financial advisors, including conflicts based on alleged business and other relationships between CDW’s financial advisors and CDW and Madison Dearborn. TheFruchter complaint has been amended to name Madison Dearborn and Morgan Stanley, who acted as CDW’s financial advisor, as additional defendants, alleging that those defendants aided and abetted breaches of fiduciary duty by CDW’s directors, and to add allegations with respect to information that allegedly was not disclosed or was inadequately disclosed in the proxy statement relating to the Special Meeting. TheMurphycomplaint has been amended to add claims under the federal securities laws with respect to allegedly false and misleading statements contained in the proxy statement relating to the Special Meeting. Among other things, all four complaints seek to enjoin the Merger. We believe the complaints are without merit. On July 30, 2007, the state court dismissed theSchumanandFruchteractions without prejudice on the ground that there was another action pending on behalf of the same class for the same cause in federal court.

      Also on July 30, 2007, CDW and the other named defendants reached an agreement in principle with counsel for all of the plaintiffs who had filed putative class action lawsuits relating to the Merger. Under the terms of the agreement, CDW, the other named defendants, and plaintiffs have agreed to settle the actions subject to court approval. CDW and the other defendants deny the allegations made in the actions and deny having committed, or having aided and abetted, any breach of fiduciary duty or other violation of state or federal law. The agreement provides for dismissal of the federal actions with prejudice, for certification of a settlement class, and for releases of all claims in both the federal and state actions by the settlement class effective upon approval of a stipulation of settlement by the federal court. Under the terms of the agreement, CDW has agreed to make a supplemental filing concerning the Merger through a filing on Form 8-K and, provided the Merger closes and subject to the terms of the agreement, has agreed to pay certain attorneys’ fees, costs, and expenses incurred by plaintiffs. The agreement will not affect the amount of consideration to be paid to shareholders of CDW in connection with the Merger. In addition, the agreement will not affect the timing of the Special Meeting.

     From time to time, customers of CDW file voluntary petitions for reorganization under the United

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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 pending 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 various audits, including 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.

Item 1A. Risk Factors

     There has been no material change from the risk factors described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 other than as set forth below.

Failure to complete the proposed Merger could negatively affect us.

     On May 29, 2007, we entered into the Merger Agreement. There is no assurance that the Merger Agreement will be approved by our stockholders, and there is no assurance that the other conditions to the completion of the Merger will be satisfied. If the Merger is not completed for any reason, CDW will be subject to a number of material risks, including the following:

• the market price of CDW common stock may decline to the extent that the current market price of CDW common stock reflects a market assumption that the Merger will be completed;

• costs relating to the Merger Agreement, such as legal, accounting and financial advisory fees, and in specified circumstances, termination and expense reimbursement fees, must be paid by us even if the Merger is not completed;

• the diversion of management’s attention from the day-to-day business of CDW and the potential disruption to its coworkers and its relationships with customers, suppliers and distributors during the period before the completion of the Merger may make it difficult for CDW to achieve its strategic plan; and

• the restrictions on the conduct of CDW’s business prior to completion of the Merger could delay or prevent us from undertaking business opportunities that might arise pending completion of the Merger.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     We did not repurchase any shares of our common stock under our current share repurchase program in the three months ended June 30, 2007. This excludes shares repurchased to satisfy tax withholding obligations that arise on the vesting of shares of restricted stock.

Item 4. Submission of Matters to a Vote of Security Holders

(a)	The Company held its annual meeting of shareholders on June 5, 2007.
(b)	Set forth below are the two matters that were presented to and voted upon by our shareholders, and the results of such shareholders’ votes.

1. Election of Directors

		Votes		Non-
Nominee	Votes For	Against	Abstentions	Votes
Michelle L. Collins	73,608,861	334,612	66,480	-
Casey G. Cowell	73,893,447	50,331	66,174	-
John A. Edwardson	73,383,154	330,339	296,459	-
Daniel S. Goldin	73,909,721	34,184	66,047	-
Thomas J. Hansen	73,907,898	35,838	66,216	-
Donald P. Jacobs	73,890,310	54,583	65,059	-
Stephan A. James	73,890,376	53,362	66,215	-
Michael P. Krasny	73,145,479	799,106	65,368	-
Terry L. Lengfelder	73,895,995	47,814	66,143	-
Susan D. Wellington	73,889,028	55,641	65,283	-
Brian E. Williams	73,890,162	53,327	66,463	-

2.	Ratification of the Selection of Independent Registered Public Accounting Firm
	The ratification of the selection of PricewaterhouseCoopers LLP, independent registered public accounting firm, as auditors for the Company for the 2007 fiscal year.

Votes For	Votes Against		Abstentions		Non-Votes
73,577,438		348,955		83,559		-

Item 6. Exhibits

Exhibits:

31.1	Certification of Chief Executive Officer Pursuant to Rule 13a–14(a) under the Securities Exchange Act of 1934
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a–14(a) under the Securities Exchange Act of 1934
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C 1350

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CDW CORPORATION
Date:	August 1, 2007	By:	/s/ Barbara A. KleinBarbara A. Klein
			Senior Vice President and Chief Financial Officer
			(Duly authorized officer and principal financial officer)

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