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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, 2002
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 COMPUTER CENTERS, INC.
(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)
-------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
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
--------------- ---------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO
--------------- ---------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 8, 2002, 89,107,451 common shares were issued and
84,224,075 were outstanding.
CDW COMPUTER CENTERS, INC.
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets -
June 30, 2002 and December 31, 2001 1
Condensed Consolidated Statements of Income -
Three and six months ended June 30, 2002 and 2001 2
Condensed Consolidated Statement of
Shareholders' Equity - Six months ended
June 30, 2002 3
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 2002 and 2001 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 18
PART II. Other Information
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
ii
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JUNE 30, DECEMBER 31,
2002 2001
----------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 134,824 $ 145,977
Marketable securities 286,097 248,404
Accounts receivable, net of allowance
for doubtful accounts of $10,200 and
$9,500 respectively 356,209 318,405
Merchandise inventory 153,283 119,117
Prepaid income taxes 3,251 -
Miscellaneous receivables 14,107 9,760
Deferred income taxes 9,040 9,040
Prepaid expenses 2,513 3,455
----------- ---------
Total current assets 959,324 854,158
Property and equipment, net 64,868 69,073
Investment in and advances to joint venture 6,058 5,382
Deferred income taxes and other assets 7,487 8,416
----------- ---------
TOTAL ASSETS $ 1,037,737 $ 937,029
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 138,714 $ 106,808
Accrued expenses:
Compensation 28,250 28,113
Income taxes - 7,847
Other 17,535 15,604
----------- ---------
Total current liabilities 184,499 158,372
----------- ---------
Shareholders' equity:
Preferred shares, $1.00 par value; 5,000 shares
authorized; none issued - -
Common shares, $ .01 par value; 500,000 shares
authorized; 89,073 and 88,466 shares
issued, respectively 891 885
Paid-in capital 328,306 258,708
Retained earnings 706,108 621,299
Unearned compensation (1,352) (1,931)
----------- ---------
1,033,953 878,961
Less cost of common shares in treasury,
4,619 shares and 2,893 shares, respectively (180,715) (100,304)
----------- ---------
Total shareholders' equity 853,238 778,657
----------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,037,737 $ 937,029
=========== =========
The accompanying notes are an integral part of the
consolidated financial statements.
1
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2002 2001 2002 2001
----------- --------- ----------- -----------
Net sales $ 1,056,820 $ 995,045 $ 2,059,656 $ 1,982,290
Cost of sales 919,572 862,422 1,792,245 1,719,548
----------- --------- ----------- -----------
Gross profit 137,248 132,623 267,411 262,742
Selling and administrative expenses 64,974 62,532 129,210 126,375
Net advertising expense 1,580 1,592 2,313 4,405
----------- --------- ----------- -----------
Income from operations 70,694 68,499 135,888 131,962
Interest income 2,551 3,119 5,051 6,943
Other expense, net (431) (200) (759) (306)
----------- --------- ----------- -----------
Income before income taxes 72,814 71,418 140,180 138,599
Income tax provision 28,761 28,388 55,371 55,093
----------- --------- ----------- -----------
Net income $ 44,053 $ 43,030 $ 84,809 $ 83,506
=========== ========= =========== ===========
Earnings per share
Basic $ 0.51 $ 0.50 $ 0.99 $ 0.97
=========== ========= =========== ===========
Diluted $ 0.49 $ 0.48 $ 0.95 $ 0.94
=========== ========= =========== ===========
Weighted average number of
common shares outstanding
Basic 85,624 85,598 85,733 85,896
=========== ========= =========== ===========
Diluted 89,127 88,889 89,445 88,989
=========== ========= =========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
2
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)
COMMON SHARES TREASURY SHARES TOTAL
---------------- PAID-IN RETAINED UNEARNED ------------------ SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION SHARES AMOUNT EQUITY
------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 88,466 $ 885 $258,708 $ 621,299 $ (1,931) 2,893 $(100,304) $ 778,657
MPK Restricted Stock Plan forfeitures (22) 22 -
Amortization of unearned compensation 557 557
Exercise of stock options 607 6 8,404 8,410
Tax benefit from stock option and
restricted stock transactions 61,216 61,216
Purchase of treasury shares 1,726 (80,411) (80,411)
Net income 84,809 84,809
------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2002 89,073 $ 891 $328,306 $ 706,108 $ (1,352) 4,619 $(180,715) $ 853,238
===========================================================================================
The accompanying notes are an integral part of the
consolidated financial statements.
3
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
SIX MONTHS ENDED JUNE 30,
---------------------------
2002 2001
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 84,809 $ 83,506
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 8,220 7,079
Accretion of marketable securities 364 (286)
Stock-based compensation expense 557 993
Allowance for doubtful accounts 700 1,750
Deferred income taxes 1,383 380
Tax benefit from stock option and restricted
stock transactions 61,216 7,227
Changes in assets and liabilities:
Accounts receivable (38,504) 20,064
Miscellaneous receivables and other assets (4,617) 2,627
Merchandise inventory (34,166) (10,565)
Prepaid expenses 488 312
Prepaid income taxes (3,251) -
Accounts payable 31,906 44,613
Accrued compensation 137 466
Accrued income taxes and other expenses (5,916) 1,962
----------- ---------
Net cash provided by operating activities 103,326 160,128
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (661,323) (943,440)
Redemptions of available-for-sale securities 728,200 799,180
Purchases of held-to-maturity securities (141,749) -
Redemptions of held-to-maturity securities 36,815 68,228
Investment in and advances to joint venture (8,856) (11,929)
Repayment of advances from joint venture 8,450 9,874
Purchase of property and equipment (4,015) (11,916)
----------- ---------
Net cash used in investing activities (42,478) (90,003)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (80,411) (72,606)
Proceeds from exercise of stock options 8,410 3,074
----------- ---------
Net cash used in financing activities (72,001) (69,532)
----------- ---------
NET (DECREASE) / INCREASE IN CASH (11,153) 593
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 145,977 43,664
----------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 134,824 $ 44,257
=========== =========
The accompanying notes are an integral part of the
consolidated financial statements.
4
CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
CDW Computer Centers, Inc. (collectively with its subsidiaries, the
"Company" or "CDW") is the largest direct marketer of multi-brand computers and
related technology products and services in the United States. Our primary
business is conducted from a combined corporate office, distribution center and
showroom facility located in Vernon Hills, Illinois, sales offices in Mettawa,
Buffalo Grove and Chicago, Illinois and a government sales office in Lansdowne,
Virginia. Additionally, we market and sell products through www.cdw.com and
www.cdwg.com, our Internet sites.
We extend credit to corporate and public sector customers under certain
circumstances based upon the financial strength of the customer. Such customers
are typically granted net 30 day credit terms. The balance of our sales are made
primarily through third party credit cards and for cash-on-delivery.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States. Such principles were applied on a basis consistent with those
reflected in the 2001 Annual Report on Form 10-K and documents incorporated
therein as filed with the Securities and Exchange Commission. The accompanying
financial data should be read in conjunction with the notes to consolidated
financial statements contained in the 2001 Annual Report on Form 10-K and
documents incorporated therein. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements contain all adjustments
(consisting solely of normal recurring accruals) necessary to present fairly our
financial position as of June 30, 2002 and December 31, 2001, the results of
operations for the three and six month periods ended June 30, 2002 and 2001, the
cash flows for the six month periods ended June 30, 2002 and 2001, and the
changes in shareholders' equity for the six month period ended June 30, 2002.
The unaudited condensed consolidated statements of income for such interim
periods are not necessarily indicative of results for the full year.
In 2002, we adopted Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This
Statement supercedes SFAS No. 121. The Statement had no significant impact on
our financial statements for the three and six month periods ended June 30,
2002, and we do not expect it to have any significant impact for the year ending
December 31, 2002.
Use of Estimates
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States 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 as of
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, and
revisions to estimates are included in our results for the period in which the
actual amounts become known. See 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, 2001, for an additional discussion of the
most significant accounting policies and estimates used in the preparation of
our financial statements.
5
3. Marketable Securities
The amortized cost and estimated fair values of our investments in
marketable securities at June 30, 2002, were (in thousands):
Gross
Unrealized
Holding
Estimated ------------------------ Amortized
Fair Value Gains (Losses) Cost
----------- ----------- ----------- -----------
Security Type
Available-for-sale:
U.S. Government and Government Agency Securities $ 42,570 $ 69 $ - $ 42,501
Municipal bond 82,448 - (4) 82,452
----------- ----------- ----------- -----------
Total available-for-sale 125,018 69 (4) 124,953
----------- ----------- ----------- -----------
Held to maturity:
U.S. Government and Government Agency 145,293 244 - 145,049
Securities
Corporate Fixed Income Securities 16,135 40 - 16,095
----------- ----------- ----------- -----------
Total held-to-maturity 161,428 284 - 161,144
----------- ----------- ----------- -----------
Total marketable securities $ 286,446 $ 353 $ (4) $ 286,097
=========== =========== =========== ===========
Estimated fair values of marketable securities are based on quoted market
prices. The amortized cost and estimated fair value of our investments in
marketable securities at June 30, 2002 by contractual maturity were (in
thousands):
Estimated Amortized
Fair Value Cost
----------- -----------
Due in one year or less $ 256,321 $ 255,988
Due in greater than one year 30,125 30,109
----------- -----------
Total investments in marketable securities $ 286,446 $ 286,097
=========== ===========
All of the marketable securities that were due in greater than one year have
maturity dates prior to December 31, 2003.
4. Financing Arrangements
We have an aggregate $70 million available pursuant to two $35 million
unsecured lines of credit with two financial institutions. One line of credit
expires in June 2003, at which time we intend to renew the line, and the other
does not have a fixed expiration date. Borrowings under the first credit
facility bear interest at the prime rate less 2 1/2%, LIBOR plus 1/2% or the
federal funds rate plus 1/2%, as determined by us. Borrowings under the second
credit facility bear interest at the prime rate less 2 1/2%, LIBOR plus .45% or
the federal funds rate plus .45%, as determined by us. At June 30, 2002, there
were no borrowings under either of the credit facilities.
We have entered into security agreements with certain financial
institutions ("Flooring Companies") 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 $82 million collateralized by
inventory purchases financed by the Flooring Companies. At June 30, 2002, all
amounts owed the Flooring Companies were included in trade accounts payable.
6
5. Earnings Per Share
At June 30, 2002, we had outstanding common shares totaling
approximately 84,454,000. We have granted options to purchase common shares to
the directors and coworkers of CDW under several stock option plans. These
options have a dilutive effect on earnings per share. The following is a
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations as required by SFAS No. 128, "Earnings Per
Share."
Three Months Ended Six Months Ended
June 30, June 30,
(in 000's except per (in 000's except per
share data) share data)
-------- -------- -------- --------
2002 2001 2002 2001
-------- -------- -------- --------
Basic earnings per share:
Income available to
common shareholders (numerator) $ 44,053 $ 43,030 $ 84,809 $ 83,506
-------- -------- -------- --------
Weighted average common
shares outstanding (denominator) 85,624 85,598 85,733 85,896
-------- -------- -------- --------
Basic earnings per share $ 0.51 $ 0.50 $ 0.99 $ 0.97
======== ======== ======== ========
Diluted earnings per share:
Income available to
common shareholders (numerator) $ 44,053 $ 43,030 $ 84,809 $ 83,506
-------- -------- -------- --------
Weighted average common
shares outstanding 85,624 85,598 85,733 85,896
Effect of dilutive securities:
Options on common stock 3,503 3,291 3,712 3,093
-------- -------- -------- --------
Total common shares and dilutive
securities (denominator) 89,127 88,889 89,445 88,989
-------- -------- -------- --------
Diluted earnings per share $ 0.49 $ 0.48 $ 0.95 $ 0.94
======== ======== ======== ========
Additional options to purchase common shares were outstanding during the
three and six month periods ended June 30, 2002 but were not included in the
computation of diluted earnings per share as the exercise price of these options
was greater than the average market price of common shares during the respective
periods. The following table summarizes the weighted average number of options
outstanding and the weighted average exercise price of those options which were
excluded from the calculation:
Three Months Ended Six Months Ended
June 30, 2002 June 30, 2002
-------------------- ----------------
Weighted average number of options 1,019,141 824,890
Weighed average exercise price $ 55.71 $ 55.73
The options were all outstanding at June 30, 2002.
6. Share Repurchase Programs
In January 2001, our Board of Directors authorized the purchase of up to
5 million shares of our common stock, from time to time in both open market and
private transactions, as conditions warrant. This repurchase program is expected
to remain effective for approximately twenty-four months, unless sooner
completed or terminated by the Board of Directors. Repurchased shares are
generally held in treasury for general corporate purposes, including issuances
under various employee stock plans. Under this repurchase program, we purchased
1,726,876 shares of our common stock during the six month period ended June 30,
2002 at a total cost of approximately $80.4 million (an average price of $46.56
per share). These repurchases included 384,376 shares repurchased on May 7,
2002, at a total cost of $19 million ($49.50 per share), from Daniel B.
7
Kass, Executive Vice-President and a Director. From January 2001 through June
30, 2002, we had purchased under this repurchase program a total of 4,419,376
shares of our common stock at a total cost of approximately $178.6 million (an
average price of $40.42 per share).
In July 2002, our Board of Directors authorized a new share repurchase
program of up to 2.5 million shares of our common stock. This newly authorized
repurchase amount is in addition to the remaining 316,624 shares available as of
July 29, 2002, under our previously announced repurchase program, bringing the
total shares available for repurchase to approximately 2.8 million. These
purchases may be made from time to time in both the open market and private
transactions, as conditions merit. The new repurchase program is expected to
remain effective through July 2004, unless earlier terminated by the Board.
7. Segment Information
We are engaged in the sale of multi-brand computers and related technology
products and services primarily through direct marketing. We have two operating
segments: corporate, which is primarily comprised of corporate customers but
also includes consumers, and public sector, which is comprised of federal, state
and local government and education customers. In accordance with SFAS 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
above in the "Summary of Significant Accounting Policies." We allocate resources
to and evaluate performance of our business segments based on both sales and
operating income. Our corporate segment provides purchasing, merchandising,
accounting, information technology, marketing, distribution and fulfillment
services to the public sector segment. Certain elements of gross margin and
operating expenses are subject to intercompany service agreements which provide
for, among other things, a mark-up on intercompany sales and allocation of
indirect expenses such as occupancy, operations and other support, payroll,
training and benefits. The table below presents information about our reportable
segments:
Three Months Ended June 30, 2002 (in 000's)
-------------------------------------------------------
Corporate Public Sector Eliminations Consolidated
-------------------------------------------------------
External customer sales $ 839,539 $ 217,281 $ - $ 1,056,820
Transfers between segments 210,634 - (210,634) -
---------- ------------ ------------ ------------
Total sales $1,050,173 $ 217,281 $ (210,634) $ 1,056,820
========== ============ ============ ============
Operating income $ 66,550 $ 4,144 - $ 70,694
========== ============ ============
Net interest income and
other expense 2,120
------------
Pretax income $ 72,814
============
Total assets $ 986,182 $ 121,054 (69,499) $ 1,037,737
========== ============ ============ ============
8
Three Months Ended June 30, 2001 (in 000's)
-------------------------------------------------------
Corporate Public Sector Eliminations Consolidated
-------------------------------------------------------
External customer sales $ 822,818 $ 172,227 $ - $ 995,045
Transfers between segments 156,818 - (156,818) -
---------- ------------ ------------ ------------
Total sales $ 979,636 $ 172,227 $ (156,818) $ 995,045
========== ============ ============ ============
Operating income $ 62,432 $ 6,067 $ - $ 68,499
========== ============ ============
Net interest income and
other expense 2,919
------------
Pretax Income $ 71,418
============
Total assets $ 784,592 $ 64,540 $ (31,460) $ 817,672
========== ============ ============ ============
Six Months Ended June 30, 2002 (in 000's)
-------------------------------------------------------
Corporate Public Sector Eliminations Consolidated
-------------------------------------------------------
External customer sales $1,684,194 $ 375,462 $ - $ 2,059,656
Transfers between segments 361,058 - (361,058) -
---------- ------------ ------------ ------------
Total sales $2,045,252 $ 375,462 $ (361,058) $ 2,059,656
========== ============ ============ ============
Operating income $ 128,947 $ 6,941 $ - $ 135,888
========== ============ ============
Net interest income and
other expense 4,292
------------
Pretax income $ 140,180
============
Total assets $ 986,182 $ 121,054 $ (69,499) $ 1,037,737
========== ============ ============ ============
Six Months Ended June 30, 2001 (in 000's)
-------------------------------------------------------
Corporate Public Sector Eliminations Consolidated
-------------------------------------------------------
External customer sales $1,693,352 $ 288,938 $ - $ 1,982,290
Transfers between segments 263,618 - (263,618) -
---------- ------------ ------------ ------------
Total sales $1,956,970 $ 288,938 $ (263,618) $ 1,982,290
========== ============ ============ ============
Operating income $ 122,366 $ 9,596 $ - $ 131,962
========== ============ ============ ============
.
Net interest income and
other assets 6,637
------------
Pretax Income $ 138,599
============
Total assets $ 784,592 $ 64,540 $ (31,460) $ 817,672
========== ============ ============ ============
9
Our assets are primarily managed as part of the corporate segment,
including all inventory and the majority of all property and equipment. As a
result, capital expenditures and related depreciation are immaterial for the
public sector segment. The public sector segment assets consist principally of
cash and cash equivalents and accounts receivable. Certain reclassifications of
assets between segments were made in the second quarter of 2002, with no impact
on total consolidated assets.
Sales, operating expenses and income relating to our investment in CDW
Leasing, L.L.C. ("CDW-L"), accounted for under the equity method, are immaterial
to the Company as a whole and are evaluated by management for making operating
decisions and allocating resources as part of the corporate segment.
The following schedule presents net sales dollars by product category for
all segments as a percentage of total net sales dollars. Product lines are based
upon internal product code classifications. Product mix for the three and six
month periods ended June 30, 2001 has been retroactively adjusted for certain
changes in individual product categorization.
------------------------------------------------------------------
THREE MONTHS SIX MONTHS
ENDED ENDED
ANALYSIS OF PRODUCT MIX JUNE 30, JUNE 30,
------------------------------------------------- -------------
2002 2001 2002 2001
------------------------------------------------- -------------
Notebook Computers and Accessories 12.6% 14.5% 12.7% 14.9%
------------------------------------------------- -------------
Desktop Computers and Servers 13.4 13.3 13.5 13.7
------------------------------------------------- -------------
Subtotal Computer Products 26.0 27.8 26.2 28.6
------------------------------------------------- -------------
Software 18.4 17.4 17.7 16.5
------------------------------------------------- -------------
Data Storage Devices 14.1 14.4 14.4 14.3
------------------------------------------------- -------------
Printers 12.6 12.5 13.1 12.7
------------------------------------------------- -------------
Net/Comm Products 9.3 9.5 9.4 9.5
------------------------------------------------- -------------
Video 8.9 8.4 8.7 8.3
------------------------------------------------- -------------
Add-On Boards/Memory 4.5 4.5 4.5 4.8
------------------------------------------------- -------------
Input Devices 3.2 2.9 3.1 2.8
------------------------------------------------- -------------
Accessories and Other 3.0 2.6 2.9 2.5
------------------------------------------------- -------------
Total 100.0% 100.0% 100.0% 100.0%
==================================================================
No single customer accounted for more than 1.25% of net sales in the three
or six month periods ended June 30, 2002 or 2001. Less than 1% of our revenues
are comprised of sales to customers outside of the United States.
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 condensed
consolidated financial statements and the notes thereto.
Overview
We are the largest direct marketer of multi-brand computers and related
technology products and services in the United States. Our primary business is
conducted from a combined corporate office, distribution center and showroom
facility located in Vernon Hills, Illinois, and sales offices in Mettawa,
Buffalo Grove and Chicago, Illinois and Lansdowne, Virginia. Additionally, we
market and sell products through www.cdw.com and www.cdwg.com, our Web sites.
For financial reporting purposes, we have two operating segments:
corporate, which is primarily comprised of business customers but also includes
consumers (which generated approximately 3% of total sales in the three and six
month periods ended June 30, 2002), and public sector, comprised of federal,
state and local government and educational institutions who are served by CDW
Government, Inc. ("CDW-G"), a wholly owned subsidiary.
10
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, 2001, which report was filed with the Securities and Exchange
Commission on March 27, 2002, and amended on April 16, 2002, 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 our Annual Report.
Results Of Operations
The following table sets forth financial information derived from our
consolidated statements of income expressed as a percentage of net sales:
- ------------------------------------------------------------------------------
Percentage of Net Sales
--------------------------------------
Three Months Ended Six Months Ended
FINANCIAL INFORMATION June 30, June 30,
- ------------------------------------------------------------------------------
2002 2001 2002 2001
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.0 86.7 87.0 86.7
------------------ ----------------
Gross profit 13.0 13.3 13.0 13.3
Selling and administrative expenses 6.1 6.2 6.3 6.4
Net advertising expense 0.2 0.2 0.1 0.2
------------------ ----------------
Income from operations 6.7 6.9 6.6 6.7
Interest and other income/expense 0.2 0.3 0.2 0.3
------------------ ----------------
Income before income taxes 6.9 7.2 6.8 7.0
Income tax provision 2.7 2.9 2.7 2.8
------------------ ----------------
Net income 4.2% 4.3% 4.1% 4.2%
==============================================================================
The following table sets forth for the periods indicated a summary of
certain of our consolidated operating statistics:
- -------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
Operating Statistics June 30, June 30,
- -------------------------------------------------------------------------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Commercial customers served (1):
Current quarter 174,276 164,135 250,717 237,705
Trailing 12 months 363,282 334,281
% of sales to commercial customers 97% 97% 97% 97%
Number of invoices processed 1,215,415 1,062,782 2,464,068 2,154,572
Average invoice size $ 947 $ 997 $ 906 $ 976
Direct web sales (000's) $ 202,129 $ 152,832 $ 390,308 $ 303,416
Daily average web users 85,250 81,135 92,131 93,012
Sales force, end of period 1225 1239
Annualized inventory turnover 25 25 26 30
Accounts receivable days sales outstanding 31 29 31 29
Annualized net sales per coworker (000's) $ 1,508 $ 1,473 $ 1,487 $ 1,448
- -------------------------------------------------------------------------------------------------
(1) Commercial customers represent public sector customers and corporate
sector customers excluding consumers.
11
The following table presents net sales by product category as a percentage
of total net sales. Product lines are based upon internal product code
classifications. Product mix for the three and six month periods ended June 30,
2001 has been retroactively adjusted for certain changes in individual product
categorization.
-------------------------------------------------------------------------
THREE MONTHS SIX MONTHS
ENDED ENDED
ANALYSIS OF PRODUCT MIX JUNE 30, JUNE 30,
----------------------------------------------------- ----------------
2002 2001 2002 2001
----------------------------------------------------- ----------------
Notebook Computers and Accessories 12.6% 14.5% 12.7% 14.9%
----------------------------------------------------- ----------------
Desktop Computers and Servers 13.4 13.3 13.5 13.7
----------------------------------------------------- ----------------
Subtotal Computer Products 26.0 27.8 26.2 28.6
----------------------------------------------------- ----------------
Software 18.4 17.4 17.7 16.5
----------------------------------------------------- ----------------
Data Storage Devices 14.1 14.4 14.4 14.3
----------------------------------------------------- ----------------
Printers 12.6 12.5 13.1 12.7
----------------------------------------------------- ----------------
Net/Comm Products 9.3 9.5 9.4 9.5
----------------------------------------------------- ----------------
Video 8.9 8.4 8.7 8.3
----------------------------------------------------- ----------------
Add-On Boards/Memory 4.5 4.5 4.5 4.8
----------------------------------------------------- ----------------
Input Devices 3.2 2.9 3.1 2.8
----------------------------------------------------- ----------------
Accessories and Other 3.0 2.6 2.9 2.5
----------------------------------------------------- ----------------
Total 100.0% 100.0% 100.0% 100.0%
=========================================================================
The following table represents year-over-year sales growth by product
category for each of the periods indicated. Product lines are based upon
internal product code classifications. Product growth rates for the three and
six month periods ended June 30, 2001 have been retroactively adjusted for
certain changes in individual product categorization.
--------------------------------------------------------------------------
THREE MONTHS SIX MONTHS
ANALYSIS OF PRODUCT CATEGORY ENDED ENDED
GROWTH JUNE 30, JUNE 30,
----------------------------------------------------- ----------------
2002 2001 2002 2001
----------------------------------------------------- ----------------
Notebook Computers and Accessories (7.2)% (19.4)% (11.7)% (19.0)%
----------------------------------------------------- ----------------
Desktop Computers and Servers 7.6 (13.9) 2.8 (6.7)
----------------------------------------------------- ----------------
Subtotal Computer Products (0.1) (16.9) (4.8) (13.6)
----------------------------------------------------- ----------------
Software 12.6 51.4 11.5 52.1
----------------------------------------------------- ----------------
Data Storage Devices 4.2 8.9 4.0 13.6
----------------------------------------------------- ----------------
Printers 7.6 19.0 7.1 24.1
----------------------------------------------------- ----------------
Net/Comm Products 4.4 9.2 2.7 15.3
----------------------------------------------------- ----------------
Video 13.2 18.0 9.9 19.8
----------------------------------------------------- ----------------
Add-On Boards/Memory 6.9 (22.4) (0.8) (12.3)
----------------------------------------------------- ----------------
Input Devices 17.5 25.7 16.6 26.1
----------------------------------------------------- ----------------
Accessories and Other 24.9 24.8 20.1 30.1
----------------------------------------------------- ----------------
Total 6.7% 5.4% 4.0% 9.1%
=========================================================================
12
Three month period ended June 30, 2002 compared to three month period ended June
30, 2001
Net sales in the second quarter of 2002 increased 6.2% to $1.057 billion
compared to $995.0 million in the second quarter of 2001. The increase in sales
was primarily due to an increase in the number of commercial customers served
and increased sales in our public sector, partially offset by reduced average
unit selling prices and decreased levels of IT spending by some customers.
Public sector sales increased 26.2% to $217.3 in the second quarter of 2002 from
$172.2 million in the second quarter of 2001, and comprised 20.6% of our total
sales for second quarter of 2002. Corporate sector sales increased 2% from the
second quarter of 2001 to $839.5 million. Our strength in the public sector
business is primarily due to focused sales and marketing efforts in the federal,
state and local government and education markets and because these customers
have not reduced IT budgets as severely as those in the corporate markets.
The average selling prices of desktop computers decreased 10.5%, servers
decreased 5.1% and notebook computers decreased 10.3% from the second quarter of
2001. Unit sales of desktop computers increased 20.7%, servers increased 12.5%
and notebook computers increased 2.0% from the second quarter of 2001. While
there were significant changes in pricing in some product categories from the
second quarter of 2001, changes in average selling prices from the first quarter
2002 indicate that pricing of computer products may be stabilizing. However,
decreases in pricing for computer products are possible during the second half
of 2002. Price decreases require us to generate more orders and sell more units
in order to maintain or increase the level of sales.
Software sales increased 12.6% in the second quarter of 2002 compared to
the second quarter of 2001, and remained our top selling product category in the
second quarter of 2002. Sales of input devices, video, printers and desktop
computers were also strong during the second quarter of 2002, with sales up over
7% for each of these product categories over the second quarter of 2001.
Gross profit as a percentage of net sales was 13.0% in the second quarter
of 2002, compared to 13.3% in the second quarter of 2001. This decrease was
primarily due to reductions in selling margins, partially offset by improvements
in product mix and increases in software upgrade insurance accounted for on a
net basis. Microsoft is shifting from selling upgrades to software products to
selling an insurance product that gives users the right to future versions of
software for a period of time. As Microsoft shifts to this new selling method,
there is an interim product called Upgrade Advantage being sold through July 31,
2002. We account for Upgrade Advantage on a net basis, so the method of
accounting is similar to a commission. Sales of Upgrade Advantage, therefore,
have a positive impact on our gross profit margin, but do not have a significant
impact on our sales. Upgrade Advantage added approximately one quarter of one
percent to our gross profit margin in the second quarter of 2002.
Our objective is to maintain gross profit as a percentage of sales between
12.5% and 13.0%. Gross profit margin depends on various factors, including the
continued participation by vendors in inventory price protection and rebate
programs, product mix, including software maintenance and third party services,
pricing strategies, market conditions and other factors, any of which could
result in a fluctuation of gross margin below recent experience.
Selling and administrative expenses, excluding net advertising expense,
decreased to 6.1% of net sales in the three month period ended June 30, 2002
from 6.2% in the same period of 2001. The decrease resulted primarily from a
decrease in payroll costs as a percentage of net sales. Our sales force
decreased by approximately 1% from the second quarter of 2001 to 1,225 as hiring
has been primarily for attrition over the past few quarters and typically
increases over the summer months. Our sales force includes account managers as
well as sales specialists who provide consultation in areas requiring technical
or specialized product expertise such as networking, security, data storage, and
volume software licensing. We continue to evaluate our need for additional
account managers and will adjust hiring goals as business conditions dictate.
Selling and administrative expenses may increase as a percentage of net sales
due to additional coworkers and continued investments in infrastructure.
13
Net advertising expense as a percentage of net sales was 0.2% for the three
month period ended June 30, 2002, the same as the second quarter of the prior
year. Gross advertising expense increased $1 million but remained at 2.2% of net
sales, consistent with the second quarter of 2001. While gross advertising
expense dollars increased only marginally from the second quarter of 2001, we
are generating more coverage through an aggressive branding campaign, including
national television and print media, and the number of advertising impressions
have more than doubled versus a year ago, primarily due to lower ad rates. Based
upon our planned marketing initiatives over the next several months, gross
advertising expense as a percentage of net sales is expected to be relatively
consistent with or higher than the percentage for the second quarter of 2002.
Cooperative advertising reimbursements as a percentage of net sales were 2% in
the second quarter of 2002, consistent with the second quarter of 2001.
Cooperative advertising reimbursements as a percentage of net sales may decrease
in future periods depending on the level of vendor participation and collection
experience.
Consolidated operating income was $70.7 million in the second quarter of
2002, a 3.2% increase from $68.5 million in the second quarter of 2001. This
increase was primarily a result of the increase in sales and decrease in
operating expenses as a percentage of net sales in 2002, partially offset by the
decrease in gross margin percentage. Consolidated operating income as a
percentage of net sales decreased to 6.7% in the second quarter of 2002 from
6.9% in the second quarter of 2001, primarily due to the decline in gross margin
percentage.
Corporate segment operating income was $66.6 million in the second quarter
of 2002, compared to $62.4 million in the same period in 2001. Corporate segment
operating income was 6.3% of net sales in the second quarter of 2002, compared
to 6.4% in the second quarter of 2001. Public sector segment operating income
was $4.1 million in the second quarter of 2002, a decrease from $6.1 million in
the second quarter of 2001. Public sector segment operating income was 1.9% of
net sales in the second quarter of 2002, compared to 3.5% in the second quarter
of 2001. The decline in public sector operating income was due to a lower gross
margin and higher operating expenses, primarily payroll and coworker costs due
to the addition of account managers to support growth in our public sector
business and in anticipation of seasonal sales growth in the third quarter.
Interest income, net of other expenses, decreased to $2.1 million in the
second quarter of 2002 compared to $2.9 million in the second quarter of 2001,
as higher levels of cash available for investment were offset by decreases in
the rate of interest earned, primarily due to substantially lower market
interest rates.
The effective income tax rate, expressed as a percentage of income before
income taxes, was 39.5% for the three month period ended June 30, 2002, compared
to 39.75% for the second quarter of 2001.
Net income in the second quarter of 2002 was $44.1 million, a 2.4% increase
over $43 million in the second quarter of 2001. Diluted earnings per share were
$0.49 for the three month period ended June 30, 2002 and $0.48 in the same
period of 2001, an increase of 2.1%.
Six month period ended June 30, 2002 compared to six month period ended June 30,
2001
Net sales in the first six months of 2002 increased 3.9% to $2.06 billion
compared to $1.98 billion in the same period of 2001. The increase in sales was
primarily due to an increase in the number of commercial customers served and
increased sales in our public sector, partially offset by reduced average unit
selling prices and decreased levels of IT spending by some customers. Public
sector sales increased 29.9% to $375.5 million in the first six months of 2002
from $288.9 million in the first six months of 2001, and comprised 18.2% of our
total sales for the first six months of 2002. Corporate sector sales declined
0.5% from the first six months of 2001 to $1.68 billion. Our strength in the
public sector business is primarily due to focused sales and marketing efforts
in the federal, state and local government and education markets and because
these customers have not reduced IT budgets as severely as those in the
corporate markets.
The average selling price of desktop computers decreased 12.1%, servers
decreased 7.6% and notebook computers decreased 16.0% from the first six months
of 2001. Unit sales of desktop computers increased 16.7%, servers increased
11.7% and notebook computers increased 1.3% from the first six months of 2001.
While there were significant changes in pricing in some product categories from
the first six months of 2001, changes in average selling prices during the first
six months of 2002 indicate that pricing of computer products
14
may be stabilizing. However, decreases in pricing for computer products are
possible during the second half of 2002. Price decreases require us to generate
more orders and sell more units in order to maintain or increase the levels of
sales.
Software sales increased 11.5% in the first six months of 2002 compared to
the first six months of 2001, and remained our top selling product category in
the first six months of 2002. Sales of input devices, video and printers were
also strong during the first six months of 2002, with sales increasing over 7%
for each of these product categories over the first six months of 2001.
Gross profit as a percentage of net sales was 13.0% for the six month
period ended June 30, 2002, compared to 13.3% for the same period in 2001. This
decrease was primarily due to reductions in selling margins, partially offset by
improvements in product mix and increases in software upgrade insurance
accounted for on a net basis. Our objective is to maintain gross profit as a
percentage of net sales between 12.5% and 13.0%. Gross profit margin depends on
various factors, including the continued participation by vendors in inventory
price protection and rebate programs, product mix, including software
maintenance and third party services, pricing strategies, market conditions and
other factors, any of which could result in a fluctuation of gross margin below
recent experience.
Selling and administrative expenses, excluding net advertising expense,
decreased to 6.3% of net sales in the six month period ended June 30, 2002 from
6.4% in the same period of 2001. The decrease resulted primarily from a decrease
in payroll costs as a percentage of net sales, partially offset by increased
occupancy costs. Occupancy expense, including rent and depreciation, increased
approximately $3 million versus the first six months of 2001 due to the opening
of additional sales offices in March and April, 2001, and the expansion of our
warehouse in April, 2001. Our sales force decreased by approximately 1% from
June 30, 2001 to 1,225 at June 30, 2002.
Net advertising expense decreased as a percentage of net sales to 0.1% for
the six month period ended June 30, 2002, from 0.2% in the first six months of
the prior year. Gross advertising expense decreased $0.5 million to 2.1% of net
sales, a decrease from 2.2% of net sales in the first six months of 2001. While
gross advertising expense dollars decreased from the first six months of 2001,
we are generating more coverage through an aggressive branding campaign,
including national television and print media, and the number of advertising
impressions have more than doubled versus a year ago, primarily due to lower ad
rates. Based upon our planned marketing initiatives over the next several
months, gross advertising expense as a percentage of net sales is expected to be
relatively consistent with or higher than the percentage for the first six
months of 2002. Cooperative advertising reimbursements as a percentage of net
sales were 2% in the first six months of 2002, consistent with the same period
of 2001. Cooperative advertising reimbursements as a percentage of net sales may
decrease in future periods depending on the level of vendor participation and
collection experience.
Consolidated operating income was $135.9 million in the first six months of
2002, a 3% increase from $132.0 million in the first six months of 2001. This
increase was primarily a result of the increase in sales and decrease in
operating expenses as a percentage of net sales in 2002, partially offset by the
decrease in gross margin percentage. Consolidated operating income as a
percentage of net sales decreased to 6.6% in the first six months of 2002 from
6.7% in the first six months of 2001, primarily due to the decline in gross
margin percentage.
Corporate segment operating income was $128.9 million in the first six months of
2002, compared to $122.4 million in the same period in 2001. Corporate segment
operating income as a percentage of net sales was 6.3% in the first six months
of both 2002 and 2001. Public sector segment operating income was $6.9 million
in the first six months of 2002, a decrease from $9.6 million in the first six
months of 2001. Public sector segment operating income as a percentage of net
sales was 1.8% in the first six months of 2002 compared to 3.3% in the same
period in 2001. The decline in public sector operating income was due to lower
gross margin and higher operating expenses, primarily payroll and coworker costs
due to the addition of account managers to support growth in our public sector
business and in anticipation of seasonal sales growth in the third quarter.
15
Interest income, net of other expenses, decreased to $4.3 million in the
first six months of 2002 compared to $6.6 million in the first six months of
2001, as higher levels of cash available for investing were offset by decreases
in the rate of interest earned, primarily due to substantially lower market
interest rates.
The effective income tax rate, expressed as a percentage of income before
income taxes, was 39.50% for the six month period ended June 30, 2002, a
decrease from 39.75% for the first six months of 2001.
Net income in the first six months of 2002 was $84.8 million, a 1.6%
increase over $83.5 million in the first six months of 2001. Diluted earnings
per share were $0.95 for the six month period ended June 30, 2002 and $0.94 in
the same period of 2001, an increase of 1.1%.
SEASONALITY
Although we have historically experienced variability in the rates of sales
growth, we have not historically experienced seasonality in our business as a
whole. While sales in our corporate segment, which serves business and consumer
markets, have not historically experienced significant seasonality throughout
the year, sales in our public sector segment have historically been higher in
the third quarter than in other quarters due to the buying patterns of
government and education customers. If sales to public sector customers continue
to increase as a percentage of overall sales, the Company as a whole may
experience increased seasonality in future periods.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
We have financed our operations and capital expenditures primarily through
cash flow from operations. At June 30, 2002, we had cash, cash equivalents and
marketable securities of $420.9 million and working capital of $774.8 million,
representing an increase of $26.5 million in cash, cash equivalents and
marketable securities and an increase of $79 million in working capital from
December 31, 2001. The increase in working capital was a result of increases in
cash, cash equivalents and marketable securities, accounts receivable and
merchandise inventory, partially offset by an increase in accounts payable.
We have an aggregate $70 million available pursuant to two $35 million
unsecured lines of credit with two financial institutions. One line of credit
expires in June 2003, at which time we intend to renew the line, and the other
does not have a fixed expiration date. Borrowings under the first credit
facility bear interest at the prime rate less 2 1/2%, LIBOR plus 1/2% or the
federal funds rate plus 1/2%, as determined by us. Borrowings under the second
credit facility bear interest at the prime rate less 2 1/2%, LIBOR plus .45% or
the federal funds rate plus .45%, as determined by us. At June 30, 2002 and
December 31, 2001, there were no borrowings under either of the credit
facilities.
Our current and anticipated uses of our cash, cash equivalents and
marketable securities are to fund growth in working capital and capital
expenditures necessary to support future growth in sales, our stock buyback
program and possible expansion through acquisitions. We believe that the funds
held in cash, cash equivalents and marketable securities, and funds available
under the credit facilities, will be sufficient to fund our working capital and
cash requirements at least through June 30, 2003.
In January 2001, our Board of Directors authorized the purchase of up to 5
million shares of our common stock, from time to time in both open market and
private transactions, as conditions warrant. Under this repurchase program, we
purchased 1,726,876 shares of our common stock during the six month period ended
June 30, 2002 at a total cost of approximately $80.4 million (an average price
of $46.56 per share). These repurchases included 384,376 shares repurchased on
May 7, 2002, at a total cost of $19 million ($49.50 per share) from Daniel B.
Kass, Executive Vice-President and a Director. From January 2001 through June
30, 2002, we had purchased under this repurchase program a total of 4,419,376
shares of our common stock at a total cost of approximately $178.6 million (an
average price of $40.42 per share).
16
In July 2002, our Board of Directors authorized a new share repurchase
program of up to 2.5 million shares of our common stock. This newly authorized
repurchase amount is in addition to the remaining 316,624 shares available as of
July 29, 2002, under our previously announced repurchase program, bringing the
total shares available for repurchase to approximately 2.8 million. These
purchases may be made from time to time in both the open market and private
transactions, as conditions merit. The new repurchase program is expected to
remain effective through July 2004, unless earlier terminated by the Board.
CASH FLOWS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2002
Net cash provided by operating activities for the six month period ended
June 30, 2002, was $103.3 million. Net income, tax benefits from stock options
and restricted stock transactions and an increase in accounts payable were
partially offset by increases in accounts receivable and inventory. The increase
in accounts receivable relates primarily to an increase in sales. Days sales
outstanding for the six month period ended June 30, 2002 were 31 as compared to
29 for the six month period ended June 30, 2001, primarily due to an increase in
sales toward the end of the period. Inventory increased during the period due to
higher levels of in-transit inventory to our customers and from our vendors at
June 30, 2002, resulting in a decrease in annualized inventory turnover to 26
times for the six month period ended June 30, 2002, as compared to 30 for the
six month period ended June 30, 2001. The increase in tax benefits from stock
options and restricted stock transactions primarily relates to the exercise of
options by Gregory C. Zeman, a Director and an advisor to the Company, and
Daniel B. Kass, Executive Vice-President and a Director.
Net cash used in investing activities for the six month period ended June
30, 2002 was $42.5 million, including $38.1 million for investments in
marketable securities and $4 million for capital expenditures. At June 30, 2002,
we had a $6.1 million net investment in and loan to CDW-L, a joint venture
between CDW Capital Corporation ("CDWCC"), a wholly-owned subsidiary of the
Company, and First Portland Corporation ("FIRSTCORP"), an unrelated third party
leasing company. Effective May 1, 2002, CDW decided to stop placing new leases
into this venture and began to refer customers to a variety of independent
leasing sources, including several manufacturer captive entities. The existing
leases in CDW-L's portfolio will be held until maturity, with the majority
expiring prior to December 31, 2004. Pursuant to a loan agreement between CDWCC
and CDW-L, CDWCC had previously committed up to $10 million in loans to CDW-L.
At June 30, 2002, $5 million was outstanding under this loan agreement, $3.4
million of which is subordinated to loans from financial institutions.
Subsequent to June 30, 2002, CDWCC terminated its loan commitment.
Net cash used in financing activities for the six month period ended June
30, 2002 was $72 million. The repurchase of 1,726,876 shares of our common stock
at a total cost of $80.4 million was partially offset by proceeds of $8.4
million from the exercise of stock options under our various stock option plans.
Any 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,
gross profit as a percentage of sales, advertising expense and cooperative
advertising reimbursements. In addition, words such as "likely," "may," "would,"
"could," "anticipate," "believe," "estimate," "expect," "intend," "plan," 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. The following factors, among
others, may have an impact on the accuracy of the forward-looking statements
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, the
continuing development, maintenance and operation of the Company's I.T. systems,
changes and uncertainties in economic conditions that could affect the rate of
I.T. spending by the Company's customers, changes in pricing by our vendors, 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
17
other factors are discussed in further detail in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001, which was filed with the
Securities and Exchange Commission on March 27, 2002 and amended on April 16,
2002, and which discussion is incorporated by reference herein.
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, 2001.
PART II Other Information
ITEM 1. Legal Proceedings
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting of shareholders on May 22, 2002.
(b) Set forth below are the four matters that were presented to and
voted upon by our shareholders, and the results of such
shareholders' votes.
1. Election of Directors
Votes For Votes Withheld Non-Votes
Nominee
- Michelle L. Collins 81,950,440 69,617 -
- Casey G. Cowell 81,952,790 67,267 -
- John A. Edwardson 81,953,727 66,330 -
- Daniel S. Goldin 81,943,451 76,606 -
- Donald P. Jacobs 81,867,529 152,528 -
- Daniel B. Kass 81,951,165 68,892 -
- Michael P. Krasny 81,592,347 427,710 -
- Terry L. Lengfelder 81,948,935 71,422 -
- Brian E. Williams 81,952,067 68,020 -
- Gregory C. Zeman 81,950,397 69,660
2. Ratification of Selection of Independent Accountants
The ratification of the selection of PricewaterhouseCoopers LLP,
independent public accountants, as auditors for the Company for
the year ended December 31, 2002.
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
79,712,114 2,287,779 20,164 -
18
3. Ratification of the Amendment to the CDW 2000 Incentive
Stock Option Plan
The approval and ratification of the amendment to the CDW 2000
Incentive Stock Option Plan pertaining to option grants made to
Non-Employee Directors.
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
60,666,087 21,178,819 175,151 -
4. Ratification of the CDW Employee Stock Purchase Plan
The approval and ratification of the CDW Employee Stock Purchase
Plan.
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
80,558,490 1,430,618 30,949 -
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3 (a) Restated By-laws of the Company (amended through
July 24, 2002)
10 (a) Revolving Note between the Company and LaSalle
National Bank dated June 30, 2002
10 (b) Stock Purchase Agreement between the Company and
Daniel B. Kass dated as of May 7, 2002
10 (c) CDW 2000 Incentive Stock Option Plan (as amended
through April 2, 2002), as incorporated by reference
herein to Exhibit A to CDW's Definitive Proxy Statement
filed with the Securities and Exchange Commission on
April 16, 2002
10 (d) CDW Employee Stock Purchase Plan, as incorporated by
reference herein to Exhibit B to CDW's Definitive
Proxy Statement filed with the Securities and Exchange
Commission on April 16, 2002
99.1 Certification of Chief Executive Officer Pursuant to
18 U.S.C. 1350
99.2 Certification of Chief Financial Officer Pursuant to
18 U.S.C. 1350
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three month
period ended June 30, 2002.
19
SIGNATURES
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 Computer Centers, Inc.
(Registrant)
Date August 13, 2002 /s/ Barbara A. Klein
--------------- ------------------------------------
By: Barbara A. Klein
Senior Vice President and
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
20