CDW COMPUTER CENTERS INC - 10-Q Quarterly Report

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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 September 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 November 8, 2002, 89,635,222 common shares were issued and 83,926,846 were
outstanding.

CDW COMPUTER CENTERS, INC.

TABLE OF CONTENTS

ii

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CDW COMPUTER CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

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)

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)

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)

(1) The Company acquired $8.2 and $10.3 million of treasury shares in
September 2002 and September 2001, respectively, for which cash
settlement occurred in October 2002 and October 2001, respectively.
Accordingly, the Company has excluded these non-cash items from both
the "Purchase of treasury shares" and "Accounts payable" amounts
presented above.

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 and distribution center
located in Vernon Hills, Illinois, sales offices in Mettawa and Chicago,
Illinois and a sales office in Lansdowne, Virginia. Subsequent to September 30,
2002, the Company discontinued use of its Buffalo Grove, Illinois sales office,
because sales staff were relocated to the Mettawa office. 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. Payment for the balance of our
sales are made primarily through third party credit cards.

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 September 30, 2002 and December 31, 2001, the results
of operations for the three and nine month periods ended September 30, 2002 and
2001, the cash flows for the nine month periods ended September 30, 2002 and
2001, and the changes in shareholders' equity for the nine month period ended
September 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 impact on our financial
statements for the three and nine month periods ended September 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 September 30, 2002, were (in thousands):

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 September 30, 2002, by contractual maturity were (in
thousands):

All of the marketable securities that were due in greater than one year
have maturity dates prior to September 30, 2004.

The gross unrealized holding gains and losses on available-for-sale
securities are recorded as accumulated other comprehensive income, which is
reflected as a separate component of shareholders' equity. We began this
presentation as of September 30, 2002 and consider amounts for prior periods
immaterial. The gross realized gains and losses on marketable securities that
are included in Other expense in the Condensed Consolidated Statements of Income
are not considered material.

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 September 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

6

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
September 30, 2002, all amounts owed the Flooring Companies were included in
trade accounts payable.

5. Earnings Per Share

At September 30, 2002, we had outstanding common shares totaling
approximately 83,430,000. 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."

Additional options to purchase common shares were outstanding during the
three and nine month periods ended September 30, 2002, but were not included in
the computation of diluted earnings per share because the exercise prices of
these options were greater than 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 which were
excluded from the calculation:

The options were all outstanding at September 30, 2002.

6. Share Repurchase Programs

In January 2001, our Board of Directors authorized the purchase of up to
5,000,000 shares of our

7

common stock. This repurchase program was completed during September 2002.
Repurchased shares are held in treasury pending use for general corporate
purposes, including issuances under various employee stock plans. Under this
repurchase program, we purchased 2,307,500 shares of our common stock during the
nine month period ended September 30, 2002, at a total cost of $106.4 million
(an average price of $46.11 per share). These repurchases included 384,376
shares repurchased on May 7, 2002, at a total cost of $19.0 million ($49.50 per
share), from Daniel B. Kass, Executive Vice President and a Director. From
January 2001 through September 30, 2002, we purchased the 5,000,000 shares
authorized to be repurchased at a total cost of $204.6 million (an average price
of $40.92 per share).

In July 2002, our Board of Directors authorized a new share repurchase
program of up to 2,500,000 shares of our common stock. These purchases may be
made from time to time in both the open market and private transactions, as
conditions warrant. This program is expected to remain in effect through July
2004, unless earlier terminated by the Board or completed. Under this repurchase
program, we purchased 508,376 shares of our common stock at a total cost of
$21.9 million (an average price of $42.99 per share) during the quarter ended
September 30, 2002.

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 business customers, but
also includes consumers, and public sector, which is comprised of federal, state
and local government and education institution 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 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:

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 and third quarters of 2002, with
no impact on total consolidated assets.

Sales and operating expenses 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 net
equity earnings (losses) relating to our investment in CDW-L, accounted for
under the equity method, were $(40,200) and $107,800 for the three months ended
September 30, 2002 and 2001, respectively, and $230,300 and $213,500 for the
nine months ended September 30, 2002 and 2001, respectively. These amounts are
included in Selling and administrative expenses in the Condensed Consolidated
Statements of Income.

No single customer accounted for more than 1% of net sales in the three or
nine month periods ended September 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 and distribution center located in
Vernon Hills, Illinois, sales offices in Mettawa and Chicago, Illinois and a
sales office in Lansdowne, Virginia. Subsequent to September 30, 2002, the
Company discontinued use of its Buffalo Grove, Illinois sales office, because
sales staff were relocated to the Mettawa office. Additionally, we market and
sell products through www.cdw.com and www.cdwg.com, our Internet 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 nine
month periods ended September 30, 2002), and public sector, comprised of
federal, state and local government and educational institution customers which
are served by CDW Government, Inc. ("CDW-G"), a wholly owned subsidiary.

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 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.

10

Results Of Operations

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

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

(1) Commercial customers include public sector customers and corporate
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 nine month periods ended
September 30, 2001 has been retroactively adjusted for certain changes in
individual product categorization.

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
nine month periods ended September 30, 2001 have been retroactively adjusted for
certain changes in individual product categorization.

12

Three month period ended September 30, 2002 compared to three month period ended
September 30, 2001

Net sales in the third quarter of 2002 increased 16.1% to $1.151 billion
compared to $991.1 million in the third quarter of 2001. Software sales
increased 27.7% compared to the third quarter of 2001, and remained our top
selling product category. Sales of input devices, desktop computers and servers,
printers, video, and memory were also strong, with sales increasing over 15% for
each of these product categories over the third quarter of 2001. Corporate
segment sales increased 11.9% from the third quarter of 2001 to $869.1 million.
Public sector segment sales increased 31.5% to $281.8 million and comprised
24.5% of our total sales for the third quarter of 2002. Our strength in the
public sector segment is primarily due to our focused sales and marketing
efforts in the federal, state and local government and education markets.

The average selling price of our products decreased from the third quarter
of 2001, however, the impact of this was more than offset by increased unit
sales. Changes in average selling prices from the second quarter 2002 indicate
that pricing of computer products may be stabilizing. However, decreases in
pricing for computer products are possible during the remainder of 2002. Price
decreases require us to generate more orders and sell more units in order to
maintain or increase sales.

Gross profit increased 17.2% in the third quarter of 2002, to $157.0
million, compared to $134.0 million in the third quarter of 2001. As a
percentage of net sales, gross profit was 13.6% in the third quarter of 2002,
compared to 13.5% in the third quarter of 2001. The increase in the gross profit
percentage was primarily due to increased sales of a software upgrade insurance
product offered by Microsoft, accounted for on a net basis, and related
increased levels of vendor software rebates, partially offset by reductions in
selling margins. Microsoft is shifting from selling software product upgrades 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,
an interim product called Upgrade Advantage was sold through July 31, 2002. We
accounted 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. Because this version of Upgrade Advantage was only sold through July 31,
2002, the third quarter experienced increased volume related to this product,
which will not continue.

The gross profit objective as a percentage of sales is 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 increased 4.2% in the third quarter of
2002, to $67.2 million, compared to $64.5 million in the third quarter of 2001.
The increase was primarily due to $4.2 million of increased payroll costs,
offset by $1.7 million of reduced expense related to payroll taxes resulting
from stock option exercises. Selling and administrative expenses decreased to
5.8% of net sales in the three months ended September 30, 2002, from 6.5% in the
same period of 2001, primarily due to increased sales. Our sales force decreased
from 1,276 at September 30, 2001 to 1,250 at September 30, 2002. Our sales force
includes account managers as well as product category 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 the addition of coworkers and
continued investments in infrastructure.

Net advertising expense in the third quarter of 2002 was $0.9 million,
compared to $0.6 million in the prior year period. As a percentage of net sales,
net advertising expense was 0.1% for the three months ended September 30, 2002,
the same percentage as the third quarter of the prior year. Gross advertising
expense increased $2.1 million, but decreased as a percentage of net sales to
2.1% compared to 2.3% in the third quarter of 2001. While gross advertising
expense dollars increased only marginally from the third quarter of 2001, we are
generating more coverage through an aggressive branding campaign, including
national television and print media. Cooperative advertising reimbursements
increased $1.8 million, but decreased as a percentage of net

13

sales to 2.0%, compared to 2.2% in the third 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 $88.9 million in the third quarter of
2002, a 29.0% increase from $68.9 million in the third quarter of 2001. This
increase was primarily a result of the increase in sales and gross margin, and
continued controlled growth of operating expenses in 2002. Consolidated
operating income as a percentage of net sales increased to 7.7% in the third
quarter of 2002 from 6.9% in the third quarter of 2001.

Corporate segment operating income was $83.7 million in the third quarter
of 2002, compared to $61.3 million in the same period in 2001. Corporate segment
operating income increased as a percentage of net sales to 7.3% from 6.3% in the
third quarter of 2001. The increase in corporate segment operating income was
primarily due to increased sales. Public sector segment operating income was
$5.2 million in the third quarter of 2002, a decrease from $7.5 million in the
third quarter of 2001. Public sector segment operating income decreased as a
percentage of net sales to 1.8% from 3.5% in the third quarter of 2001. The
decrease in public sector segment operating income was due to a lower gross
margin and higher operating expenses, primarily payroll and coworker costs
incurred to support growth in our public sector business.

Interest income, net of other expenses, decreased to $1.8 million in the
third quarter of 2002 compared to $2.9 million in the third quarter of 2001, as
higher levels of cash available for investment were offset by decreases in the
rates of interest earned, 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 September 30, 2002,
compared to 39.75% for the third quarter of 2001.

Net income in the third quarter of 2002 was $54.9 million, a 27.0% increase
over $43.2 million in the third quarter of 2001. Diluted earnings per share were
$0.63 for the three month period ended September 30, 2002 and $0.49 in the same
period of 2001, an increase of 28.6%.

Nine month period ended September 30, 2002 compared to nine month period ended
September 30, 2001

Net sales in the first nine months of 2002 increased 8.0% to $3.21 billion
compared to $2.97 billion in the same period of 2001. Software sales increased
16.6% compared to the first nine months of 2001, and remained our top selling
product category. Sales of input devices, video and printers were also strong,
with sales increasing over 10% for each of these product categories over the
first nine months of 2001. Corporate segment sales increased 3.4% from the first
nine months of 2001 to $2.55 billion. Public sector segment sales increased
30.6% from the first nine months of 2001 to $657.3 million and comprised 20.5%
of our total sales for the first nine months of 2002. Our strength in the public
sector segment is primarily due to our focused sales and marketing efforts in
the federal, state and local government and education markets.

The average selling price of our products decreased from the first nine
months of 2001, however, the impact of this was more than offset by increased
unit sales. Changes in average selling prices during the first nine months of
2002 indicate that pricing of computer products may be stabilizing. However,
decreases in pricing for computer products are possible during the remainder of
2002. Price decreases require us to generate more orders and sell more units in
order to maintain or increase sales.

Gross profit increased 7.0% for the nine months ended September 30, 2002,
to $424.4 million, compared to $396.7 million for the comparable period last
year. As a percentage of net sales, gross profit was 13.2% for the nine month
period ended September 30, 2002, compared to 13.3% for the same period in 2001.
The gross profit objective as a percentage of net sales is 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 increased 2.9% for the nine months
ended September 30, 2002, to

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$196.4 million, compared to $190.9 million in the same period of 2001. The
increase was primarily due to $3.0 million of increased payroll and
employee-related costs along with $2.2 million of increased occupancy costs.
Selling and administrative expenses decreased to 6.1% of net sales in the nine
month period ended September 30, 2002, from 6.4% in the same period of 2001,
primarily due to increased sales.

Net advertising expense in the first nine months of 2002 was $3.2 million,
compared to $5.1 million in the prior year. As a percentage of net sales, net
advertising expense was 0.1% for the nine month period ended September 30, 2002,
compared to 0.2% in the first nine months of the prior year. Gross advertising
expense increased $1.6 million, but decreased as a percentage of net sales to
2.1% compared to 2.2% of net sales in the first nine months of 2001. Cooperative
advertising reimbursements increased $3.4 million, but decreased as a percentage
of net sales to 2.0% in the first nine months of 2002, compared to 2.1% in the
first nine months 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 $224.8 million in the first nine months
of 2002, a 12.0% increase from $200.8 million in the first nine months of 2001.
This increase was primarily a result of the increase in sales and controlled
growth of operating expenses in 2002, partially offset by the decrease in gross
margin percentage. Consolidated operating income as a percentage of net sales
increased to 7.0% in the first nine months of 2002 from 6.7% in the first nine
months of 2001.

Corporate segment operating income was $212.7 million in the first nine
months of 2002, compared to $183.7 million in the same period in 2001. Corporate
segment operating income increased as a percentage of net sales to 6.7% in the
first nine months of 2002 from 6.3% in 2001. The increase in corporate segment
operating income was primarily due to increased sales. Public sector segment
operating income was $12.1 million in the first nine months of 2002, a decrease
from $17.1 million in the first nine months of 2001. Public sector segment
operating income as a percentage of net sales decreased to 1.8% in the first
nine months of 2002 from 3.4% in the same period in 2001. The decrease in public
sector segment operating income was due to a lower gross margin and higher
operating expenses, primarily payroll and coworker costs incurred to support
growth in our public sector business.

Interest income, net of other expenses, decreased to $6.1 million in the
first nine months of 2002 compared to $9.5 million in the first nine months of
2001, as higher levels of cash available for investing were offset by decreases
in the rates of interest earned, 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 nine month period ended September 30, 2002, a
decrease from 39.75% for the first nine months of 2001.

Net income in the first nine months of 2002 was $139.7 million, a 10.2%
increase over net income of $126.7 million in the first nine months of 2001.
Diluted earnings per share were $1.57 for the nine month period ended September
30, 2002 and $1.42 in the same period of 2001, an increase of 10.6%.

SEASONALITY

Historically, we have experienced variability in the rates of sales growth,
although we have not 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

15

September 30, 2002, we had cash, cash equivalents and marketable securities of
$468.9 million and working capital of $785.1 million, representing an increase
of $74.5 million in cash, cash equivalents and marketable securities and an
increase of $89.3 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 increases in accounts payable and accrued expenses.

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 September 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 September 30, 2003.

In January 2001, our Board of Directors authorized the purchase of up to
5,000,000 shares of our common stock. Under this repurchase program, completed
in September 2002, we purchased 2,307,500 shares of our common stock during the
nine month period ended September 30, 2002, at a total cost of $106.4 million
(an average price of $46.11 per share). These repurchases included 384,376
shares repurchased on May 7, 2002, at a total cost of $19.0 million ($49.50 per
share), from Daniel B. Kass, Executive Vice President and a Director. From
January 2001 through September 30, 2002, we purchased the 5,000,000 shares
authorized to be repurchased at a total cost of $204.6 million (an average price
of $40.92 per share).

In July 2002, our Board of Directors authorized a new share repurchase
program of up to 2,500,000 shares of our common stock. These purchases may be
made from time to time in both the open market and private transactions, as
conditions warrant. This program is expected to remain in effect through July
2004, unless earlier terminated by the Board or completed. Under this repurchase
program, we purchased 508,376 shares of our common stock at a total cost of
$21.9 million (an average price of $42.99 per share) during the quarter ended
September 30, 2002.

Cash flows for the nine month period ended September 30, 2002

Net cash provided by operating activities for the nine month period ended
September 30, 2002, was $192.6 million. This was primarily from net income, tax
benefits from stock options and restricted stock transactions, and an increase
in accrued income taxes and other expenses, partially offset by an increase in
accounts receivable. 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 employee of the Company, and Daniel B. Kass,
Executive Vice President and a Director. The increase in accrued income taxes
and other expenses relates primarily to the timing of estimated tax payments.
The increase in accounts receivable relates primarily to an increase in sales.
Days sales outstanding for the nine month period ended September 30, 2002 were
31 days as compared to 32 days for the nine month period ended September 30,
2001.

Net cash used in investing activities for the nine month period ended
September 30, 2002 was $42.5 million, including $35.7 million for investments in
marketable securities and $6.5 million for capital expenditures. At September
30, 2002, we had a $5.9 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, an unrelated third party leasing
company. Effective May 1, 2002, CDW decided to stop originating new leases with
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

16

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. On September 5, 2002, CDWCC terminated its loan commitment.
Repayment of the outstanding loans may be made through cash flow from operations
after debt service on subordinated loans outstanding from financial
institutions. At September 30, 2002, $4.8 million was outstanding under this
loan agreement, $2.8 million of which is subordinated to loans from financial
institutions.

Net cash used in financing activities for the nine month period ended
September 30, 2002 was $110.8 million. The repurchase of 2,625,876 shares of our
common stock at a total cost of $120.1 million, excluding 190,000 shares at a
total cost of $8.2 million acquired during September 2002 for which cash
settlement did not occur until October 2002, was partially offset by proceeds of
$9.3 million from the exercise of stock options under our various stock option
plans.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections." Among other things, the statement updates, clarifies and
simplifies existing accounting pronouncements relating to the extinguishment of
debt. The provisions of this statement related to the extinguishment of debt
shall be applied in fiscal years beginning after May 15, 2002. We do not expect
the adoption of this Statement to have a material impact on our financial
position or results of operations.

In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The
statement requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. This statement replaces previous accounting guidance
provided by EITF (Emerging Issues Task Force) Issue No. 94-3. Statement 146 is
to be applied prospectively to exit or disposal activities initiated after
December 31, 2002. We are considering the Standard and its effect on our
financial statements.

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 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.

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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, 2001.

ITEM 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures: The Company's Chief
Executive Officer and its Chief Financial Officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date
within 90 days of filing date of this quarterly report (the "Evaluation
Date"), have concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate and effective to ensure
that material information relating to the Company would be made known to
them by others within the Company, particularly during the period in
which this quarterly report was being prepared.

(b) Changes in internal controls: There were no significant changes in the
Company's internal controls or in other factors that could significantly
affect the Company's internal controls and procedures subsequent to the
Evaluation Date, nor any significant deficiencies or material weaknesses
in such internal controls and procedures requiring corrective actions.
As a result, no corrective actions were taken.

PART II Other Information

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

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:

(i) We filed a Current Report on Form 8-K on August 13, 2002 containing
copies of the sworn statements of John A. Edwardson and Barbara A.
Klein, submitted to the SEC pursuant to Securities and Exchange
Commission Order No. 4-460.

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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 November 14, 2002 /s/ Barbara A. Klein
------------------ ----------------------------------------
By: Barbara A. Klein
Senior Vice President and
Chief Financial Officer
(Duly authorized officer and principal
financial officer)

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CERTIFICATIONS

I, John A. Edwardson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CDW Computer Centers,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

/s/ John A. Edwardson
------------------------------------
John A. Edwardson
Chairman and Chief Executive Officer
CDW Computer Centers, Inc.
November 14, 2002

20

I, Barbara A. Klein, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CDW Computer Centers,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

/s/ Barbara A. Klein
--------------------------------
Barbara A. Klein
Senior Vice President and Chief Financial Officer
CDW Computer Centers, Inc.
November 14, 2002

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