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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

Commission file number        0-21796

CDW Computer Centers, Inc.
(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12 (g) of the Act:

Common Stock

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K.   [ X ]

The aggregate market value of the Common Stock held by non-affiliates as of March 25, 2002, was approximately $2.815 billion, based upon the closing market price per share of $49.00.

As of March 25, 2002, the registrant had 85,966,934 shares of Common Stock, $0.01 par value, outstanding.

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PART I

Item 1.          Business.

General

        CDW Computer Centers, Inc. (collectively with its subsidiaries, "CDW" or the "Company") is the largest direct marketer of multi-brand computers and related technology products and services in the United States. The Company was founded in 1984 and reincorporated in 1995 in Illinois. CDW's extensive offering of products, including hardware, software and accessories, combined with the Company's service offerings, provide comprehensive solutions for its customers' technology needs. The Company offers customers a broad range of technology products from leading vendors such as Cisco, Compaq, Hewlett-Packard, IBM, Intel, Microsoft, Sony and Toshiba, among others. CDW's high volume, cost-efficient operations, supported by its proprietary information technology systems, enable the Company to offer these products at competitive prices combined with a high level of service, an approach the Company calls "high tech, high touch." The Company's value-added services include its ability to custom configure multi-branded solutions for its customers and offer technical support 24 hours a day, 7 days a week.

        The Company has more than 1,200 account managers who sell primarily to commercial customers. For financial reporting purposes, the Company has two operating segments: corporate, which is primarily comprised of business customers but also includes consumers (consumers generated approximately 3% of total consolidated sales in 2001); and public sector, which is comprised of federal, state and local government and educational institutions who are served by CDW Government, Inc. ("CDW-G"), a wholly-owned subsidiary. CDW's corporate customers are concentrated in the small to medium business (SMB) category. The discussions of sales and marketing activities for the corporate segment and any reference to commercial accounts exclude consumers. (See Footnote 14 to the consolidated financial statements for certain financial information regarding the Company's two operating segments.)

        The Company markets to its current and prospective customers through its catalogs, other direct mailing programs, product advertisements in computer trade magazines, its Web sites and various Internet advertising vehicles. Additionally, the Company promotes the CDW brand on a national basis through its branding campaign, which includes television, print media and other activities. The Company's marketing efforts are integrated with a proactive calling program by the Company's account managers. CDW also focuses significant efforts on developing and expanding its E-business initiatives. These initiatives include www.cdw.com and www.cdwg.com (the Company's Web sites), and CDW@work and CDWG@work (the Company's extranets), which are customized Web sites for CDW's commercial customers.

        For the year ended December 31, 2001, the Company served approximately 357,000 commercial accounts, which comprised 97% of the Company's total sales dollars. CDW focuses on generating repeat sales from existing customers while also generating sales from new customers. The Company engenders a high degree of customer loyalty through its relationship-based account managers. These account managers are knowledgeable about customer needs and assist customers by providing advice on the selection and configuration of multi-branded technology solutions.

        The Company adheres to a core philosophy known as the CDW CIRCLE OF SERVICE(TM), which places the customer at the center of all of the Company's actions. The philosophy is based on the premise, promoted by management, that "People Do Business With People They Like." The CDW CIRCLE OF SERVICE(TM)is a graphic reminder to the Company's coworkers that good service leads to good experiences and increased sales, and, alternatively, that bad service leads to bad experiences and lost sales. A fundamental element of the CDW CIRCLE OF SERVICE(TM)is the Company's coworkers, who are highly motivated and incented to share in the Company's success.

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Business Strategy

        The Company's business strategy is to be a high volume, cost-efficient direct marketer of multi-brand, competitively-priced computers and related technology products and services while providing a high level of support to its customers. The Company believes that the following factors are of principal importance in its ability to implement this "high tech, high touch" business strategy:

        Multi-Branded Solutions.   The Company offers more than 80,000 products, which include a wide range of product types from leading manufacturers including Cisco, Compaq, Hewlett-Packard, IBM, Intel, Microsoft, Sony and Toshiba. With this broad selection of products, the Company can provide its customers with fully-integrated, multi-branded technology solutions and the convenience of one-stop shopping. CDW also continuously reviews and enhances its product mix based on new product introductions and the buying needs of its customers.

        Customer Focus.   The Company focuses the majority of its sales and marketing efforts on attracting and serving commercial customers rather than consumers. The Company believes commercial customers typically have ongoing requirements to purchase sophisticated products and systems and value our relationship-based approach and high level of service. In 2001, sales to commercial customers comprised 97% of total sales revenue, an increase from 96% in 2000.

        The Company also continues to grow its public sector business, which is directed at meeting the technology needs of federal, state and local governments, and primary and secondary educational institutions. The Company serves these markets, which have more specialized purchasing requirements, with a field sales force that actively calls on customers and prospects in person to augment the Company's inside sales force. The Company also reaches its public sector customer base through its customized Web site, CDWG@work.

        Competitive Pricing.   The Company is able to offer its customers competitive prices due to its low cost structure, efficient distribution methods, ability to purchase products directly from manufacturers and economies of scale in purchasing products. The Company's size and financial strength allow it to negotiate advantageous purchasing terms and earn vendor rebates and incentives.

       Marketing.   The Company uses a marketing mix of direct response activities, including its catalog formats and trade magazine advertising, combined with a multifaceted branding campaign, including national television advertising. These activities are intended to generate customer response and a high level of awareness of CDW. The Company's marketing activities are directed to commercial users and the decision makers in commercial organizations.

       Customer Service.   The Company has over 1,200 account managers who are highly trained in the Company's products, systems and philosophies, enabling them to provide a high level of customer service. CDW assigns an account manager to each customer. Account managers understand their customers' businesses and technology systems and are able to recommend integrated product solutions based on customer needs, past purchases and technological developments. The Company's account managers provide a high level of customer service through CDW's proprietary customer relationship management system. Customers also benefit from specialty sales support teams that have in-depth knowledge of and experience with complex technology products and applications such as network solutions, storage applications and software licenses.

        Custom Configuration.   The Company offers custom configuration services such as the installation of accessories and expansion products, loading of software, imaging for custom applications and configuration of network operating systems. The Company's custom configuration services benefit its customers by reducing the cost and time necessary to deploy new products into their existing technology environment. During 2001, the Company processed an average of 1,460 custom-configured items per day.

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        Technical Support.   The Company's technical staff is well-trained and maintains the highest levels of professional certification from manufacturers. The Company employs a technical staff of more than 130 with over 365 manufacturer certifications to assist the customer with technical questions and issues. The Company offers technical support services by telephone 24 hours a day, 7 days a week. The Company believes that its commitment to service at the time of sale and after the purchase maximizes sales and encourages repeat customers.

        Information Technology.   The Company uses proprietary, real-time information technology systems which centralize management of key functions and generate daily operating control reports enabling management to identify and respond quickly to internal changes and trends in the industry and to provide high levels of customer satisfaction. The Company integrates its real-time systems with www.cdw.com and www.cdwg.com, its Internet Web sites, providing real-time information for its customers.

        Effective Inventory Control.   The Company's management information systems, "just-in-time" purchasing system, radio frequency-based cycle counting system and use of vendor stock balancing and price protection programs allow it to minimize its investment in inventory, reduce inventory discrepancies and the risk of obsolescence while meeting customer needs. These systems resulted in the Company achieving approximately 30 inventory turns during 2001.

        High Quality Personnel.    The Company strives to attract, retain and motivate high quality personnel and provides its coworkers with financial incentives designed to maximize performance and productivity. The Company's objective is, whenever possible, to promote people from within to positions of increased responsibility. The Company has instituted short-term incentive programs, stock-based compensation and an on-site childcare and fitness center facility to reward and motivate all of the Company's coworkers.

Product Offering

       The Company offers multi-brand computers and related technology products including hardware and peripherals, software, networking and communication products and accessories for use with microcomputers based on a variety of operating platforms including Microsoft, Apple, Linux, Novel, Oracle and others. The Company's just-in-time purchasing system and aggressive inventory management allow it to limit its on-hand inventory and ship orders generally on a same-day basis.

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The following is a listing of selected hardware, peripheral and software manufacturers whose products CDW sells:

        The Company continually seeks to expand and improve its relationships with manufacturers as well as increase the number of products which it is authorized to sell.

Purchasing and Vendor Relationships

        The Company believes that effective purchasing from a diverse vendor base is a key element of its business strategy. For the year ended December 31, 2001, Tech Data and Ingram Micro were the only individual distributors from whom our purchases exceeded 10% of total purchases. Additionally, in 2001, Compaq, Hewlett-Packard and Microsoft were the only individual manufacturers whose products comprised more than 10% of our total sales.

        CDW's purchasing staff works to identify reliable, high-quality suppliers of products, then actively negotiates to achieve the lowest possible cost and expand vendor support programs. The Company seeks to establish strong relationships with its vendors, and employs a policy of paying vendors within stated terms and taking advantage of all appropriate discounts. Several of the Company's leading vendors such as Compaq, Hewlett-Packard and Microsoft have full-time representatives on-site at the Company's facilities.

        During 2001, the Company purchased approximately 54% of its merchandise from distributors and the remaining directly from manufacturers. Substantially all of the Company's purchases are shipped directly to its distribution facility in Vernon Hills, Illinois. The Company is authorized by manufacturers to sell via direct marketing all or selected products offered by the manufacturer. The Company's authorization with each manufacturer provides for certain terms and conditions, which may include one or more of the following: product return privileges, price protection policies, purchase discounts and vendor support programs, such as purchase or sales rebates and cooperative advertising reimbursements. Vendors also periodically offer the Company bulk inventory purchase opportunities where the Company can purchase a large amount of product at reduced prices. Vendor support programs are at the discretion of the manufacturers and usually require the achievement of a specified sales volume or growth rate to qualify for all, or some, of the incentive program.

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Inventory Management/Distribution

        The Company applies its proprietary information technology systems to the task of managing its inventory in an aggressive, cost-efficient manner, resulting in a rapid-turn inventory model. The Company's information technology systems provide real-time information on each item of inventory from the time it is ordered until it is shipped to a customer. The Company generally only stocks items that have attained a minimum sales volume. All of the Company's inventory items contain UPC barcodes that are matched to the Company's internal product codes which allow its system to track and discern trends with respect to product movement and inventory obsolescence. The Company also uses vendor stock balancing and price protection programs to minimize its investment in inventory.

        The Company's distribution process is highly automated. Once a customer order is received, either by phone, fax or online, it is processed for credit approval. After credit approval is received, orders are automatically routed to the Company's warehouse for shipping. All product picking is performed using bar-coded labels, UPC bar codes and radio frequency scanning. All product shipments travel through the Company's warehouse on automatic conveyor systems with in-line scanning and are subject to numerous quality control checks. The Company's sorting system automatically provides a final quality control check and directs boxes to the appropriate commercial carrier.

        The Company believes that the Chicago metropolitan area is an excellent location for its business as it is centrally located for purposes of shipping products throughout the United States and provides timely access to the Company's principal distributors. This enables the Company to obtain non-stocked items for same-day shipping. The relocation of key distributors utilized in the Company's just-in-time purchasing model could adversely impact the Company's results of operations. Although brand names and individual products are important to the Company's business, the Company believes that competitive sources of supply are available in substantially all of the merchandise categories the Company carries.

Marketing and Advertising Activities

        The Company markets to its current and prospective customers using catalogs, promotional mailing campaigns, advertising and a proactive outbound calling program. In addition, CDW promotes the CDW brand through a national branding campaign, which includes print media, television advertisements and other activities.

        Catalogs are one of the Company's main advertising vehicles and approximately 40 million catalogs are produced and distributed each year. The Company's catalog strategy has evolved to include specialty catalogs such as networking communications and software. Its main catalog now includes relevant content such as interviews with industry executives and noteworthy technology developments. In 2000, CDW launched a Customer Technology Seminar Series, hosting representatives from industry manufacturers and influential persons in the technology field who discuss the latest information technology issues with its customers. Customers who are unable to attend the series can access the presentations on the Company's Web sites.

        As a result of the Company's relationships with its vendors, a substantial portion of its advertising and marketing expenses are reimbursed through cooperative advertising reimbursement programs. These cooperative advertising programs are at the discretion of the Company's vendors and are typically tied to sales or purchasing volumes and other commitments required by the Company. In order to measure the effectiveness of its marketing activities, the Company tracks responses to its various efforts by a variety of means. The Company uses this information to further refine its marketing strategy and to develop more effective programs.

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E-business

        The Company utilizes its Web sites and extranets to implement its "high tech, high touch" business strategy. The Company's objective is to make it easy for its customers to transact business with the Company and ultimately to enhance its customer relationships. The Company's Web site includes many advanced features to attract new customers and produce sales, including more than 80,000 computer products to search and order online, advanced search capabilities, product specifications, and information on product availability and pricing. During 2001 and 2000, the Company generated $615.3 million and $416.3 million, respectively, of direct online sales over its Web sites. The Company also offers side-by-side product comparisons, links to product reviews, newsworthy announcements, personalized access and customized two-way interaction that allows for checking order status.

        The Company continues to enhance its award-winning, customized Web sites, marketed as CDW@work and CDWG@work extranets. These sites give customers online access to information such as order status, accounts payable details, purchase history and details about their dedicated CDW or CDW-G account team. Customers may also use their site to automate technology purchasing procedures, inventory asset-tagged items, reprint invoices and retrieve quotes prepared by their account manager. In addition, the Company has, through its strong relationships with vendors, arranged for links between vendors' Web sites and its own. Many customers use the extranets to gather product information, including pricing and availability, and then follow up with their account manager to access the account manager's knowledge base regarding product compatibility and other information. In 2001, total sales to customers with active extranets, including online orders and those placed directly with account managers, totaled approximately $2.5 billion, representing approximately 63% of total sales.

Sales Activities and Order Fulfillment

        The Company's success is due in part to the strength of its account managers who manage customer relationships by responding to customer inquiries and proactively calling existing and potential new customers. The Company's account managers are trained in Company systems and philosophies, are product knowledgeable and are motivated to maximize sales and provide high levels of customer service. All account managers are graduates of CDW University, the Company's proprietary sales training program. The program includes four weeks of classroom training followed by several weeks of sales experience in one of the Company's retail showrooms, followed by one additional month of on the job training. CDW seeks to build customer relationships by assigning each customer to the account manager who first serves the customer. Upon subsequent calls to CDW, the customer is directed to their account manager for assistance. In the spirit of teamwork, account managers are encouraged to cooperate and work together to maximize sales and customer satisfaction.

        Each catalog and advertisement distributed by the Company bears a toll-free number to be used by customers in phoning CDW to place a product order. Telephone calls are answered by account managers who utilize on-line computer terminals to retrieve information regarding product characteristics, cost and availability and to enter customer orders. Account managers enter orders on-line into a computerized order fulfillment system which updates the Company's customer purchase history. Computer processing of orders is performed immediately following the placement of the order and upon receipt of credit approval. The Company ships most credit approved orders on the day the order is received, exclusive of orders for products not in stock or subject to allocation by the manufacturer. Orders are shipped by Federal Express, Airborne Express, RPS, Chicago Messenger Service, United Parcel Service, A.I.T., Eagle, U.S. Mail, common carrier or any other acceptable manner requested by the customer. The Company charges customers for shipping but may offer promotional shipping programs from time to time.

        CDW account managers are generally compensated pursuant to a commission schedule based upon the gross profit they generate. CDW account managers have the authority to negotiate and adjust prices for products, provided that the account manager sells the product at a price which meets established management guidelines and pursuant to various contracted prices, where applicable. The Company's account managers have the opportunity to achieve relatively high compensation levels and have historically shown increased productivity as training and experience levels increase.

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Customers

        The Company served approximately 357,000 commercial customers for the year ended December 31, 2001. For the year ended December 31, 2001, sales to the Company's commercial customers accounted for approximately 97% of the Company's net sales. The Company is not dependent on any one customer. For the year ended December 31, 2001, the Company's largest customer comprised only .32% of net sales and the Company's top five customers comprised approximately 1.0% of net sales. The Company's corporate customers are primarily small and medium size businesses that generally have less than 1,000 customers at a single location. The Company also serves larger corporate customers, including FORTUNE 1000 companies, as either a primary or secondary vendor. CDW-G, which conducts the Company's public sector business, focuses on meeting the technology needs of federal, state and local governments, as well as primary and secondary educational institutions.

        The Company's customers are located almost entirely in the United States. In 2001, approximately 12% of our net sales were to customers in Illinois, approximately 32% were to customers in the eastern United States, approximately 18% were to customers in the southern United States, approximately 22% were to customers in the western United States and approximately 15% were to customers in the midwestern United States (other than Illinois). Approximately 1% of the Company's sales in 2001 were to customers outside of the continental United States.

Custom Configuration and Technical Support

        The Company offers custom configuration services, including installation of accessories or expansion products, software loading, network configuration and custom applications imaging. During 2001, the Company processed an average of 1,460 custom-configured items per day, an increase of 34% from 2000. Custom configurations provide additional value to the Company's customers because they reduce the cost and time necessary to deploy new products into their existing technology environments. The ability to configure products to customer specifications enables CDW to generate incremental sales. The Company has the infrastructure in place to double the number of custom-configured products.

        CDW's technical support staff is well trained and maintains the highest levels of professional certification from manufacturers including that of Novell Certified Network Engineer and Microsoft Certified Systems Engineer (MCSE). The Company's technical support staff is motivated to obtain high certification levels as they are compensated on the basis of those certifications. Technical support is available by telephone 24 hours a day, 7 days a week to assist customers with technical problems or answer questions in order to increase customer satisfaction and reduce product returns. The Company has developed a proprietary customer service tracking system to ensure that customer-initiated service requests are responded to rapidly. As a result, substantially all customer calls are answered in two minutes or less.

Information Technology Systems

        The Company's information technology systems are a key element in its ability to maintain what it believes is the lowest cost structure among multi-brand direct marketers of computers and related technology products and services. The Company has installed and operates customized information technology and telephony systems. Collectively, these systems allow for centralized management of key functions, including inventory, accounts receivable, purchasing, sales and distribution. Additionally, the Company's systems enable the preparation of daily operating control reports which provide thorough, detailed and timely information regarding key aspects of its business. CDW's proprietary information technology systems enable the Company to enhance its productivity, ship customer orders on a same-day basis, respond quickly to changes in its industry and provide high levels of customer service. Historical customer orders are tracked within the Company's system so that it can provide its customers with updates regarding product upgrades and other information relating to the products they purchase from the Company.

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        The Company's success is dependent on the accuracy and proper utilization of its information technology and telephony systems. The Company anticipates that it will continue to require software and hardware upgrades for its present information technology systems. In addition, the Company's ability to adapt its systems to changes in the competitive environment or to take advantage of additional automation is dependent on its ability to recruit and retain qualified information technology professionals.

        The integrity of the Company's information technology system is vulnerable to certain forms of disaster including, but not limited to, natural disasters such as tornadoes. The Company has established a disaster recovery plan that utilizes a backup system for its information technology and telephones. The primary components of the Company's information technology systems and the hardware for its backup systems are maintained at separate locations.

Coworkers, Training and Culture

        At December 31, 2001, the Company employed approximately 2,800 coworkers. The Company considers its coworker relations to be excellent. No coworkers are covered by collective bargaining agreements.

        CDW emphasizes the recruiting, training and development of high quality coworkers throughout its organization. The Company's objective is to promote people from within to positions of increased responsibility, whenever possible. CDW develops its coworkers through CDW University, its company-wide training program with colleges of specialization. The colleges of CDW University provide specialized training in sales and relationship-building techniques, technical certifications and leadership development skills. In 2001, the College of Performance Excellence was added to the existing colleges of Sales, Technology, Knowledge Management and Leadership. The College of Performance Excellence offers more than fifteen instructor-led courses designed to enhance coworkers' interpersonal and professional skills.

        CDW strives to create a supportive and rewarding work environment. In 2001, CDW was named by FORTUNE magazine as one of the "100 Best Places to Work in America" for the fourth consecutive year. The Company's Vernon Hills facility contains on-site exercise and child care centers. Additionally, the Company sponsors a series of English language classes for coworkers who speak English as a second language, provides on-site dry cleaning and private rooms for nursing mothers. CDW coworkers are encouraged to provide their thoughts and concerns regarding the Company directly to management. The Company is also currently implementing a coworker feedback line which will be available twenty-four hours a day and seven days a week for coworkers to provide feedback and make suggestions on how to improve CDW's workplace and business.

Incentive and Regular Compensation Arrangements

        Compensation Arrangements.   The Company's coworkers are generally compensated on a basis that rewards performance and the achievement of identified goals. For example, account managers receive compensation pursuant to a monthly commission schedule which is based on performance. Account managers have the authority to negotiate and adjust prices for products, provided that the account manager sells the product at a price which meets established management guidelines and pursuant to various contracted prices, where applicable. Account managers have the opportunity to achieve relatively high compensation levels and have historically shown increased productivity as training and experience levels increase. In addition, most coworkers, excluding the Company's sales force, are eligible for monthly, quarterly or annual bonus programs that are tied to achieving certain goals. For example, CDW's accounts receivable personnel are eligible for monthly bonuses if late balances are held below target levels and operations personnel are eligible for monthly bonuses based on such factors as prompt vendor returns and shipping productivity rates. CDW believes that these incentives positively impact the Company's performance and profitability.

        Coworker Bonus, Stock Option and Restricted Stock Plans.   In addition to regular compensation, the Company provides its coworkers with additional long-term incentives designed to maximize performance and productivity. To this end, CDW has adopted various stock-based compensation plans which enable coworkers to share in the Company's success through appreciation in the value of the Company's stock. CDW rewards every coworker with a stock option grant as a part of their compensation.

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Retail Showrooms

        CDW currently operates two retail showrooms allowing local customers an opportunity to examine products prior to purchase and to meet face-to-face with the Company's sales or technical coworkers. Additionally, all new account managers work for several weeks in one of the retail showrooms as part of their training. One of the Company's showrooms is located at its main facility in Vernon Hills, Illinois, and the other is located in Chicago, Illinois. These showrooms occupy approximately 5,100 square feet each.

        CDW's retail showrooms generated approximately 2.5% of the Company's net sales for 2001, inclusive of orders placed by telephone and picked up at the retail showroom.

Trademarks and Trade Names

        The Company conducts its business under a number of trademarks, trade names and service marks including "CDW," "CDW CIRCLE OF SERVICE," "CDW@work," and "Computing Solutions Built for Business." CDW currently also has a number of trademark applications pending, including applications for "CDW-G," "CDWG@work," "Computing Solutions Built For Government and Education," "CDW Computer Leasing Solutions" and "Direct Solutions Provider." The Company has taken steps to register and protect these marks and believes they have significant value and are important factors in the Company's marketing programs.

Certain Factors Affecting CDW's Business

        There are many factors that affect the Company's business and the results of its operations, some of which are beyond the Company's control. The following is a description of some important factors that may cause the actual results of the Company's operations in future periods to differ materially from those currently expected or desired.

        Vendor Relationships and Product Availability.    The Company purchases products for resale both directly from manufacturers and indirectly through distributors and other sources, all of whom the Company considers its vendors. CDW is authorized by manufacturers to sell all or some of their products via direct marketing. The Company's authorization with each manufacturer is subject to specific terms and conditions regarding such things as product return privileges, price protection policies, purchase discounts and vendor incentive programs such as purchase rebates, sales volume rebates and cooperative advertising reimbursements. From time to time, vendors may change these terms and conditions or reduce or discontinue the incentives that they offer the Company. The implementation of such changes could have a negative impact on the Company's operating income. Additionally, some products are subject to manufacturer allocation, which limits the number of units of such products that are available to resellers, including the Company. Sales of Compaq, Hewlett-Packard, IBM, Microsoft, Sony and Toshiba products comprise a substantial portion of the Company's sales. In 2001, products from each of Compaq, Hewlett-Packard and Microsoft represented more than 10% of the Company's total sales. In addition, although the Company purchases from a diverse vendor base, in 2001, products purchased by the Company from each of distributors Tech Data and Ingram Micro represented more than 10% of the Company's total purchases. The loss of any of these or any other key vendors, or the diminished availability of their products, could reduce the supply and increase the costs of products sold by the Company and negatively impact CDW's competitive position. In addition, Compaq and Hewlett-Packard have entered into an agreement pursuant to which the two companies would merge. This agreement is still subject to approval by Hewlett-Packard shareholders. A Hewlett-Packard shareholder vote took place on March 19, 2002, but the results of that vote are still pending. It is uncertain what impact the completion of the merger would have on CDW's business. However, in light of the fact that products from these two manufacturers comprise a substantial portion of the Company's sales, a merger of the two companies could have an adverse impact on the Company's business and results of operations.

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        Information Technology Systems.    The Company's success is dependent on the accuracy, proper utilization and continuing development of its information technology systems, including its business application systems, Internet servers and telephony system. The quality and the Company's utilization of the information generated by its information technology systems affects, among other things, the Company's ability to conduct business with its customers, manage its inventory and accounts receivable, purchase, sell, ship and invoice its products efficiently and on a timely basis and maintain its cost-efficient operating model. While the Company has taken steps to protect its information technology systems from a variety of threats, including computer viruses and malicious hackers, there can be no guarantee that such steps will be effective. Any disruption to or infiltration of the Company's information technology systems could significantly harm the Company's business and results of operations.

        New Technologies and Products.    The market for computers and related technology products and services has evolved as a result of the development of new technologies that are transformed by manufacturers into new products and applications. The Company has been and will continue to be dependent on the development of new technologies and products by manufacturers, as well as the acceptance of those technologies and products by end-users. A decrease in the rate of development of new technologies and new products by manufacturers, or the lack of acceptance of those technologies and products by end-users, could have an adverse effect on the Company's business and results of operations.

        Sales Force.    The Company's statistics show that the level of sales achieved by its account managers increases with the number of years of experience they have with the Company. The Company's rate of sales growth and its operating results would be negatively affected if the Company were unable to expand the size of its sales force, if the turnover rate of account managers increases from historical levels or if the sales volumes achieved by the Company's account managers does not increase with experience.

        Competition.    The market for computers and related technology products and accessories is highly competitive. The Company's competition includes national direct marketers, such as Insight Enterprises, MicroWarehouse, PC Connection, PC Mall and Zones; manufacturers who sell directly to end-users, such as Dell and Gateway; computer superstores, such as CompUSA; government resellers, such as GTSI; consumer electronic and office supply superstores, such as Best Buy, Circuit City, Office Depot, Office Max and Staples; value-added resellers; corporate resellers, such as CompuCom; and Internet resellers, such as Amazon.com and Buy.com.

        Some of the Company's hardware and software vendors, such as Compaq, Hewlett-Packard, and IBM, have sold, and may intensify their efforts to sell, their products directly to end-users. In addition, some software manufacturers have developed, and may continue to develop, sales methods that directly provide customers with subscription-based software programs and packages. If either of these trends becomes more prevalent, it could adversely affect the Company's sales growth and profitability.

        The Company believes that competition may increase in the future, which could require the Company to reduce prices, increase advertising expenditures or take other actions which may have an adverse effect on its operating results. Some of the Company's competitors have reduced their prices in an attempt to stimulate sales and limit the impact of the current economic slowdown. Decreasing prices of computers and related technology products and accessories resulting from competition and technological changes require the Company to sell a greater number of products to achieve the same level of net sales and gross profit. If this trend continues and the Company is unable to attract new customers and sell increased quantities of products, CDW's sales growth and profitability could be adversely affected.

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        Natural Disaster or Other Adverse Occurrence.    The Company operates its business from a primary facility in Vernon Hills, Illinois. Although the Company has multiple sales office locations, substantially all of its corporate, warehouse and distribution functions are located at its Vernon Hills facility. If the warehouse and distribution equipment at the Company's Vernon Hills facility were to be seriously damaged by a natural disaster or other adverse occurrence, the Company could utilize third-party distributors to ship products to its customers. However, this may not be sufficient to avoid interruptions in the Company's service and may not enable the Company to meet all of the needs of its customers. Additionally, this would cause CDW to incur incremental operating costs. As a result, a natural disaster or other adverse occurrence at the Company's primary facility in Vernon Hills could negatively impact the Company's business and profitability.

        Dependence on Commercial Delivery Services.    The Company generally ships its products to customers by Airborne, A.I.T., Eagle, FedEx, FedEx Ground, United Parcel Service and other commercial delivery services and invoices customers for shipping charges. If the Company is unable to pass on to its customers future increases in the cost of commercial delivery services, the Company's profitability could be adversely affected. Additionally, strikes or other service interruptions by such shippers could adversely affect the Company's ability to deliver products on a timely basis.

        General Economic Conditions.    Continued weak general economic conditions could adversely impact CDW's revenues and growth rate. During the year ended December 31, 2001, the information technology market weakened, particularly in the corporate segment. Continued softness in the information technology market could result in lower demand for the Company's products and services. In 2001, the Company was impacted by the effects of the economic downturn, most notably a decline in IT budgets and a decline in the average selling prices of desktop computers, servers and notebook computers. In addition, the Company's revenues, gross margins and earnings could deteriorate in the future as a result of unfavorable economic conditions.

        Public Sector Contracts.    Revenues from the public sector segment are derived from sales to governmental departments and agencies, as well as to educational institutions, through various contracts and open market sales. Government contracting is a highly regulated area. Noncompliance with government procurement regulations or contract provisions could result in civil, criminal, and administrative liability including, but not limited to, substantial monetary fines or damages, termination of government contracts, and suspension, debarment or ineligibility from doing business with the government. The effect of any of these possible actions by any governmental department or agency could adversely affect the Company's business and results of operations.

        Global Market Risk.    A portion of the Company's products are either produced, or have major components produced, in the Asia Pacific region. The Company engages in U.S. Dollar denominated transactions with U.S. divisions and subsidiaries of companies located in this region. As a result, CDW may be indirectly affected by risks associated with international events, including economic and labor conditions, political instability, tariffs and taxes, availability of products and currency fluctuations in the U.S. Dollar versus the regional currencies. In the past, countries in the Asia Pacific region, including Japan, have experienced volatility in their currency, banking and equity markets. Future volatility could adversely affect the supply and price of products and components and ultimately, the Company's results of operations.

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        State and Local Sales/Use Tax.    The Company currently collects state and local sales/use tax only on sales of products to non-exempt residents of the State of Illinois and on sales to some customers in a limited number of other states as required by law. Various states have sought to require the collection of state and local sales/use taxes on the sale of products shipped to the taxing state's residents by direct marketers. The United States Supreme Court has ruled that no state, absent Congressional legislation, may impose tax collection obligations on a direct marketer whose only contacts with the taxing state are the distribution of catalogs and other advertisement materials through the mail and the delivery of purchased goods by U.S. mail or interstate common carriers. The Company cannot predict the level of contact, including Internet activities, with any state which would give rise to future or past tax collection obligations within the parameters of the Supreme Court cases. Additionally, on several occasions in the past several years, including recently, legislation has been introduced in the United States Congress which, if passed, could impose state or local sales/use tax collection obligations on direct marketers such as CDW. If Congress enacts legislation that permits states to impose tax collection obligations on direct marketers, or CDW is deemed to have a physical presence in one or more states, additional tax collection obligations may be imposed on the Company. This would likely result in additional costs and administrative expenses to CDW, price increases to the Company's customers and reduced demand for its products, any or all of which would adversely affect the Company's operating results.

Item 2.          Properties.

        The Company owns its primary location and headquarters in Vernon Hills, Illinois, which includes its warehouse and distribution center, a retail showroom and corporate offices. The facility consists of approximately 450,000 square feet of warehouse and distribution center space and 125,000 square feet of office space. CDW owns a total of 45 acres of land at the Vernon Hills site, of which approximately 11 acres are vacant and available for future expansion.

        The Company has executed various operating lease agreements, primarily for sales office facilities, at several locations in and around Chicago, Illinois. The lease agreements generally provide for minimum rent and a proportionate share of operating expenses and property taxes, and include certain renewal and expansion options. The following table summarizes these lease agreements and the related financial commitment:

        The Company is obligated under a lease through 2003 for a combined 104,000 square foot office and warehouse facility in Buffalo Grove, Illinois, that previously served as its main facility. In October 1998, the Company reopened the office portion of the Buffalo Grove facility as a sales office. The Company sublet the warehouse and showroom portions of the Buffalo Grove facility to a third party beginning June 1999. However, the sublessee terminated the lease in conjunction with its Chapter 11 case under the bankruptcy laws in the first quarter of 2000. The Company sublet a portion of the Buffalo Grove facility to another third party later in 2000. However, the sublessee vacated the premises in the third quarter of 2001. The Company continues to occupy the office portion of the Buffalo Grove facility as a sales office and will continue to evaluate the future use of the warehouse space.

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Item 3.          Legal Proceedings.

        The Company is not currently party to any material legal proceedings.

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

        There were no matters submitted during the fourth quarter of 2001 to a vote of security holders.

PART II

Item 5.          Market for Registrant's Common Equity and Related Stockholder Matters.

        The following table sets forth for the periods indicated the high and low sales prices for the Company's Common Stock, which is traded on The Nasdaq Stock Market(R)under the symbol "CDWC". These quotations were obtained from Nasdaq, and have been adjusted to reflect the two-for-one stock split paid in the form of a stock dividend on June 21, 2000 to common shareholders of record on June 14, 2000. The Company believes that as of February 22, 2002 there were approximately 16,992 beneficial owners of the Company's common stock. Except for distributions prior to May 25, 1993, the date of termination of the Company's election to be taxed as an S Corporation, the Company has neither declared nor paid any cash dividends on its Common Stock. The Company currently intends to retain earnings for use in the operation and expansion of its business and therefore does not anticipate paying cash dividends in the foreseeable future.

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Item 6.   Selected Financial Data

CDW Computer Centers, Inc. and Subsidiaries
Selected Financial and Operating Data
(in thousands, except per share and selected operating data)

(1) Commercial customers is defined as public sector and corporate sector customers excluding consumers.
(2) Return on shareholders' equity is calculated as net income for the period divided by average shareholders' equity.

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Item 7.          Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto.

Overview

        CDW Computer Centers, Inc. (collectively with its subsidiaries, "CDW" or the "Company") is the largest direct marketer of multi-brand computers and related technology products and services in the United States. The Company's 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, the Company markets and sells products through www.cdw.com and www.cdwg.com, its Web sites.

        For financial reporting purposes, the Company has two operating segments: corporate, which is primarily comprised of business customers but also includes consumers (which generated approximately 3% of total sales in 2001), 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.

        Financial Reporting Release No. 60, which was recently released by the Securities and Exchange Commission, encourages all registrants, including the Company, to include a discussion of "critical" accounting policies or methods used in the preparation of financial statements. The Company presents in its notes to the consolidated financial statements a summary of its most significant accounting policies used in the preparation of such statements. The Company's significant accounting policies relate to the sale, purchase, distribution and promotion of its products. Therefore, the Company's accounting principles in the areas of revenue recognition, trade accounts receivable valuation, inventory valuation, vendor transactions and marketing activities are the most significant.

        The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make use of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. CDW bases its estimates on historical experience and on various other assumptions that are believed to be 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 the Company's results for the period in which the actual amounts become known.

        Significant estimates in these financial statements include allowances for doubtful accounts receivable, sales returns and pricing disputes, net realizable value of inventories, vendor transactions and loss contingencies.

        Allowance for doubtful accounts.   CDW maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. This allowance is determined based upon historical experience in addition to an ongoing credit quality review of the Company's accounts receivable portfolio. If the financial condition of CDW's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required and operating income could be adversely affected.

        Sales returns and pricing disputes.   The Company maintains an allowance for anticipated sales returns and pricing disputes based on recent trends. Should the actual rate of sales returns or pricing disputes increase, additional allowances may be required and gross margin and operating income could be adversely affected.

        Net realizable value of inventories.   The Company adjusts the carrying value of its inventory for changes in net realizable value based upon current market values and assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory valuation adjustments may be required and gross margin and operating income could be adversely affected.

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        Vendor transactions.   The Company and its vendors are involved in certain pricing and shipping disputes in the normal course of business. The Company establishes allowances for such disputes based upon an evaluation of identified disputes and an evaluation of recent and historical trends. Should the resolution of such disputes differ from management estimates, gross margin and operating income could be adversely affected.

        Loss contingencies.   From time to time, the Company may have contingent liabilities which could result in a loss and a reduction to operating income. As these events arise, management exercises judgment in evaluating the financial impact of these potential losses. If actual losses differ from management's estimates, operating income could be adversely affected.

Results of Operations

        The following table sets forth for the periods indicated information derived from the Company's 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 the Company's consolidated operating statistics:

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        The following table presents consolidated net sales dollars by product category as a percentage of total consolidated net sales dollars. Product lines are based upon internal product code classifications. Product mix for the years ended December 31, 2000 and 1999 has been retroactively adjusted for certain changes in individual product categorization.

        The following table represents the change in year-over-year consolidated sales dollars by product categories for each of the periods indicated. Product lines are based upon internal product code classifications. The rates of change for the years ended December 31, 2000 and 1999 have been retroactively adjusted for certain changes in individual product categorization.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

        Net sales in 2001 increased 3.1% to a record $3.962 billion compared to $3.842 billion in 2000. The growth in net sales in 2001 is primarily attributable to an increased customer base as well as substantial growth in the Company's public sector business. The Company expanded its sales force by 3.4% in 2001 to 1,228 account managers at December 31, 2001 and continued to actively market, enabling the Company to increase its customer base 15.3% from the prior year. Public sector sales increased 62.8% from $418 million in 2000 to $681 million in 2001, and comprised 17.2% of the Company's total sales for 2001. Corporate sector sales declined 4.2% to $3.281 billion in 2001 due to reduced IT spending levels in a difficult economic environment and reduced average selling prices per unit. The Company's strength in its public sector business is due to focused sales and marketing efforts in the federal, state and local government and education markets and the fact that these customers have not reduced IT budgets as severely as those in the corporate markets.

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       The average selling price of desktop computers decreased 17.9%, servers decreased 24.2% and notebook computers decreased 18.1% from 2000. Unit sales of desktop computers increased 9.2% and unit sales of servers increased 11.6% from 2000, while unit sales of notebook computers decreased 11.7% from 2000. The Company believes there may be future decreases in pricing for computer products in 2002, resulting in a lower average invoice size. Such decreases require the Company to generate more orders and sell more units in order to maintain or increase the level of sales.

        On a forward-looking basis, the Company believes that cautious assumptions as to the rate of sales growth in 2002 are appropriate, primarily due to uncertainty related to economic as well as political conditions, lower unit selling prices and reduced IT spending levels by some customers.

        Gross profit increased as a percentage of net sales to 13.3% in 2001, compared to 12.8% in 2000. This increase is primarily due to vendor incentives and the impact of software maintenance products and third party services that are recorded as net sales at the net amount retained by the Company, with no cost of goods sold.

        On a forward-looking basis, gross profit margin in future periods may be less than the 13.3% achieved in 2001. 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 margins below recent experience.

        Selling and administrative expenses, excluding net advertising expense, increased to 6.4% of net sales in 2001 versus 5.7% in 2000. This increase resulted primarily from $11.4 million of incremental occupancy costs along with $16.9 million of incremental payroll costs, which is partially due to a higher average number of sales account managers during 2001. Approximately 72% of the 1,228 sales account managers at December 31, 2001 had fewer than 24 months experience and 46% had fewer than 12 months, as compared to 77% and 58% at December 31, 2000, respectively. On a forward-looking basis, during 2002, the Company plans to expand its sales force by approximately 100 account managers, primarily in the public sector business segment, and increase the number of product category specialists. Selling and administrative expenses, excluding net advertising expenses, may increase as a percentage of net sales over prior year levels due to investments in additional sales personnel and facility expansions completed during the first half of 2001.

        The Company has leased sales office space in Chicago, Illinois and in locations near the Vernon Hills headquarters. The following table summarizes these lease agreements and the related financial commitment (see Footnote 7 to the consolidated financial statements):

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        As a result of the anticipated expansion of the sales force, the new sales offices, which opened during 2001, and a 250,000 square foot addition to the Vernon Hills distribution center, which became operational in the second quarter of 2001, the Company's selling and administrative expenses will likely increase in future periods versus 2001.

        Net advertising expense decreased as a percentage of net sales to 0.1% in 2001 from 0.3% in 2000 as the result of a decrease in gross advertising spending combined with an increase in cooperative advertising income. Gross advertising expense decreased $3.9 million to $87.4 million in 2001 while decreasing as a percentage of net sales to 2.2% versus 2.4% in 2000. Although gross advertising spending decreased, the Company believes it achieved more coverage due to reduced media rates. Based upon the Company's planned marketing initiatives, levels of gross advertising expense as a percentage of net sales in 2002 are expected to be relatively consistent with or higher than the level achieved in 2001. Cooperative advertising reimbursements as a percentage of net sales remained constant in 2001 at 2.1%. Cooperative advertising reimbursements as a percentage of net sales may decrease in future periods depending on the level of vendor participation achieved and collection experience.

        Consolidated operating income was $268.2 million in 2001, a 3.3% increase from $259.6 million in 2000. This increase was primarily a result of the increase in sales and gross margin in 2001, partially offset by the increase in operating expenses. Consolidated operating income as a percentage of net sales was 6.8% in both 2001 and 2000. Corporate segment operating income was $245.5 million in 2001, compared to $245.9 million in 2000. Corporate segment operating income increased as a percentage of net sales to 7.5% in 2001 from 7.2% in 2000, due to an increase in gross margin as a percentage of net sales, partially offset by an increase in operating expenses as a percentage of net sales. The increase in gross margin as a percentage of net sales resulted primarily from changes in product mix, vendor incentives and the impact of software maintenance products and third party services, which are recorded as net sales at the net amount to be retained by the Company. Operating expenses increased as a percentage of net sales due to higher payroll costs and higher occupancy costs resulting from additional sales offices and the warehouse facility expansion. Public sector segment operating income was $22.7 million in 2001, a 65.7% increase from $13.7 million in 2000, primarily due to the increase in sales. Public sector segment operating income as a percentage of net sales was 3.3% in both 2001 and 2000.

        Interest income, net of other expenses, increased to $11.8 million in 2001 compared to $9.0 million in 2000, primarily due to higher levels of cash available for investing offsetting a decrease in the average rate of interest earned. The higher levels of cash were due to cash flows from operations, primarily net income, a decrease in accounts receivable and tax benefits from stock options and restricted stock transactions.

        The effective income tax rate, expressed as a percentage of income before income taxes, was 39.75% in 2001 and 39.6% in 2000.

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        Net income in 2001 was $168.7 million, a 4.0% increase from $162.3 million in 2000. Diluted earnings per share were $1.89 in 2001 and $1.79 in 2000, an increase of 5.6%. All per share amounts have been adjusted to reflect the two-for-one stock split effected in the form of a stock dividend paid on June 21, 2000.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

        Net sales in 2000 increased 50.0% to a record $3.842 billion compared to $2.561 billion in 1999. The Company experienced substantial sales growth in both of its business segments in 2000. Net sales by the Company's public sector business grew 62.3%, increasing from $258 million in 1999 to $418 million in 2000. Net sales by the Company's corporate sector grew 48.6% to $3.424 billion in 2000 compared to $2.304 billion in the prior year. The growth in net sales for both segments is primarily attributable to an increase in active accounts and a higher level of sales per active account. Net sales per active commercial account, defined as public and corporate segment accounts transacting within the past twelve months, excluding consumers, grew 43.0% in 2000. The Company believes that spending by customers for networking and Internet capabilities, as well as post-Year 2000 projects, positively impacted net sales in 2000. Additionally, the Company expanded its sales force by 48.9% in 2000 to 1,188 account managers at December 31, 2000, enabling it to increase its customer base and the level of sales per active customer.

        The average selling price of desktop computers in 2000 increased 1.7%, servers increased 15.9% and notebook computers increased 6.4% from 1999.

        Gross profit increased as a percentage of net sales to 12.8% in 2000, compared to 12.6% in 1999. This increase was primarily the result of higher selling margins achieved on certain product lines and increased levels of vendor support programs.

        Selling and administrative expenses decreased to 5.7% of net sales in 2000 versus 5.9% in 1999. This decline resulted from decreases in non-sales payroll and related coworker costs, all as a percentage of net sales. Increases in coworker productivity offset increased payroll and associated costs related to expansion of the sales force. Approximately 77% of the 1,188 sales account managers at December 31, 2000 had fewer than 24 months experience and 58% had fewer than 12 months, as compared to 76% and 53% at December 31, 1999, respectively.

      &nb