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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): January 31, 2008

PC Connection, Inc.

(Exact name of registrant as specified in its charter)

Delaware

0-23827

02-0513618

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

Rt. 101A, 730 Milford Road

Merrimack, NH

03054

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (603) 683-2000

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

⃞ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

⃞ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

⃞ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

⃞ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

On January 31, 2008, PC Connection, Inc. announced its financial results for the quarter and year ended December 31, 2007. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information in this Form 8-K (including Exhibit 99.1) shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits

  (d)   Exhibits
 
The following exhibit relating to Item 2.02 shall be deemed to be furnished, and not filed:
 

99.1    Press Release issued by PC Connection, Inc. on January 31, 2008.

SIGNATURE

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

 

PC CONNECTION, INC.

 

Date:

January 31, 2008

By:

/s/ Jack Ferguson

Jack Ferguson

Executive Vice President, Treasurer, and

Chief Financial Officer

EXHIBIT INDEX

Exhibit No.

  Description
 
99.1

Press release issued by PC Connection, Inc. on January 31, 2008.

Exhibit 99.1

PC Connection, Inc. Reports Fourth Quarter and Full Year Results

Company Announces Record Quarterly and Annual Sales

MERRIMACK, N.H.--(BUSINESS WIRE)--PC Connection, Inc. (NASDAQ: PCCC)

FOURTH QUARTER HIGHLIGHTS:   FULL YEAR HIGHLIGHTS:
 
  • Net sales: $490 million; up 13% y/y
  • Net sales: $1,785 million; up 9% y/y
  • Net income: $6.2 million; up 35% y/y
  • Net income: $23.0 million; up 67% y/y
  • Diluted earnings per share: $.23; up from $.17 last year
  • Diluted earnings per share: $.85; up from $.54 last year

PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of information technology (IT) products and services, today announced results for the quarter and year ended December 31, 2007. Net sales for the three months ended December 31, 2007 increased by $57.7 million, or 13.4%, to $489.6 million from $431.9 million for the three months ended December 31, 2006. Net income for the quarter was $6.2 million, or $.23 per share, compared to $4.6 million, or $.17 per share, for the corresponding prior year quarter.

The quarter ended December 31, 2007 included special charges related to management restructuring that reduced earnings and earnings per share. Had these charges not been incurred, pro forma net income for the quarter ended December 31, 2007 would have been $6.5 million, or $.24 per share, compared to $4.6 million, or $.17 per share, for the quarter ended December 31, 2006. We did not record any special charges for the quarter ended December 31, 2006. A reconciliation between net income on a GAAP basis and pro forma net income is provided in a table immediately following the Consolidated Income Statements.

“We are pleased to report record quarterly and annual sales,” said Patricia Gallup, Chairman and Chief Executive Officer of PC Connection, Inc. “The fourth quarter was our eleventh consecutive quarter of year-over-year revenue growth. We also achieved a 29% increase in operating income and a 35% increase in earnings per share over the fourth quarter of 2006.”

Net sales for the year ended December 31, 2007 increased by $149.7 million, or 9.2%, to $1,785.4 million from $1,635.7 million for the year ended December 31, 2006. Net income for the year ended December 31, 2007 was $23.0 million, or $.85 per share, compared to $13.8 million, or $.54 per share, for the year ended December 31, 2006. The years ended December 31, 2007 and 2006 included special charges that reduced earnings and earnings per share. Had these charges not been incurred, pro forma net income for the year ended December 31, 2007 would have been $23.3 million, or $.86 per share, compared to $15.2 million, or $.59 per share, for the year ended December 31, 2006.

Quarterly Sales Growth by Business Segment:

Quarterly Sales Growth by Product Mix:

Gross profit was $57.5 million for the fourth quarter of 2007 compared to $51.9 million for the fourth quarter of 2006. Gross profit margin, as a percentage of net sales, was 11.7% in the fourth quarter of 2007 compared to 12.0% in the fourth quarter of 2006. The large Video product orders shipped in the fourth quarter decreased our gross margin rates by approximately 70 basis points. Higher agency fee revenues and additional vendor consideration in the fourth quarter of 2007 partially offset these lower-margin SMB sales.

Annualized sales representative productivity increased 19% on a consolidated basis in the fourth quarter of 2007 compared to the fourth quarter of 2006. Sales productivity in our Large Account segment increased 21% in the fourth quarter of 2007 compared to the fourth quarter of 2006. Sales productivity in our SMB and Public Sector segments increased quarter over quarter by 20% and 19%, respectively. On a consolidated basis, the total number of sales representatives was 692 as of December 31, 2007, compared to 654 at September 30, 2007, and 702 at December 31, 2006.

Selling, general and administrative expenses (“SG&A”) totaled $46.9 million for the fourth quarter of 2007 compared to $44.1 million for the fourth quarter of 2006. SG&A improved as a percentage of net sales to 9.5% for the fourth quarter of 2007 compared to 10.2% for the fourth quarter of 2006, reflecting our continuing efforts to leverage our cost structure.

Ms. Gallup continued, "Again, we are pleased with PC Connection's accomplishments in 2007. Our performance-improvement initiatives and our efforts to enhance the effectiveness of our sales organizations are producing positive results. In 2007, our GovConnection subsidiary was awarded both SEWP IV and First Source. These contracts allow us to more effectively reach new customers and better provide IT solutions to all of the largest agencies in the federal marketplace. PC Connection again placed on Fortune's list of the 1000 largest U.S. companies, and was ranked as one of the top business technology innovators on the InformationWeek 500."

Gallup concluded, "PC Connection is a recognized leader in our industry. We believe we are well-positioned to continue in a leadership role, and to grow sales and earnings to build long-term shareholder value."

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, owns three sales companies: PC Connection Sales Corporation, MoreDirect, Inc., and GovConnection, Inc., headquartered in Merrimack, NH, Boca Raton, FL, and Rockville, MD, respectively. All three companies can deliver custom-configured computer systems overnight. Investors and media can find more information about PC Connection, Inc. at http://ir.pcconnection.com.

PC Connection Sales Corporation (1-800-800-5555), the original business of PC Connection, Inc. serving the small- and medium-sized business sector (SMB), is a rapid-response provider of information technology (IT) products and services. It offers more than 150,000 brand-name products through its staff of technically trained sales account managers and catalog telesales representatives, catalogs, and publications, and its website at www.pcconnection.com. The subsidiary serves the Apple/Macintosh community through its MacConnection division (1-800-800-2222), which also publishes specialized catalogs and is online at www.macconnection.com.

MoreDirect, Inc. (561-237-3300), www.moredirect.com, provides corporate technology buyers with a comprehensive web-based e-procurement solution and in-depth IT supply-chain expertise, serving as a one-stop source by aggregating more than 300,000 products from the inventories of leading IT wholesale distributors and manufacturers. MoreDirect’s TRAXX® system is a seamless end-to-end interface that empowers clients to electronically source, evaluate, compare prices, and track related technology product purchases in real-time.

GovConnection, Inc. (1-800-800-0019) is a provider of IT products and services to federal, state, and local government agencies and educational institutions through specialized account managers, catalogs, and publications, and online at www.govconnection.com.

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“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to, the impact of changes in market demand and the overall level of economic activity, or in the level of business investment in information technology products, competitive products and pricing, product availability and market acceptance, new products, fluctuations in operating results, and the ability of the Company to hire and retain essential personnel. Additional risk factors that could cause actual results to differ materially from those in our forward-looking statements are disclosed in our most recent quarterly report on Form 10-Q for the quarter ended September 30, 2007 and annual report on Form 10-K for the year ended December 31, 2006. We encourage you to read those disclosures. More specifically, the statements in this release concerning the Company’s outlook for 2008 and the statements concerning the Company’s gross margin percentage, productivity, and selling and administrative costs and other statements of a non-historical basis (including statements regarding implementing strategies for future growth, the ability of the Company to improve sales productivity and increase its active customers) are forward-looking statements that involve certain risks and uncertainties. Such risks and uncertainties include the ability to realize market demand for and competitive pricing pressures on the products and services marketed by the Company, the continued acceptance of the Company's distribution channel by vendors and customers, continuation of key vendor and customer relationships and support programs and the ability of the Company to hire and retain qualified sales representatives and other essential personnel. The Company assumes no obligation to update the information in this press release or revise any forward-looking statements, whether as a result of any new information, future events, or otherwise.

PC Connection, Inc. -- Fourth Quarter Earnings -- 01/31/08

 

 
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
At or for the Three Months Ended December 31,     2007               2006          
(Dollars and shares in thousands, except operating data, price/earnings ratio, and per share data)     % of   % of   %
        Net Sales     Net Sales   Change
 
Operating Data:
Net sales $ 489,607 $ 431,866 13.4 %
Diluted earnings per share $ .23 $ .17 35.3 %
 
Gross profit margin 11.7 % 12.0 %
Operating margin 2.1 1.8
Return on equity (1) 11.2 9.7
 
Catalogs distributed 3,563,000 4,440,000 (19.8 )%
Orders entered (2) 367,100 403,700 (9.1 )%
Average order size (2) $ 1,515 $ 1,208 25.4 %
 
Inventory turns (1) 21 20
Days sales outstanding 43 45
 
 
Product Mix:
Notebooks & PDAs $ 72,962 14.9 % $ 73,160 16.9 % (0.3 )%
Desktops/Servers 64,984 13.3 60,474 14.0 7.5
Storage Devices 45,383 9.3 37,211 8.6 22.0
Software 63,511 13.0 52,714 12.2 20.5
Net/Com Products 41,281 8.4 40,458 9.4 2.0
Printers & Printer Supplies 44,118 9.0 40,430 9.4 9.1
Video, Imaging & Sound 86,657 17.7 56,817 13.2 52.5
Memory & System Enhancements 20,525 4.2 23,013 5.3 (10.8 )
Accessories/Other   50,186   10.2     47,589   11.0   5.5
$ 489,607   100.0 % $ 431,866   100.0 % 13.4 %
 
 
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):
 
$ 164,922   33.7 % $ 138,123   32.0 % 19.4 %
 
 
Stock Performance Indicators:
Actual shares outstanding 26,892 26,500
Total book value per share $ 8.34 $ 7.43
Tangible book value per share $ 6.10 $ 5.12
Closing price $ 11.35 $ 14.83
Market capitalization $ 305,224 $ 392,995
Trailing price/earnings ratio (3) 13 28
 
(1) Annualized
(2) Does not reflect cancellations or returns
(3) Earnings is based on the last four quarters
SELECTED SEGMENT INFORMATION            
For the Three Months Ended December 31,   2007       2006
  Net   Gross Net   Gross
(Dollars in thousands)   Sales   Margin (%) Sales   Margin (%)
 
PC Connection Sales Corporation (SMB) $ 263,785 12.6 % $ 231,481 12.9 %
MoreDirect (Large Account) 140,826 11.0 132,465 10.7
GovConnection (Public Sector)   84,996 10.3     67,920 11.9  
Total $ 489,607 11.7 % $ 431,866 12.0 %
       
CONSOLIDATED INCOME STATEMENTS      
Three Months Ended December 31,     2007         2006
(Amounts in thousands, except per share data)   Amount   % of Net Sales       Amount     % of Net Sales
     
Net sales $ 489,607 100.0 % $ 431,866 100.0 %
Cost of sales   432,122   88.3     379,919   88.0  
Gross Profit 57,485 11.7 51,947 12.0
 
Selling, general and administrative expenses 46,870 9.5 44,147 10.2
Special charges   541   0.1     -   0.0  
Income From Operations 10,074 2.1 7,800 1.8
 
Interest expense (264 ) - (353 ) (0.1 )
Other, net 111 - 87 -
Income tax provision   (3,749 ) (0.8 )   (2,963 ) (0.6 )
Net Income $ 6,172   1.3 % $ 4,571   1.1 %
 
 
Weighted average common shares outstanding:
Basic   26,844     26,067  
Diluted   27,052     26,507  
Earnings per common share:
Basic $ 0.23   $ 0.18  
Diluted $ 0.23   $ 0.17  
                       
 
                       
CONSOLIDATED INCOME STATEMENTS
Years Ended December 31,     2007         2006  
(Amounts in thousands, except per share data)   Amount   % of Net Sales Amount     % of Net Sales
 
Net sales $ 1,785,379 100.0 % $ 1,635,651 100.0 %
Cost of sales   1,566,409   87.7     1,435,400   87.8  
Gross Profit 218,970 12.3 200,251 12.2
 
Selling, general and administrative expenses 181,640 10.2 173,927 10.6
Special charges   541   -     2,391   0.1  
Income From Operations 36,789 2.1 23,933 1.5
 
Interest expense (932 ) - (1,828 ) (0.1 )
Other, net 764 - 121 -
Income tax provision   (13,626 ) (0.8 )   (8,450 ) (0.6 )
Net Income $ 22,995   1.3 % $ 13,776   0.8 %
 
 
Weighted average common shares outstanding:
Basic   26,785     25,516  
Diluted   27,024     25,731  
Earnings per common share:
Basic $ 0.86   $ 0.54  
Diluted $ 0.85   $ 0.54  
                       
 
 
                       

A RECONCILIATION BETWEEN GAAP AND PRO FORMA NET INCOME

This information is being provided so as to allow for a comparison of our operating results without special charges.
                       
December 31,   Three Months Ended       Twelve Months Ended
(Amounts in thousands)     2007     2006           2007     2006  
 
GAAP net income $ 6,172 $ 4,571 $ 22,995 $ 13,776
Special charges (after tax):
Management restructuring

336

-

336

535

GSA settlement

 

-

    -    

-

   

900

 

Total special charges (after tax)

 

336

    -    

336

    1,435  
 
Pro forma net income $

6,508

  $ 4,571   $

23,331

  $ 15,211  
           
                 
CONSOLIDATED BALANCE SHEETS December 31,   December 31,
(amounts in thousands) 2007   2006
 
ASSETS
Current Assets:
Cash and cash equivalents $ 13,741 $ 17,582
Accounts receivable, net 202,216 170,222
Inventories–merchandise 76,090 69,407
Deferred income taxes 2,858 3,837
Income taxes receivable 345 627
Prepaid expenses and other current assets   4,322     3,882  
Total current assets 299,572 265,557
Property and equipment, net 20,831 19,542
Goodwill 56,867 56,867
Other intangibles, net 3,291 4,363
Other assets   318     355  
Total Assets

$

380,879

  $ 346,684  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current Liabilities:
Current maturities of capital lease obligations:
To affiliate

$

527

$

464

To third party - 395
Accounts payable 111,140 110,977
Accrued expenses and other liabilities 20,557 17,389
Accrued payroll   10,816     9,367  
Total current liabilities 143,040 138,592
Capital lease obligations, less current maturities:
To affiliate 4,309 4,836
Other liabilities 3,784 -
Deferred income taxes  

5,436

    6,352  
Total Liabilities  

156,569

    149,780  
Stockholders’ Equity:
Common stock 273 269
Additional paid-in capital 94,132 89,537
Retained earnings 131,970 109,321
Treasury stock at cost   (2,065 )   (2,223 )
Total Stockholders’ Equity   224,310     196,904  
Total Liabilities and Stockholders’ Equity

$

380,879

 

$

346,684

 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Year ended December 31, 2007 (amounts in thousands)
  Common Stock   Additional   Retained   Treasury Shares  
    Shares   Amount   Paid-In Capital   Earnings   Shares   Amount   Total
   
Balance – January 01, 2007 26,862 $269 $89,537 $109,321 (352 ) ($2,223 ) $196,904
 

Cumula-tive effect of change in account-ing prin-ciple

- - - (346 ) - - (346 )
 

Stock compen-sation expense

- - 579 - - - 579
 

Exercise of stock options, includ-ing

income tax benefits

364 4 3,876 - - - 3,880
 

Release of non-vested stock awards

- 3 3
 

Issuance of stock under Employee Stock Purchase Plan

 

26 - 295 - - - 295
 

Issuance of non-vested stock awards

(158 ) 25 158 -
 
Net income - - -   22,995   -   -   22,995  
 
Balance – December 31, 2007 27,252 $273 $94,132   $131,970   (327 ) ($2,065 ) $224,310  
     
           
CONSOLIDATED STATEMENTS OF CASH FLOWS          
Years Ended December 31, (Amounts in thousands)     2007     2006
 
Cash Flows from Operating Activities:
 
Net income $ 22,995 $ 13,776

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization 6,781 7,049
Provision for doubtful accounts 1,587 2,885
Deferred income taxes 63 2,179
Loss on disposal of fixed assets 68 86
Stock compensation expense 579 418
Excess tax benefit from exercise of stock options (447 ) (240 )
Income tax benefits related to employee equity awards 974 1,338
 
Changes in assets and liabilities:
Accounts receivable (33,581 ) (10,582 )
Inventories (6,683 ) 5,967
Prepaid expenses and other current assets (158 ) 1,452
Other non-current assets 37 4
Accounts payable 163 (3,436 )
Accrued expenses and other liabilities   8,055     5,466  
Net cash provided by operating activities   433     26,362  
 
 
Cash Flows from Investing Activities:
 
Purchases of property and equipment (7,066 ) (7,981 )
Proceeds from sale of property and equipment   -     21  
Net cash used for investing activities   (7,066 )   (7,960 )
 
 
Cash Flows from Financing Activities:
 
Proceeds from short-term borrowings 53,280 402,039
Repayment of short-term borrowings (53,280 ) (422,014 )
Repayment of capital lease obligations (859 ) (828 )
Exercise of stock options 2,910 9,740
Excess tax benefit from exercise of stock options 447 240
Issuance of stock under Employee Stock Purchase Plan   294     233  
Net cash provided by (used for) financing activities   2,792     (10,590 )
(Decrease) increase in cash and cash equivalents (3,841 ) 7,812
Cash and cash equivalents, beginning of period   17,582     9,770  
Cash and cash equivalents, end of period $ 13,741   $ 17,582  
           
 
 
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CONTACT:
PC Connection, Inc.
Stephen Baldridge, 603-683-2322
Sr. Vice President, Finance & Corporate Controller