Press Release Details

MERRIMACK, N.H., Feb 04, 2010 (BUSINESS WIRE) -- PC Connection, Inc. (NASDAQ: PCCC):

FOURTH QUARTER SUMMARY:					FULL YEAR SUMMARY:
Net sales: $463.1 million, up 5% y/y					Net sales: $1,569.7 million, down 10% y/y
Gross margin: 11.3%					Gross margin: 11.8%
Operating income: $6.6 million					Operating loss: $0.7 million
Diluted earnings per share: $0.15 per share					Diluted loss per share: $0.05 per share

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, 2009. Net sales for the three months ended December 31, 2009 increased by $24.0 million, or 5.5%, to $463.1 million from $439.1 million for the three months ended December 31, 2008. Net income for the quarter was $4.0 million, or $0.15 per share, compared to net loss of $2.7 million, or $0.10 per share, for the corresponding prior year quarter.

The three months ended December 31, 2009 included an adjustment to special charges that increased earnings and earnings per share, whereas the three months ended December 31, 2008 included a non-cash goodwill impairment charge that reduced earnings and earnings per share. Had these charges not been incurred, pro forma net income for the three months ended December 31, 2009 would have been $3.9 million, or $0.14 per share, compared to $2.7 million, or $0.10 per share for the three months ended December 31, 2008. A reconciliation between net income (loss) on a GAAP basis and pro forma net income is provided in a table below immediately following the Consolidated Statements of Operations.

Net sales for the year ended December 31, 2009 decreased by $184.0 million, or 10.5%, to $1,569.7 million, from $1,753.7 million for the year ended December 31, 2008. Net loss for the year ended December 31, 2009 was $1.2 million, or $0.05 per share, compared to net income of $10.4 million, or $0.39 per share, for the year ended December 31, 2008. Both 2009 and 2008 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, 2009 would have been $6.8 million, or $0.25 per share, compared to $16.7 million, or $0.62 per share, for the year ended December 31, 2008. A reconciliation between net loss (income) on a GAAP basis and pro forma net income is provided in a table below immediately following the Consolidated Statements of Operations.

Quarterly Sales by Business Segment:

• Net sales for the small- and medium-sized business (SMB) segment decreased by 1.9% to $220.8 million compared to the fourth quarter of 2008. SMB sales however increased on a sequential basis by 21% over the third quarter, reflecting increased seasonal consumer sales and higher enterprise solution sales.
• Net sales for MoreDirect, Inc., the Company's Large Account segment, increased by 8.9% to $123.6 million compared to the fourth quarter of 2008. Sales increased from both new and existing customers as large account customers increased their IT spending both sequentially and year over year.
• Net sales to government and education customers, the Company's Public Sector segment, increased by 18.0% to $118.7 million compared to the fourth quarter of 2008. Sales to the federal and state governments and education customers increased by double-digits due to increased enterprise sales and continued demand for netbooks, particularly in the K-12 marketplace.

Quarterly Sales by Product Mix:

• Sales of Notebooks and PDAs increased by 6% year over year and accounted for 15% of net sales in the fourth quarter of 2009 and 2008. Higher unit sales offset lower average selling prices, or ASPs, as the growth of netbook sales continued to impact ASPs.
• Software sales increased by 11% year over year in dollars and accounted for 14% of net sales in the fourth quarter of 2009 compared to 13% of net sales in the fourth quarter of 2008. Strong federal government and large account sales drove the year-over-year growth.
• Desktop/Servers sales increased by 15% year over year and accounted for 13% of net sales in the fourth quarter of 2009 compared to 12% of net sales in the fourth quarter of 2008. Higher unit volumes accounted for this increase year over year, which we attribute to both pent-up demand and technology upgrades.
• Memory & System Enhancements sales increased by 33% year over year, accounting for 5% of net sales in the fourth quarter of 2009 compared to 4% of net sales in the corresponding prior year period. Higher sales of notebooks, desktops, and servers drove growth in this product category.

Gross profit dollars increased by $0.6 million, or 1.1%, in the fourth quarter of 2009 from the corresponding period a year ago due to increased revenues. Gross profit margin, as a percentage of net sales, declined year over year by 50 basis points to 11.3% in the fourth quarter of 2009. Higher public sector sales and continued aggressive price competition led to lower invoice product margins in the fourth quarter of 2009 compared to the prior year quarter.

Overall annualized sales productivity increased by 22% in the fourth quarter of 2009 compared to the fourth quarter of 2008 due to double-digit productivity increases in all three sales segments. Sales productivity in the Large Account segment increased by 11% year over year due to higher enterprise revenues. Sales productivity in the Public Sector segment increased by 21% year over year due to productivity gains made in both the government and education sectors. Despite lower revenues, sales productivity in the SMB segment increased by 22% year over year. On a consolidated basis, the total number of sales representatives was 589 at December 31, 2009, compared to 712 at December 31, 2008 and 601 at September 30, 2009. The Company reduced both sales representatives and sales support headcount earlier in 2009 consistent with the previous year-over-year declines in revenues.

Total selling, general and administrative expenses for the quarter was largely unchanged year over year but decreased as a percentage of net sales to 9.9% for the fourth quarter of 2009 from 10.5% for the fourth quarter of 2008. The year-over-year decrease as a percentage of net sales was primarily attributable to increased sales levels in the fourth quarter of 2009.

"We are encouraged by the improvement in our overall performance," said Patricia Gallup, Chairman and Chief Executive Officer. "During the quarter, the Company grew sales and earnings, improved operating margins, and made progress in our efforts to improve the productivity of each of our three sales organizations."

"Recognizing that we have a loyal following of customers who purchase from us for their personal and home office needs, in January we started a new sales company, PC Connection Express, Inc. This company will focus on the specialized product requirements of the consumer and small office/home office market." Ms. Gallup concluded, "We will continue to monitor the changing landscape and identify opportunities that allow us to better serve the marketplace and position us well for future success."

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, owned three sales companies during the reporting period: 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 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. (1-561-237-3300), 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(TM) 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.

"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 and environment, 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, the ability of the Company to manage personnel levels in response to fluctuations in revenue, and other risks that could cause actual results to differ materially from these detailed under the caption "Risk Factors" in the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 2009. More specifically, the statements in this release concerning the Company's outlook for 2010 and other statements of a non-historical basis (including statements regarding the Company's ability to grow revenues and increase market share) 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 Results -- 02/04/10
CONSOLIDATED SELECTED FINANCIAL RESULTS
At or for the Three Months Ended December 31,		2009							2008
(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		$	463,121						$	439,113						5	%
Diluted earnings (loss) per share		$	0.15						$	(0.10	)
Gross profit margin			11.3	%						11.8	%
Operating margin			1.4	%						(0.7	)%
Catalogs distributed			2,701,000							3,126,000						(14	)%
Orders entered (2)			348,400							361,800						(4	)%
Average order size (2)		$	1,572						$	1,330						18	%
Inventory turns (1)			24							20
Days sales outstanding			47							45
Product Mix:
Notebooks & PDAs		$	70,676			15	%		$	66,553			15	%		6	%
Video, Imaging & Sound			68,570			15				68,114			15			1
Software			62,536			14				56,102			13			11
Desktops/Servers			62,035			13				53,736			12			15
Net/Com Products			52,904			11				51,126			12			3
Storage Devices			37,061			8				37,940			9			(2	)
Printers & Printer Supplies			36,403			8				36,713			8			(1	)
Memory & System Enhancements			22,326			5				16,741			4			33
Accessories/Other			50,610			11				52,088			12			(3	)
Total		$	463,121			100	%		$	439,113			100	%		5	%
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):
		$	186,767			40	%		$	164,140			37	%		14	%
Stock Performance Indicators:
Actual shares outstanding			26,848							26,829
Total book value per share		$	8.76						$	8.77
Tangible book value per share		$	6.93						$	6.90
Closing price		$	6.75						$	5.12
Market capitalization		$	181,224						$	137,364
Pro forma trailing price/earnings ratio (3)			27							8
(1) Annualized
(2) Does not reflect cancellations or returns
(3) Earnings per share is based on the last four quarters and excludes special charges

SELECTED SEGMENT INFORMATION
For the Three Months Ended December 31,		2009						2008
		Net			Gross			Net			Gross
(amounts in thousands)		Sales			Margin (%)			Sales			Margin (%)
PC Connection Sales Corporation (SMB)		$	220,799		12.6	%		$	225,069		13.6	%
MoreDirect (Large Account)			123,573		9.7	%			113,422		10.4
GovConnection (Public Sector)			118,749		10.6				100,622		9.5
Total		$	463,121		11.3	%		$	439,113		11.8	%

CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31,		2009							2008
(amounts in thousands, except per share data)		Amount				% of Net Sales			Amount				% of Net Sales
Net sales		$	463,121			100.0	%		$	439,113			100.0	%
Cost of sales			410,622			88.7				387,176			88.2
Gross profit			52,499			11.3				51,937			11.8
Selling, general and administrative expenses			45,984			9.9				46,290			10.5
Special charges			(129	)		-				-			-
Goodwill impairment			-			-				8,807			2.0
Income (loss) from operations			6,644			1.4				(3,160	)		(0.7	)
Interest expense			(132	)		-				(133	)		-
Other, net			72			-				201			-
Income tax (provision) benefit			(2,617	)		(0.5	)			383			0.1
Net income (loss)		$	3,967			0.9	%			($2,709	)		(0.6	%)
Earnings (loss) per common share:
Basic		$	0.15						$	(0.10	)
Diluted		$	0.15						$	(0.10	)
Weighted average common shares outstanding:
Basic			27,158							26,808
Diluted			27,183							26,808

CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,		2009							2008
(amounts in thousands, except per share data)		Amount				% of Net Sales			Amount				% of Net Sales
Net sales		$	1,569,656			100.0	%		$	1,753,680			100.0	%
Cost of sales			1,384,860			88.2				1,538,836			87.7
Gross profit			184,796			11.8				214,844			12.3
Selling, general and administrative expenses			172,654			11.0				186,728			10.7
Special charges			12,826			0.8				1,431			0.1
Goodwill impairment			-			-				8,807			0.5
(Loss) income from operations			(684	)		-				17,878			1.0
Interest expense			(517	)		-				(681	)		-
Other, net			524			-				811			-
Income tax provision			(545	)		(0.1	)			(7,642	)		(0.4	)
Net (loss) income			($1,222	)		(0.1	)%		$	10,366			0.6	%
(Loss) earnings per common share:
Basic		$	(0.05	)					$	0.39
Diluted		$	(0.05	)					$	0.39
Weighted average common shares outstanding:
Basic			26,833							26,828
Diluted			26,833							26,896

A RECONCILIATION BETWEEN GAAP AND PRO FORMA RESULTS
This information is being provided so as to allow for a comparison of our operating results without special charges.
December 31,		Three Months Ended				Years Ended
(amounts in thousands)		2009		2008		2009		2008
GAAP net income (loss)		$3,967		($2,709)		($1,222)		$10,366
Special charges (after tax):
Software development write-off and related charges		-		-		7,378		-
Management restructuring		(78)		-		693		906
Goodwill impairment		-		5,383		-		5,383
Total special charges (after tax)		(78)		5,383		8,071		6,289
Pro forma net income		$3,889		$2,674		$6,849		$16,655

CONSOLIDATED BALANCE SHEETS		December 31,				December 31,
(amounts in thousands)			2009				2008
ASSETS
Current Assets:
Cash and cash equivalents		$	46,297			$	47,003
Accounts receivable, net			218,095				185,885
Inventories			67,391				60,813
Deferred income taxes			3,386				4,244
Income taxes receivable			935				1,448
Prepaid expenses and other current assets			2,750				3,626
Total current assets			338,854				303,019
Property and equipment, net			12,420				24,483
Goodwill			48,060				48,060
Other intangibles, net			1,279				2,220
Other assets			482				385
Total Assets		$	401,095			$	378,167
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease obligation to affiliate		$	780			$	699
Accounts payable			125,120				101,783
Accrued expenses and other liabilities			20,441				19,993
Accrued payroll			8,843				6,337
Total current liabilities			155,184				128,812
Capital lease obligation to affiliate, less current maturities			2,830				3,610
Deferred income taxes			3,849				6,183
Other liabilities			3,966				4,238
Total Liabilities			165,829				142,843
Stockholders' Equity:
Common stock			274				273
Additional paid-in capital			97,213				95,997
Retained earnings			141,114				142,336
Treasury stock at cost			(3,335	)			(3,282	)
Total Stockholders' Equity			235,266				235,324
Total Liabilities and Stockholders' Equity		$	401,095			$	378,167

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 2009 (amounts in thousands)
		Common Stock					Additional				Retained				Treasury Shares
		Shares		Amount			Paid-In Capital				Earnings				Shares			Amount				Total
Balance - January 1, 2009		27,326		$	273		$	95,997			$	142,336			(492	)		$	(3,282	)		$	235,324
Stock-based compensation expense		-			-			1,420				-			-				-				1,420
Issuance of common stock under Employee
Stock Purchase Plan		49			1			274				-			-				-				275
Nonvested stock awards		-			-			(372	)			-			58				372				-
Repurchase of common stock for treasury		-			-			-				-			(93	)			(425	)			(425	)
Tax shortfall from stock-based compensation		-			-			(106	)			-			-				-				(106	)
Net loss		-			-			-				(1,222	)		-				-				(1,222	)
Balance - December 31, 2009		27,375		$	274		$	97,213			$	141,114			(527	)		$	(3,335	)		$	235,266

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, (amounts in thousands)			2009				2008
Cash Flows from Operating Activities:
Net (loss) income		$	(1,222	)		$	10,366
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Non-cash portion of special charges			11,625				-
Goodwill impairment			-				8,807
Depreciation and amortization			6,796				6,965
Provision for doubtful accounts			2,354				2,277
Deferred income taxes			(1,476	)			(639	)
Stock-based compensation expense			1,420				1,823
Loss on disposal of fixed assets			16				614
Tax shortfall from stock-based compensation			(106	)			(98	)
Excess tax benefit from exercise of stock options			-				(3	)
Changes in assets and liabilities:
Accounts receivable			(34,564	)			14,054
Inventories			(6,578	)			15,277
Prepaid expenses and other current assets			1,389				(407	)
Other non-current assets			(97	)			(67	)
Accounts payable			23,471				(9,191	)
Accrued expenses and other liabilities			2,682				(4,623	)
Net cash provided by operating activities			5,710				45,155
Cash Flows from Investing Activities:
Purchases of property and equipment			(5,569	)			(10,370	)
Proceeds from sale of property and equipment			2				44
Net cash used for investing activities			(5,567	)			(10,326	)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings			22,401				37,343
Repayment of short-term borrowings			(22,401	)			(37,343	)
Repayment of capital lease obligation			(699	)			(527	)
Purchase of treasury shares			(425	)			(1,537	)
Issuance of stock under Employee Stock Purchase Plan			275				257
Exercise of stock options			-				203
Net share settlement obligation			-				34
Excess tax benefit from exercise of stock options			-				3
Net cash used for financing activities			(849	)			(1,567	)
(Decrease) increase in cash and cash equivalents			(706	)			33,262
Cash and cash equivalents, beginning of period			47,003				13,741
Cash and cash equivalents, end of period		$	46,297			$	47,003

pccc-g

SOURCE: PC Connection, Inc.

PC Connection, Inc.
Stephen Baldridge, 603-683-2322
Sr. Vice President of Finance & Corporate Controller

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