Press Release Details

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

FOURTH QUARTER SUMMARY:					FULL YEAR SUMMARY:
Net sales: $553.2 million, level y/y					Net sales: $2.103 billion, up 6.5% y/y
SG&A: 10.3% of net sales					SG&A: 10.3% of net sales
Operating income: $11.8 million, 2.1% of net sales					Operating income: $47.6 million, 2.3% of net sales
Diluted earnings per share: $0.28, up 8% y/y					Diluted earnings per share: $1.07, up 26% y/y

PC Connection, Inc. (NASDAQ: PCCC), which through its subsidiaries provides a full range of information technology (IT) solutions from design through deployment to business, government, and education markets, today announced results for the quarter and year ended December 31, 2011. Consolidated net sales for the fourth quarter of 2011 were $553.2 million, compared to $555.6 million for the fourth quarter of 2010. Net income for the quarter ended December 31, 2011 was $7.4 million, or $0.28 per share, compared to net income of $6.9 million, or $0.26 per share, for the corresponding prior year period.

Net sales for the year ended December 31, 2011 were $2.10 billion, an increase of $129.1 million or 6.5%, compared to $1.97 billion for the year ended December 31, 2010. Net income for the year ended December 31, 2011 increased 25.4% to $28.8 million, or $1.07 per share, compared to $23.0 million, or $0.85 per share, for the year ended December 31, 2010.

Quarterly Sales by Segment:

• Net sales for the SMB segment decreased in the quarter by 8.6% to $224.1 million, compared to net sales in the fourth quarter of 2010. Sales of desktops and notebooks related to the PC refresh continued to be strong in the quarter; however, overall sales decreased year over year due to lower sales of tablets and media players, as well as hard drive product constraints, in the fourth quarter of 2011.
• Net sales for the Large Account segment increased by 17.3% to $197.0 million compared to sales in the fourth quarter of 2010. This segment includes the operating results for ValCom Technology ("ValCom"), a provider of infrastructure management and onsite managed services to medium-to-large corporations, which we acquired in the first quarter of 2011. Excluding ValCom's sales for the quarter, Large Account sales would have increased year over year by 10.5% due to strong demand for enterprise solutions.
• Net sales to government and education customers (Public Sector segment) decreased year over year by 2.0% to $115.0 million due primarily to budgetary constraints. Sales to state and local government and educational institutions decreased by 3.5% during the quarter, while sales to the federal government were only nominally lower than the prior year quarter.
• Net sales to consumers and SOHO customers by PC Connection Express were $17.0 million in the fourth quarter of 2011, compared to $24.9 million in the fourth quarter of 2010. Gross profit dollars, however, increased by 7.2% in the quarter as gross margin improvements continued to be the primary focus for this segment.

Quarterly Sales by Product Mix:

• Notebook and PDA sales, the Company's largest product category, decreased by 2% year over year and accounted for 17% of net sales in the fourth quarter of 2011 compared to 18% of net sales in the fourth quarter of 2010. Pricing pressures resulted in a 6% decrease in average selling prices, or ASPs, as unit sales increased by 5% year over year.
• Desktop/server sales decreased by 7% year over year, accounting for 16% of net sales in the fourth quarter of 2011 compared to 17% of net sales in the fourth quarter of 2010. Desktop sales decreased as a result of a 14% decrease in ASPs, however unit sales increased by 10%. Server sales decreased year over year as a result of a 10% decrease in unit sales, as ASPs were largely unchanged.
• Net/com products sales increased by 17% year over year, accounting for 11% of net sales in the fourth quarter of 2011 compared to 9% of net sales in the fourth quarter of 2011. Net/com sales were strong in both the SMB and Large Account segments with double digit growth from each segment contributing to the overall increase.
• Storage device sales increased by 11% year over year, accounting for 7% of net sales in the fourth quarter of 2011 and 2010. Increased demand for storage solutions and servers from both SMB and Large Account customers led to the growth in this category.

Overall gross profit dollars increased by $5.4 million, or 8.6%, to $68.7 million in the fourth quarter of 2011 compared to the prior year. Consolidated gross margin, as a percentage of net sales, increased to 12.4% in the fourth quarter of 2011 compared to 11.4% in the prior year quarter. Each of the segments generated significant increases in gross margin.

Total selling, general and administrative expenses for the quarter increased year over year by $5.3 million, or 10.3%, and increased as a percentage of net sales to 10.3% for the fourth quarter of 2011, from 9.3% for the fourth quarter of 2010. The dollar and percentage increases were attributable to investments in solutions sales capabilities, increased variable compensation associated with improved gross profit, and the inclusion of ValCom's operating costs for the quarter. The total number of sales representatives was 646 at December 31, 2011, compared to 615 at December 31, 2010, and 636 at September 30, 2011.

During the quarter, the Company paid a one-time special cash dividend of $0.40 per share. The total cash payment of $10.6 million was made on December 7, 2011 to shareholders of record on November 25, 2011.

"I am pleased with our overall performance in 2011. PC Connection achieved record annual sales while attaining the highest annual gross margin in over a decade," said Timothy McGrath, President and Chief Executive Officer. "We remain committed to making the investments necessary to continue to grow our business and improve operating performance. We believe the strategies we have put in place will position us well to gain market share and enhance long-term shareholder value."

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, has four sales subsidiaries: PC Connection Sales Corporation, MoreDirect, Inc., GovConnection, Inc., and Professional Computer Center, Inc. d/b/a ValCom Technology, headquartered in Merrimack, NH, Boca Raton, FL, Rockville, MD, and Itasca, IL, respectively. All four companies can deliver custom-configured computer systems overnight from our ISO 9001:2008 certified technical configuration lab at our distribution center in Wilmington, OH. Investors and media can find more information about PC Connection, Inc. at http://ir.pcconnection.com.

PC Connection Sales Corporation (800-800-5555), operates the original business of PC Connection, Inc. serving primarily the small- and medium-sized business sector, and is a rapid-response provider of information technology (IT) products and services. It offers more than 300,000 brand-name products through its staff of technically trained sales account managers and telesales specialists, catalogs, publications, and its website at www.pcconnection.com. As a result of a merger of two subsidiaries, this subsidiary, beginning in 2012, also serves the consumer and small office users under its PC Connection Express brand (888-800-0323) at www.pcconnectionexpress.com and is, under its MacConnection brand (800-800-2222), one of Apple's largest authorized online resellers at www.macconnection.com.

MoreDirect, Inc. (561-237-3300), www.moredirect.com, provides corporate technology buyers with best-in-class IT solutions, in-depth IT supply-chain expertise, and access to over 300,000 products and 1,600 vendors through TRAXX™, a cloud-based eProcurement system. Backed by over 500 technical certifications, MoreDirect's team of engineers, software licensing specialists, and project managers help reduce the cost and complexity of buying hardware, software, and services throughout the entire IT lifecycle.

GovConnection, Inc. (800-800-0019) is a rapid-response 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.

Professional Computer Center, Inc. d/b/a ValCom Technology (630-285-0500), www.valcomtechnology.com, provides technology services to medium-to-large corporate organizations utilizing its proprietary cloud-based IT service management software, WebSPOC™. Through its experienced technical service personnel ValCom Technology provides network, server, storage, mission-critical onsite support, installation, and hosting of lifecycle services.

"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, and 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 those detailed under the caption "Risk Factors" in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2010. More specifically, the statements in this release concerning the Company's outlook for 2012 and other statements of a non-historical basis (including statements regarding the Company's ability to grow revenues, improve gross margins, 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, the ability of the Company to integrate the operations of ValCom Technology, the ability of the Company to gain or maintain market share, and the ability of the Company to hire and retain qualified sales representatives and other essential personnel. The Company disclaims any 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.

CONSOLIDATED SELECTED FINANCIAL INFORMATION
At or for the Three Months Ended December 31,				2011								2010
(Dollars and shares in thousands, except operating data, P/E ratio, and per share data)							% of									% of				%
							Net Sales									Net Sales				Change
Operating Data:
Net sales			$	553,162								$	555,563							-
Diluted earnings per share			$	0.28								$	0.26							8	%
Gross margin				12.4	%								11.4	%
Operating margin				2.1	%								2.1	%
Return on equity (1)				10.9	%								10.9	%
Orders entered (2)				329,600									345,800							(5	%)
Average order size (2)			$	1,958								$	1,810							8	%
Inventory turns (1)				25									23
Days sales outstanding				53									44
Product Mix:
Notebook & PDA			$	95,296			17	%				$	97,266			18	%			(2	%)
Desktop/Server				85,464			16						91,870			17				(7	)
Software				81,744			15						82,344			15				(1	)
Net/Com Product				60,757			11						52,069			9				17
Video, Imaging & Sound				51,640			9						69,248			12				(25	)
Printer & Printer Supplies				41,043			8						39,121			7				5
Storage Device				40,638			7						36,659			7				11
Memory & System Enhancement				22,582			4						23,406			4				(4	)
Accessory/Other				73,998			13						63,580			11				16
Total Net Sales			$	553,162			100	%				$	555,563			100	%			-
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):
			$	215,695			39	%				$	201,850			36	%			7	%
Stock Performance Indicators:
Actual shares outstanding				26,365									26,653
Total book value per share			$	10.37								$	9.67
Tangible book value per share			$	8.23								$	7.80
Closing price			$	11.09								$	8.86
Market capitalization			$	292,388								$	236,146
Trailing price/earnings ratio				10									10
(1) Annualized
(2) Does not reflect cancellations or returns
REVENUE AND MARGIN INFORMATION
For the Three Months Ended December 31,			2011									2010
			Net				Gross					Net				Gross
(Dollars in thousands)			Sales				Margin					Sales				Margin
SMB			$	224,121			14.4	%				$	245,244			13.3	%
Large Account				197,049			10.8						168,023			10.1
Public Sector				114,978			11.9						117,377			10.6
Consumer/SOHO				17,014			8.9						24,919			5.7
Total			$	553,162			12.4	%				$	555,563			11.4	%

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended December 31,			2011											2010
(amounts in thousands, except per share data)			Amount				% of Net Sales						Amount				% of Net Sales
Net sales			$	553,162			100.0	%					$	555,563			100.0	%
Cost of sales				484,427			87.6							492,267			88.6
Gross profit				68,735			12.4							63,296			11.4
Selling, general and administrative expenses				56,952			10.3							51,618			9.3
Income from operations				11,783			2.1							11,678			2.1
Interest expense				(148	)		-							(185	)		-
Other, net				60			-							54			-
Income tax provision				(4,268	)		(0.8	)						(4,669	)		(0.9	)
Net income			$	7,427			1.3	%					$	6,878			1.2	%
Earnings per common share:
Basic			$	0.28									$	0.26
Diluted			$	0.28									$	0.26
Weighted average common shares outstanding:
Basic				26,451										26,821
Diluted				26,599										26,888
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,			2011										2010
(amounts in thousands, except per share data)			Amount				% of Net Sales						Amount				% of Net Sales
Net sales			$	2,103,295			100.0	%					$	1,974,198			100.0	%
Cost of sales				1,838,411			87.4							1,744,298			88.3
Gross profit				264,884			12.6							229,900			11.7
Selling, general and administrative expenses				217,273			10.3							191,233			9.7
Income from operations				47,611			2.3							38,667			2.0
Interest expense				(369	)		-							(490	)		-
Other, net				189			-							213			-
Income tax provision				(18,644	)		(0.9	)						(15,429	)		(0.8	)
Net income			$	28,787			1.4	%					$	22,961			1.2	%
Earnings per common share:
Basic			$	1.08									$	0.85
Diluted			$	1.07									$	0.85
Weighted average common shares outstanding:
Basic				26,703										27,007
Diluted				26,800										27,053

CONDENSED CONSOLIDATED BALANCE SHEETS										December 31,										December 31,
(amounts in thousands)										2011										2010
ASSETS
Current Assets:
Cash and cash equivalents										$	4,615									$	35,374
Accounts receivable, net											295,188										238,011
Inventories											77,437										74,293
Prepaid expenses and other current assets											4,713										4,210
Deferred income taxes											4,436										3,813
Income taxes receivable											1,927										1,489
Total current assets											388,316										357,190
Property and equipment, net											22,570										13,500
Goodwill											51,276										48,060
Other intangibles, net											5,205										1,786
Other assets											652										405
Total Assets										$	468,019									$	420,941
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease obligation to affiliate										$	971									$	870
Note payable - bank											5,267										-
Accounts payable											130,900										114,632
Accrued expenses and other liabilities											30,902										23,963
Accrued payroll											12,964										12,652
Total current liabilities											181,004										152,117
Deferred income taxes											9,026										5,822
Other liabilities											3,471										3,403
Capital lease obligation to affiliate, less current maturities											989										1,960
Total Liabilities											194,490										163,302
Stockholders' Equity:
Common stock											276										275
Additional paid-in capital											99,957										98,871
Retained earnings											182,274										164,075
Treasury stock at cost											(8,978	)									(5,582	)
Total Stockholders' Equity											273,529										257,639
Total Liabilities and Stockholders' Equity										$	468,019									$	420,941
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 2011 (amounts in thousands)
			Common Stock							Additional					Retained					Treasury Stock
			Shares			Amount				Paid-In Capital					Earnings					Shares					Amount					Total
Balance—January 1, 2011			27,507			$	275			$	98,871				$	164,075					(854	)			$	(5,582	)			$	257,639
Stock-based compensation expense			-				-				824					-					-					-					824
Issuance of common stock under stock incentive plans			64				1				403					-					-					-					404
Issuance of common stock under Employee Stock Purchase Plan			42				-				380					-					-					-					380
Nonvested stock awards			-				-				(633	)				-					93					633					-
Tax benefit from stock-based compensation			-				-				112					-					-					-					112
Repurchase of common stock for treasury			-				-				-					-					(487	)				(4,029	)				(4,029	)
Dividend payment			-				-				-					(10,588	)				-					-					(10,588	)
Net income and comprehensive income			-				-				-					28,787					-					-					28,787
Balance—December 31, 2011			27,613			$	276			$	99,957				$	182,274					(1,248	)			$	(8,978	)			$	273,529

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, (amounts in thousands)							2011						2010
Cash Flows from Operating Activities:
Net income							$	28,787					$	22,961
Adjustments to reconcile net income to net cash used for
operating activities:
Depreciation and amortization								5,951						5,430
Provision for doubtful accounts								2,768						2,372
Deferred income taxes								2,581						1,546
Stock-based compensation expense								824						1,531
Income tax benefit (deficiency) related to equity awards								112						(16	)
Loss on disposal of fixed assets								16						2
Excess tax benefit from exercise of stock options								(15	)					-
Fair value adjustment to contingent consideration								(80	)					-
Changes in assets and liabilities:
Accounts receivable								(56,682	)					(22,288	)
Inventories								(2,850	)					(6,902	)
Prepaid expenses and other current assets								(673	)					(2,014	)
Other non-current assets								(219	)					77
Accounts payable								14,497						(10,329	)
Accrued expenses and other liabilities								(309	)					6,768
Net cash used for operating activities								(5,292	)					(862	)
Cash Flows from Investing Activities:
Purchases of property and equipment								(10,855	)					(6,387	)
Acquisition of ValCom Technology, net of cash acquired								(4,745	)					-
Purchase of intangible asset								(450	)					(800	)
Proceeds from sale of property and equipment								4						9
Net cash used for investing activities								(16,046	)					(7,178	)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings								59,373						9,485
Repayment of short-term borrowings								(54,106	)					(9,485	)
Dividend payment								(10,588	)					-
Purchase of treasury shares								(4,029	)					(3,067	)
Repayment of capital lease obligation to affiliate								(870	)					(780	)
Exercise of stock options								404						670
Issuance of stock under Employee Stock Purchase Plan								380						294
Excess tax benefit from exercise of stock options								15						-
Net cash used for financing activities								(9,421	)					(2,883	)
Decrease in cash and cash equivalents								(30,759	)					(10,923	)
Cash and cash equivalents, beginning of period								35,374						46,297
Cash and cash equivalents, end of period							$	4,615					$	35,374
Non-cash Investing and Financing Activities:
Contingent consideration included in accrued expenses and other liabilities							$	1,960					$	-
Accrued capital expenditures								430						4
Issuance of nonvested stock from treasury								633						820

pccc-g

PC Connection, Inc.
William Schulze, 603-683-2322
Vice President and Corporate Controller

Source: PC Connection, Inc.

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