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):   October 29, 2009

PC Connection, Inc.

(Exact name of registrant as specified in charter)

Delaware

0-23827

02-0513618

(State or other juris-

diction 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)


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 October 29, 2009, PC Connection, Inc. announced its financial results for the quarter ended September 30, 2009.  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 October 29, 2009.


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.

Date:

October 29, 2009

PC CONNECTION, INC.

 

 

 

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 October 29, 2009.

Exhibit 99.1

PC Connection, Inc. Reports Third Quarter Results

Third Quarter Summary:

MERRIMACK, N.H.--(BUSINESS WIRE)--October 29, 2009--PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of information technology (IT) products and services, today announced results for the quarter ended September 30, 2009. Net sales for the three months ended September 30, 2009 were $403.1 million, a decrease of $38.4 million or 8.7%, compared to $441.4 million for the three months ended September 30, 2008. Net income for the quarter was $2.9 million, or $0.11 per share, compared to net income of $3.2 million, or $0.12 per share, for the corresponding prior year period.

Net sales for the nine months ended September 30, 2009 were $1,106.5 million, a decrease of $208.0 million or 15.8%, compared to $1,314.6 million for the nine months ended September 30, 2008. Net loss for the nine months ended September 30, 2009 was $5.2 million, or $0.19 per share, compared to net income of $13.1 million, or $0.48 per share, for the nine months ended September 30, 2008. The nine-month periods ended September 30, 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 nine months ended September 30, 2009 would have been $3.0 million, or $0.11 per share, compared to $14.0 million, or $0.52 per share, for the nine months ended September 30, 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:


Quarterly Sales by Product Mix:

Gross profit dollars decreased by $7.0 million, or 13.1%, in the third quarter of 2009 from the corresponding period a year ago due to decreased revenues and lower gross profit margins. Gross profit margin, as a percentage of net sales, declined year over year by 58 basis points to 11.5% in the third quarter of 2009. Continued aggressive price competition led to lower invoice product margins in the third quarter of 2009 compared to the prior year quarter.

Overall annualized sales productivity increased by 1% in the third quarter of 2009 compared to the third quarter of 2008 as an increase in SMB productivity offset decreased productivity in the Large Account and Public Sector segments. Sales productivity in the Large Account segment decreased by 6% year over year due to lower enterprise revenues. Sales productivity in the Public Sector segment decreased by 9% year over year due to increased 2009 headcount added late in 2008. Despite lower revenues, sales productivity in the SMB segment increased by 3% year over year. On a consolidated basis, the total number of sales representatives was 601 at September 30, 2009, compared to 666 at September 30, 2008 and 603 at June 30, 2009. The Company has reduced both sales representatives and sales support headcount over the last year consistent with the year-over-year declines in revenues.

Total selling, general and administrative expenses for the quarter decreased year over year by $5.6 million, or 12.0%, and decreased as a percentage of net sales to 10.2% for the third quarter of 2009 from 10.6% for the third quarter of 2008. The year-over-year decreases were primarily attributable to reduced headcount and lower variable compensation associated with decreased gross profits.

“During the third quarter, we continued to experience the effects of conservative buying patterns, longer sales cycles, and competitive pricing pressures,” said Patricia Gallup, Chairman and Chief Executive Officer. “While the near-term economic outlook remains uncertain, we feel confident our customers will continue to rely on us to provide the IT solutions they need to run their businesses more efficiently. We believe our core business strategies position the Company well for future success and for creating long-term shareholder value."

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, has three sales subsidiaries: 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™ 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.

pccc-g

“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 June 30, 2009. More specifically, the statements in this release concerning the Company’s outlook for 2009 and other statements of a non-historical basis (including statements regarding the Company’s ability to grow revenues, increase market share, and make further cost reductions as needed) 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.


 

         
                     
CONSOLIDATED SELECTED FINANCIAL RESULTS                    
At or for the Three Months Ended September 30,   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 $ 403,052 $ 441,444 (9 )%
Diluted earnings per share $ 0.11 $ 0.12
 
Gross profit margin 11.5 % 12.1 %
Operating margin 1.3 1.1
Return on equity (1) 5.1 5.5
 
Catalogs distributed 2,555,000 2,965,000 (14 )%
Orders entered (2) 332,900 343,000 (3 )%
Average order size (2) $ 1,603 $ 1,561 3 %
 
Inventory turns (1) 24 22
Days sales outstanding 45 43
 
 
Product Mix:
Notebooks & PDAs $ 61,679 15 % $ 70,215 16 % (12 )%
Desktops/Servers 56,714 14 59,169 13 (4 )
Software 55,582 14 56,039 13 (1 )
Video, Imaging & Sound 53,672 13 65,776 15 (18 )
Net/Com Products 42,930 11 46,140 11 (7 )
Printers & Printer Supplies 35,188 9 41,557 9 (15 )
Storage Devices 31,762 8 35,565 8 (11 )
Memory & System Enhancements 13,760 3 13,716 3 -
Accessories/Other   51,765   13     53,267   12   (3 )
Total $ 403,052   100 % $ 441,444   100 % (9 )%
 
 
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):
 
$ 149,035   37 % $ 149,615   34 % -
 
 
Stock Performance Indicators:
Actual shares outstanding 26,848 26,838
Total book value per share $ 8.60 $ 8.85
Tangible book value per share $ 6.76 $ 6.64
Closing price $ 5.44 $ 6.69
Market capitalization $ 146,053 $ 179,546
Trailing price/earnings ratio (3) (19 ) 9
 

(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 September 30,     2009   2008
    Net   Gross Net   Gross
(amounts in thousands)     Sales   Margin (%) Sales Margin (%)
 
PC Connection Sales Corporation (SMB) $ 182,564 13.6 % $ 217,463 14.2 %
GovConnection (Public Sector) 116,567 9.0 106,681 8.9
MoreDirect (Large Account)   103,921 10.6   117,300 11.1
Total $ 403,052 11.5 % $ 441,444 12.1 %

                       
CONSOLIDATED STATEMENTS OF OPERATIONS                      
Three Months Ended September 30,     2009     2008
(amounts in thousands, except per share data)     Amount   % of Net Sales Amount   % of Net Sales
       
Net sales $ 403,052 100.0 % $ 441,444 100.0 %
Cost of sales   356,708   88.5     388,121   87.9  

Gross profit

46,344 11.5 53,323 12.1

 

Selling, general and administrative expenses 41,263 10.2 46,872 10.6
Special charges   -  

-

    1,431   0.4  
Income from operations 5,081 1.3 5,020 1.1
 
Interest expense (99 ) - (187 ) (0.1 )
Other, net 93 - 246 0.1
Income tax provision   (2,186 ) 0.6     (1,865 ) (0.4 )
Net income $ 2,889   0.7 % $ 3,214   0.7 %
 
 
Earnings per common share:
Basic $ 0.11   $ 0.12  
Diluted $ 0.11   $ 0.12  
 
Weighted average common shares outstanding:
Basic   27,078     27,067  
Diluted   27,095     27,102  
 
 
                       
CONSOLIDATED STATEMENTS OF OPERATIONS                      
Nine Months Ended September 30,     2009 2008
(amounts in thousands, except per share data)     Amount   % of Net Sales Amount   % of Net Sales
 
Net sales $ 1,106,535 100.0 % $ 1,314,567 100.0 %
Cost of sales   974,238   88.0     1,151,660   87.6  
Gross profit 132,297 12.0 162,907 12.4
 
Selling, general and administrative expenses 126,670 11.5 140,438 10.7
Special charges   12,955   1.2     1,431   0.1  
(Loss) income from operations (7,328 ) (0.7 ) 21,038 1.6
 
Interest expense (385 ) - (548 ) -
Other, net 452 - 610 -
Income tax benefit (provision)   2,072   0.2     (8,025 ) (0.6 )
Net (loss) income   ($5,189 ) (0.5 )% $ 13,075   1.0 %
 
 
(Loss) earnings per common share:
Basic $ (0.19 ) $ 0.48  
Diluted $ (0.19 ) $ 0.48  
 
Weighted average common shares outstanding:
Basic   27,017     26,972  
Diluted   27,017     27,058  
 
 
 
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.
               

September 30,

Three Months Ended   Nine Months Ended
(amounts in thousands) 2009   2008 2009   2008
   
GAAP net income (loss) $ 2,889 $ 3,214 ($5,189 ) $ 13,075
Special charges (after tax):

Software development write-off and related charges

- - 7,378 -
Management restructuring   -   906   771     906
Total special charges (after tax)   -   906   8,149     906
 
Pro forma net income $ 2,889 $ 4,120 $ 2,960   $ 13,981

               
CONSOLIDATED BALANCE SHEETS     September 30,       December 31,
(amounts in thousands)     2009 2008
   
ASSETS
Current Assets:
Cash and cash equivalents $ 65,680 $ 47,003
Accounts receivable, net 180,878 185,885
Inventories 59,979 60,813
Deferred income taxes 3,574 4,244
Income taxes receivable 3,227 1,448
Prepaid expenses and other current assets   2,958     3,626  

Total current assets

316,296 303,019
Property and equipment, net 13,303 24,483
Goodwill 48,060 48,060
Other intangibles, net 1,417 2,220
Other assets   480     385  
Total Assets $ 379,556   $ 378,167  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current Liabilities:
Current maturities of capital lease obligation to affiliate $ 759 $ 699
Accounts payable 108,894 101,783
Accrued expenses and other liabilities 20,194 19,993
Accrued payroll   7,968     6,337  
Total current liabilities 137,815 128,812
Capital lease obligation to affiliate, less current maturities 3,033 3,610
Deferred income taxes 3,821 6,183
Other liabilities   4,062     4,238  
Total Liabilities   148,731     142,843  
Stockholders’ Equity:
Common stock 273 273
Additional paid-in capital 96,612 95,997
Retained earnings 137,147 142,336
Treasury stock at cost   (3,207 )   (3,282 )
Total Stockholders’ Equity   230,825     235,324  
Total Liabilities and Stockholders’ Equity $ 379,556   $ 378,167  
 
 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Nine months ended September 30, 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 - - 952 - - - 952
 

Issuance of common stock under Employee Stock Purchase Plan

28 - 138 - - - 138
 
Nonvested stock awards - - (372 ) - 58 372 -
 

Tax shortfall from stock-based compensation

- - (103 ) - - - (103 )
 
Repurchase of common stock for treasury - - - - (72 ) (297 ) (297 )
 
Net loss -   -   -     (5,189 ) -     -     (5,189 )
 
Balance – September 30, 2009 27,354 $ 273 $ 96,612   $ 137,147   (506 ) $ (3,207 ) $ 230,825  

             
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, (amounts in thousands)       2009   2008
     
Cash Flows from Operating Activities:
 
Net (loss) income $ (5,189 ) $ 13,075

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Non-cash portion of special charges 11,625 -
Depreciation and amortization 5,221 5,234
Provision for doubtful accounts 1,771 1,396
Deferred income taxes (1,692 ) 1,318
Stock-based compensation expense 952 1,096
Tax (shortfall) benefit from stock-based compensation (103 ) 16
Loss (gain) on disposal of fixed assets 15 (13 )
Excess tax benefit from exercise of stock options - (3 )
 
Changes in assets and liabilities:
Accounts receivable 3,236 17,937
Inventories 834 394
Prepaid expenses and other current assets (1,111 ) (599 )
Other non-current assets (95 ) 15
Accounts payable 7,243 4,225
Accrued expenses and other liabilities   1,656     (1,149 )
Net cash provided by operating activities   24,363     42,942  
 
 
Cash Flows from Investing Activities:
 
Purchases of property and equipment (5,012 ) (8,708 )
Proceeds from sale of property and equipment   2     44  
Net cash used for investing activities   (5,010 )   (8,664 )
 
 
Cash Flows from Financing Activities:
 
Proceeds from short-term borrowings 22,055 37,343
Repayment of short-term borrowings (22,055 ) (37,343 )
Repayment of capital lease obligation (517 ) (383 )
Purchase of treasury shares (297 ) (1,200 )
Issuance of stock under Employee Stock Purchase Plan 138 129
Exercise of stock options - 204
Net share settlement obligation - 55
Excess tax benefit from exercise of stock options   -     3  
Net cash used for financing activities   (676 )   (1,192 )
Increase in cash and cash equivalents 18,677 33,086
Cash and cash equivalents, beginning of period   47,003     13,741  
Cash and cash equivalents, end of period $ 65,680   $ 46,827  
             

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