pccc_Current_Folio_10Q

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934*

For the quarterly period ended September 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission file number 0-23827

PC CONNECTION, INC.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

02-0513618

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

 

 

730 MILFORD ROAD,

 

MERRIMACK, NEW HAMPSHIRE

03054

(Address of principal executive offices)

(Zip Code)

 

 

 

 

 

 

(603) 683-2000

 

 

(Registrant's telephone number, including area code)

 


Former name, former address and former fiscal year, if changed since last report: N/A

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES  ☑    NO  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES  ☑    NO  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer ☐

 

Accelerated filer ☑

 

Non-accelerated filer ☐

 

Smaller reporting company ☐

 

 

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES  ☐    NO  ☑

The number of shares outstanding of the issuer’s common stock as of October 30, 2018 was 26,730,061.

 

 


 

Table of Contents

PC CONNECTION, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

PART I FINANCIAL INFORMATION

 

 

 

 

 

 

Page

ITEM 1.

Unaudited Condensed Consolidated Financial Statements:

 

 

 

 

 

Condensed Consolidated Balance Sheets–September 30, 2018 and December 31, 2017

1

 

 

 

 

Condensed Consolidated Statements of Income–Three and Nine Months Ended September 30, 2018 and 2017

2

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity–Nine Months Ended September 30, 2018

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows–Nine Months Ended September 30, 2018 and 2017

4

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

 

 

 

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

14

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

ITEM 4.

Controls and Procedures

26

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II OTHER INFORMATION

 

 

 

 

ITEM 1A.

Risk Factors

27

 

 

 

 

 

 

ITEM 6.

Exhibits

27

 

 

 

SIGNATURES 

28

 

 

 

 

 


 

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1FINANCIAL STATEMENTS

 

 

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS  

(Unaudited)

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2018

    

2017

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

102,243

 

$

49,990

 

Accounts receivable, net

 

 

400,831

 

 

449,682

 

Inventories, net

 

 

105,283

 

 

106,753

 

Income taxes receivable

 

 

2,658

 

 

3,933

 

Prepaid expenses and other current assets

 

 

6,068

 

 

5,737

 

Total current assets

 

 

617,083

 

 

616,095

 

Property and equipment, net

 

 

48,176

 

 

41,491

 

Goodwill

 

 

73,602

 

 

73,602

 

Intangibles assets, net

 

 

9,924

 

 

11,025

 

Other assets

 

 

1,442

 

 

5,638

 

Total Assets

 

$

750,227

 

$

747,851

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

165,190

 

$

194,257

 

Accrued payroll

 

 

20,359

 

 

22,662

 

Accrued expenses and other liabilities

 

 

23,475

 

 

31,096

 

Total current liabilities

 

 

209,024

 

 

248,015

 

Deferred income taxes

 

 

16,125

 

 

15,696

 

Other liabilities

 

 

1,836

 

 

1,888

 

Total Liabilities

 

 

226,985

 

 

265,599

 

Stockholders’ Equity:

 

 

 

 

 

 

 

Common stock

 

 

287

 

 

287

 

Additional paid-in capital

 

 

115,039

 

 

114,154

 

Retained earnings

 

 

428,162

 

 

383,673

 

Treasury stock, at cost

 

 

(20,246)

 

 

(15,862)

 

Total Stockholders’ Equity

 

 

523,242

 

 

482,252

 

Total Liabilities and Stockholders’ Equity

 

$

750,227

 

$

747,851

 

 

 

See notes to unaudited condensed consolidated financial statements.

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Table of Contents

PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME  

(Unaudited)

(amounts in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2018

    

2017

    

2018

    

2017

 

Net sales

 

$

658,504

 

$

729,230

 

$

1,989,969

 

$

2,149,616

 

Cost of sales

 

 

558,060

 

 

633,087

 

 

1,685,685

 

 

1,867,070

 

Gross profit

 

 

100,444

 

 

96,143

 

 

304,284

 

 

282,546

 

Selling, general and administrative expenses

 

 

81,494

 

 

74,404

 

 

244,915

 

 

226,915

 

Income from operations

 

 

18,950

 

 

21,739

 

 

59,369

 

 

55,631

 

Interest income (expense), net

 

 

114

 

 

(8)

 

 

412

 

 

20

 

Income before taxes

 

 

19,064

 

 

21,731

 

 

59,781

 

 

55,651

 

Income tax provision

 

 

(5,298)

 

 

(8,614)

 

 

(16,489)

 

 

(21,517)

 

Net income

 

$

13,766

 

$

13,117

 

$

43,292

 

$

34,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.52

 

$

0.49

 

$

1.62

 

$

1.28

 

Diluted

 

$

0.51

 

$

0.49

 

$

1.61

 

$

1.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computation of earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

26,716

 

 

26,802

 

 

26,745

 

 

26,754

 

Diluted

 

 

26,902

 

 

26,899

 

 

26,883

 

 

26,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

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PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 

(Unaudited)

(amounts in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

Additional

 

Retained

 

Treasury Stock

 

Stockholders'

 

 

    

Shares

    

Amount

    

Paid-In Capital

    

Earnings

    

Shares

    

Amount

    

Equity

 

Balance at December 31, 2017

 

28,709

 

 

$ 287

 

 

$ 114,154

 

 

$ 383,673

 

(1,856)

 

 

$ (15,862)

 

 

$ 482,252

 

Cumulative effect of adoption of ASC 606

 

 —

 

 

 —

 

 

 —

 

 

1,197

 

 —

 

 

 —

 

 

1,197

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

207

 

 

 —

 

 —

 

 

 —

 

 

207

 

Repurchases of treasury shares

 

 —

 

 

 —

 

 

 —

 

 

 —

 

(116)

 

 

(2,998)

 

 

(2,998)

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

11,300

 

 —

 

 

 —

 

 

11,300

 

Balance at March 31, 2018

 

28,709

 

 

287

 

 

114,361

 

 

396,170

 

(1,972)

 

 

(18,860)

 

 

491,958

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

257

 

 

 —

 

 —

 

 

 —

 

 

257

 

Repurchases of treasury shares

 

 —

 

 

 —

 

 

 —

 

 

 —

 

(54)

 

 

(1,386)

 

 

(1,386)

 

Issuance of common stock under Employee Stock Purchase Plan

 

19

 

 

 —

 

 

605

 

 

 —

 

 —

 

 

 —

 

 

605

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

18,226

 

 —

 

 

 —

 

 

18,226

 

Balance at June 30, 2018

 

28,728

 

 

287

 

 

115,223

 

 

414,396

 

(2,026)

 

 

(20,246)

 

 

509,660

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

273

 

 

 —

 

 —

 

 

 —

 

 

273

 

Restricted stock units vested

 

28

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

Shares withheld for taxes paid on stock awards

 

 —

 

 

 —

 

 

(457)

 

 

 —

 

 —

 

 

 —

 

 

(457)

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

13,766

 

 —

 

 

 —

 

 

13,766

 

Balance at September 30, 2018

 

28,756

 

 

$ 287

 

 

$ 115,039

 

 

$ 428,162

 

(2,026)

 

 

$ (20,246)

 

 

$ 523,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

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PC CONNECTION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  

(Unaudited)

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

 

2018

    

2017

 

Cash Flows provided by Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

43,292

 

$

34,134

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

10,362

 

 

8,645

 

Provision for doubtful accounts

 

 

1,428

 

 

1,116

 

Stock-based compensation expense

 

 

737

 

 

560

 

Deferred income taxes

 

 

429

 

 

164

 

Loss on disposal of fixed assets

 

 

51

 

 

 —

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

63,881

 

 

28,101

 

Inventories

 

 

(9,399)

 

 

(16,189)

 

Prepaid expenses, income tax receivables and other current assets

 

 

812

 

 

(2,191)

 

Other non-current assets

 

 

283

 

 

(3,945)

 

Accounts payable

 

 

(29,361)

 

 

(13,162)

 

Accrued expenses and other liabilities

 

 

(1,262)

 

 

(8,872)

 

Net cash provided by operating activities

 

 

81,253

 

 

28,361

 

Cash Flows used in Investing Activities:

 

 

 

 

 

 

 

Purchases of equipment

 

 

(15,641)

 

 

(7,944)

 

Net cash used in investing activities

 

 

(15,641)

 

 

(7,944)

 

Cash Flows used in Financing Activities:

 

 

 

 

 

 

 

Proceeds from short-term borrowings

 

 

859

 

 

 —

 

Repayment of short-term borrowings

 

 

(859)

 

 

 —

 

Purchase of treasury shares

 

 

(4,384)

 

 

 —

 

Dividend payment

 

 

(9,123)

 

 

(9,041)

 

Exercise of stock options

 

 

 —

 

 

1,679

 

Issuance of stock under Employee Stock Purchase Plan

 

 

605

 

 

603

 

Payment of payroll taxes on stock-based compensation through shares withheld

 

 

(457)

 

 

(500)

 

Net cash used in financing activities

 

 

(13,359)

 

 

(7,259)

 

Increase in cash and cash equivalents

 

 

52,253

 

 

13,158

 

Cash and cash equivalents, beginning of period

 

 

49,990

 

 

49,180

 

Cash and cash equivalents, end of period

 

$

102,243

 

$

62,338

 

 

 

 

 

 

 

 

 

Non-cash Investing and Financing Activities:

 

 

 

 

 

 

 

Accrued capital expenditures

 

$

1,055

 

$

294

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

Income taxes paid

 

$

15,134

 

$

24,293

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

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PC CONNECTION, INC. AND SUBSIDIARIES

PART I―FINANCIAL INFORMATION

Item 1―Financial Statements

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(amounts in thousands, except per share data)

Note 1–Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of PC Connection, Inc. and its subsidiaries (the “Company,” “we,” “us,” or “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting and in accordance with accounting principles generally accepted in the United States of America. Such principles were applied on a basis consistent with the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission (the “SEC”), other than the adoption of Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASC 606”) under the modified retrospective method as of January 1, 2018, as discussed below. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in our Annual Report on Form 10-K.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods reported and of the Company’s financial condition as of the date of the interim balance sheet. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements. The operating results for the three and nine months ended September 30, 2018 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2018.

 

Revenue Recognition

 

On January 1, 2018, we adopted ASC 606, which replaced existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. See Adoption of Recently Issued Accounting Standards within this footnote for additional information.

 

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. In most instances, when several performance obligations are aggregated into one single transaction, these performance obligations are fulfilled at the same point in time. We account for an arrangement when it has approval and commitment from both parties, the rights are identified, the contract has commercial substance, and collectability of consideration is probable. We generally obtain oral or written purchase authorizations from our customers for a specified amount of product at a specified price, which constitutes an arrangement. Revenue is recognized at the amount expected to be collected, net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We generally invoice for our products at the time of shipping, and accordingly there is not a significant financing component included in our arrangements.

 

Nature of Products and Services

 

Information technology (“IT”) products typically represent a distinct performance obligation, and revenue is recognized at the point in time when control is transferred to the customer which is generally upon delivery to the customer. We recognize revenue as the principal in the transaction with the customer (i.e., on a gross basis), as we control the product prior to delivery to the customer and derive the economic benefits from the sales transaction given our control over customer pricing.

We do not recognize revenue for goods that remain in our physical possession before the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from the products, the goods are ready for physical transfer to and identified as belonging to the customer, and when we have no ability to use the product or to direct it to another customer.

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Licenses for on-premise software provide the customer with a right to take possession of the software. Customers may purchase perpetual licenses or enter into subscriptions to the licensed software. We are the principal in these transactions and recognize revenue for the on-premise license at the point in time when the software is made available to the customer and the commencement of the term of the software license or when the renewal term begins, as applicable.

 

For certain on-premise licenses for security software, the customer derives substantially all of the benefit from these arrangements through the third-party delivered software maintenance, which provides software updates and other support services. We do not have control over the delivery of these performance obligations, and accordingly we are the agent in these transactions. We recognize revenue for security software net of the related costs of sales at the point in time when our vendor and customer accept the terms and conditions in the sales arrangement. Cloud products allow customers to use hosted software over the contractual period without taking possession of the software and are provided on a subscription basis. We do not exercise control over these products or services and therefore are an agent in these transactions. We recognize revenue for cloud products net of the related costs of sales at the point in time when our vendor and customer accept the terms and conditions in the sales arrangements.

 

Certain software sales include on-premise licenses that are combined with software maintenance. Software maintenance conveys rights to updates, bug fixes and help desk support, and other support services transferred over the underlying contract period. On-premise licenses are considered distinct performance obligations when sold with the software maintenance, as we sell these items separately. We recognize revenue related to the software maintenance as the agent in these transactions because we do not have control over the on-going software maintenance service. Revenue allocated to software maintenance is recognized at the point in time when our vendor and customer accept the terms and conditions in the sales arrangements.

 

Certain of our larger customers are offered the opportunity by vendors to purchase software licenses and maintenance under enterprise agreements (“EAs”). Under EAs, customers are considered to be compliant with applicable license requirements for the ensuing year, regardless of changes to their employee base. Customers are charged an annual true-up fee for changes in the number of users over the year. With most EAs, our vendors will transfer the license and bill the customer directly, paying resellers, such as us, an agency fee or commission on these sales. We record these agency fees as a component of net sales as earned and there is no corresponding cost of sales amount. In certain instances, we invoice the customer directly under an EA and account for the individual items sold based on the nature of each item. Our vendors typically dictate how the EA will be sold to the customer.

 

We also offer extended service plans (“ESP”) on IT products, both as part of the initial arrangement and separately from the IT products. We recognize revenue related to ESP as the agent in the transaction because we do not have control over the on-going ESP service and do not provide any service after the sale. Revenue allocated to ESP is recognized at the point in time when our vendor and customer accept the terms and conditions in the sales arrangement.

 

We use our own engineering personnel in projects involving the design and installation of systems and networks, and we also engage third-party service providers to perform warranty maintenance, implementations, asset disposal, and other services. Service revenue is recognized in general over time as we perform the underlying services and satisfy our performance obligations. We evaluate such engagements to determine whether we are the principal or the agent in each transaction. For those transactions in which we do not control the service, we act as an agent and recognize the transaction revenue on a net basis at a point in time when the vendor and customer accept the terms and conditions in the sales arrangement.

 

All amounts billed to a customer in a sales transaction related to shipping and handling, if any, represent revenues earned for the goods provided, and these amounts have been included in net sales. Costs related to shipping and handling billing are classified as cost of sales. Sales are reported net of sales, use, or other transaction taxes that are collected from customers and remitted to taxing authorities.

 

Significant Judgments

 

Our contracts with customers often include promises to transfer multiple products or services to a customer. Determining whether we are the agent or the principal and whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

 

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We estimate the standalone selling price (“SSP”) for each distinct performance obligation when a single arrangement contains multiple performance obligations and the fulfillment occurs at different points of times. We maximize the use of observable inputs in the determination of the estimate for SSP for the items that we do not sell separately, including on-premise licenses sold with software maintenance, and IT products sold with ESP. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs.

 

We provide our customers with a limited thirty-day right of return which is generally limited to defective merchandise. Revenue is recognized at delivery and a reserve for sales returns is recorded. We make estimates of product returns based on significant historical experience and record our sales return reserves as a reduction of revenues and either as reduction of accounts receivable or, for customers who have already paid, as accrued expenses.

 

Description of Revenue

 

We disaggregate revenue from our arrangements with customers by type of products and services, as we believe this method best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

 

The following table represents a disaggregation of revenue from arrangements with customers for the three months ended September 30, 2018 and 2017, along with the reportable segment for each category.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

    

Business
Solutions

    

Enterprise
Solutions

    

Public Sector
Solutions

    

Total

Notebooks/Mobility

 

$

68,822

 

$

63,926

 

$

50,079

 

$

182,827

Software (1)

 

 

31,578

 

 

25,718

 

 

15,541

 

 

72,837

Desktops

 

 

25,828

 

 

30,075

 

 

13,112

 

 

69,015

Servers/Storage

 

 

26,386

 

 

21,424

 

 

13,115

 

 

60,925

Net/Com products

 

 

27,380

 

 

16,601

 

 

12,745

 

 

56,726

Other hardware/services

 

 

64,878

 

 

107,733

 

 

43,563

 

 

216,174

Total net sales

 

$

244,872

 

$

265,477

 

$

148,155

 

$

658,504

 

(1) Certain software sales are reported on a net basis for the three months ended September 30, 2018 as a result of the adoption of ASC 606, but in the prior year would have been reported on a gross basis under the previous revenue recognition guidance – see the information below under the caption “Adoption of Recently Issued Accounting Standards”.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2017

 

    

Business
Solutions

    

Enterprise
Solutions

    

Public Sector
Solutions

    

Total

Notebooks/Mobility

 

$

77,374

 

$

50,835

 

$

39,369

 

$

167,578

Software

 

 

66,094

 

 

67,623

 

 

39,579

 

 

173,296

Desktops

 

 

29,849

 

 

25,873

 

 

16,869

 

 

72,591

Servers/Storage

 

 

29,142

 

 

19,090

 

 

14,110

 

 

62,342

Net/Com products

 

 

24,085

 

 

14,645

 

 

11,855

 

 

50,585

Other hardware/services

 

 

64,025

 

 

89,956

 

 

48,857

 

 

202,838

Total net sales

 

$

290,569

 

$

268,022

 

$

170,639

 

$

729,230

 

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The following table represents a disaggregation of revenue from arrangements with customers for the nine months ended September 30, 2018 and 2017, along with the reportable segment for each category.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

    

Business
Solutions

    

Enterprise
Solutions

    

Public Sector
Solutions

    

Total

Notebooks/Mobility

 

$

222,550

 

$

195,909

 

$

109,238

 

$

527,697

Software (1)

 

 

104,377

 

 

91,522

 

 

33,447

 

 

229,346

Desktops

 

 

82,518

 

 

91,307

 

 

41,948

 

 

215,773

Servers/Storage

 

 

85,190

 

 

70,262

 

 

46,753

 

 

202,205

Net/Com products

 

 

83,546

 

 

49,093

 

 

36,618

 

 

169,257

Other hardware/services

 

 

200,011

 

 

325,693

 

 

119,987

 

 

645,691

Total net sales

 

$

778,192

 

$

823,786

 

$

387,991

 

$

1,989,969

 

(1) Certain software sales are reported on a net basis for the nine months ended September 30, 2018 as a result of the adoption of ASC 606, but in the prior year would have been reported on a gross basis under the previous revenue recognition guidance – see the information below under the caption “Adoption of Recently Issued Accounting Standards”.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2017

 

    

Business
Solutions

    

Enterprise
Solutions

    

Public Sector
Solutions

    

Total

Notebooks/Mobility

 

$

226,152

 

$

150,799

 

$

99,999

 

$

476,950

Software

 

 

195,972

 

 

203,320

 

 

76,384

 

 

475,676

Desktops

 

 

85,994

 

 

76,015

 

 

78,045

 

 

240,054

Servers/Storage

 

 

85,949

 

 

59,864

 

 

40,290

 

 

186,103

Net/Com products

 

 

71,831

 

 

51,115

 

 

45,565

 

 

168,511

Other hardware/services

 

 

194,724

 

 

281,904

 

 

125,694

 

 

602,322

Total net sales

 

$

860,622

 

$

823,017

 

$

465,977

 

$

2,149,616

 

Contract Balances

 

The following table provides information about contract liability from arrangements with customers as of September 30, 2018 and January 1, 2018:

 

 

 

 

 

 

 

 

 

    

September 30, 2018

    

January 1, 2018

Contract liability, which are included in "Accrued expenses and other liabilities"

 

$

2,629

 

$

2,914

 

Significant changes in the contract liability balances during the three and nine months ended September 30, 2018 are as follows (in thousands):

 

 

 

 

 

 

 

Three Months Ended

 

    

September 30, 

Balances at July 1,2018

 

$

8,433

Cash received in advance and not recognized as revenue

 

 

1,024

Amounts recognized as revenue as performance obligations satisfied

 

 

(6,828)

Balances at September 30, 2018

 

$

2,629

 

 

 

 

 

 

Nine Months Ended

 

    

September 30, 

Balances at January 1, 2018

 

$

2,914

Cash received in advance and not recognized as revenue

 

 

9,520

Amounts recognized as revenue as performance obligations satisfied

 

 

(9,805)

Balances at September 30, 2018

 

$

2,629

 

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the

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amounts reported in the accompanying condensed consolidated financial statements. Actual results could differ from those estimates.

 

Comprehensive Income

 

We had no items of comprehensive income, other than our net income for each of the periods presented.

 

Adoption of Recently Issued Accounting Standards

 

On May 28, 2014, the Financial Accounting Standards Board, or the FASB, issued ASC 606, which amended the accounting standards for revenue recognition and expanded our disclosure requirements. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

On January 1, 2018 we adopted ASC 606 using the modified retrospective transition method, which resulted in an adjustment at January 1, 2018, to retained earnings for the cumulative effect of applying the standard to all contracts not completed as of the adoption date. Upon adoption we recorded $1,197 as an increase to retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

The adoption resulted in an acceleration of the timing of revenue recognized for certain transactions where product that remained in our possession has been recognized as of the transaction date when all revenue recognition criteria have been met.

 

The following table presents the effect of the adoption of ASC 606 on our condensed consolidated balance sheet as of January 1, 2018:

 

 

 

 

 

 

 

 

 

    

 

    

Adjustments

    

 

 

 

Balance at

 

Due to ASU

 

Balance at

 

 

December 31, 2017

 

2014-09

 

January 1, 2018

Balance Sheet

 

  

 

  

 

  

Assets

 

  

 

  

 

  

Accounts receivable, net

$

449,682

$

14,568

$

464,250

Inventories

 

106,753

 

(10,869)

 

95,884

Prepaid expenses and other current assets

 

5,737

 

(132)

 

5,605

Long-term accounts receivable

 

 —

 

1,890

 

1,890

Other assets

 

5,638

 

(3,914)

 

1,724

 

 

 

 

 

 

 

Liabilities

 

  

 

  

 

  

Accounts payable

 

194,257

 

(62)

 

194,195

Accrued expenses and other liabilities

 

31,096

 

(312)

 

30,784

Accrued payroll

 

22,662

 

291

 

22,953

Deferred income taxes

 

15,696

 

429

 

16,125

 

 

  

 

  

 

  

 

 

 

 

 

 

 

Stockholders' Equity

 

  

 

  

 

  

Retained earnings

$

383,673

$

1,197

$

384,870

 

 

In addition to the timing of revenue recognition impacted by the above described transactions, upon adoption of ASC 606, the amount of revenue to be recognized prospectively was affected by the presentation of revenue transactions as an agent instead of principal in the following transactions:

 

Revenue related to the sale of cloud products as well as certain security software is now being recognized net of costs of sales as we determined that we act as an agent in these transactions. These sales are recorded on a net basis at a point in time when our vendor and the customer accept the terms and conditions in the sales arrangement. In addition,

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we sell third-party software maintenance that is delivered over time either separately or bundled with the software license. We have determined that software maintenance is a distinct performance obligation that we do not control, and accordingly, we act as an agent in these transactions and recognize the related revenue on a net basis under ASC 606. We previously recognized revenue for cloud products, security software, and software maintenance on a gross basis (i.e., acting as a principal). This change reduced both net sales and cost of sales with no impact on reported gross profit as compared to our prior accounting policies.

 

The following tables present the effect of the adoption of ASC 606 on our condensed consolidated income statement and balance sheet for the three and nine months ended September 30, 2018 and as of September 30, 2018, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

Nine Months Ended September 30, 2018

 

    

 

    

 

    

Balances without

 

    

 

    

 

    

Balances without

 

 

As 

 

 

 

Adoption of

 

 

As 

 

 

 

Adoption of

 

 

Reported

 

Adjustments

 

ASC 606

 

 

Reported

 

Adjustments

 

ASC 606

Income statement

 

  

 

  

 

  

 

 

  

 

  

 

  

Revenues

 

  

 

  

 

  

 

 

  

 

  

 

  

Net sales

$

658,504

$

107,826

$

766,330

 

$

1,989,969

$

296,583

$

2,286,552

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

  

 

  

 

  

 

 

  

 

  

 

  

Cost of sales

 

558,060

 

107,575

 

665,635

 

 

1,685,685

 

295,540

 

1,981,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

18,950

 

224

 

19,174

 

 

59,369

 

808

 

60,177

Income before taxes

 

19,064

 

224

 

19,288

 

 

59,781

 

808

 

60,589

Net income

 

13,766

 

162

 

13,928

 

 

43,292

 

584

 

43,876

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

    

 

    

 

    

Balances without

 

 

As

 

 

 

Adoption of

 

 

Reported

 

Adjustments

 

ASC 606

Balance Sheet

 

 

 

  

 

 

Assets

 

  

 

  

 

  

Accounts receivable, net

$

400,831

$

(4,463)

$

396,368

Inventories

 

105,283

 

6,059

 

111,342

Prepaid expenses and other current assets

 

6,068

 

129

 

6,197

Other assets

 

1,442

 

3,914

 

5,356

 

 

 

 

 

 

 

Liabilities

 

  

 

  

 

  

Accrued expenses and other liabilities

$

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