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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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): April 24, 2003
PC Connection, Inc.
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(Exact name of registrant as specified in charter)
Delaware 0-23827 02-0513618
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(State or other juris- (Commission (IRS Employer
diction of incorporation File Number) Identification No.)
Rt. 101A, 730 Milford Road 03054
Merrimack, NH
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 423-2000
N/A
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(Former name or former address, if changed since last report)
Item 9. Regulation FD Disclosure (Information furnished pursuant to Item 12,
"Disclosure of Results of Operations and Financial Condition").
On April 24, 2003, PC Connection, Inc. announced its financial results for
the quarter ended March 31, 2003. The full text of the press release issued in
connection with the announcement is attached as Exhibit 99.1 to this Current
Report on Form 8-K.
In accordance with the procedural guidance in SEC Release No. 33-8216, the
information in this Form 8-K and the Exhibit attached hereto is being furnished
under "Item 9. Regulation FD Disclosure" rather than under "Item 12. Disclosure
of Results of Operations and Financial Condition." The information 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.
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: April 24, 2003 PC CONNECTION, INC.
By: /s/ MARK A. GAVIN
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Mark A. Gavin
Senior Vice President of Finance and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
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99.1 Press release dated April 24, 2003
Exhibit 99.1
PC Connection, Inc. Reports First Quarter Results
MERRIMACK, N.H.--(BUSINESS WIRE)--April 24, 2003--
FIRST QUARTER HIGHLIGHTS:
-- 20% growth in net sales
-- $.06 earnings per share
-- 93 basis point improvement in gross margins
PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of
information technology products and solutions, today announced results
for the quarter ended March 31, 2003. Net sales for the three months
ended March 31, 2003 increased by $46.4 million, or 20%, to $283.5
million from $237.1 million for the three months ended March 31, 2002.
Net income for the quarter was $1.6 million, or $.06 per share,
compared to a net loss of $2.1 million, or $.09 per share, for the
three months ended March 31, 2002. The Company's most recent
acquisition, MoreDirect, reported $52.3 million in net sales for the
first quarter of 2003. The Company acquired MoreDirect during April
2002, and therefore, MoreDirect's results were not included in the
Company's financial results for the first quarter of 2002.
Net sales for the small- and medium-sized business (SMB) segment
million declined by 4.8% from the first quarter of 2002 to $178.6 but
increased sequentially by 6.5% over the immediately preceding quarter.
Sales productivity for the SMB segment improved by 14.7% over the
first quarter of 2002 to $2.2 million per sales representative and
also improved sequentially this quarter by 10.0% over the immediately
preceding quarter. Sales to government and education customers (the
Company's Public Sector segment) grew for the quarter by 6.4% over the
first quarter of 2002 to $52.6 million, but were down sequentially by
37.7% from the immediately preceding quarter. The sequential decline
in net sales this quarter was consistent with the historical
seasonality in the Company's federal government sales. However, sales
to state, local, and education customers grew sequentially this
quarter by 1.3% and rose year-over-year by 17.2%. Sales to large
account customers declined sequentially in the quarter by 25.3% to
$52.3 million. Sales to large account customers had a slower start to
the year than anticipated. Management believes that large customers
have delayed purchasing information technology equipment due to the
uncertainty surrounding the events that occurred in Iraq.
Patricia Gallup, President and Chief Executive Officer, said, "We
are encouraged by recent improvements in the productivity of the sales
representatives in our SMB segment. Generating higher sales
productivity is the key to leveraging our expense structure and
driving future profitability improvements. Now that we have seen
enhanced sales productivity over the past year, our goal is to
increase the total number of sales representatives in all of our
operating segments from 505 to 555, or 10%, by the end of the year."
Notebook computer systems continued to be the Company's largest
product category, accounting for 17.9% of net sales in the first
quarter of 2003 compared to 15.6% of net sales for the corresponding
period a year ago. Desktop and server computer systems accounted for
14.8% of net sales in the first quarter of 2003, compared to 14.6% for
the corresponding 2002 period. The average selling prices of computer
systems increased 1% in the first quarter compared to the
corresponding period a year ago, but decreased 1% compared to the
fourth quarter of 2002.
Gross profit margin as a percentage of net sales was 11.5% in the
first quarter of 2003, compared to 11.1% in the fourth quarter of
2002, and 10.5% in the first quarter of 2002. This represents a 93
basis point year-over-year improvement. Gross margins were higher due
to an improvement in product mix and selling margins. As previously
stated, the Company expects that its gross profit margin as a
percentage of net sales may vary by quarter based upon vendor support
programs, product mix, pricing strategies, market conditions, and
other factors.
Total selling, general, and administrative expenses as a
percentage of sales were 10.5% in the first quarter of 2003, compared
to 11.6% in the corresponding period a year ago. This decline was due
primarily to increased sales relating to the April 2002 acquisition of
MoreDirect. The Company expects that its SG&A as a percentage of net
sales may vary by quarter depending on changes in sales volume, as
well as the levels of continuing investments in key growth
initiatives.
Ms. Gallup concluded, "Due to profitability improvements achieved
during the first quarter, we are optimistic that the Company will see
continued financial improvement throughout the remainder of 2003. The
strongest quarters of the public sector are still ahead of us. And,
with less uncertainty regarding the deployment of U.S. troops
overseas, we believe our customers will resume normal buying
patterns."
PC Connection, Inc., a Fortune 1000 company, has three sales
subsidiaries, PC Connection Sales Corporation of Merrimack, NH,
GovConnection, Inc. of Rockville, MD and MoreDirect, Inc. of Boca
Raton, FL. PC Connection Sales Corporation is a rapid-response
provider of information technology (IT) products and solutions
offering more than 100,000 brand-name products to businesses through
its staff of technically trained outbound sales account managers and
catalog telesales representatives, its comprehensive web sites at
www.pcconnection.com, and www.macconnection.com, and its catalogs PC
Connection (1-800-800-5555) and MacConnection (1-800-800-2222).
GovConnection, Inc. is a rapid-response provider of IT products and
solutions, offering more than 100,000 brand-name products to federal,
state and local government agencies and educational institutions
(1-800-800-0019, web site www.govconnection.com). MoreDirect, Inc.
(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 350,000 products from the inventories of leading IT
wholesale distributors and manufacturers. All three subsidiaries can
deliver custom-configured computer systems overnight.
A live webcast of PC Connection management's discussion of the
first quarter will be available on the Company's Web site at
www.pcconnection.com and on www.streetevents.com. The webcast will
begin today at 10:00 am Eastern time.
"Safe Harbor" Statement Under the Private Securities Litigation
Reform Act of 1995: This release contains forward-looking statements
that are subject to risks and uncertainties, including, but not
limited to, the impact of changes in market demand and the overall
level of economic activity, or in the level of business investment in
information technology products, competitive products and pricing,
product availability and market acceptance, new products, fluctuations
in operating results and other risks detailed under the caption
"Factors That May Affect Future Results and Financial Condition" in
the Company's 2002 Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31,
2002. More specifically, the statements in this release concerning the
Company's outlook for the balance of 2003 and the statements
concerning the Company's gross margin percentage and selling and
administrative costs and other statements of a non-historical basis
(including statements regarding implementing strategies for future
growth, the ability of the Company to regain its model of profitable
growth and the expected benefits of the Company's electronic commerce
strategy) 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 relationships and support
programs and the ability of the Company to hire and retain qualified
sales representatives and other essential personnel.
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
(Dollars and shares in thousands, except operating
data, price/earnings ratio and per share data)
At or for the
Three Months Ended March 31, 2003 2002
% of % of
Net Net %
Sales Sales Change
Operating Data:
Net sales growth 19.6% (21.8)%
Diluted earnings per
share change 166.7 (190.0)
Gross profit margin 11.5 10.5
Operating margin 1.0 (1.4)
Return on equity(2) 4.2 (5.8)
Catalogs distributed 6,631,000 8,415,000 (21.2)%
Orders entered(1) 324,000 315,000 2.9
Average order size(1) $1,058 $894 18.3
Inventory turns(2) 19 16
Days sales outstanding 51 52
Product Mix:
Notebooks $ 50,605 17.9% $ 36,969 15.6% 36.9%
Desktops/Servers 41,920 14.8 34,594 14.6 21.2
Storage Devices 28,091 9.9 24,404 10.3 15.1
Software 32,686 11.5 33,669 14.2 (2.9)
Networking communications 22,814 8.1 20,899 8.8 9.2
Printers 24,518 8.6 20,819 8.8 17.8
Videos & Monitors 26,873 9.5 22,779 9.6 18.0
Memory 10,247 3.6 7,475 3.1 37.1
Accessories/Other 45,773 16.1 35,512 15.0 28.9
$ 283,527 100.0% $ 237,120 100.0% 19.6%
Net Sales of Enterprise Server and Networking
Products (included in the above Product Mix):
$ 65,519 23.1% $ 49,935 21.1% 31.2%
Stock Performance Indicators:
Actual shares outstanding 24,660 24,555
Total book value per share $6.16 $5.90
Tangible book value per
share $4.64 $5.54
Closing price $5.25 $10.56
Market capitalization $129,465 $259,301
Trailing price/earnings
ratio (3) 19 96
(1)Does not reflect cancellations or returns
(2)Annualized
(3)Earnings is based on the last four quarters
SELECTED SEGMENT INFORMATION
For the Three Months Ended March 31,
2003 2002
Net Gross Net Gross
(Dollars in Thousands) Sales Margin(%) Sales Margin(%)
PC Connection Sales
Corporation (SMB) $178,640 11.8% $187,643 10.9%
GovConnection (Public Sector) 52,632 9.5 49,477 8.9
MoreDirect (Large Account) 52,255 12.3 - -
Total $283,527 11.5% $237,120 10.5%
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Three Months Ended March 31, 2003 2002
Amount % of Amount % of
Net Sales Net Sales
Net sales $283,527 100.00% $237,120 100.00%
Cost of sales 251,052 88.55 212,170 89.48
Gross Profit 32,475 11.45 24,950 10.52
Selling, general and
administrative expenses 29,639 10.45 27,478 11.59
Restructuring costs and other
special charges - - 813 .34
Income (Loss) From Operations 2,836 1.00 (3,341) (1.41)
Interest expense (303) (.11) (242) (.10)
Other, net 44 .02 195 .08
Income tax (provision) credit (1,002) (.35) 1,288 .54
Net Income (Loss) $ 1,575 .56% $ (2,100) (.89)%
Weighted average common shares outstanding:
Basic 24,651 24,551
Diluted 24,920 24,551
Earnings (loss) per common share:
Basic $ .06 $ (.09)
Diluted $ .06 $ (.09)
CONSOLIDATED BALANCE SHEETS March 31, December 31,
(Amounts in thousands) 2003 2002
ASSETS
Current Assets:
Cash and cash equivalents $ 6,271 $ 1,797
Restricted cash(1) - 5,000
Accounts receivable, net 121,553 135,314
Inventories - merchandise 56,780 52,479
Deferred income taxes 1,044 741
Income tax receivable 2,171 1,294
Prepaid expenses and other current assets 3,193 3,278
Total current assets 191,012 199,903
Property and equipment, net 24,601 25,995
Goodwill, net 33,704 33,704
Other intangibles, net 3,658 3,746
Restricted cash (1) 5,000 5,000
Other assets 290 334
Total assets $ 258,265 $ 268,682
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital
lease obligation to affiliate $ 234 $ 200
Accounts payable 82,574 85,493
Accrued expenses and other liabilities 14,575 22,921
Total current liabilities 97,383 108,614
Capital lease obligation to affiliate,
less current maturities 6,341 6,421
Deferred taxes 2,745 3,503
Total liabilities 106,469 118,538
Stockholders' Equity:
Common stock 250 250
Additional paid-in capital 75,351 75,274
Retained earnings 78,481 76,906
Treasury stock at cost (2,286) (2,286)
Total stockholders' equity 151,796 150,144
Total liabilities and stockholders'
equity $ 258,265 $ 268,682
(1) Cash escrow established for the MoreDirect, Inc. acquisition
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three months ended March 31, 2003 (Amounts in thousands)
Additional
Common Stock Paid In Retained
Shares Amount Capital Earnings
Balance - December 31, 2002 24,997 $ 250 $ 75,274 $ 76,906
Exercise of stock options,
including income tax benefits 25 -- 77 77
Net income -- -- -- 1,575
Balance - March 31, 2003 25,022 $ 250 $ 75,351 $ 78,481
Treasury Shares
Shares Amount Total
Balance - December 31, 2002 (362) $ (2,286) $150,144
Exercise of stock options,
including income tax benefits -- -- --
Net income -- -- 1,575
Balance - March 31, 2003 (362) $ (2,286) $151,796
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Three Months Ended March 31, 2003 2002
Cash Flows from Operating Activities:
Net income (loss) $ 1,575 $ (2,100)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,230 1,703
Deferred income taxes (1,061) 200
Provision for doubtful accounts 800 1,684
Gain on disposal of fixed assets -- (3)
Changes in assets and liabilities:
Accounts receivable 12,961 15,908
Inventories (4,301) 12,032
Prepaid expenses and other current assets (792) (2,030)
Other non-current assets 44 (336)
Accounts payable (2,919) (16,206)
Income tax benefits from exercise of stock options 49 17
Accrued expenses and other liabilities 2,470 (2,039)
Net cash provided by operating activities 11,056 8,830
Cash Flows from Investing Activities:
Purchases of property and equipment (764) (2,089)
Proceeds from sale of property and equipment -- 9
Payment of acquisition earn-out obligation (10,800) --
Decrease in restricted cash 5,000 --
Net cash used for investing activities (6,564) (2,080)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 43,595 2,847
Repayment of short-term borrowings (43,595) (2,847)
Repayment of capital lease obligation to affiliate (46) (40)
Repayment of notes payable -- (500)
Exercise of stock options 28 80
Net cash used for financing activities (18) (460)
Increase in cash and cash equivalents 4,474 6,290
Cash and cash equivalents, beginning of period 1,797 35,605
Cash and cash equivalents, end of period $ 6,271 $ 41,895
CONTACT: PC Connection, Inc.
Mark A. Gavin, 603/423-2451