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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): July 23, 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 July 23, 2003, PC Connection, Inc. announced its financial results for
the quarter ended June 30, 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: July 23, 2003 PC CONNECTION, INC.
By: /s/ MARK A. GAVIN
-------------------------------------------
Mark A. Gavin
Senior Vice President of Finance and Chief
Financial Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99.1 Press release dated July 23, 2003
Exhibit 99.1
PC Connection, Inc. Reports Second Quarter Results
MERRIMACK, N.H.--(BUSINESS WIRE)--July 23, 2003--PC Connection,
Inc.(NASDAQ: PCCC)--
SECOND QUARTER HIGHLIGHTS:
-- 10.4% growth in net sales
-- 8% sequential growth in sales representatives
-- 6% growth in active customers
PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of
information technology products and solutions, today announced results
for the quarter ended June 30, 2003.
Net sales for the three months ended June 30, 2003 increased by
$30.4 million, or 10.4%, to $321.6 million from $291.2 million for the
quarter ended June 30, 2002. Net income for the quarter ended June 30,
2003, on a generally accepted accounting principles (GAAP) basis, was
$1.4 million, or $.06 per share, compared to $0.3 million, or $.01 per
share, for the quarter ended June 30, 2002.
Net sales for the six months ended June 30, 2003 were $605.1
million compared to $528.3 million for the corresponding period a year
ago. Net income for the six months ended June 30, 2003, on a GAAP
basis, was $3.0 million, or $.12 per share, compared to a net loss of
$(1.8) million, or $(.07) per share, for the corresponding period a
year ago. MoreDirect, Inc., the Company's large account subsidiary,
was acquired in April 2002.
All above reported periods included charges related to workforce
reductions and other special charges that reduced earnings and
earnings per share. Had these charges not been recorded, pro forma net
income for the quarter ended June 30, 2003 would have been $1.6
million, or $.07 per share, compared to $0.3 million, or $.01 per
share, for the quarter ended June 30, 2002. Pro forma net income for
the six months ended June 30, 2003 would have been $3.2 million, or
$.13 per share, compared to a loss of $(1.3) million, or $(.05) per
share, for the corresponding same period a year ago. A reconciliation
between net income (loss) on a GAAP basis and pro forma net income
(loss) is provided in a table immediately following the Consolidated
Statements of Operations.
Net sales for the small- and medium-sized business (SMB) segment
increased by 7.5% from the second quarter of 2002 to $186.6 million
and increased sequentially by 4.4% over the immediately preceding
quarter. This is the first quarter since the fourth quarter of 2000
that the SMB segment grew over the prior year period. Sales to
government and education customers grew for the quarter by 17.8% over
the second quarter of 2002 to $75.0 million, and increased
sequentially by 42.5% from the immediately preceding quarter. Sales to
the federal government grew sequentially by 40.0% and rose
year-over-year by 19.3%. Sales to state, local, and education
customers grew sequentially this quarter by 44.5% and rose
year-over-year by 16.7%. Sales to large corporate account customers
increased by 11.4% from the second quarter of 2002 to $60.0 million
and increased sequentially by 14.8% over the immediately preceding
quarter.
Patricia Gallup, Chairman and Chief Executive Officer, said, "We
are pleased with the performance of all three PC Connection, Inc.
sales subsidiaries during the second quarter of 2003. We improved
sales productivity on an annualized basis, grew the total number of
sales representatives, and increased the number of active customers."
Sales productivity improved by 11% over the second quarter of 2002 to
$2.4 million per sales representative. The total number of sales
representatives increased sequentially by 8% to 546 from 505 as of
March 31, 2003. In addition, the number of active customers, or
customers who have previously purchased from the Company, increased by
6% over the second quarter of 2002 to 483,000 and increased
sequentially by 5% over the immediately preceding quarter.
Notebook computer systems and PDAs continued to be the Company's
largest product category, accounting for 21% of net sales in the
second quarter of 2003 compared to 17% of net sales for the
corresponding period a year ago. Desktop and server computer systems
accounted for 14% of net sales in the second quarter of 2003, compared
to 15% for the corresponding 2002 period. The average selling prices
of computer systems decreased 15% in the second quarter compared to
the corresponding period a year ago, and decreased 5% compared to the
first quarter of 2003.
Gross profit margin as a percentage of net sales was 10.3% in the
second quarter of 2003, compared to 10.8% in the second quarter of
2002. Gross margins were lower as a result of winning more
competitively priced deals and increasing our overall market share. 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 (SG&A) as a
percentage of sales were 9.3% in the second quarter of 2003, compared
to 10.5% in the corresponding period a year ago. 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. The improvement in
our SG&A rates, compared to the corresponding quarter a year ago, was
due to higher sales volumes and continued profit improvement
initiatives.
Ms. Gallup concluded, "The investments we are making to increase
sales and improve efficiency are producing positive results. We
believe PC Connection is in a strong position to gain market share and
enhance long-term shareholder value."
PC Connection, Inc., a Fortune 1000 company, operates through
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). MoreDirect, Inc. 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. All three subsidiaries can deliver custom-configured
computer systems overnight.
A live webcast of PC Connection management's discussion of the
second 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 Quarterly
Report on Form 10-Q filed with the Securities and Exchange Commission
for the period ended March 31, 2003. 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 improve
sales productivity and increase its active customers) 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
At or for the Three Months Ended June 30,
(Dollars and shares in thousands, except operating data,
price/earnings ratio and per share data)
2003 2002
---- ----
% of % of %
Net Sales Net Sales Change
--------- --------- ------
Operating Data:
Net sales
growth 10.4% (1.8)%
Diluted earnings
per share change 500.0 (83.3)
Gross profit
margin 10.3 10.8
Operating margin 0.8 0.2
Return on equity(2) 3.7 0.8
Catalogs
distributed 7,910,000 5,318,000 48.7%
Orders entered(1) 335,900 304,500 10.3
Average order
size(1) $1,110 $1,127 (1.5)
Inventory turns(2) 20 22
Days sales
outstanding(3) 45 48
Active customers(4) 483,000 457,000
Product Mix:
Notebooks & PDAs $ 66,269 20.6% $ 50,403 17.3% 31.5%
Desktops/Servers 45,364 14.1 42,960 14.8 5.6
Storage Devices 28,582 8.9 27,865 9.6 2.6
Software 30,370 9.5 40,506 13.9 (25.0)
Net/Comm Products 26,129 8.1 24,198 8.3 8.0
Printers & Printer
Supplies 39,341 12.2 34,193 11.7 15.1
Video, Imaging
& Sound 38,242 11.9 31,794 10.9 20.3
Memory & System
Enhancements 18,248 5.7 16,620 5.7 9.8
Accessories/Other 29,023 9.0 22,649 7.8 28.1
--------- ------ --------- ------ -----
$ 321,568 100.0% $ 291,188 100.0% 10.4%
--------- ------ --------- ------ -----
Net Sales of Enterprise Server and Networking Products
(included in the above Product Mix):
$ 71,491 22.2% $ 66,882 23.0% 6.9%
-------- ----- -------- ----- -----
Stock Performance
Indicators:
Actual shares
outstanding 24,731 24,559
Total book value
per share $6.21 $5.90
Tangible book
value per share $4.70 $4.81
Closing price $6.89 $4.10
Market
capitalization $170,397 $100,692
Trailing
price/earnings
ratio (5) 21 68
(1) Does not reflect cancellations or returns
(2) Annualized
(3) Represents the balance of customer receivables at the end of the
period, divided by the average daily open account sales for the
period.
(4) All customers included in the Company's mailing list who made a
purchase within the last twelve-month period.
(5) Earnings is based on the last four quarters
SELECTED SEGMENT INFORMATION
For the Three Months Ended June 30
(Dollars in thousands)
2003 2002
---- ----
Net Gross Net Gross
Sales Margin(%) Sales Margin(%)
----- --------- ----- ---------
PC Connection
Sales Corporation
(SMB) $ 186,576 10.7% $ 173,635 11.6%
GovConnection
(Public Sector) 75,023 7.9 63,704 8.8
MoreDirect
(Large Account) 59,969 11.7 53,849 10.4
------- ---- ------- -----
Total $ 321,568 10.3% $ 291,188 10.8%
------- ---- ------- -----
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30,
(Amounts in thousands, except per share data)
2003 2002
---- ----
% of % of
Amount Net Sales Amount Net Sales
------ --------- ------ ---------
Net sales $ 321,568 100.00% $ 291,188 100.00%
Cost of sales 288,611 89.75 259,864 89.24
------- ------ ------- ------
Gross Profit 32,957 10.25 31,324 10.76
------- ------ ------- ------
Selling, general
and administrative
expenses 30,018 9.34 30,609 10.51
Restructuring costs
and other special
charges 397 .12 105 .04
------- ------ ------- ------
Income From
Operations 2,542 .79 610 .21
------- ------ ------- ------
Interest expense (276) (.08) (296) (.10)
Other, net 54 .02 132 .05
Income tax provision (917) (.29) (169) (.06)
------- ------ ------- ------
Net Income $ 1,403 .44% $ 277 .10%
------- ------ ------- ------
Weighted average
common shares
outstanding:
Basic 24,665 24,553
------ ------
Diluted 25,013 24,833
------ ------
Earnings per
common share:
Basic $ .06 $ .01
------ ------
Diluted $ .06 $ .01
------ ------
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30,
(Amounts in thousands, except per share data)
2003 2002
---- ----
% of % of
Amount Net Sales Amount Net Sales
------ --------- ------ ---------
Net sales $ 605,095 100.00% $ 528,308 100.00%
Cost of sales 539,663 89.19 472,034 89.35
------- ------ ------- ------
Gross Profit 65,432 10.81 56,274 10.65
------- ------ ------- ------
Selling, general and
administrative
expenses 59,657 9.85 58,087 11.00
Restructuring costs
and other special
charges 397 .07 918 .17
------- ------ ------- ------
Income (Loss) From
Operations 5,378 .89 (2,731) (.52)
Interest expense (579) (.10) (538) (.10)
Other, net 98 .02 327 .06
Income tax
(provision) credit (1,919) (.32) 1,119 .21
------- ------ ------- ------
Net Income (Loss) $ 2,978 .49% $(1,823) (.35)%
------- ------ ------- ------
Weighted average
common shares
outstanding:
Basic 24,658 24,552
------ ------
Diluted 24,960 24,552
------ ------
Earnings (loss)
per common share:
Basic $ .12 $(.07)
------ ------
Diluted $ .12 $(.07)
------ ------
A RECONCILIATION BETWEEN GAAP AND PRO FORMA NET INCOME (LOSS)
This information is being provided so as to allow for a comparison of
our operating results without workforce reduction and other special
charges. (Amounts in thousands)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
GAAP net income
(loss) $ 1,403 $ 277 $ 2,978 $(1,823)
Restructuring costs
and other
special charges
(after tax) 240 65 241 569
------- ----- ------- -------
Pro forma net
income (loss) $ 1,643 $ 342 $ 3,219 $(1,254)
------- ----- ------- -------
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
June 30, December 31,
2003 2002
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 8,396 $ 1,797
Restricted cash(1) - 5,000
Accounts receivable, net 122,010 135,314
Inventories - merchandise 62,175 52,479
Deferred income taxes 1,042 741
Income tax receivable 2,486 1,294
Prepaid expenses and other
current assets 4,955 3,278
------- -------
Total current assets 201,064 199,903
Property and equipment, net 23,056 25,995
Goodwill, net 33,704 33,704
Other intangibles, net 3,570 3,746
Restricted cash (1) 5,000 5,000
Other assets 188 334
------- -------
Total assets $ 266,582 $ 268,682
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital
lease obligation to affiliate $ 270 $ 200
Accounts payable 90,337 85,493
Accrued expenses and
other liabilities 13,255 22,921
------- -------
Total current liabilities 103,862 108,614
Capital lease obligation to
affiliate, less current
maturities 6,259 6,421
Deferred taxes 2,975 3,503
------- -------
Total liabilities 113,096 118,538
------- -------
Stockholders' Equity:
Common stock 251 250
Additional paid-in capital 75,637 75,274
Retained earnings 79,884 76,906
Treasury stock at cost (2,286) (2,286)
------- -------
Total stockholders' equity 153,486 150,144
------- -------
Total liabilities and
stockholders' equity $ 266,582 $ 268,682
------- -------
(1) Cash escrow established for the MoreDirect, Inc. acquisition
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2003 (Amounts in thousands)
Common Stock
------------ Additional Retained
Shares Amount Paid In Capital Earnings
----- ------ --------------- --------
Balance -
December 31, 2002 $ 24,997 $ 250 $ 75,274 $ 76,906
Exercise of
stock options,
including income
tax benefits 46 - 152 -
Issuance of stock
under employee
stock purchase plan 50 1 211 -
Net income - - - 2,978
----- ------ --------------- --------
Balance -
June 30, 2003 25,093 $ 251 $ 75,637 $ 79,884
----- ------ --------------- --------
Treasury Shares
---------------
Shares Amount Total
------ ------ -----
Balance -
December 31, 2002 (362) $(2,286) $ 150,144
Exercise of
stock options,
including income
tax benefits - - 152
Issuance of stock
under employee
stock purchase plan - - 212
Net Income - - 2,978
------ ------ -----
Balance -
June 30, 2003 (362) $(2,286) $ 153,486
------ ------ -----
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, (Amounts in thousands)
2003 2002
---- ----
Cash Flows from Operating Activities:
Net income (loss) $ 2,978 $ (1,823)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 4,408 3,787
Deferred income taxes (829) 96
Provision for doubtful accounts 1,294 3,237
Gain on disposal of fixed assets - (2)
Changes in assets and liabilities:
Accounts receivable 12,010 21,253
Inventories (9,696) 13,976
Prepaid expenses and other
current assets (2,869) (2,039)
Other non-current assets 146 (63)
Accounts payable 4,844 (8,888)
Income tax benefits from exercise
of stock options 110 26
Accrued expenses and other
liabilities 1,166 (2,435)
------ -------
Net cash provided by operating
activities 13,562 27,125
------ -------
Cash Flows from Investing Activities:
Purchases of property and equipment (1,325) (3,370)
Proceeds from sale of property and
equipment - 9
Payment of acquisition earn-out
obligation (10,800) -
Decrease in restricted cash 5,000 -
Payments for acquisition, net of
cash acquired - (22,585)
Cash escrow funded for acquisition - (10,000)
-------- --------
Net cash used for investing
activities (7,125) (35,946)
-------- --------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 76,465 5,521
Repayment of short-term borrowings (76,465) (5,521)
Repayment of capital lease obligation
to affiliate (92) (83)
Repayment of notes payable - (500)
Exercise of stock options 42 107
Issuance of stock under employee
stock purchase plan 212 313
Purchase of treasury shares - (448)
------- --------
Net cash provided by (used for)
financing activities 162 (611)
------- --------
Increase (decrease) in cash and
cash equivalents 6,599 (9,432)
Cash and cash equivalents,
beginning of period 1,797 35,605
------- --------
Cash and cash equivalents,
end of period $ 8,396 $ 26,173
------- --------
CONTACT: PC Connection, Inc.
Mark Gavin, 603/683-2451