View:
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 23, 2003
PC Connection, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 0-23827 02-0513618
- --------------------------------------------------------------------------------
(State or other juris- (Commission (IRS Employer
diction of incorporation File Number) Identification No.)
Rt. 101A, 730 Milford Road 03054 Merrimack, NH 03054
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 423-2000
N/A
- --------------------------------------------------------------------------------
(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 October 23, 2003, PC Connection, Inc. announced its financial results
for the quarter ended September 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: October 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 October 23, 2003
Exhibit 99.1
PC Connection, Inc. Reports Third Quarter Results
MERRIMACK, N.H.--(BUSINESS WIRE)--Oct. 23, 2003--
PC Connection, Inc. (NASDAQ: PCCC)
THIRD QUARTER HIGHLIGHTS:
-- 3% growth in net sales
-- 8% growth in sales representatives
-- 7% 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 September 30, 2003. Net sales for the three
months ended September 30, 2003 increased by $8.4 million, or 2.5%, to
$349.4 million from $341.0 million for the quarter ended September 30,
2002. Net income on a generally accepted accounting principles (GAAP)
basis for both the quarter ended September 30, 2003 and the quarter
ended September 30, 2002, was $2.2 million, or $.09 per share.
Net sales for the nine months ended September 30, 2003 were $954.5
million compared to $869.3 million for the corresponding period a year
ago. Net income for the nine months ended September 30, 2003, on a
GAAP basis, was $5.2 million, or $.21 per share, compared to net
income of $0.4 million, or $.02 per share, for the corresponding
period a year ago. MoreDirect, Inc., the Company's large account
subsidiary, was acquired in April 2002 and included in 2002 results
only from that date forward.
The three-month period ended September 30, 2002 and the nine-month
periods ended September 30, 2003 and 2002 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 three-month period ended September 30, 2002 would
have been $2.6 million, or $.11 per share, and pro forma net income
for the nine months ended September 30, 2003 would have been $5.4
million, or $.22 per share, compared to $1.3 million, or $.05 per
share, for the nine months ended September 30, 2002. A reconciliation
between net income on a GAAP basis and pro forma net income is
provided in a table immediately following the Consolidated Statements
of Income.
Net sales for the small- and medium-sized business (SMB) segment
increased in this quarter by 2.9% from the third quarter of 2002 to
$179.6 million but decreased sequentially by 3.8% over the immediately
preceding quarter. Sales to government and education customers (the
Company's Public Sector segment) grew sequentially by 38.1% over the
immediately preceding quarter to $103.6 million, and increased
year-over-year by 7.6%. More specifically, sales to the federal
government grew sequentially by 64.5% and grew year-over-year by 0.6%.
Sales to state, local, and education customers grew sequentially this
quarter by 19.0% and grew year-over-year by 15.8%. Sales to large
corporate account customers decreased by 5.7% from the third quarter
of 2002 to $66.3 million but increased sequentially by 10.5% over the
immediately preceding quarter.
Patricia Gallup, Chairman and Chief Executive Officer, said, "The
total number of sales representatives as of September 30, 2003
increased year-over-year by 8% to 580 from 539 as of September 30,
2002. The number of active customers, or customers who have purchased
from the Company within the last twelve months, increased by 7% over
the third quarter of 2002."
Notebooks and PDAs continued to be the Company's largest product
category, accounting for 20.9% of net sales in the third quarter of
2003 compared to 16.9% for the corresponding period a year ago.
Desktop computers and servers accounted for 14.2% of net sales in the
third quarter of 2003, compared to 13.6% for the corresponding 2002
period. The average selling price of computer systems decreased 18% in
the third quarter compared to the corresponding period a year ago and
decreased 2% compared to the second quarter of 2003.
Gross profit margin as a percentage of net sales was 10.3% in the
third quarter of 2003, compared to 10.9% in the third quarter of 2002.
Gross profit margins were lower as a result of the increase in
government and education sales, which generally carry low margins, and
more competitive pricing in our SMB segment. 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 9.2% in the third quarter of 2003, compared
to 9.6% 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 stated, "PC Connection continues to remain focused on
strengthening our business by developing strong relationships,
providing great products, and identifying emerging opportunities in
the marketplace."
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
third quarter results 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 ET.
"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 2003 Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission for the period ended June 30, 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 and
customer 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 September 30, 2003 2002
- ----------------------------------------------------------------------
(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 growth 2.5% 9.0%
Diluted earnings per
share change - 12.5
Gross profit margin 10.3 10.9
Operating margin 1.1 1.1
Return on equity(2) 5.7 6.1
Catalogs distributed 8,258,000 7,445,000 10.9%
Orders entered(1) 335,000 314,000 6.7
Average order size(1) $1,303 $1,323 (1.5)
Inventory turns(2) 19 24
Days sales outstanding(3) 48 50
Active customers(4) 486,000 456,000 6.6
Product Mix:
Notebooks & PDAs $ 73,012 20.9% $ 57,731 16.9% 26.5%
Desktops/Servers 49,686 14.2 46,235 13.6 7.5
Storage Devices 31,099 8.9 31,595 9.3 (1.6)
Software 37,581 10.7 53,960 15.8 (30.4)
Net/Com Products 27,834 8.0 26,185 7.7 6.3
Printers & Printer Supplies 39,903 11.4 37,689 11.0 5.9
Video, Imaging & Sound 41,003 11.7 36,841 10.8 11.3
Memory & System Enhancements 19,778 5.7 18,109 5.3 9.2
Accessories/Other 29,524 8.5 32,694 9.6 (9.7)
--------- ----- --------- -----
$ 349,420 100.0% $ 341,039 100.0% 2.5%
--------- ----- --------- -----
--------- ----- --------- -----
Net Sales of Enterprise Server and Networking
Products (included in the above Product Mix):
$ 95,730 27.4% $ 88,720 26.0% 7.9%
--------- ------ -------- ------
--------- ------ -------- ------
Stock Performance Indicators:
Actual shares outstanding 24,763 24,554
Total book value per share $6.30 $5.99
Tangible book value per share $4.80 $4.90
Closing price $9.38 $4.06
Market capitalization $232,277 $99,689
Trailing price/
earnings ratio(5) 28 58
(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 September 30, 2003 2002
- ----------------------------------------------------------------------
Net Gross Net Gross
(Dollars in thousands) Sales Margin (%) Sales Margin (%)
- ----------------------------------------------------------------------
PC Connection Sales
Corporation (SMB) $ 179,565 11.2% $ 174,478 12.3%
GovConnection
(Public Sector) 103,596 8.0 96,265 8.4
MoreDirect (Large Account) 66,259 11.3 70,296 10.8
--------- ----- --------- -----
Total $ 349,420 10.3% $ 341,039 10.9%
--------- ----- --------- -----
--------- ----- --------- -----
- ----------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------
Three Months Ended
September 30, 2003 2002
- ----------------------------------------------------------------------
(Amounts in thousands, % of % of
except per share data) Amount Net Sales Amount Net Sales
- ----------------------------------------------------------------------
Net sales $ 349,420 100.00% $ 341,039 100.00%
Cost of sales 313,494 89.72 303,869 89.10
--------- ------- --------- -------
Gross Profit 35,926 10.28 37,170 10.90
Selling, general and
administrative expenses 32,059 9.17 32,625 9.57
Restructuring costs and
other special charges - - 718 .21
-------- ------ -------- -------
Income From
Operations 3,867 1.11 3,827 1.12
Interest expense (270) (.08) (297) (.09)
Other, net 27 .01 94 .03
Income tax provision (1,444) (.42) (1,418) (.41)
--------- ------- -------- -------
Net Income $ 2,180 .62% $ 2,206 .65%
--------- ------- -------- -------
--------- ------- -------- -------
Weighted average common
shares outstanding:
Basic 24,741 24,533
--------- ---------
--------- ---------
Diluted 25,322 24,789
--------- ---------
--------- ---------
Earnings per common share:
Basic $ .09 $ .09
--------- ---------
--------- ---------
Diluted $ .09 $ .09
--------- ---------
--------- ---------
- ----------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------
Nine Months
Ended September 30, 2003 2002
- ----------------------------------------------------------------------
(Amounts in thousands, % of % of
except per share data) Amount Net Sales Amount Net Sales
- ----------------------------------------------------------------------
Net sales $ 954,515 100.00% $ 869,347 100.00%
Cost of sales 853,157 89.38 775,903 89.25
---------- ------- ---------- -------
Gross Profit 101,358 10.62 93,444 10.75
Selling, general and
administrative expenses 91,716 9.61 90,712 10.43
Restructuring costs and
other special charges 397 .04 1,636 .19
-------- ------ ---------- -------
Income From Operations 9,245 .97 1,096 .13
Interest expense (849) (.09) (835) (.10)
Other, net 125 .01 421 .05
Income tax provision (3,363) (.35) (299) (.04)
-------- ------ --------- -------
Net Income $ 5,158 .54% $ 383 .04%
-------- ------ --------- -------
-------- ------ --------- -------
Weighted average common
shares outstanding:
Basic 24,686 24,546
-------- -------
-------- -------
Diluted 25,058 24,848
-------- -------
-------- -------
Earnings per common share:
Basic $ .21 $ .02
-------- -------
-------- -------
Diluted $ .21 $ .02
-------- -------
-------- -------
- ----------------------------------------------------------------------
A RECONCILIATION BETWEEN GAAP AND PRO FORMA NET INCOME
- ----------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
- ----------------------------------------------------------------------
(Amounts in thousands) 2002 2003 2002
- ----------------------------------------------------------------------
GAAP net income $ 2,206 $ 5,158 $ 383
Restructuring costs and other
special charges (after tax) 437 240 924
--------- ---------- ------
Pro forma net income $ 2,643 $ 5,398 $ 1,307
--------- ---------- ------
--------- ---------- ------
- ----------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS September 30, December 31,
- ----------------------------------------------------------------------
(Amounts in thousands) 2003 2002
- ----------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 9,739 $ 1,797
Restricted cash(1) - 5,000
Accounts receivable, net 145,305 135,314
Inventories - merchandise 72,474 52,479
Deferred income taxes 1,625 741
Income tax receivable 618 1,294
Prepaid expenses and other
current assets 3,704 3,278
--------- ---------
Total current assets 233,465 199,903
Property and equipment, net 21,620 25,995
Goodwill, net 33,672 33,704
Other intangibles, net 3,481 3,746
Restricted cash(1) 5,000 5,000
Other assets 187 334
--------- ---------
Total assets $ 297,425 $ 268,682
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital
lease obligation to affiliate $ 306 $ 200
Accounts payable 118,303 85,493
Accrued expenses and other
liabilities 14,165 22,921
--------- ---------
Total current liabilities 132,774 108,614
Capital lease obligation to affiliate,
less current maturities 6,175 6,421
Deferred taxes 2,520 3,503
--------- ---------
Total liabilities 141,469 118,538
--------- ---------
Stockholders' Equity:
Common stock 251 250
Additional paid-in capital 75,927 75,274
Retained earnings 82,064 76,906
Treasury stock at cost (2,286) (2,286)
---------- ---------
Total stockholders' equity 155,956 150,144
---------- ---------
Total liabilities and
stockholders' equity $ 297,425 $ 268,682
---------- ---------
---------- ---------
(1) Cash escrow established for the MoreDirect, Inc. acquisition
- ----------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------
Nine Months Ended September 30, 2003 (Amounts in thousands)
- ----------------------------------------------------------------------
Additional Treasury
Common Stock Paid Shares
------------ In Retained -------------
Shares Amount Capital Earnings Shares Amount Total
- ----------------------------------------------------------------------
Balance -
December 31,
2002 24,997 $ 250 $75,274 $76,906 (362)$(2,286) $150,144
Exercise of
stock options,
including
income tax
benefits 78 - 442 - - - 442
Issuance of stock
under employee
stock purchase
plan 50 1 211 - - - 212
Net income - - - 5,158 - - 5,158
------- ----- ------- -------- ---- ------ -------
Balance -
September 30,
2003 25,125 $251 $75,927 $82,064 (362)$(2,286) $155,956
------ ---- ------- ------- ---- -------- -------
- ----------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------
Nine Months Ended
September 30, (Amounts in thousands) 2003 2002
- ----------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 5,158 $ 383
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 6,500 5,997
Deferred income taxes (1,867) (524)
Provision for doubtful accounts 2,323 5,838
Gain on disposal of fixed assets (1) -
Changes in assets and liabilities:
Accounts receivable (12,314) (12,392)
Inventories (19,995) 5,000
Prepaid expenses and other
current assets 250 (865)
Other non-current assets 147 (95)
Accounts payable 32,810 12,845
Income tax benefits from exercise
of stock options 152 118
Accrued expenses and other
liabilities 2,123 378
-------- ------
Net cash provided by operating
activities 15,286 16,683
-------- ------
Cash Flows from Investing Activities:
Purchases of property and equipment (1,907) (4,428)
Proceeds from sale of property and
equipment 1 16
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 (7,706) (36,997)
--------- --------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 109,333 19,568
Repayment of short-term borrowings (109,333) (19,568)
Repayment of capital lease obligation
to affiliate (140) (126)
Repayment of notes payable - (1,000)
Exercise of stock options 290 135
Issuance of stock under employee
stock purchase plan 212 313
Purchase of treasury shares - (751)
---------- --------
Net cash provided by (used for)
financing activities 362 (1,429)
---------- --------
Increase (decrease) in cash and
cash equivalents 7,942 (21,743)
Cash and cash equivalents, beginning
of period 1,797 35,605
---------- --------
Cash and cash equivalents,
end of period $ 9,739 $ 13,862
---------- --------
---------- --------
CONTACT: PC Connection, Inc., Merrimack
Mark A. Gavin, 603-683-2451