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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 29, 2004
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)
On January 29, 2004, PC Connection, Inc. filed a Current Report on Form 8-K (the
"Original Form 8-K") to report a press release announcing its annual earnings
for its 2003 fiscal year. The press release, which was attached to Original Form
8-K as an exhibit, contained a typographical error. Accordingly, PC Connection,
Inc. is filing this Form 8-K/A to correct this oversight.
Item 12. Disclosure of Results of Operations and Financial Condition.
On January 29, 2004, PC Connection, Inc. announced its financial results
for the fiscal year ended December 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/A.
The information in this Form 8-K/A and in the Original Form 8-K 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: January 30, 2004 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 January 29, 2004
Exhibit 99.1
PC Connection, Inc. Reports Fourth Quarter and Year-end Results
MERRIMACK, N.H.--(BUSINESS WIRE)--Jan. 29, 2004--
FOURTH QUARTER HIGHLIGHTS:
-- 11% growth in net sales
-- 11% growth in sales representatives
-- 6% growth in active customers
PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of
information technology (IT) products and solutions, today announced
results for the quarter and year ended December 31, 2003. Net sales
for the three months ended December 31, 2003 increased by $36.2
million, or 11.2%, to $358.4 million from $322.2 million for the three
months ended December 31, 2002. Net income for the quarter ended
December 31, 2003, on a generally accepted accounting principles
(GAAP) basis, was $0.7 million, or $.03 per share, compared to $2.9
million, or $0.12 per share for the three months ended December 31,
2002.
The three-month period ended December 31, 2003 included special
charges that reduced earnings and earnings per share. Had these
charges not been incurred, pro forma net income for the quarter ended
December 31, 2003 would have been $1.7 million, or $.07 per share. A
reconciliation between net income on a GAAP basis and pro forma net
income is provided in a table immediately following the Consolidated
Income Statements.
Net sales for the year ended December 31, 2003 were $1.31 billion,
compared to $1.19 billion for the corresponding period a year ago. Net
income for the year ended December 31, 2003, on a GAAP basis, was $5.9
million, or $.23 per share, compared to net income of $3.2 million, or
$.13 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
twelve-month periods ended December 31, 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 incurred,
pro forma net income for the twelve months ended December 31, 2003
would have been $7.1 million, or $.28 per share, compared to $4.3
million, or $.17 per share, for the corresponding period a year ago.
Net sales for the small- and medium-sized business (SMB) segment
increased in this quarter by 19.0% from the fourth quarter of 2002 to
$199.6 million and increased sequentially by 11.2% over the
immediately preceding quarter. Sales to government and education
customers (the Company's Public Sector segment) increased
year-over-year by 5.8%, but decreased by 13.7% over the immediately
preceding quarter to $89.4 million. More specifically, sales to state,
local, and education customers decreased sequentially this quarter by
25.7% but grew year-over-year by 29.4%. Sales to the federal
government decreased sequentially by 1.8% and decreased year-over-year
by 7.1%. Sales to large corporate account customers increased 4.7%
from the third quarter of 2003 to $69.4 million but remained flat with
the corresponding period a year ago.
Patricia Gallup, Chairman and Chief Executive Officer of PC
Connection, Inc., said, "We are pleased with our Company's overall
performance during the fourth quarter of 2003. Our continued efforts
to improve our business processes and overall efficiency have helped
us compete effectively during this period, especially in sales to our
small- and medium-sized business customers."
The Company's largest sales subsidiary, PC Connection Sales
Corporation, which targets the SMB segment, achieved the highest
year-over-year growth since the third quarter of 2000. During 2003,
the consolidated company improved overall sales productivity by 2%, to
$2.5 million per sales representative on an annualized basis. During
the same period, the consolidated company increased the number of
sales representatives by 11%. The total number of sales
representatives as of December 31, 2003 increased to 567 from 512 as
of December 31, 2002. In addition, the number of active customers, or
customers who have purchased from the Company within the last twelve
months, increased 6% over the fourth quarter of 2002.
Notebooks and PDAs continued to be the Company's largest product
category, accounting for 19.0% of net sales in the fourth quarter of
2003 compared to 16.4% for the corresponding period a year ago.
Desktop computers and servers accounted for 15.8% of net sales in the
fourth quarter of 2003 compared to 15.5% of net sales for the
corresponding period a year ago. The average sales price for computer
systems decreased 1.1% in the fourth quarter compared to the
corresponding period a year ago, but increased 2.4% compared to the
third quarter of 2003.
Gross profit margin as a percentage of net sales was 10.1% in the
fourth quarter of 2003, compared to 11.1% in the fourth quarter of
2002. Gross profit margins were lower as a result of more competitive
pricing in all three sales subsidiaries. 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, decreased to 9.2% in the fourth quarter of 2003,
compared to 9.7% 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.
Ms. Gallup concluded, "The results from 2003 are encouraging. Our
overall sales are up to their highest level since 2000, the peak year
for us during the last technology-buying boom. Also, the process
improvement initiatives we have engaged in to improve overall
efficiency have kept our business competitive and our balance sheet
sound. Based on the growing number of customers and the accelerating
sales productivity we currently see at PC Connection, we believe our
Company is in a strong position in 2004 to gain market share and
enhance long-term shareholder value."
PC Connection, Inc., a Fortune 1000 company, operates 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 (1-800-800-5555) 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 sales account managers and
catalog telesales representatives, catalogs and publications, and its
web site at www.pcconnection.com. The subsidiary serves the
Apple/Macintosh community through its MacConnection division
(1-800-800-2222), which also publishes specialized catalogs and is
online at www.macconnection.com. GovConnection, Inc. (1-800-800-0019)
is a rapid-response provider of IT products and solutions to federal,
state, and local government agencies and educational institutions
through specialized account managers, catalogs and publications, and
online at 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 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
fourth 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 September 30,
2003. More specifically, the statements in this release concerning the
Company's outlook for 2004 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 December 31, 2003 2002
(Dollars and shares in
thousands, except
operating data, % of % of %
price/earnings ratio
and per share data) Net Sales Net Sales Change
Operating Data:
Net sales growth 11.2% 17.7%
Diluted earnings
per share growth (75.0) 100.0
Gross profit margin 10.1 11.1
Operating margin 0.5 1.4
Return on equity(2) 1.9 7.7
Catalogs distributed 8,726,000 7,588,000 15.0%
Orders entered(1) 338,000 309,800 9.1
Average order size(1) $1,202 $1,135 5.9
Inventory turns(2) 17 20 (15.0)
Days sales outstanding 47 48 2.1
Active customers 498,746 470,569 6.0
Product Mix:
Notebooks & PDAs $ 68,001 19.0% $ 52,744 16.4% 28.9%
Desktops/Servers 56,590 15.8 50,051 15.5 13.1
Storage Devices 29,169 8.1 28,295 8.8 3.1
Software 45,446 12.7 34,635 10.7 31.2
Networking Communications
Products 27,211 7.6 26,981 8.4 0.9
Printers & Printer
Supplies 36,953 10.3 41,602 12.9 (11.2)
Videos, Imaging & Sound 44,251 12.3 36,296 11.3 21.9
Memory & System
Enhancements 20,673 5.8 19,451 6.0 6.3
Accessories/Other 30,082 8.4 32,095 10.0 (6.3)
----------------------------------------------
$ 358,376 100.0% $ 322,150 100.0% 11.2%
==============================================
Enterprise Net Sales:
(included in the
above Product Mix) $ 101,908 28.4% $ 89,357 27.7% 14.0%
Stock Performance
Indicators:
Actual shares
outstanding 24,980 24,635
Total book value
per share $6.29 $6.09
Tangible book
value per share $4.34 $4.57
Closing price $8.23 $5.07
Market capitalization $205,585 $124,899
Trailing price/
earnings ratio(3) 34 39
(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 December 31, 2003 2002
Net Gross Net Gross
(Dollars in thousands) Sales Margin(%) Sales Margin (%)
PC Connection
Sales Corporation(SMB) $ 199,615 11.1% $ 167,749 12.3%
GovConnection
(Government & Education) 89,371 8.0 84,492 8.6
MoreDirect
(Large Account) 69,390 10.1 69,909 11.1
----------------------------------------------
Total $ 358,376 10.1% $ 322,150 11.1%
==============================================
CONSOLIDATED
INCOME STATEMENTS
Three Months
Ended December 31, 2003 2002
(Amounts in thousands,
except per share data) Amount % of Net Sales Amount % of Net Sales
Net sales $ 358,376 100.00% 322,150 100.00%
Cost of sales 322,055 89.86 286,408 88.91
----------------------------------------------
Gross Profit 36,321 10.14 35,742 11.09
Selling, general and
administrative expenses 33,108 9.24 31,252 9.70
Restructuring costs and
other special charges 1,532 .43 - -
----------------------------------------------
Income From Operations 1,681 .47 4,490 1.39
Interest expense (456) (.13) (317) (.10)
Other, net (8) - 92 .03
Income tax provision (487) (.14) (1,401) (.43)
----------------------------------------------
Net Income $ 730 .20% $ 2,864 .89%
==============================================
Weighted average
common shares
outstanding:
Basic 24,792 24,583
===================================
Diluted 25,308 24,850
===================================
Earnings per common
share:
Basic $ .03 $ .12
===================================
Diluted $ .03 $ .12
===================================
CONSOLIDATED INCOME
STATEMENTS
Twelve Months Ended
December 31, 2003 2002
(Amounts in
thousands,
except per
share data) Amount % of Net Sales Amount % of Net Sales
Net sales $ 1,312,891 100.00% $ 1,191,497 100.00%
Cost of sales 1,175,212 89.51 1,062,311 89.16
------------------------------------------------------
Gross Profit 137,679 10.49 129,186 10.84
Selling, general
and administrative
expenses 124,824 9.51 121,964 10.23
Restructuring costs
and other special
charges 1,929 .15 1,636 .14
----------------------------------------------------
Income From
Operations 10,926 .83 5,586 .47
Interest expense (1,305) (.10) (1,152) (.10)
Other, net 117 .01 513 .04
Income tax provision (3,850) (.29) (1,700) (.14)
----------------------------------------------------
Net Income $ 5,888 .45% $ 3,247 .27%
====================================================
Weighted average
common shares
outstanding:
Basic 24,713 24,555
========================================
Diluted 25,114 24,860
========================================
Earnings per
common share:
Basic $ .24 $ .13
========================================
Diluted $ .23 $ .13
========================================
A RECONCILIATION BETWEEN GAAP AND PRO FORMA NET INCOME
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 Three Months Ended Twelve Months Ended December 31,
thousands) December 31, 2003 2003 2002
GAAP net income $ 730 $ 5,888 $ 3,247
Restructuring
costs and other
special charges
(after tax) 920 1,167 1,073
----------------------------------------------------
Pro forma
net income $ 1,650 $ 7,055 $ 4,320
====================================================
CONSOLIDATED BALANCE SHEETS December 31, December 31,
(Amounts in thousands) 2003 2002
ASSETS
Current Assets:
Cash and cash equivalents $ 2,977 $ 1,797
Restricted cash (1) 5,000 5,000
Accounts receivable, net 144,337 135,314
Inventories - merchandise 80,140 52,479
Deferred income taxes 1,732 741
Income tax receivable 2,190 1,294
Prepaid expenses and
other current assets 3,649 3,278
------------------------------------
Total current assets 240,025 199,903
Property and equipment, net 20,396 25,995
Goodwill, net and
other intangibles, net 48,657 37,450
Restricted cash (1) - 5,000
Other assets 208 334
------------------------------------
Total assets $ 309,286 $ 268,682
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of
capital lease obligation
to affiliate $ 334 $ 200
Note payable - bank 5,614 -
Accounts payable 112,538 85,493
Accrued expenses and
other liabilities 24,656 22,921
------------------------------------
Total current liabilities 143,142 108,614
Capital lease obligation to
affiliate, less current
maturities 6,088 6,421
Deferred taxes 2,867 3,503
--------------------------------------
Total liabilities 152,097 118,538
--------------------------------------
Stockholders' Equity:
Common stock 253 250
Additional paid-in capital 76,428 75,274
Retained earnings 82,794 76,906
Treasury stock at cost (2,286) (2,286)
--------------------------------------
Total stockholders'
equity 157,189 150,144
--------------------------------------
Total liabilities and
stockholders' equity $ 309,286 $ 268,682
======================================
(1) Cash escrow established for the MoreDirect, Inc. acquisition.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Twelve months ended
December 31, 2003
(Amounts in thousands)
Common Stock Additional Retained Treasury Shares
Shares Amount Paid In Capital Earnings Shares Amount
Balance -
December
31, 2002 24,997 $ 250 $ 75,274 $ 76,906 (362) $(2,286)
Exercise of
stock
options,
including
income tax
benefits 257 2 728 - - -
Issuance of
stock under
employee
stock
purchase
plan 88 1 426 - - -
Net income - - - 5,888 -
------------------------------------------------------------
Balance -
December
31, 2003 25,342 $ 253 $ 76,428 $ 82,794 (362) $(2,286)
=============================================================
Total
Balance -
December
31, 2002 $ 150,144
Exercise of
stock
options,
including
income tax
benefits 730
Issuance of
stock under
employee
stock
purchase
plan 427
Net income 5,888
-----------
Balance -
December
31, 2003 $ 157,189
===========
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Months Ended
December 31, 2003 2002
(Amounts in
thousands)
Cash Flows from
Operating Activities:
Net income $ 5,888 $ 3,247
Adjustments to
reconcile
net income to net
cash provided
by (used for)
operating activities:
Depreciation and amortization 8,363 8,145
Deferred income taxes (1,627) 1,475
Provision for doubtful accounts 2,953 7,238
Loss on disposal of fixed assets 41 1
Changes in assets and liabilities:
Accounts receivable (11,976) (6,478)
Inventories (27,661) 5,295
Prepaid expenses and
other current assets (1,267) 83
Other non-current assets 126 (48)
Accounts payable 27,045 (12,808)
Income tax benefits from
exercise of stock options 349 117
Accrued expenses and
other liabilities 1,038 (1,279)
-------------------------------
Net cash provided by operating activities 3,272 4,988
-------------------------------
Cash Flows from Investing Activities:
Purchases of property and equipment (2,517) (5,075)
Proceeds from sale of
property and equipment 2 17
Payments for acquisition,
net of cash acquired (10,800) (22,585)
Cash escrow distributed
(funded) for acquisition 5,000 (10,000)
-------------------------------
Net cash used for investing activities (8,315) (37,643)
-------------------------------
Cash Flows from Financing Activities:
Proceeds from short-term
borrowings 238,259 69,836
Repayment of short-term
borrowings (232,645) (69,836)
Repayment of notes payable - (1,000)
Repayment of capital lease
obligation to affiliate (199) (171)
Exercise of stock options 381 255
Issuance of stock under
employee stock purchase plan 427 512
Purchase of treasury shares - (749)
------------------------------
Net cash provided by (used for)
financing activities 6,223 (1,153)
------------------------------
Increase/(decrease) in
cash and cash equivalents 1,180 (33,808)
Cash and cash equivalents,
beginning of period 1,797 35,605
------------------------------
Cash and cash equivalents,
end of period $ 2,977 $ 1,797
==============================
Supplemental Cash Flow Information:
Interest paid $ 899 $ 901
Income taxes paid 6,065 1,734
CONTACT: PC Connection, Inc.
Mark A. Gavin, 603/683-2451