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): April 22, 2004
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
- --------------------------------------------------------------------------------
(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 April 22, 2004, PC Connection, Inc. announced its financial results for
the quarter ended March 31, 2004. 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 22, 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 April 22, 2004
Exhibit 99.1
PC Connection, Inc. Reports First Quarter Results
MERRIMACK, N.H.--(BUSINESS WIRE)--April 22, 2004--PC Connection,
Inc. (NASDAQ: PCCC)
FIRST QUARTER HIGHLIGHTS:
-- 15.6% increase in consolidated year-over-year sales
-- Growth in both commercial and public sector sales
-- Highest organic sales growth rate since 2000
PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of
information technology products and solutions, today announced results
for the quarter ended March 31, 2004. Net sales for the three months
ended March 31, 2004 increased by $44.1 million, or 15.6%, to $327.6
million from $283.5 million for the three months ended March 31, 2003.
Net income for the quarter ended March 31, 2004, on a generally
accepted accounting principles (GAAP) basis, was $1.2 million, or $.05
per share, compared to $1.6 million, or $.06 per share for the three
months ended March 31, 2003.
The three-month period ended March 31, 2004 included special
charges that reduced earnings and earnings per share. Had these
charges not been incurred, pro forma net income for the quarter ended
March 31, 2004 would have been $1.8 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 small- and medium-sized business (SMB) segment
increased by 16.1% from the first quarter of 2003 to $207 million and
increased sequentially by 3.9% over the immediately preceding quarter.
Sales productivity for the SMB segment improved by 2.7% over the first
quarter of 2003 to $2.2 million per sales representative and also
improved sequentially this quarter by 5.2% over the immediately
preceding quarter. Sales to government and education customers (the
Company's Public Sector segment) grew for the quarter by 2.3% over the
first quarter of 2003 to $54 million, but were down sequentially by
39.7% from the immediately preceding quarter. Sales to large account
customers increased by 27.0% over the first quarter of 2003 to $66
million, but were down sequentially in the quarter by 4.4% over the
immediately preceding quarter.
Patricia Gallup, Chairman and Chief Executive Officer, said, "I am
pleased with the progress we made during the first quarter in
improving our overall financial performance. Sales and pro forma
earnings, or earnings before special charges, grew in the first
quarter of 2004 by 15.6% and 16.6% respectively over the first quarter
of 2003. Although gross margins were lower this quarter, we commenced
several new gross margin initiatives that produced positive momentum
as the first quarter came to a close. In the first quarter of 2004,
our selling, general, and administrative (SG&A) expenses as a
percentage of sales were reduced by 1.1% to 9.4%, compared to the
first quarter of 2003. In addition, our GovConnection subsidiary
submitted a proposal in the first quarter for a new General Services
Administration (GSA) schedule, and the GSA review of our application
is now in progress."
Consolidated annualized productivity increased in the first
quarter of 2004 by 4.6% compared to the first quarter of 2003. The
total number of sales representatives as of March 31, 2004 increased
by 10.5% to 558 from 505 as of March 31, 2003. In addition, the number
of active customers, or customers who have purchased from the Company
within the last twelve months, increased 3.9% over the first quarter
of 2003.
Notebooks and PDAs continued to be the Company's largest product
category, accounting for 21.0% of net sales in the first quarter of
2004 compared to 19.1% for the corresponding period a year ago.
Desktop computers and servers accounted for 14.1% of net sales in the
first quarter of 2004 compared to 14.8% of net sales for the
corresponding period a year ago. The average sales price for computer
systems decreased 3.7% in the first quarter compared to the
corresponding period a year ago, and decreased 3.8% compared to the
fourth quarter of 2003.
Gross profit margin, as a percentage of net sales, was 10.4% in
the first quarter of 2004 compared to 11.5% in the first quarter of
2003, and compared to 10.1% in the fourth quarter of 2003. 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 9.4% in the first quarter of 2004
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.
Ms. Gallup concluded, "Our results for the first quarter of 2004
are encouraging. Overall organic sales growth was at the highest level
since 2000. Our initiatives to increase productivity, increase gross
margins, and lower SG&A expenses should continue to positively
influence our overall financial performance. 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 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
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 a.m. 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 2003 Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31,
2003. More specifically, the statements in this release concerning the
Company's outlook for the remainder of 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 March 31, 2004 2003
(Dollars and shares
in thousands, except
operating data, % of % of
price/earnings ratio Net Net %
and per share data) Sales Sales Change
Operating Data:
Net sales growth 15.6% 19.6%
Diluted earnings
per share change (16.7) 166.7
Gross profit margin 10.4 11.5
Operating margin 0.7 1.0
Return on equity(1) 3.0 4.2
Catalogs distributed 6,165,000 6,631,000 (7.0)%
Orders entered(2) 330,000 324,000 1.9
Average order size(2) $1,142 $1,058 7.9
Inventory turns(1) 16 19
Days sales outstanding 44 51
Active customers 478,000 460,000 3.9
Product Mix:
Notebooks & PDAs $68,737 21.0% $ 54,258 19.1% 26.7%
Desktops/Servers 46,265 14.1 41,920 14.8 10.4
Storage Devices 26,503 8.1 27,935 9.9 (5.1)
Software 41,290 12.6 31,446 11.1 31.3
Net/Com Products 24,278 7.4 22,821 8.0 6.4
Printers & Printer Supplies 36,886 11.3 33,105 11.7 11.4
Video, Imaging & Sound 39,104 11.9 30,772 10.8 27.1
Memory & System Enhancements 16,867 5.2 16,410 5.8 2.8
Accessories/Other 27,705 8.4 24,860 8.8 11.4
$327,635 100.0% $283,527 100.0% 15.6%
Net Sales of Enterprise Server
and Networking Products
(included in the above
Product Mix):
$ 84,063 25.7% $ 78,205 27.6% 7.5%
Stock Performance Indicators:
Actual shares outstanding 25,008 24,660
Total book value per share $ 6.34 $ 6.16
Tangible book value
per share $ 4.42 $ 4.64
Closing price $ 7.93 $ 5.25
Market capitalization $198,313 $129,465
Trailing price/
earnings ratio(3) 34 19
(1) Annualized
(2) Does not reflect cancellations or returns
(3) Earnings is based on the last four quarters
SELECTED SEGMENT INFORMATION
For the Three Months Ended March 31, 2004 2003
Net Gross Net Gross
(Dollars in thousands) Sales Margin Sales Margin
(%) (%)
PC Connection Sales Corporation (SMB) $207,424 10.9% $178,640 11.8%
GovConnection (Public Sector) 53,852 8.7 52,632 9.5
MoreDirect (Large Account) 66,359 9.9 52,255 12.3
Total $327,635 10.4% $283,527 11.5%
CONSOLIDATED INCOME STATEMENTS
Three Months Ended March 31, 2004 2003
(Amounts in thousands, except % of Net % of Net
per share data) Amount Sales Amount Sales
Net sales $327,635 100.00% $283,527 100.00%
Cost of sales 293,710 89.65 251,052 88.55
Gross Profit 33,925 10.35 32,475 11.45
Selling, general and
administrative expenses 30,690 9.37 29,639 10.45
Restructuring costs and other
special charges 1,030 .31 - -
Income From Operations 2,205 .67 2,836 1.00
Interest expense (384) (.11) (303) (.11)
Other, net 47 .01 44 .02
Income tax provision (710) (.22) (1,002) (.35)
Net Income $ 1,158 .35% $ 1,575 .56%
Weighted average common shares
outstanding:
Basic 24,998 24,651
Diluted 25,356 24,920
Earnings per common share:
Basic $ .05 $ .06
Diluted $ .05 $ .06
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.
Three Months Ended
(Amounts in thousands) March 31, 2004
GAAP net income $ 1,158
Restructuring costs and other special charges (after tax):
Workforce reduction 340
GSA review and other 299
639
Pro forma net income $ 1,797
CONSOLIDATED BALANCE SHEETS March 31, December 31,
(Amounts in thousands) 2004 2003
ASSETS
Current Assets:
Cash and cash equivalents $ 4,398 $ 2,977
Restricted cash (1) - 5,000
Accounts receivable, net 127,039 144,337
Inventories - merchandise 69,468 80,140
Deferred income taxes 1,730 1,732
Income taxes receivable 1,421 2,190
Prepaid expenses and other current assets 4,501 3,649
Total current assets 208,557 240,025
Property and equipment, net 19,260 20,396
Goodwill, net 44,766 45,264
Other intangibles, net 3,305 3,393
Other assets 199 208
Total assets $276,087 $309,286
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease
obligation to affiliate $ 343 $ 334
Note payable - bank - 5,614
Accounts payable 92,553 112,538
Accrued expenses and other
liabilities 15,187 13,063
Acquisition earn-out obligation 800 11,593
Total current liabilities 108,883 143,142
Capital lease obligation to affiliate,
less current maturities 5,999 6,088
Deferred income taxes 2,718 2,867
Total liabilities 117,600 152,097
Stockholders' Equity:
Common stock 254 253
Additional paid-in capital 76,567 76,428
Retained earnings 83,952 82,794
Treasury stock at cost (2,286) (2,286)
Total stockholders' equity 158,487 157,189
Total liabilities and
stockholders' equity $276,087 $309,286
(1) Cash escrow established for the MoreDirect, Inc. acquisition
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three months ended March 31, 2004 (Amounts in thousands)
Common Additional Retained
Stock Paid-In Earnings
Shares Amount Capital
Balance - December 31, 2003 25,342 $ 253 $76,428 $82,794
Exercise of stock options, including
income tax benefits 28 1 139 -
Net income - - - 1,158
Balance - March 31, 2004 25,370 $ 254 $76,567 $83,952
Treasury Shares
Shares Amount Total
Balance - December 31, 2003 (362) $(2,286) $157,189
Exercise of stock options, including
income tax benefits - - 140
Net income - - 1,158
Balance - March 31, 2004 (362) $(2,286) $158,487
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, (Amounts in thousands) 2004 2003
Cash Flows from Operating Activities:
Net income $ 1,158 $ 1,575
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,753 2,230
Deferred income taxes (147) (1,061)
Provision for doubtful accounts 775 800
Changes in assets and liabilities:
Accounts receivable 16,523 12,961
Inventories 10,672 (4,301)
Prepaid expenses and other current assets (83) (792)
Other non-current assets 9 44
Accounts payable (19,985) (2,919)
Income tax benefits from exercise of stock
options 84 49
Accrued expenses and other liabilities 2,124 2,470
Net cash provided by operating activities 12,883 11,056
Cash Flows from Investing Activities:
Purchases of property and equipment (529) (764)
Payment of acquisition earn-out obligation (10,295) (10,800)
Cash escrow distributed for acquisition 5,000 5,000
Net cash used for investing activities (5,824) (6,564)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 88,311 43,595
Repayment of short-term borrowings (93,925) (43,595)
Repayment of capital lease obligation to
affiliate (80) (46)
Exercise of stock options 56 28
Net cash used for financing activities (5,638) (18)
Increase in cash and cash equivalents 1,421 4,474
Cash and cash equivalents, beginning of period 2,977 1,797
Cash and cash equivalents, end of period $ 4,398 $ 6,271
CONTACT: PC Connection, Inc.
Mark A. Gavin, 603-683-2451