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UNITED STATES
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 21, 2005
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 jurisdiction (Commission (IRS Employer
of incorporation File Number) Identification No.)
Rt. 101A, 730 Milford Road
Merrimack, NH 03054
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 683-2000
N/A
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(Former name or former address, if changed since last report)
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On April 21, 2005, PC Connection, Inc. announced its financial results for
the quarter ended March 31, 2005. The full text of the press release issued in
connection with the announcement is furnished as Exhibit 99.1 to this Current
Report on Form 8-K.
The information in this Form 8-K (including Exhibit 99.1) 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.
Item 9.01. Financial Statements and Exhibits
(c) Exhibits
The following exhibit relating to Item 2.02 shall be deemed to be
furnished, and not filed:
99.1 Press Release issued by PC Connection, Inc. on April 21,
2005.
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 21, 2005 PC CONNECTION, INC.
By: /s/ JACK FERGUSON
-------------------------------
Jack Ferguson
Treasurer and
Interim Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99.1 Press release issued by PC Connection, Inc. on
April 21, 2005.
Exhibit 99.1
PC Connection, Inc. Reports First Quarter Results
MERRIMACK, N.H.--(BUSINESS WIRE)--April 21, 2005--PC Connection, Inc.
(NASDAQ: PCCC), a leading direct marketer of information technology products
and solutions, today announced results for the quarter ended March 31, 2005.
Net sales for the three months ended March 31, 2005 decreased by $3.7 million,
or 1.1%, to $323.9 million from $327.6 million for the three months ended March
31, 2004. Net income for the quarter ended March 31, 2005, was $0.9 million, or
$.04 per share, compared to $1.2 million, or $.05 per share for the
three months ended March 31, 2004.
Net sales for our commercial business was up 1.1% to $276.7
million, compared to $273.8 million in the first quarter of 2004. Net
sales for the small- and medium-sized business (SMB) segment decreased
by 3.4% from the first quarter of 2005 to $200.3 million and decreased
sequentially by 2.2% over the immediately preceding quarter. Sales to
large account customers increased by 15.1% over the first quarter of
2004 to $76.4 million and were substantially the same as such sales in
the fourth quarter of 2004. Sales to government and education
customers (the Company's public sector segment) declined for the
quarter by 12.4% to $47.2 million compared to the first quarter of
2004.
"During the first quarter, strong year-over-year sales growth in
our large account segment was offset by softness in demand in our SMB
and public sector segments," said Patricia Gallup, Chairman and Chief
Executive Officer. "Looking forward, we are making our systems and
sales tools more flexible and responsive, allowing us to be more
productive as well as enhancing the buying experience for our
customers. In addition, we recently began to roll out our new
ServiceConnection(TM) offering, a suite of repair, installation, help
desk support, remote backup and other IT services that can reduce the
total cost of ownership for our SMB customers, and gives us a new
platform for growth."
Notebooks and PDAs continued to be the Company's largest product
category, accounting for 18.8% of net sales in the first quarter of
2005 compared to 21.0% for the corresponding period a year ago.
Desktop computers and servers accounted for 14.8% of net sales in the
first quarter of 2005 compared to 14.1% of net sales for the
corresponding period a year ago. The average sales price for computer
systems increased 1.9% in the first quarter compared to the
corresponding period a year ago, but decreased 2.2% compared to the
fourth quarter of 2004. Sales of accessories and other companion
products increased 20.3% year over year.
Gross profit margin, as a percentage of net sales, was 11.5% in
the first quarter of 2005 compared to 10.4% in the first quarter of
2004, and compared to 12.5% in the fourth quarter of 2004.
Approximately 0.8% of the 1.1% year-over-year increase was
attributable to the Company's refinement of its reclassification of
certain vendor consideration proceeds from selling, general, and
administrative expenses to cost of sales, as required by issue No.
02-16 of the Emerging Issues Task Force ("EITF 02-16"). 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.
Consolidated annualized productivity decreased in the first
quarter of 2005 by 7.5% compared to the first quarter of 2004. The
total number of sales representatives as of March 31, 2005 increased
by 7.0% to 597 from 558 as of March 31, 2004.
Total selling, general, and administrative expenses, as a
percentage of sales, increased to 10.9% in the first quarter of 2005
compared to 9.4% in the corresponding period a year ago, primarily as
the result of the EITF 02-16 reclassification referred to earlier. 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, "We believe that an innovative,
customer-centric, yet disciplined approach is the key to success in
our business. We will continue to execute this strategy as we work to
build 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 Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 2004. More
specifically, the statements in this release concerning the Company's
outlook for 2005 and the statements concerning the Company's gross
margin percentage, productivity, 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
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At or for the
Three Months Ended
March 31, 2005 2004
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(Dollars and shares in
thousands, except
operating
data,price/earnings % of % of
ratio and per share Net Net
data) Sales Sales % Change
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Operating Data:
Net sales growth (1.1)% 15.6%
Diluted earnings per
share change (20.0) (16.7)
Gross profit margin 11.5 10.4
Operating margin 0.6 0.7
Return on equity(1) 2.3 3.0
Catalogs distributed 8,461,000 6,165,000 37.2%
Orders entered(2) 358,000 330,000 8.5
Average order
size(2) $ 1,048 $ 1,142 (8.2)
Inventory turns(1) 16 16
Days sales
outstanding 43 44
Product Mix:
Notebooks & PDAs $ 60,850 18.8% $ 68,737 21.0% (11.5)%
Desktops/Servers 47,957 14.8 46,265 14.1 3.7
Storage Devices 28,861 8.9 26,503 8.1 8.9
Software 38,254 11.8 41,290 12.6 (7.4)
Net/Com Products 24,871 7.7 24,278 7.4 2.4
Printers & Printer
Supplies 34,418 10.6 36,886 11.3 (6.7)
Video, Imaging &
Sound 37,565 11.6 39,104 11.9 (3.9)
Memory & System
Enhancements 17,747 5.5 16,867 5.2 5.2
Accessories/Other 33,328 10.3 27,705 8.4 20.3
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$ 323,851 100.0% $ 327,635 100.0% (1.1)%
========== ====== ========== ======
Net Sales of Enterprise Server and Networking Products (included in
the above Product Mix):
$ 94,912 29.3% $ 84,063 25.7% 12.9%
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Stock Performance
Indicators:
Actual shares
outstanding 25,136 25,008
Total book value per
share $ 6.66 $ 6.34
Tangible book value
per share $ 4.48 $ 4.42
Closing price $ 5.87 $ 7.93
Market
capitalization 147,548 $ 198,313
Trailing
price/earnings
ratio (3) 18 34
(1) Annualized
(2) Does not reflect cancellations or returns
(3) Earnings is based on the last four quarters
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SELECTED SEGMENT INFORMATION
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For the Three Months Ended
March 31, 2005 2004
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Gross Gross
Margin Margin
(Dollars in thousands) Net Sales (%) Net Sales (%)
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PC Connection Sales Corporation
(SMB) $200,325 12.3% $207,424 10.9%
GovConnection (Public Sector) 47,160 10.1 53,852 8.7
MoreDirect (Large Account) 76,366 10.5 66,359 9.9
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Total $323,851 11.5% $327,635 10.4%
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CONSOLIDATED INCOME STATEMENTS
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Three Months Ended March 31, 2005 2004
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(Amounts in thousands, except per Amount % of Amount % of
share data) Net Net
Sales Sales
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Net sales $323,851 100.00% $327,635 100.00%
Cost of sales 286,517 88.47 293,710 89.65
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Gross Profit $ 37,334 11.53 33,925 10.35
Selling, general, and
administrative expenses 35,416 10.94 30,690 9.37
Special charges - - 1,030 .31
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Income From Operations 1,918 .59 2,205 .67
Interest expense (272) (.08) (384) (.11)
Other, net (25) (.01) 47 .01
Income tax provision (673) (.21) (710) (.22)
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Net Income $ 948 .29% $ 1,158 .35%
======== ======= ======== =======
Weighted average common shares
outstanding:
Basic 25,127 24,998
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Diluted 25,362 25,356
Earnings per common share:
Basic $ .04 $ .05
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Diluted $ .04 $ .05
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CONSOLIDATED BALANCE SHEETS March 31, Dec. 31,
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(Amounts in thousands) 2005 2004
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ASSETS
Current Assets:
Cash and cash equivalents $ 6,336 $ 6,829
Accounts receivable, net 119,100 120,752
Inventories - merchandise 72,511 78,390
Deferred income taxes 2,874 3,039
Income taxes receivable 1,369 1,325
Prepaid expenses and other current assets 4,439 3,644
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Total current assets 206,629 213,979
Property and equipment, net 16,740 17,647
Goodwill, net 51,687 51,687
Other intangibles, net 2,952 3,040
Other assets 223 189
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Total assets $278,231 $286,542
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease
obligations:
To affiliate $ 382 $ 373
To third party 398 391
Note payable - bank 1,423 4,810
Accounts payable 75,024 79,709
Accrued expenses and other liabilities 16,731 18,138
Acquisition earn-out obligation 6,921 6,921
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Total current liabilities 100,879 110,342
Capital lease obligation, less current
maturities:
To affiliate 5,616 5,715
To third party 706 841
Deferred income taxes 3,674 3,486
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Total liabilities 110,875 120,384
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Stockholders' Equity:
Common stock 255 255
Additional paid-in capital 77,341 77,091
Retained earnings 92,046 91,098
Treasury stock at cost (2,286) (2,286)
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Total stockholders' equity 167,356 166,158
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Total liabilities and stockholders'
equity $278,231 $286,542
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
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Three months ended March 31, 2005 (Amounts in thousands)
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Additional
Common Stock Paid-In Retained
------------ Capital Earnings
Shares Amount
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Balance - December 31, 2004 25,462 $255 $77,091 $91,098
Exercise of stock options,
including income tax benefits 36 - 250 -
Net income - - - 948
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Balance - March 31, 2005 25,498 $255 $77,341 $92,046
Treasury Shares Total
---------------
Shares Amount
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Balance - December 31, 2004 (362) $(2,286) $166,158
Exercise of stock options, including income
tax benefits - - 250
Net income - - 948
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Balance - March 31, 2005 (362) $(2,286) $167,356
======= ======== =========
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended March 31, (Amounts in
thousands) 2005 2004
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Cash Flows from Operating Activities:
Net income $ 948 $ 1,158
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,714 1,753
Deferred income taxes 353 1,172
Provision for doubtful accounts 878 775
Loss on disposal of fixed assets 41 -
Changes in assets and liabilities:
Accounts receivable 774 16,523
Inventories 5,879 10,672
Prepaid expenses and other current assets (839) (83)
Other non-current assets (34) 9
Accounts payable (4,685) (19,985)
Income tax benefits from exercise of stock
options 49 84
Accrued expenses and other liabilities (1,407) 805
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Net cash provided by operating activities 3,671 12,883
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Cash Flows from Investing Activities:
Purchases of property and equipment (773) (529)
Proceeds from sale of property and equipment 13 -
Payment of acquisition earn-out obligation - (10,295)
Cash escrow distributed for acquisition - 5,000
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Net cash used for investing activities (760) (5,824)
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Cash Flows from Financing Activities:
Proceeds from short-term borrowings 50,560 88,311
Repayment of short-term borrowings (53,947) (93,925)
Repayment of capital lease obligations (218) (80)
Exercise of stock options 201 56
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Net cash used for financing activities (3,404) (5,638)
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(Decrease) increase in cash and cash
equivalents (493) 1,421
Cash and cash equivalents, beginning of period 6,829 2,977
--------- ---------
Cash and cash equivalents, end of period $ 6,336 $ 4,398
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CONTACT: PC Connection, Inc.
Dave Beffa, 603-683-2248