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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): July 28, 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 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) 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 July 28, 2005, PC Connection, Inc. announced its financial results for
the quarter ended June 30, 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
July 28, 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: July 28, 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
July 28, 2005.
Exhibit 99.1
PC Connection, Inc. Reports Second
Quarter Results; Company Experiences Year-over-Year and Sequential
Sales Growth in All Business Segments
MERRIMACK, N.H.--(BUSINESS WIRE)--July 28, 2005--PC Connection,
Inc. (NASDAQ: PCCC), a leading direct marketer of information
technology products and solutions, today announced results for the
quarter ended June 30, 2005. Net sales for the three months ended June
30, 2005 increased by $15.4 million, or 4.6%, to $350.7 million from
$335.3 million for the three months ended June 30, 2004. Net income
for the quarter ended June 30, 2005 was $1.7 million, or $.07 per
share, compared to $2.3 million, or $.09 per share for the three
months ended June 30, 2004. Net sales for the six months ended June
30, 2005 increased by $11.6 million, or 1.7%, to $674.6 million from
$663.0 million for the six months ended June 30, 2004. Net income for
the six months ended June 30, 2005 was $2.7 million, or $.11 per
share, compared to $3.4 million, or $.14 per share for the six months
ended June 30, 2004.
Net sales for the small- and medium-sized business (SMB) segment
increased by 6.8% from the second quarter of 2004 to $207.3 million
and increased sequentially by 3.5% over the immediately preceding
quarter. Sales to large account customers increased by 0.7% over the
second quarter of 2004 to $78.5 million and increased by 2.7% over the
first quarter of 2005. Sales to government and education customers
(the Company's public sector segment) increased for the quarter by
2.6% to $65.0 million compared to the second quarter of 2004.
Patricia Gallup, Chairman and Chief Executive Officer of PC
Connection, Inc., said, "We are encouraged by our overall second
quarter results, having experienced both year-over-year and sequential
sales growth in our SMB, large account, and public sector segments. We
expect the year-over-year trend to continue for all three business
segments. In the public sector, which is entering the historically
strongest purchasing period, we are positioned to expand our current
GSA schedule, secure new contracts, and increase market share."
Notebooks and PDAs continued to be the Company's largest product
category, accounting for 18.1% of net sales in the second quarter of
2005 compared to 20.1% for the corresponding period a year ago.
Desktop computers and servers accounted for 14.8% of net sales in the
second quarter of 2005 compared to 13.8% of net sales for the
corresponding period a year ago. The Company experienced double-digit
year-over-year growth in several product categories. Sales of desktops
and servers, net/com products, and accessories/other increased 11.9%,
17.5%, and 17.1%, respectively, in the second quarter of 2005.
Gross profit margin, as a percentage of net sales, was 11.6% in
the second quarter of 2005 compared to 10.8% in the second quarter of
2004, and compared to 11.5% in the first quarter of 2005. The
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 ("SG&A") to cost of
sales, as required by issue No. 02-16 of the Emerging Issues Task
Force ("EITF 02-16"). During the second quarter of 2005, the Company
reclassified an additional $3.6 million of vendor consideration from
SG&A expenses to cost of goods sold, increasing gross profit margins
by 103 basis points. Partially offsetting this increase was a
23-basis-point reduction in gross profit margin due to the increased
competitive nature of the business during the second quarter. 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 slightly in the
second quarter of 2005 by 1.8% compared to the second quarter of 2004
but increased sequentially by 6.4%, as all three segments improved
sequentially. The total number of sales representatives as of June 30,
2005 increased by 6.9% to 602 from 586 as of March 31, 2005 and from
563 as of June 30, 2004.
Total selling, general, and administrative expenses, as a
percentage of sales, increased to 10.7% in the second 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.
Earlier this month, the Company hired Kenneth A. Grady as Vice
President, General Counsel and Secretary. Grady brings a strong legal
and retail background to the organization, having served in legal and
operational roles at companies such as KB Toys, Inc., Payless
ShoeSource, Inc., and HNI Corporation.
Ms. Gallup concluded, "PC Connection continues to add talent to
its already strong and experienced management team. In addition, we
believe we have the right product and market strategies, brand
recognition, and sharp focus on service to grow our business 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
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 11:00 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 Quarterly Report on Form 10-Q filed with the Securities
and Exchange Commission for the quarter ended March 31, 2005. 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
At or for the Three
Months Ended June 30, 2005 2004
(Dollars and shares % of % of %
in thousands, except Net Net Change
operating data, Sales Sales
price/earnings ratio
and per share data)
Operating Data:
Net sales $350,710 $ 335,335 4.6%
Diluted earnings
per share $ .07 $ .09 (22.2)
Gross profit margin 11.6% 10.8%
Operating margin 0.9 1.2
Return on equity(1) 4.1 5.7
Catalogs distributed 7,196,000 7,205,000 (0.1)
Orders entered(2) 351,300 308,700 13.8
Average order size(2) $ 1,160 $ 1,318 (12.0)
Inventory turns(1) 19 16
Days sales
outstanding 41 41
Product Mix:
Notebooks & PDAs $ 63,615 18.1 $ 67,413 20.1% (5.6)%
Desktops/Servers 51,720 14.8 46,228 13.8 11.9
Storage Devices 28,739 8.2 26,710 8.0 7.6
Software 42,557 12.1 39,435 11.8 7.9
Net/Com Products 27,830 7.9 23,680 7.0 17.5
Printers & Printer
Supplies 37,696 10.8 39,737 11.8 (5.1)
Video, Imaging &
Sound 43,165 12.3 42,157 12.6 2.4
Memory & System
Enhancements 17,480 5.0 17,593 5.2 (0.6)
Accessories/Other 37,908 10.8 32,382 9.7 17.1
--------- ------ --------- ------ -----
$ 350,710 100.0% $ 335,335 100.0% 4.6%
========= ====== ========= ======
Net Sales of Enterprise Server and Networking Products (included in
the above Product Mix):
$ 95,066 27.1% $ 83,696 25.0% 13.6%
========= =========
Stock Performance
Indicators:
Actual shares
outstanding 25,224 25,045
Total book value
per share $ 6.72 $ 6.43
Tangible book value
per share $ 4.55 $ 4.51
Closing price $ 6.21 $ 6.53
Market
capitalization $ 156,641 $ 163,544
Trailing
price/earnings
ratio(3) 21 25
(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 June 30, 2005 2004
(Dollars in Net Gross Net Gross
thousands) Sales Margin (%) Sales Margin (%)
PC Connection Sales
Corporation (SMB) $ 207,296 12.4% $ 194,058 11.7%
GovConnection (Public
Sector) 64,957 10.4 63,335 9.1
MoreDirect (Large
Account) 78,457 10.5 77,942 9.8
--------- ----- --------- -----
Total $ 350,710 11.6% $ 335,335 10.8%
========= ===== ========== =====
CONSOLIDATED INCOME STATEMENTS
Three Months Ended June 30, 2005 2004
(Amounts in thousands, except Amount % of Net Amount % of Net
per share data) Sales Sales
Net sales $350,710 100.00% $335,335 100.00%
Cost of sales 310,096 88.42 299,173 89.22
-------- ------ -------- -------
Gross Profit 40,614 11.58 36,162 10.78
Selling, general, and
administrative expenses 37,379 10.66 31,483 9.39
Special charges - - 753 .22
-------- ------ -------- -------
Income From Operations 3,235 .92 3,926 1.17
Interest expense (285) (.08) (341) (.10)
Other, net 50 .01 54 .01
Income tax provision (1,274) (.36) (1,383) (.41)
---------- ----- --------- ------
Net Income $ 1,726 .49% $ 2,256 .67%
========== ===== ========= ======
Weighted average common shares
outstanding:
Basic 25,157 25,008
========= ========
Diluted 25,211 25,225
========= ========
Earnings per common share:
Basic $ .07 $ .09
========= ========
Diluted $ .07 $ .09
========= ========
CONSOLIDATED INCOME STATEMENTS
Six Months Ended June 30, 2005 2004
(Amounts in thousands, except Amount % of Amount % of
per share data) Net Net
Sales Sales
Net sales $674,561 100.00% $662,970 100.00%
Cost of sales 596,613 88.45 592,883 89.43
-------- ------- -------- -------
Gross Profit 77,948 11.55 70,087 10.57
Selling, general, and
administrative expenses 72,795 10.79 62,173 9.38
Special charges - - 1,783 .27
-------- ------- -------- -------
Income From Operations 5,153 .76 6,131 .92
Interest expense (557) (.08) (725) (.11)
Other, net 25 - 101 .02
Income tax provision (1,947) ( .28) (2,093) (.32)
-------- ------- -------- -------
Net Income $ 2,674 .40% $ 3,414 .51%
======== ======= ======== =======
Weighted average common shares
outstanding:
Basic 25,142 25,003
======== =======
Diluted 25,274 25,295
======== =======
Earnings per common share:
Basic $ .11 $ .14
======== =======
Diluted $ .11 $ .14
======== =======
CONSOLIDATED BALANCE SHEETS June 30, December 31,
(Amounts in thousands) 2005 2004
ASSETS
Current Assets:
Cash and cash equivalents $ 16,502 $ 6,829
Accounts receivable, net 123,743 120,752
Inventories - merchandise 61,593 78,390
Deferred income taxes 2,858 3,039
Income taxes receivable 1,621 1,325
Prepaid expenses and other current assets 4,491 3,644
---------- ----------
Total current assets 210,808 213,979
Property and equipment, net 16,406 17,647
Goodwill, net 51,687 51,687
Other intangibles, net 2,864 3,040
Other assets 333 189
---------- ----------
Total assets $ 282,098 $ 286,542
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease
obligations:
To affiliate $ 393 $ 373
To third party 403 391
Note payable - bank - 4,810
Accounts payable 84,864 79,709
Accrued expenses and other liabilities 17,156 18,138
Acquisition earn-out obligation - 6,921
---------- ----------
Total current liabilities 102,816 110,342
Capital lease obligation, less current
maturities:
To affiliate 5,513 5,715
To third party 604 841
Deferred income taxes 3,737 3,486
---------- ----------
Total liabilities 112,670 120,384
---------- ----------
Stockholders' Equity:
Common stock 256 255
Additional paid-in capital 77,686 77,091
Retained earnings 93,772 91,098
Treasury stock at cost (2,286) (2,286)
---------- ----------
Total stockholders' equity 169,428 166,158
---------- ----------
Total liabilities and stockholders'
equity $ 282,098 $ 286,542
========== ==========
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six months ended June 30, 2005 (Amounts in thousands)
Common Stock Additional Retained
------------
Shares Amount Paid-In Earnings
Capital
Balance - December 31, 2004 25,462 $ 255 $ 77,091 $ 91,098
Exercise of stock options,
including income tax
benefits 92 1 427 -
Issuance of stock under
employee stock purchase
plan 32 0 168 -
Net income - - - 2,674
------ ------- ---------- ----------
Balance - June 30, 2005 25,586 $ 256 $ 77,686 $ 93,772
====== ======= ========== ==========
Treasury Shares
---------------
Shares Amount Total
Balance - December 31, 2004 (362) $ (2,286) $ 166,158
Exercise of stock options,
including income tax
benefits - - 428
Issuance of stock under
employee stock purchase
plan - - 168
Net income - - 2,674
------- --------- ---------
Balance - June 30, 2005 (362) $ (2,286) $ 169,428
======= ========= =========
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, (Amounts in thousands) 2005 2004
Cash Flows from Operating Activities:
Net income $ 2,674 $ 3,414
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,586 3,539
Deferred income taxes 432 916
Provision for doubtful accounts 1,805 2,076
Loss on disposal of fixed assets 40 1
Changes in assets and liabilities:
Accounts receivable (4,796) 22,441
Inventories 16,797 (232)
Prepaid expenses and other current assets (1,143) 905
Other non-current assets (144) 2
Accounts payable 5,155 (23,576)
Income tax benefits from exercise of stock
options 80 85
Accrued expenses and other liabilities (982) 1,519
------- -------
Net cash provided by operating activities 23,504 11,090
------- -------
Cash Flows from Investing Activities:
Purchases of property and equipment (2,222) (1,002)
Proceeds from sale of property and equipment 13 -
Payment of acquisition earn-out obligation (6,921) (11,095)
Cash escrow distributed for acquisition - 5,000
------- -------
Net cash used for investing activities (9,130) (7,097)
------- -------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 125,205 174,121
Repayment of short-term borrowings (130,015) (179,735)
Repayment of capital lease obligations (407) (163)
Exercise of stock options 348 58
Issuance of stock under employee stock
purchase plan 168 205
------- -------
Net cash used for financing activities (4,701) (5,514)
------- -------
Increase (decrease) in cash and cash
equivalents 9,673 (1,521)
Cash and cash equivalents, beginning of period 6,829 2,977
------- -------
Cash and cash equivalents, end of period $16,502 $1,456
======= =======
CONTACT: PC Connection, Inc.
Stephen Baldridge, 603-683-2052
VP of Finance & Corporate Controller