View:
UNITED STATES
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): January 26, 2006
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
Merrimack, NH 03054
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 683-2000
N/A
- --------------------------------------------------------------------------------
(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 January 26, 2006, PC Connection, Inc. announced its financial results
for the quarter and year ended December 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
(d) 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 January 26,
2006.
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 26, 2006 PC CONNECTION, INC.
By: /s/ Jack Ferguson
------------------------------
Jack Ferguson
Treasurer, Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99.1 Press release issued by PC Connection, Inc. on
January 26, 2006.
Exhibit 99.1
PC Connection, Inc. Reports Fourth Quarter and Full-Year Results
MERRIMACK, N.H.--(BUSINESS WIRE)--Jan. 26, 2006--PC Connection,
Inc. (NASDAQ: PCCC), a leading direct marketer of information
technology products and solutions, today announced results for the
quarter ended December 31, 2005. Net sales for the quarter ended
December 31, 2005 increased by $59.0 million, or 17.4%, to $398.6
million from $339.6 million for the quarter ended December 31, 2004.
Fourth quarter 2005 sales included $25.2 million from the Amherst
Technologies asset acquisition in October 2005. Net income for the
quarter ended December 31, 2005 was at essentially break even,
compared to $2.1 million, or $.08 per share, for the prior year
quarter.
The quarters ended December 31, 2005 and 2004 included charges
relating to our Amherst Technologies transaction, management
restructuring, and other special charges that reduced earnings and
earnings per share. Had these charges not been recorded, pro forma net
income for the quarter ended December 31, 2005 would have been $0.8
million, or $.03 per share, compared to $3.1 million, or $.12 per
share, for the quarter ended December 31, 2004. 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, 2005 increased by $90.5
million, or 6.7%, to $1,444.3 million from $1,353.8 million for the
year ended December 31, 2004. Net income for the year ended December
31, 2005 was $4.4 million, or $.18 per share, compared to $8.3
million, or $.33 per share for the year ended December 31, 2004. The
years ended December 31, 2005 and 2004 included charges related to our
Amherst Technologies acquisition, management restructuring, and other
special charges that reduced earnings and earnings per share. Had
these charges not been recorded, pro forma net income for the year
ended December 31, 2005 would have been $5.7 million, or $.23 per
share, compared to $11.5 million, or $.46 per share, for the prior
year.
Patricia Gallup, Chairman and Chief Executive Officer of PC
Connection, Inc., said, "As we indicated in our press release on
January 19th, the fourth quarter 2005 was an investment quarter for
the Company. In addition to the transitional costs related to the
purchase of Amherst Technologies assets, our fourth quarter results
were affected by the Company's increased investments in customer
acquisition programs and other marketing initiatives. We also
experienced lower than anticipated gross margins due primarily to
product mix, and our targeting of high-value customers."
Net sales for the small- and medium-sized business (SMB) segment
increased this quarter by 9.1% from the fourth quarter of 2004 to
$223.5 million, and increased sequentially by 9.8% over the
immediately preceding quarter. Sales to large account customers
increased by 46.4% over the fourth quarter of 2004 to $112.3 million
and increased by 39.7% over the third quarter of 2005, largely due to
additional sales generated in the quarter from the Amherst
Technologies acquisition referred to earlier and their inclusion in
this segment. Sales to government and education customers increased by
8.2% for this quarter to $62.8 million compared to the fourth quarter
of 2004.
Notebooks and PDAs continued to be the Company's largest product
category, but decreased to 17.3% of net sales in the fourth quarter of
2005 compared to 18.9% for the corresponding period a year ago.
Desktop computers and servers accounted for 14.4% of net sales in the
fourth quarter of 2005 compared to 15.1% for the corresponding period
a year ago.
Gross profit margin, as a percentage of net sales, was 11.0% in
the fourth quarter of 2005 compared to 12.5% in the fourth quarter of
2004, and compared to 11.3% in the third quarter of 2005. The Company
expects that its gross profit margin as a percentage of net sales may
continue to vary by quarter based upon vendor support programs,
product and customer mix, pricing strategies, market conditions, and
other factors.
Consolidated annualized sales productivity increased sequentially
by 6.0% in the fourth quarter of 2005 compared to the third quarter of
2005, and increased 11.4% compared to the fourth quarter of 2004. The
total number of sales representatives as of December 31, 2005
increased to 618 from 585 as of September 30, 2005, and increased from
581 as of December 31, 2004.
Total selling, general, and administrative expenses for the
quarter increased year over year by $3.9 million, or 10.2%, over the
fourth quarter of 2004, and sequentially by $4.1 million, or 11.0%,
over the third quarter of 2005, primarily as the result of the Amherst
Technologies acquisition and our increased investments in systems
improvements, customer acquisition and sales training programs, and in
our services business. However, selling, general, and administrative
expenses, as a percentage of sales, decreased to 10.5% in the fourth
quarter of 2005 compared to 11.1% in the corresponding period a year
ago. The Company expects that its selling, general, and administrative
expenses, 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 continue to make strategic decisions
that we believe will enable the Company to improve profitability and
increase long-term shareholder value. We launched our new "Core 1"
sales training program in this quarter with the goal of improving
retention and productivity. We are on-target to open our new sales
call center in Texas next month. We expect this call center to give us
better coverage in the western part of the country for our SMB segment
as well as access to an additional large and talented workforce. We
believe our balance sheet is healthy, and we intend to maintain this
strong financial position while continuing to invest for the future."
About PC Connection, Inc.
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. All three subsidiaries can deliver custom-configured
computer systems overnight.
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. (561-237-3300), 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.
A live webcast of PC Connection management's discussion of the
fourth 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, the Company's success at integrating the
acquired assets of Amherst Technologies into its businesses, the
impact of the costs of acquisition and integration, the ability of the
Company to hire and retain Amherst Technologies sales representatives
and other essential personnel, 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 September
30, 2005. More specifically, the statements in this release concerning
the Company's outlook for 2006 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 December 31, 2005 2004
- ------------------------------------------- ------------------------
(Dollars and shares in thousands, % of % of
except operating data, %
price/earnings ratio, and Net Net Change
per share data) Sales Sales
- -------------------------- -------- ------- ---------- ------ ------
Operating Data:
Net sales $398,612 $339,599 17.4%
Diluted earnings per share $.00 $.08
Gross profit margin 11.0% 12.5%
Operating margin 0.2 0.9
Return on equity (1) 0.0 5.1
Catalogs distributed 6,284,000 10,868,000 (42.2)%
Orders entered (2) 380,000 332,000 14.5
Average order size (2) $1,195 $1,132 5.6
Inventory turns (1) 20 14
Days sales outstanding 47 42
Product Mix:
Notebooks & PDAs $69,139 17.3% $64,164 18.9% 7.8%
Desktops/Servers 57,189 14.4 51,212 15.1 11.7
Storage Devices 33,641 8.4 29,594 8.7 13.7
Software 48,266 12.1 39,892 11.7 21.0
Net/Com Products 32,383 8.1 24,861 7.3 30.3
Printers & Printer
Supplies 38,677 9.7 35,523 10.5 8.9
Video, Imaging, & Sound 54,552 13.7 42,265 12.4 29.1
Memory & System
Enhancements 22,110 5.6 17,952 5.3 23.2
Accessories/Other 42,655 10.7 34,136 10.1 25.0
-------- ------ -------- ------
$398,612 100.0% $339,599 100.0% 17.4%
======== ====== ======== ======
Net Sales of Enterprise Server and Networking Products (included in
the above Product Mix):
$116,705 29.3% $95,697 28.2% 22.0%
======== =======
Stock Performance
Indicators:
Actual shares outstanding 25,259 25,100
Total book value per share $6.79 $6.62
Tangible book value per
share $4.32 $4.44
Closing price $5.38 $9.52
Market capitalization $135,895 $238,952
Trailing price/earnings
ratio (3) 30 29
(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 December 31, 2005 2004
- ----------------------------------------------------- ----------------
Net Gross Net Gross
(Dollars in thousands) Sales Margin Sales Margin
(%) (%)
- --------------------------------------------- ------ -------- ------
PC Connection Sales Corporation
(SMB) $223,504 12.2% $204,878 14.0%
GovConnection (Public Sector) 62,805 9.6 58,022 9.8
MoreDirect (Large Account) 112,303 9.3 76,699 10.7
-------- ----- -------- -----
Total $398,612 11.0% $339,599 12.5%
======== ===== ======== =====
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENTS
- ----------------------------------------------------------------------
Three Months Ended December 31, 2005 2004
- ----------------------------------------------------- ----------------
(Amounts in thousands, except per Amount % of Amount % of
share data) Net Net
Sales Sales
- ------------------------------------- -------- ------ -------- ------
Net sales $398,612 100.0% $339,599 100.0%
Cost of sales 354,794 89.0 297,038 87.5
-------- ------ -------- ------
Gross Profit 43,818 11.0 42,561 12.5
Selling, general, and administrative
expenses 41,655 10.5 37,791 11.1
Special charges 1,274 0.3 1,649 0.5
-------- ------ --------- -----
Income From Operations 889 0.2 3,121 0.9
Interest expense (601) (0.1) (326) (0.1)
Other, net 39 0.0 16 0.0
Income tax provision (316) (0.1) (738) (0.2)
--------- ----- -------- -----
Net Income $11 0.0% $2,073 0.6%
========= ===== ========= =====
Earnings per common share:
Basic $.00 $.08
========= =========
Diluted $.00 $.08
========= =========
Weighted average common shares
outstanding:
Basic 25,226 25,057
========= =========
Diluted 25,290 25,271
========= =========
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENTS
- ----------------------------------------------------------------------
Twelve Months Ended December 31, 2005 2004
- ----------------------------------------------------------------------
(Amounts in thousands, except Amount % of Amount % of Net
per share data) Net Sales
Sales
- ------------------------------- ---------- ------- ---------- -------
Net sales $1,444,297 100.0% $1,353,834 100.0%
Cost of sales 1,280,701 88.7 1,201,780 88.8
---------- ------ ----------- -------
Gross Profit 163,596 11.3 152,054 11.2
Selling, general, and
administrative expenses 151,981 10.5 132,729 9.8
Special charges 2,127 0.1 5,232 0.4
---------- ------ ----------- -------
Income From Operations 9,488 0.7 14,093 1.0
Interest expense (1,447) (0.1) (1,385) (0.1)
Other, net 89 0.0 152 0.0
Income tax provision (3,683) (0.3) (4,556) (0.3)
----------- ----- ------------ ------
Net Income $4,447 0.3% $8,304 0.6%
=========== ===== ============ ======
Earnings per common share:
Basic $.18 $.33
=========== ===========
Diluted $.18 $.33
=========== ===========
Weighted average common shares
outstanding:
Basic 25,184 25,028
=========== ===========
Diluted 25,281 25,269
=========== ===========
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
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 special charges.
- ----------------------------------------------------------------------
Three Months Twelve Months
Ended Ended
December 31, December 31,
- ---------------------------------------- -----------------------------
(Amounts in thousands) 2005 2004 2005 2004
- ---------------------------------------- ----- ------ ------- -------
GAAP net income $11 $2,073 $4,447 $8,304
Special charges (after tax):
Management restructuring 131 172 643 533
Amherst Technologies acquisition 633 - 633 -
GSA review and other - 850 - 2,711
----- ------ ------- -------
764 1,022 1,276 3,244
----- ------ ------- -------
Pro forma net income $775 $3,095 $5,723 $11,548
==== ======= ====== ========
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS December December
31, 31,
- ------------------------------------------------- --------- ---------
(Amounts in thousands) 2005 2004
- ------------------------------------------------- --------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $9,770 $6,829
Accounts receivable, net 162,525 120,752
Inventories - merchandise 75,374 78,390
Deferred income taxes 3,769 3,039
Income taxes receivable 1,742 1,325
Prepaid expenses and other current assets 4,219 3,644
--------- ---------
Total current assets 257,399 213,979
Property and equipment, net 17,700 17,647
Goodwill, net 57,220 51,687
Other intangibles, net 5,027 3,040
Other assets 359 189
--------- ---------
Total assets $337,705 $286,542
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease obligations:
To affiliate $416 $373
To third party 412 391
Note payable - bank 19,975 4,810
Accounts payable 114,413 79,709
Accrued expenses and other liabilities 21,290 18,138
Acquisition earn-out obligation - 6,921
--------- ---------
Total current liabilities 156,506 110,342
Capital lease obligations, less current
maturities:
To affiliate 5,299 5,715
To third party 396 841
Deferred income taxes 4,105 3,486
--------- ---------
Total liabilities 166,306 120,384
--------- ---------
Stockholders' Equity:
Common stock 256 255
Additional paid-in capital 77,884 77,091
Retained earnings 95,545 91,098
Treasury stock at cost (2,286) (2,286)
--------- ---------
Total stockholders' equity 171,399 166,158
--------- ---------
Total liabilities and stockholders' equity $337,705 $286,542
========= =========
- ----------------------------------------------------------------------
- ------------------------------------- -------- -----------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------
Twelve months ended December 31, 2005 (Amounts in thousands)
- ----------------------------------------------------------------------
Common Stock Treasury Shares
------------- Additional Retained -----------------------
Shares Amount Paid-In Earnings Shares Amount Total
Capital
- ------------------- ------ ---------- -------- ------ ------ ---------
Balance -
December
31, 2004 25,462 $255 $77,091 $91,098 (362)($2,286)$166,158
Exercise of
stock
options,
including
income tax
benefits 96 1 447 - - - 448
Issuance of
stock under
employee
stock
purchase
plan 64 - 312 - - - 312
Acceleration
of certain
stock
options - - 34 - - - 34
Net income - - - 4,447 - - 4,447
------ ---- ------ -------- ----- ------ -------
Balance -
December
31, 2005 25,622 $256 $77,884 $95,545 (362)($2,286)$171,399
====== ==== ======= ======= ==== ======= ========
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------
Twelve Months Ended December 31, 2005 2004
(Amounts in thousands)
- --------------------------------------------------------- ---------
Cash Flows from Operating Activities:
Net income $4,447 $8,304
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,197 7,127
Provision for doubtful accounts 3,993 4,280
Deferred income taxes (111) 632
Loss on disposal of fixed assets 43 8
Income tax benefits from exercise of stock
options 82 97
Acceleration of certain stock options 34 -
Changes in assets and liabilities:
Accounts receivable (45,766) 19,305
Inventories 3,016 1,750
Prepaid expenses and other current assets (992) 870
Other non-current assets (170) 19
Accounts payable 34,704 (32,829)
Accrued expenses and other liabilities 3,152 3,755
--------- ----------
Net cash provided by operating activities 9,629 13,318
--------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment (6,572) (2,804)
Purchase of intangible asset (475) -
Proceeds from sale of property and
equipment 13 3
Payment for acquisition (7,779) -
Payment of acquisition earn-out obligation (6,921) (11,095)
Cash escrow distributed for acquisition - 5,000
--------- ----------
Net cash used for investing activities (21,734) (8,896)
--------- ----------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 320,379 369,285
Repayment of short-term borrowings (305,214) (370,089)
Repayment of capital lease obligations (797) (334)
Exercise of stock options 366 163
Issuance of stock under employee stock
purchase plan 312 405
--------- ----------
Net cash provided by (used for) financing
activities 15,046 (570)
Increase in cash and cash equivalents 2,941 3,852
Cash and cash equivalents, beginning of
period 6,829 2,977
--------- ----------
Cash and cash equivalents, end of period $9,770 $6,829
========= ==========
CONTACT: PC Connection, Inc.
Stephen Baldridge, 603-683-2052