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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 26, 2007
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, 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 26, 2007, PC Connection, Inc. announced its financial results
for the quarter ended March 31, 2007. 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 April 26, 2007.
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 26, 2007 PC CONNECTION, INC.
By: /s/ Jack Ferguson
-------------------------------------------
Jack Ferguson
Senior Vice President, Treasurer, and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
99.1 Press release issued by PC Connection, Inc. on April 26, 2007.
Exhibit 99.1
PC Connection, Inc. Reports First
Quarter Results
Company Significantly Increases Net Income and Earnings per Share
FIRST QUARTER HIGHLIGHTS:
-- Operating income: $5.7 million, up 60% year over year
-- Net income: $3.4 million, virtually doubled year over year
-- Diluted earnings per share: $.13, up from $.07 last year
Business Editors/Technology Editors
MERRIMACK, N.H.--(BUSINESS WIRE)--April 26, 2007--PC Connection,
Inc. (NASDAQ: PCCC), a leading direct marketer of information
technology (IT) products and services, today announced results for the
quarter ended March 31, 2007. Net sales for the three months ended
March 31, 2007 increased by $17.7 million, or 4.7%, to $398.2 million
from $380.5 million for the three months ended March 31, 2006. Net
income for the quarter was $3.4 million, or $.13 per share, compared
to $1.7 million, or $.07 per share, for the corresponding prior year
quarter.
"PC Connection, Inc. experienced solid overall growth year over
year, with the small- and medium-sized business (SMB) segment leading
the way at 6.8%," said Patricia Gallup, Chairman and Chief Executive
Officer. "We achieved a 60% increase in operating income and virtually
doubled our earnings over the first quarter of 2006, demonstrating
that our strategies are working."
Quarterly Sales Growth By Business Segment:
-- Net sales for the SMB segment increased by 6.8% to $233.9
million compared to the first quarter of 2006. Corporate
outbound sales within the segment grew 11.3% year over year.
-- Net sales for the Large Account segment increased by 1.8% to
$110.3 million compared to the first quarter of 2006. The
growth rate that we experienced was the result of pent-up
demand in the first quarter of 2006 attributable to the
Amherst Technologies acquisition.
-- Net sales to government and education customers (Public Sector
segment) increased by 1.8% to $53.9 million compared to the
first quarter of 2006. This modest level of growth was due to
our decision to focus on more profitable sales, and drive net
agency sales.
Quarterly Sales Growth By Product Mix:
-- Notebooks and PDAs, the Company's largest product category,
grew 14.1% year over year, accounting for 18.5% of net sales
in the first quarter of 2007 compared to 17.0% for the
corresponding period a year ago.
-- Desktop computers and servers accounted for 14.5% of net sales
in the first quarter of 2007 compared to 14.9% of net sales
for the corresponding period a year ago.
-- Software accounted for 12.1% of net sales in the first quarter
of 2007 compared to 12.6% of net sales for the corresponding
period a year ago.
-- Sales of accessories and other products increased 5.7% year
over year to 11.1% of net sales.
Gross profit margin, as a percentage of net sales, increased year
over year by 34 basis points to 12.5% in the first quarter of 2007
compared to the first quarter of 2006. As advertising programs we
develop with our vendor partners have become more comprehensive, it is
more practical to record substantially all vendor consideration as a
reduction to cost of inventory purchases, pursuant to Issue No. 02-16
of the Emerging Issues Task Force. Accordingly, we recorded
approximately $1.9 million of additional consideration as a reduction
to cost of sales in the first quarter of 2007, accounting for a 48
basis-point increase in gross margin compared to the first quarter of
2006.
Overall annualized sales productivity increased 2% in the first
quarter of 2007 compared to the first quarter of 2006. Sales
productivity in our Large Account segment increased 19% in the first
quarter of 2007 compared to the first quarter of 2006 due to a
decrease in headcount of sales representatives. For our SMB and Public
Sector segments, productivity was flat and down 3%, respectively, due
to new hires. However, if you remove the effect of our recently opened
Texas call center, SMB productivity increased 11% year over year in Q1
2007. On a consolidated basis, the total number of sales
representatives at 640 as of March 31, 2007 was down slightly compared
to March 31, 2006.
Total selling, general and administrative expenses ("SG&A") for
the quarter increased year over year by $2.2 million, or 5.3%, and
increased as a percentage of net sales to 11.1% for the first quarter
of 2007 from 11.0% for the first quarter of 2006. The year-over-year
dollar increase was primarily attributable to the recording of
additional vendor consideration discussed above, which increased SG&A
expenses by approximately $1.9 million, accounting for a 48
basis-point increase in SG&A as a percentage of net sales. Incremental
operating expenses associated with our recently opened Texas sales
office were generally offset by lower bad debt expense and
professional fees in Q1 2007 compared to Q1 2006.
Ms. Gallup concluded, "Our first quarter results showed increasing
sales, rising operating margins, and growth in earnings per share. We
achieved these results while continuing to invest in our Company's
infrastructure, and while maintaining a healthy balance sheet. Our
performance reflects a great team effort to run our business more
effectively and efficiently while continuing to offer the best
customer service in our marketplace. We believe we have the right
strategies, resources, and talent to continue to improve our operating
performance and enhance long-term shareholder value."
About PC Connection, Inc.
PC Connection, Inc., a Fortune 1000 company, owns three sales
companies: PC Connection Sales Corporation, MoreDirect, Inc., and
GovConnection, Inc., headquartered in Merrimack, NH, Boca Raton, FL,
and Rockville, MD, respectively. All three companies can deliver
custom-configured computer systems overnight. Investors and media can
find more information about PC Connection, Inc. at
http://ir.pcconnection.com.
PC Connection Sales Corporation (1-800-800-5555), the original
business of PC Connection, Inc. serving the small- and medium-sized
business sector (SMB), is a rapid-response provider of information
technology (IT) products and services. It offers more than 150,000
brand-name products 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.
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. MoreDirect's TRAXX(R) system is a seamless end-to-end
interface that empowers clients to electronically source, evaluate,
compare prices, and track related technology product purchases in
real-time.
GovConnection, Inc. (1-800-800-0019) is a provider of IT products
and services to federal, state, and local government agencies and
educational institutions through specialized account managers,
catalogs and publications, and online at www.govconnection.com.
# # #
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"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 the ability of the Company to hire and
retain essential personnel, and other risks detailed under the caption
"Risk Factors" in the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31,
2006. More specifically, the statements in this release concerning the
Company's outlook for 2007 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
market share) 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. The
Company assumes no obligation to update the information in this press
release or revise any forward-looking statements, whether as a result
of any new information, future events, or otherwise.
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
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At or for the Three
Months Ended
March 31, 2007 2006
- ------------------------------ --------- ---------- ------------------
(Dollars and shares
in thousands,
except operating
data,
price/earnings
ratio, and per
share data)
% of Net % of Net
Sales Sales % Change
- ------------------------------ --------- ---------- ------------------
Operating Data:
Net sales $398,180 $380,478 4.7%
Diluted earnings per
share $.13 $.07
Gross profit margin 12.5% 12.2%
Operating margin 1.4 0.9
Return on equity (1) 6.8 4.0
Catalogs distributed3,638,000 3,600,000 1.1%
Orders entered (2) 384,000 383,500 0.1%
Average order size
(2) $1,190 $1,147 3.7%
Inventory turns (1) 21 20
Days sales
outstanding 42 45
Product Mix:
Notebooks & PDAs $73,643 18.5% $64,543 17.0% 14.1%
Desktops/Servers 57,528 14.5 56,495 14.9 1.8
Storage Devices 34,808 8.7 33,918 8.9 2.6
Software 48,286 12.1 47,923 12.6 0.8
Net/Com Products 29,819 7.5 29,853 7.8 (0.1)
Printers & Printer
Supplies 41,653 10.5 40,034 10.5 4.0
Video, Imaging &
Sound 48,101 12.1 46,868 12.3 2.6
Memory & System
Enhancements 19,949 5.0 18,856 5.0 5.8
Accessories/Other 44,393 11.1 41,988 11.0 5.7
---------- --------- ---------- ---------
$398,180 100.0% $380,478 100.0% 4.7%
========== ========= ========== =========
Net Sales of Enterprise Server and Networking Products (included in
the above Product Mix):
$122,832 30.9% $108,671 28.6% 13.0%
========== ==========
Stock Performance
Indicators:
Actual shares
outstanding 26,802 25,259
Total book value per
share $7.59 $6.86
Tangible book value
per share $5.31 $4.40
Closing price $14.30 $5.76
Market
capitalization $383,269 $145,492
Trailing
price/earnings
ratio (3) 24 27
(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, 2007 2006
- ---------------------------------------- --------------------
Gross Gross
(Dollars in Margin Net Margin
thousands) Net Sales (%) Sales (%)
- ------------------------------ --------- ---------- ---------
PC Connection Sales
Corporation (SMB) $233,933 13.5% $219,121 13.4%
MoreDirect (Large
Account) 110,315 10.8 108,362 10.5
GovConnection
(Public Sector) 53,932 11.8 52,995 10.7
---------- --------- ---------- ---------
Total $398,180 12.5% $380,478 12.2%
========== ========= ========== =========
CONSOLIDATED INCOME STATEMENTS
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Three Months Ended March 31, 2007 2006
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(Amounts in thousands, except per % of % of
share data) Net Net
Amount Sales Amount Sales
- ----------------------------------------------------- ----------------
Net sales $398,180 100.0% $380,478 100.0%
Cost of sales 348,265 87.5 334,060 87.8
--------- ------ --------- ------
Gross Profit 49,915 12.5 46,418 12.2
Selling, general and administrative
expenses 44,193 11.1 41,955 11.0
Special charges - - 891 0.3
--------- ------ --------- ------
Income From Operations 5,722 1.4 3,572 0.9
Interest expense (208) (0.1) (644) (0.2)
Other, net 201 0.1 11 -
Income tax provision (2,330) (0.5) (1,233) (0.3)
--------- ------ --------- ------
Net Income $3,385 0.9% $1,706 0.4%
========= ====== ========= ======
Weighted average common shares
outstanding:
Basic 26,680 25,259
========= =========
Diluted 27,005 25,299
========= =========
Earnings per common share:
Basic $0.13 $0.07
========= =========
Diluted $0.13 $0.07
========= =========
`
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CONSOLIDATED BALANCE SHEETS March December
31, 31,
(Amounts in thousands) 2007 2006
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ASSETS
Current Assets:
Cash and cash equivalents $24,668 $17,582
Accounts receivable, net 146,334 170,222
Inventories - merchandise 67,407 69,407
Deferred income taxes 4,007 3,837
Income taxes receivable 1,996 627
Prepaid expenses and other current assets 3,967 3,882
--------- ---------
Total current assets 248,379 265,557
Property and equipment, net 19,390 19,542
Goodwill 56,867 56,867
Other intangibles, net 4,095 4,363
Other assets 347 355
--------- ---------
Total Assets $329,078 $346,684
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease obligations:
To affiliate $477 $464
To third party 289 395
Accounts payable 89,067 110,977
Accrued expenses and other liabilities 17,080 17,389
Accrued payroll 5,555 9,367
--------- ---------
Total current liabilities 112,468 138,592
Capital lease obligations, less current
maturities:
To affiliate 4,712 4,836
Other liabilities 1,652 -
Deferred income taxes 6,990 6,352
--------- ---------
Total Liabilities 125,822 149,780
--------- ---------
Stockholders' Equity:
Common stock 272 269
Additional paid-in capital 92,847 89,537
Retained earnings 112,360 109,321
Treasury stock at cost (2,223) (2,223)
--------- ---------
Total Stockholders' Equity 203,256 196,904
--------- ---------
Total Liabilities and Stockholders' Equity $329,078 $346,684
========= =========
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
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Three months ended March 31,2007 (Amounts in thousands)
- ----------------------------------------------------------------------
Treasury
Common Stock Shares
-------------- Additional --------------
Shares Amount Paid-In Retained Shares Amount Total
Capital Earnings
- ----------------- ------ ---------- --------- -------------- ---------
Balance -
December
31, 2006 26,862 $269 $89,537 $109,321 (352)($2,223) $196,904
Exercise
of stock
options,
including
income tax
benefits 292 3 3,378 - - - 3,381
Stock
compen-
sation
expense - - (68) - - - (68)
Cumulative
effect of
change in
accounting
principal - - (346) - - (346)
Net income - - - 3,385 - - 3,385
------- ------ ---------- --------- -------------- ---------
Balance -
March 31,
2007 27,154 $272 $92,847 $112,360 (352)($2,223) $203,256
======= ====== ========== ========= ============== =========
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------
Three Months Ended March 31, (Amounts in
thousands) 2007 2006
- ----------------------------------------------------------- ---------
Cash Flows from Operating Activities:
Net income $3,385 $1,706
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation and amortization 1,888 1,698
Provision for doubtful accounts 337 894
Deferred income taxes 468 804
Loss on disposal of fixed assets 6 14
Stock compensation expense (68) 140
Gross excess tax benefit from exercise of
stock options (343) -
Income tax benefits from exercise of stock
options 887 -
Changes in assets and liabilities:
Accounts receivable 23,551 10,674
Inventories 2,000 14,289
Prepaid expenses and other current assets (1,454) (495)
Other non-current assets 8 (1)
Accounts payable (21,910) (24,778)
Accrued expenses and other liabilities (2,815) 73
-------- ---------
Net cash provided by operating activities 5,940 5,018
-------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment (1,474) (1,579)
Proceeds from sale of property and equipment - 20
-------- ---------
Net cash used for investing activities (1,474) (1,559)
-------- ---------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings - 125,911
Repayment of short-term borrowings - (130,737)
Repayment of capital lease obligations (217) (201)
Exercise of stock options 2,494 -
Gross excess tax benefit from exercise of stock
options 343 -
-------- ---------
Net cash provided by (used for) financing
activities 2,620 (5,027)
-------- ---------
Increase (decrease) in cash and cash equivalents 7,086 (1,568)
Cash and cash equivalents, beginning of period 17,582 9,770
-------- ---------
Cash and cash equivalents, end of period $24,668 $8,202
======== =========
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CONTACT: PC Connection, Inc.
Stephen Baldridge, 603-683-2322
VP of Finance & Corporate Controller