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): July 26, 2007 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) 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 July 26, 2007, PC Connection, Inc. announced its financial results for the quarter ended June 30, 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 July 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: July 26, 2007 PC CONNECTION, INC. By: /s/ Jack Ferguson ---------------------------------------- Jack Ferguson Executive Vice President, Treasurer, and Chief Financial Officer
EXHIBIT INDEX Exhibit No. Description - ----------- 99.1 Press release issued by PC Connection, Inc. on July 26, 2007.
Exhibit 99.1 PC Connection, Inc. Reports Second Quarter Results Company Announces Continued Increases in Revenue and Earnings Per Share MERRIMACK, N.H.--(BUSINESS WIRE)--July 26, 2007--SECOND QUARTER HIGHLIGHTS: -- Record net sales: $441.1 million, up 8% year over year -- Operating income: $9.0 million, up 57% year over year -- Net income: $5.8 million, up 85% year over year -- Diluted earnings per share: $.21, up from $.12 last year PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of information technology (IT) products and services, today announced results for the quarter ended June 30, 2007. Net sales for the three months ended June 30, 2007 increased by $33.0 million, or 8.1%, to $441.1 million from $408.1 million for the three months ended June 30, 2006. Net income for the quarter was $5.8 million, or $.21 per share, compared to $3.1 million, or $.12 per share, for the corresponding prior year quarter. "We are pleased with the solid overall year-over-year sales growth of PC Connection, Inc. GovConnection, our Public Sector business, led the way with a 17% increase in revenue," said Patricia Gallup, Chairman and Chief Executive Officer. "We also achieved strong growth in earnings with a 57% increase in operating income and a 75% increase in earnings per share over the second quarter of 2006." Net sales for the six months ended June 30, 2007 increased by $50.7 million, or 6.4%, to $839.3 million from $788.6 million for the six months ended June 30, 2006. Net income for the six months ended June 30, 2007 was $9.1 million, or $.34 per share, compared to $4.8 million, or $.19 per share, for the six months ended June 30, 2006. Quarterly Sales Growth by Business Segment: -- Net sales for the SMB segment increased by 7.8% to $231.9 million compared to the second quarter of 2006. Corporate outbound sales within the segment grew 14.0% year over year. -- Net sales for the Large Account segment increased by 4.1% to $133.6 million compared to the second quarter of 2006. -- Net sales for the Public Sector segment increased by 16.9% to $75.6 million compared to the second quarter of 2006. Revenues increased primarily due to sales made under recently awarded federal and state government contracts, as well as the acquisition of new accounts. Quarterly Sales Growth By Product Mix: -- Desktop computers and servers increased 11.8% year over year, accounting for 14.2% of net sales in the second quarter of 2007 compared to 13.7% of net sales for the corresponding prior year quarter. -- Video, Imaging, and Sound increased 15.1% year over year, accounting for 13.4% of net sales in the second quarter of 2007 compared to 12.6% of net sales for the corresponding prior year quarter. -- Notebooks and PDAs, our largest product category, accounted for 16.4% of net sales in the second quarter of 2007 compared to 18.0% for the corresponding prior year quarter. -- Software represented 12.7% of net sales in the second quarter of 2007 compared to 12.6% of net sales for the corresponding prior year quarter. Gross profit was $54.0 million for the second quarter of 2007 compared to $50.7 million for the second quarter of 2006. Gross profit margin, as a percentage of net sales, was 12.3% in the second quarter of 2007 compared to 12.4% in the second quarter of 2006. As noted in our first quarter 2007 earnings release, we recorded 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, this additional consideration accounted for a 22 basis-point increase in gross margin compared to the second quarter of 2006. Offsetting this increase were slightly lower customer invoice margins and additional costs associated with certain customer rebate programs. Overall annualized sales productivity increased 12% in the second quarter of 2007 compared to the second quarter of 2006. Sales productivity in our Large Account segment increased 21% in the second quarter of 2007 compared to the second quarter of 2006. For our SMB and Public Sector segments, productivity increased 12% and 10%, respectively. On a consolidated basis, the total number of sales representatives was 625 as of June 30, 2007, compared to 659 sales representatives at June 30, 2006. Selling, general and administrative expenses ("SG&A") totaled $45.0 million for the second quarter of 2007 compared to $44.5 million for the second quarter of 2006. SG&A improved as a percentage of net sales to 10.3% for the second quarter of 2007 compared to 10.9% for the second quarter of 2006. Ms. Gallup concluded, "Our record results show we remain focused on the IT needs of our customers in our target markets. We continue to invest in expanding and refining our core competencies, while reducing operating costs wherever possible. PC Connection, Inc. has a strong management team in place focused on improving the Company's results and building long-term value for our shareholders." 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 website 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. pccc-g "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 Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission for the quarter ended March 31, 2007. 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 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 - ---------------------------------------------------------------------- At or for the Three Months Ended June 30, 2007 2006 - -------------------------------------------- ------------------------- (Dollars and shares in thousands, except operating data, price/earnings ratio, and per share data) % of % of % Net Net Change Sales Sales - -------------------------------------------- ------------------------- Operating Data: Net sales $ 441,122 $ 408,094 8.1% Diluted earnings per share $ .21 $ .12 Gross profit margin 12.3% 12.4% Operating margin 2.0 1.4 Return on equity (1) 11.2 7.2 Catalogs distributed 3,404,000 3,645,000 -6.6% Orders entered (2) 365,240 359,200 1.7% Average order size (2) $ 1,396 $ 1,322 5.6% Inventory turns (1) 22 23 Days sales outstanding 42 44 Product Mix: Notebooks & PDAs $ 72,374 16.4% $ 73,377 18.0% -1.4% Desktops/Servers 62,479 14.2 55,893 13.7 11.8 Storage Devices 39,649 9.0 34,170 8.4 16.0 Software 56,205 12.7 51,656 12.6 8.8 Net/Com Products 35,630 8.1 32,946 8.1 8.1 Printers & Printer Supplies 41,743 9.5 40,684 10.0 2.6 Video, Imaging & Sound 59,146 13.4 51,403 12.6 15.1 Memory & System Enhancements 24,032 5.4 19,892 4.9 20.8 Accessories/Other 49,864 11.3 48,073 11.7 3.7 ----------- ------ ----------- ------ $ 441,122 100.0% $ 408,094 100.0% 8.1% =========== ====== =========== ====== Net Sales of Enterprise Server and Networking Products (included in the above Product Mix): $ 144,552 32.8% $ 125,562 30.8% 15.1% =========== =========== Stock Performance Indicators: Actual shares outstanding 26,824 25,323 Total book value per share $ 7.80 $ 6.98 Tangible book value per share $ 5.54 $ 4.54 Closing price $ 13.24 $ 5.85 Market capitalization $ 355,150 $ 148,140 Trailing price/earnings ratio (3) 19 22 (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, 2007 2006 - ------------------------------------------------------ --------------- Net Gross Net Gross (Dollars in thousands) Sales Margin Sales Margin (%) (%) - ------------------------------------------------------ --------------- PC Connection Sales Corporation (SMB) $231,935 13.3% $215,108 13.8% MoreDirect (Large Account) 133,602 11.3 128,333 10.7 GovConnection (Public Sector) 75,585 10.8 64,653 11.3 -------- ------ -------- ------ Total $441,122 12.3% $408,094 12.4% ======== ====== ======== ====== CONSOLIDATED INCOME STATEMENTS - ---------------------------------------------------------------------- Three Months Ended June 30, 2007 2006 - ----------------------------------------------------- ---------------- % of % of (Amounts in thousands, except per Net Net share data) Amount Sales Amount Sales - ----------------------------------------------------- ---------------- Net sales $441,122 100.0% $408,094 100.0% Cost of sales 387,082 87.7 357,351 87.6 --------- ------ --------- ------ Gross Profit 54,040 12.3 50,743 12.4 Selling, general and administrative expenses 45,005 10.3 44,534 10.9 Special charges - 0.0 450 0.1 --------- ------ --------- ------ Income From Operations 9,035 2.0 5,759 1.4 Interest expense (242) (0.1) (437) (0.1) Other, net 260 0.1 (15) - Income tax provision (3,300) 0.7 (2,196) (0.5) --------- ------ --------- ------ Net Income $ 5,753 1.3% $ 3,111 0.8% ========= ====== ========= ====== Weighted average common shares outstanding: Basic 26,798 25,283 ========= ========= Diluted 26,995 25,396 ========= ========= Earnings per common share: Basic $ 0.21 $ 0.12 ========= ========= Diluted $ 0.21 $ 0.12 ========= ========= CONSOLIDATED INCOME STATEMENTS - ---------------------------------------------------------------------- Six Months Ended June 30, 2007 2006 - ----------------------------------------------------- ---------------- % of % of (Amounts in thousands, except per Net Net share data) Amount Sales Amount Sales - ----------------------------------------------------- ---------------- Net sales $839,302 100.0% $788,572 100.0% Cost of sales 735,347 87.6 691,411 87.7 --------- ------ --------- ------ Gross Profit 103,955 12.4 97,161 12.3 Selling, general and administrative expenses 89,198 10.6 86,489 10.9 Special charges - 0.0 1,341 0.2 --------- ------ --------- ------ Income From Operations 14,757 1.8 9,331 1.2 Interest expense (450) (0.1) (1,081) (0.2) Other, net 461 0.1 (4) - Income tax provision (5,630) 0.7 (3,429) (0.4) --------- ------ --------- ------ Net Income $ 9,138 1.1% $ 4,817 0.6% ========= ====== ========= ====== Weighted average common shares outstanding: Basic 26,740 25,271 ========= ========= Diluted 27,002 25,372 ========= ========= Earnings per common share: Basic $ 0.34 $ 0.19 ========= ========= Diluted $ 0.34 $ 0.19 ========= ========= CONSOLIDATED BALANCE SHEETS June 30, December 31, - -------------------------------------------------- --------- --------- (amounts in thousands) 2007 2006 - -------------------------------------------------- --------- --------- ASSETS Current Assets: Cash and cash equivalents $ 17,466 $ 17,582 Accounts receivable, net 169,303 170,222 Inventories-merchandise 75,242 69,407 Deferred income taxes 4,493 3,837 Income taxes receivable 797 627 Prepaid expenses and other current assets 3,642 3,882 --------- --------- Total current assets 270,943 265,557 Property and equipment, net 19,749 19,542 Goodwill 56,867 56,867 Other intangibles, net 3,827 4,363 Other assets 390 355 --------- --------- Total Assets $351,776 $346,684 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of capital lease obligations: To affiliate $ 490 $ 464 To third party 182 395 Accounts payable 100,809 110,977 Accrued expenses and other liabilities 19,028 17,389 Accrued payroll 7,838 9,367 --------- --------- Total current liabilities 128,347 138,592 Capital lease obligations, less current maturities: To affiliate 4,585 4,836 Other liabilities 2,488 - Deferred income taxes 7,087 6,352 --------- --------- Total Liabilities 142,507 149,780 --------- --------- Stockholders' Equity: Common stock 272 269 Additional paid-in capital 93,107 89,537 Retained earnings 118,113 109,321 Treasury stock at cost (2,223) (2,223) --------- --------- Total Stockholders' Equity 209,269 196,904 --------- --------- Total Liabilities and Stockholders' Equity $351,776 $346,684 ========= ========= CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------- Six months ended June 30, 2007 (amounts in thousands) - ---------------------------------------------------------------------- Common Stock Treasury Additional Shares ------------- Paid-In Retained -------------- Shares Amount Capital Earnings Shares Amount Total - ----------------- ------ ---------- --------- -------------- --------- Balance - January 01, 2007 26,862 $ 269 $89,537 $109,321 (352) ($2,223) $196,904 Cumulative effect of change in accounting principle - - - (346) - - (346) Stock compen- sation expense - - (23) - - - (23) Exercise of stock options, including income tax benefits 304 3 3,459 - - - 3,462 Issuance of stock under Employee Stock Purchase Plan 10 - 134 - - - 134 Net income - - - 9,138 - - 9,138 ------ ------ ---------- --------- -------------- --------- Balance - June 30, 2007 27,176 $ 272 $93,107 $118,113 (352) ($2,223) $209,269 ====== ====== ========== ========= ============== ========= CONSOLIDATED STATEMENTS OF CASH FLOWS - ---------------------------------------------------------------------- Six Months Ended June 30, (Amounts in thousands) 2007 2006 - ---------------------------------------------------------------------- Cash Flows from Operating Activities: Net income $ 9,138 $ 4,817 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,472 3,456 Provision for doubtful accounts 894 1,752 Deferred income taxes 79 1,267 Loss on disposal of fixed assets 8 63 Stock compensation expense (23) 202 Gross excess tax benefit from exercise of stock options (358) - Income tax benefits from exercise of stock options 918 17 Changes in assets and liabilities: Accounts receivable 25 (1,142) Inventories (5,835) 7,721 Prepaid expenses and other current assets 70 799 Other non-current assets (35) 7 Accounts payable (10,168) (17,723) Accrued expenses and other liabilities 2,252 4,185 --------- ---------- Net cash provided by operating activities 437 5,421 --------- ---------- Cash Flows from Investing Activities: Purchases of property and equipment (3,151) (4,647) Proceeds from sale of property and equipment - 20 --------- ---------- Net cash used for investing activities (3,151) (4,627) --------- ---------- Cash Flows from Financing Activities: Proceeds from short-term borrowings 1,461 244,402 Repayment of short-term borrowings (1,461) (246,377) Repayment of capital lease obligations (438) (406) Exercise of stock options 2,544 227 Gross excess tax benefit from exercise of stock options 358 - Issuance of stock under Employee Stock Purchase Plan 134 120 --------- ---------- Net cash provided by (used for) financing activities 2,598 (2,034) --------- ---------- Decrease in cash and cash equivalents (116) (1,240) Cash and cash equivalents, beginning of period 17,582 9,770 --------- ---------- Cash and cash equivalents, end of period $ 17,466 $ 8,530 ========= ========== pccc-g CONTACT: PC Connection, Inc. Stephen Baldridge, 603-683-2322 VP of Finance & Corporate Controller