UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-23827
PC CONNECTION, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 02-0513618 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 730 Milford Road, Merrimack, New Hampshire |
03054 (Zip Code) | |
| (Address of principal executive offices) | ||
(603) 683-2000
Registrant’s telephone number, including area code
Indicate by check mark (ü) whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO ¨
Indicate by check mark (ü) whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Securities and Exchange Act of 1934, as amended.
YES ¨ NO x
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer’s Common Stock, $.01 par value, as of March 31, 2004 was 25,007,577.
PC CONNECTION, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
INDEPENDENT ACCOUNTANTS’ REPORT
To the Board of Directors and Stockholders of
PC Connection, Inc.
Merrimack, New Hampshire
We have reviewed the accompanying condensed consolidated balance sheet of PC Connection, Inc. and subsidiaries (the “Company”) as of March 31, 2004, and the related condensed consolidated statements of income for the three-month periods ended March 31, 2004 and 2003, and the condensed consolidated statement of changes in stockholders’ equity for the three-month period ended March 31, 2004, and the condensed consolidated statements of cash flows for the three-month periods ended March 31, 2004 and 2003. These financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of PC Connection, Inc. and subsidiaries as of December 31, 2003, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 18, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 6, 2004
1
PC CONNECTION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 4,398 | $ | 2,977 | ||||
| Restricted cash |
— | 5,000 | ||||||
| Accounts receivable, net |
127,039 | 144,337 | ||||||
| Inventories – merchandise |
69,468 | 80,140 | ||||||
| Deferred income taxes |
1,730 | 1,732 | ||||||
| Income taxes receivable |
1,421 | 2,190 | ||||||
| Prepaid expenses and other current assets |
4,501 | 3,649 | ||||||
| Total current assets |
208,557 | 240,025 | ||||||
| Property and equipment, net |
19,260 | 20,396 | ||||||
| Goodwill, net |
44,766 | 45,264 | ||||||
| Other intangibles, net |
3,305 | 3,393 | ||||||
| Other assets |
199 | 208 | ||||||
| Total assets |
$ | 276,087 | $ | 309,286 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: |
||||||||
| Current maturities of capital lease obligation to affiliate |
$ | 343 | $ | 334 | ||||
| Note payable – bank |
— | 5,614 | ||||||
| Accounts payable |
92,553 | 112,538 | ||||||
| Accrued expenses and other liabilities |
15,187 | 13,063 | ||||||
| Acquisition earn-out obligation |
800 | 11,593 | ||||||
| Total current liabilities |
108,883 | 143,142 | ||||||
| Capital lease obligation to affiliate, less current maturities |
5,999 | 6,088 | ||||||
| Deferred income taxes |
2,718 | 2,867 | ||||||
| Total liabilities |
117,600 | 152,097 | ||||||
| Stockholders’ Equity: |
||||||||
| Common stock |
254 | 253 | ||||||
| Additional paid-in capital |
76,567 | 76,428 | ||||||
| Retained earnings |
83,952 | 82,794 | ||||||
| Treasury stock at cost |
(2,286 | ) | (2,286 | ) | ||||
| Total stockholders’ equity |
158,487 | 157,189 | ||||||
| Total liabilities and stockholders’ equity |
$ | 276,087 | $ | 309,286 | ||||
See accompanying notes to condensed consolidated financial statements.
2
PC CONNECTION, INC. AND SUBSIDIARIES
Part I—Financial Information
Item 1—Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(amounts in thousands, except per share data)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Net sales |
$ | 327,635 | $ | 283,527 | ||||
| Cost of sales |
293,710 | 251,052 | ||||||
| Gross profit |
33,925 | 32,475 | ||||||
| Selling, general, and administrative expenses |
30,690 | 29,639 | ||||||
| Restructuring costs and other special charges |
1,030 | — | ||||||
| Income from operations |
2,205 | 2,836 | ||||||
| Interest expense |
(384 | ) | (303 | ) | ||||
| Other, net |
47 | 44 | ||||||
| Income before taxes |
1,868 | 2,577 | ||||||
| Income tax provision |
(710 | ) | (1,002 | ) | ||||
| Net income |
$ | 1,158 | $ | 1,575 | ||||
| Weighted average common shares outstanding: |
||||||||
| Basic |
24,998 | 24,651 | ||||||
| Diluted |
25,356 | 24,920 | ||||||
| Earnings per common share: |
||||||||
| Basic |
$ | .05 | $ | .06 | ||||
| Diluted |
$ | .05 | $ | .06 | ||||
See accompanying notes to condensed consolidated financial statements.
3
PC CONNECTION, INC. AND SUBSIDIARIES
Part I—Financial Information
Item 1—Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Three Months Ended March 31, 2004
(Unaudited)
(amounts in thousands)
| Common Stock |
Additional Paid-In |
Retained Earnings |
Treasury Shares |
Total | |||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
||||||||||||||||||
| Balance – December 31, 2003 |
25,342 | $ | 253 | $ | 76,428 | $ | 82,794 | (362 | ) | $ | (2,286 | ) | $ | 157,189 | |||||||
| Exercise of stock options, including income tax benefits |
28 | 1 | 139 | — | — | — | 140 | ||||||||||||||
| Net income |
— | — | — | 1,158 | — | — | 1,158 | ||||||||||||||
| Balance – March 31, 2004 |
25,370 | $ | 254 | $ | 76,567 | $ | 83,952 | (362 | ) | $ | (2,286 | ) | $ | 158,487 | |||||||
See accompanying notes to condensed consolidated financial statements.
4
PC CONNECTION, INC. AND SUBSIDIARIES
Part I—Financial Information
Item 1—Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash Flows from Operating Activities: |
||||||||
| Net income |
$ | 1,158 | $ | 1,575 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
1,753 | 2,230 | ||||||
| Deferred income taxes |
(147 | ) | (1,061 | ) | ||||
| Provision for doubtful accounts |
775 | 800 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
16,523 | 12,961 | ||||||
| Inventories |
10,672 | (4,301 | ) | |||||
| Prepaid expenses and other current assets |
(83 | ) | (792 | ) | ||||
| Other non-current assets |
9 | 44 | ||||||
| Accounts payable |
(19,985 | ) | (2,919 | ) | ||||
| Income tax benefits from exercise of stock options |
84 | 49 | ||||||
| Accrued expenses and other liabilities |
2,124 | 2,470 | ||||||
| Net cash provided by operating activities |
12,883 | 11,056 | ||||||
| Cash Flows from Investing Activities: |
||||||||
| Purchases of property and equipment |
(529 | ) | (764 | ) | ||||
| Payment of acquisition earn-out obligation |
(10,295 | ) | (10,800 | ) | ||||
| Cash escrow distributed for acquisition |
5,000 | 5,000 | ||||||
| Net cash used for investing activities |
(5,824 | ) | (6,564 | ) | ||||
| Cash Flows from Financing Activities: |
||||||||
| Proceeds from short-term borrowings |
88,311 | 43,595 | ||||||
| Repayment of short-term borrowings |
(93,925 | ) | (43,595 | ) | ||||
| Repayment of capital lease obligation to affiliate |
(80 | ) | (46 | ) | ||||
| Exercise of stock options |
56 | 28 | ||||||
| Net cash used for financing activities |
(5,638 | ) | (18 | ) | ||||
| Increase in cash and cash equivalents |
1,421 | 4,474 | ||||||
| Cash and cash equivalents, beginning of period |
2,977 | 1,797 | ||||||
| Cash and cash equivalents, end of period |
$ | 4,398 | $ | 6,271 | ||||