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PC Connection, Inc. Reports First Quarter Results

“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 and environment, 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 manage personnel levels in response to fluctuations in revenue, and other risks that could cause actual results to differ materially from those 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, 2010. More specifically, the statements in this release concerning the Company’s outlook for 2011 and other statements of a non-historical basis (including statements regarding the Company’s ability to grow revenues and increase 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, the ability of the Company to integrate the operations of ValCom Technology, 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 INFORMATION        
At or for the Three Months Ended March 31,   2011 2010  
(Dollars and shares in thousands, except operating data, P/E ratio, and per share data)      

% of Net Sales

   

% of Net Sales

% Change

 
Operating Data:
Net sales $ 461,926 $ 408,262 13 %
Diluted earnings per share $ 0.17 $ 0.09 89 %
 
Gross margin 12.7 % 11.9 %
Operating margin 1.6 % 1.0 %
Return on equity (1) 6.9 % 4.1 %
 
Catalogs distributed 1,766,000 2,741,000 (36 )%
Orders entered (2) 346,000 335,000 3 %
Average order size (2) $ 1,606 $ 1,472 9 %
 
Inventory turns (1) 24 25
Days sales outstanding 47 48
 
 
Product Mix:
Notebook & PDA $ 83,283 18 % $ 65,953 16 % 26 %
Desktop/Server 70,998 15 60,562 15 17
Software 62,846 14 53,846 13 17
Video, Imaging & Sound 48,669 10 54,553 13 (11 )
Net/Com Product 43,285 9 37,136 9 17
Storage Device 39,329 9 33,026 8 19
Printer & Printer Supplies 36,224 8 38,703 10 (6 )
Memory & System Enhancement 18,679 4 16,813 4 11
Accessory/Other   58,613   13     47,670   12   23
$ 461,926   100 % $ 408,262   100 % 13 %
 
 
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):
 
$ 161,733   35 % $ 148,398   36 % 9 %
 
 
Stock Performance Indicators:
Actual shares outstanding 26,673 26,827
Total book value per share $ 9.84 $ 8.87
Tangible book value per share $ 7.72 $ 7.00
Closing price $ 8.86 $ 6.20
Market capitalization $ 236,323 $ 166,327
Trailing price/earnings ratio (3) 10 16
 
(1) Annualized
(2) Does not reflect cancellations or returns
(3) Earnings calculation is based on the trailing four quarters and excludes 2009 special charges.
 
 
 
                 
REVENUE AND MARGIN INFORMATION
For the Three Months Ended March 31,   2011 2010
(Dollars in thousands)

Net Sales

 

Gross Margin (%)

Net Sales

 

Gross Margin (%)

 
SMB $ 210,934 14.3 % $ 188,795 13.8 %
Large Account 146,847 11.4 126,102 10.6
Public Sector 90,345 11.5 79,249 9.8
Consumer/SOHO   13,800   11.2   14,116   10.3
Total $ 461,926   12.7 % $ 408,262   11.9 %
 

                 
CONSOLIDATED STATEMENTS OF INCOME        
Three Months Ended March 31,   2011   2010
(amounts in thousands, except per share data) Amount   % of Net Sales Amount   % of Net Sales
 
Net sales $ 461,926 100.0 % $ 408,262 100.0 %
Cost of sales   403,107   87.3     359,611     88.1  
Gross profit 58,819 12.7 48,651 11.9
 
Selling, general and administrative expenses   51,290   11.1     44,474     10.9  
Income from operations 7,529 1.6 4,177 1.0
 
Interest expense (41 ) - (99 ) -
Other, net 65 - 75 -
Income tax provision   (3,059 ) 0.6     (1,719 )   0.4  
Net income $ 4,494   1.0 % $ 2,434     0.6 %
 
 
Earnings per common share:
Basic $ 0.17   $ 0.09  
Diluted $ 0.17   $ 0.09  
 
Weighted average common shares outstanding:
Basic   26,901     27,157  
Diluted   26,986     27,193  
 
 
 
                 
CONSOLIDATED BALANCE SHEETS March 31, December 31,
(amounts in thousands)           2011   2010
 
ASSETS
Current Assets:
Cash and cash equivalents $ 58,560 $ 35,374
Accounts receivable, net 217,788 238,011
Inventories 67,698 74,293
Prepaid expenses and other current assets 4,840 4,210
Deferred income taxes 3,895 3,813
Income taxes receivable   1,839     1,489  
Total current assets 354,620 357,190
Property and equipment, net 19,285 13,500
Goodwill 51,152 48,060
Other intangibles, net 5,330 1,786
Other assets   537     405  
Total Assets $ 430,924   $ 420,941  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current Liabilities:
Current maturities of capital lease obligation to affiliate $ 894 $ 870
Accounts payable 112,475 114,632
Accrued expenses and other liabilities 31,345 23,963
Accrued payroll   10,962     12,652  
Total current liabilities 155,676 152,117
Deferred income taxes 6,475 5,822
Capital lease obligation to affiliate, less current maturities 1,727 1,960
Other liabilities   4,577     3,403  
Total Liabilities   168,455     163,302  
Stockholders’ Equity:
Common stock 275 275
Additional paid-in capital 99,207 98,871
Retained earnings 168,569 164,075
Treasury stock at cost   (5,582 )   (5,582 )
Total Stockholders’ Equity   262,469     257,639  
Total Liabilities and Stockholders’ Equity $ 430,924   $ 420,941  
 

 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Three months ended March 31, 2011 (amounts in thousands)
             
Common Stock

Additional

Retained Treasury Stock
Shares   Amount   Paid-In Capital   Earnings   Shares   Amount   Total
 
Balance – January 1, 2011 27,507 $ 275 $ 98,871 $ 164,075 (854 ) $ (5,582 ) $ 257,639
 
Stock-based compensation expense - - 205 - - - 205
 

Issuance of common stock under stock incentive plans

20 - 131 - - - 131

 

Net income and comprehensive income -   -   -   4,494     -     -     4,494
 
Balance – March 31, 2011 27,527 $ 275 $ 99,207 $ 168,569     (854 ) $ (5,582 ) $ 262,469
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, (amounts in thousands)   2011   2010
 
Cash Flows from Operating Activities:
Net income $ 4,494 $ 2,434

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 1,344 1,572
Provision for doubtful accounts 414 527
Stock-based compensation expense 205 283
Deferred income taxes 571 160
Loss on disposal of fixed assets 3 1
Income tax deficiency from stock-based compensation - (9 )
 
Changes in assets and liabilities:
Accounts receivable 23,072 21,528
Inventories 6,889 6,634
Prepaid expenses and other current assets (712 ) (544 )
Other non-current assets (104 ) 131
Accounts payable (5,205 ) (17,324 )
Accrued expenses and other liabilities   (1,842 )   (1,647 )
Net cash provided by operating activities   29,129     13,746  
 
Cash Flows from Investing Activities:
Acquisition of ValCom Technology, net of cash acquired (3,745 ) -
Purchases of property and equipment   (2,120 )   (692 )
Net cash used for investing activities   (5,865 )   (692 )
 
Cash Flows from Financing Activities:
Repayment of capital lease obligation to affiliate (209 ) (187 )
Exercise of stock options 131 -
Purchase of treasury shares   -     (129 )
Net cash used for financing activities   (78 )   (316 )
Increase in cash and cash equivalents 23,186 12,738
Cash and cash equivalents, beginning of period   35,374     46,297  
Cash and cash equivalents, end of period $ 58,560   $ 59,035  
 
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