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PC Connection, Inc. Reports Second 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 June 30,   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 $ 512,561 $ 477,546 7 %
Diluted earnings per share $ 0.28 $ 0.18 56 %
 
Gross margin

13.0

% 11.7 %
Operating margin 2.4 % 1.8 %
Return on equity (1) 11.3 % 8.4 %
 
Catalogs distributed 1,453,000 2,247,000 (35 %)
Orders entered (2) 340,600 331,700 3 %
Average order size (2) $ 1,883 $ 1,777 6 %
 
Inventory turns (1) 25 27
Days sales outstanding 46 49
 
 
Product Mix:
Notebook & PDA $ 94,350 18 % $ 86,145 18 % 10 %
Desktop/Server 81,494 16 73,021 16 12
Software 76,254 15 62,335 13 22
Video, Imaging & Sound 52,326 10 53,044 11 (1 )
Net/Com Product 50,089 10 49,001 10 2
Printer & Printer Supplies 37,557 7 38,867 8 (3 )
Storage Device 35,720 7 38,960 8 (8 )
Memory & System Enhancement 18,713 4 18,483 4 1
Accessory/Other   66,058 13     57,690 12   15
Total Net Sales $ 512,561 100 % $ 477,546 100 % 7 %
 
 
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):
 
$ 184,279   36 % $ 178,129   37 % 3 %
 
 
Stock Performance Indicators:
Actual shares outstanding 26,541 26,721
Total book value per share $ 10.13 $ 9.06
Tangible book value per share $ 7.99 $ 7.19
Closing price $ 8.28 $ 6.06
Market capitalization $ 219,759 $ 161,929
Trailing price/earnings ratio 8 12
 
(1) Annualized
(2) Does not reflect cancellations or returns
 
 
 
 
             
REVENUE AND MARGIN INFORMATION
For the Three Months Ended June 30,   2011   2010  

Net Sales

Gross Margin Net Sales

Gross Margin

(Dollars in thousands)
 
SMB $ 218,022 15.2 % $ 190,661 14.4 %
Large Account 160,717 12.0 149,411 10.5
Public Sector 119,727 11.1 120,639 9.5
Consumer/SOHO   14,095   9.6   16,835   8.7
Total $ 512,561   13.0 % $ 477,546   11.7 %
 

       
                 
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30,   2011     2010  

(amounts in thousands, except per share data)

Amount   % of Net Sales Amount  

% of Net Sales

 
Net sales $ 512,561 100.0 % $ 477,546 100.0 %
Cost of sales   445,667  

87.0

  421,564  

88.3

Gross profit 66,894 13.0 55,982 11.7
 
Selling, general and administrative expenses   54,477  

10.6

  47,501  

9.9

Income from operations 12,417 2.4 8,481 1.8
 
Interest expense (87 ) - (95 ) -
Other, net 32 - 35 -
Income tax provision   (4,882 )

(0.9

)

  (3,398 )

(0.7

)

Net income $ 7,480  

1.5

% $ 5,023   1.1 %
 
 
Earnings per common share:
Basic $ 0.28   $ 0.19  
Diluted $ 0.28   $ 0.18  
 
Weighted average common shares outstanding:
Basic   26,852     27,116  
Diluted   26,923     27,156  
 
 
 
 
                 
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30,   2011     2010  
(amounts in thousands, except per share data) Amount   % of Net Sales Amount   % of Net Sales
 
Net sales $ 974,487 100.0 % $ 885,808 100.0 %
Cost of sales   848,774  

87.1

  781,175  

88.2

Gross profit 125,713 12.9 104,633 11.8
 
Selling, general and administrative expenses   105,767  

10.9

  91,975   10.4
Income from operations 19,946 2.0 12,658 1.4
 
Interest expense (128 ) - (194 ) -
Other, net 97 - 110 -
Income tax provision   (7,941 )

(0.8

)

  (5,117 )

(0.6

)

Net income $ 11,974   1.2 % $ 7,457   0.8 %
 
 
Earnings per common share:
Basic $ 0.45  

 

$ 0.27  
Diluted $ 0.44   $ 0.27  
 
Weighted average common shares outstanding:
Basic   26,877     27,136  
Diluted   26,959     27,175  
 

                           
CONSOLIDATED BALANCE SHEETS         June 30,    

December 31,

(amounts in thousands)               2011           2010  
 
ASSETS
Current Assets:
Cash and cash equivalents $ 55,292 $ 35,374
Accounts receivable, net 241,039 238,011
Inventories 75,432 74,293
Deferred income taxes 4,351 3,813
Prepaid expenses and other current assets 4,102 4,210
Income taxes receivable   2,545     1,489  
Total current assets 382,761 357,190
Property and equipment, net 20,560 13,500
Goodwill 51,276 48,060
Other intangibles, net 5,573 1,786
Other assets   598     405  
Total Assets $ 460,768   $ 420,941  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of capital lease obligation to affiliate $ 919 $ 870
Accounts payable 135,352 114,632
Accrued expenses and other liabilities 30,268 23,963
Accrued payroll   11,892     12,652  
Total current liabilities 178,431 152,117
Deferred income taxes 7,437 5,822
Capital lease obligation to affiliate, less current maturities 1,488 1,960
Other liabilities   4,584     3,403  
Total Liabilities   191,940     163,302  
Stockholders’ Equity:
Common stock 275 275
Additional paid-in capital 99,437 98,871
Retained earnings 176,049 164,075
Treasury stock at cost   (6,933 )   (5,582 )
Total Stockholders’ Equity   268,828     257,639  
Total Liabilities and Stockholders’ Equity $ 460,768   $ 420,941  
 
 
 
 
 
                                 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Six Months Ended June 30, 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 - - 441 - - - 441
 
Issuance of common stock under Employee Stock Purchase Plan 23 - 183 - - - 183
 
Nonvested stock awards - - (183 ) - 28 183 -
 
Repurchase of common stock for treasury - - - - (183 ) (1,534 ) (1,534 )
 
Issuance of common stock under stock incentive plans 20 - 131 - - - 131
 
Tax shortfall from stock-based compensation - - (6 ) - - - (6 )
 
Net income and comprehensive income -   -   -     11,974   -     -     11,974  
 

Balance–June 30, 2011

27,550 $ 275 $ 99,437   $ 176,049   (1,009 ) $ (6,933 ) $ 268,828  
 

         
CONSOLIDATED STATEMENTS OF CASH FLOWS    
Six Months Ended June 30, (amounts in thousands)     2011     2010  
 
Cash Flows from Operating Activities:
Net income $ 11,974 $ 7,457

Adjustments to reconcile net income to net cash provided byoperating activities:

 
Depreciation and amortization 2,889 2,891
Provision for doubtful accounts 1,119 1,177
Stock-based compensation expense 441 743
Deferred income taxes 1,077 352

Fair value adjustment to contingent consideration

(20 ) -
Loss on disposal of fixed assets 13 3
Income tax deficiency from stock-based compensation (6 ) (78 )
 
Changes in assets and liabilities:
Accounts receivable (884 ) (12,252 )
Inventories (845 ) 148
Prepaid expenses and other current assets (680 ) (831 )
Other non-current assets (165 ) 124
Accounts payable 18,925 2,653
Accrued expenses and other liabilities   (982 )   4,959  
Net cash provided by operating activities   32,856     7,346  
 
Cash Flows from Investing Activities:
Purchases of property and equipment (6,120 ) (1,380 )
Acquisition of ValCom Technology, net of cash acquired (4,725 ) -
Purchase of intangible asset   (450 )   (800 )
Net cash used for investing activities   (11,295 )   (2,180 )
 
Cash Flows from Financing Activities:
Purchase of treasury shares (1,534 ) (1,399 )
Repayment of capital lease obligation to affiliate (423 ) (379 )
Issuance of stock under Employee Stock Purchase Plan 183 135
Exercise of stock options   131     -  
Net cash used for financing activities   (1,643 )   (1,643 )
Increase in cash and cash equivalents 19,918 3,523
Cash and cash equivalents, beginning of period   35,374     46,297  
Cash and cash equivalents, end of period $ 55,292   $ 49,820  
 
 
Non-cash Investing and Financing Activities:
Contingent consideration included in accrued expenses and other liabilities $ 1,900 $ -
Accrued capital expenditures 454 126
Issuance of nonvested stock from treasury 183 368

 

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