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PC Connection, Inc. Reports Third 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, improve gross margins, 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 September 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 $ 575,646 $ 532,827 8 %
Diluted earnings per share $ 0.35 $ 0.32 9 %
 
Gross margin 12.2 % 11.6 %
Operating margin 2.8 % 2.7 %
Return on equity (1) 13.8 % 14.1 %
 
Catalogs distributed 1,333,000 2,042,000 (35 %)
Orders entered (2) 347,000 345,300 -
Average order size (2) $ 2,003 $ 1,942 3 %
 
Inventory turns (1) 28 26
Days sales outstanding 46 49
 
 
Product Mix:
Desktop/Server $ 98,994 17 % $ 82,222 15 % 20 %
Notebook & PDA 98,210 17 92,451 17 6
Software 82,204 14 82,748 15 (1 )
Video, Imaging & Sound 64,552 11 50,840 10 27
Net/Com Product 56,627 10 54,606 10 4
Printer & Printer Supplies 40,691 7 40,379 8 1
Storage Device 39,266 7 35,986 7 9
Memory & System Enhancement 17,745 3 25,171 5 (30 )
Accessory/Other   77,357   14     68,424   13   13
Total Net Sales $ 575,646   100 % $ 532,827   100 % 8 %
 
 
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):
 
$ 200,580   35 % $ 200,367   38 % -
 
 
Stock Performance Indicators:
Actual shares outstanding 26,309 26,544
Total book value per share $ 10.49 $ 9.40
Tangible book value per share $ 8.34 $ 7.52
Closing price $ 7.98 $ 6.83
Market capitalization $ 209,946 $ 181,296
Trailing price/earnings ratio 8 9
 
(1) Annualized
(2) Does not reflect cancellations or returns
 
 
                         
REVENUE AND MARGIN INFORMATION
For the Three Months Ended September 30,         2011       2010  
(Dollars in thousands) Net Sales   Gross Margin Net Sales   Gross Margin
 
SMB $ 212,248 15.9 % $ 208,733 14.2 %
Large Account 206,564 9.8 159,641 10.1
Public Sector 144,629 10.5 145,615 10.2
Consumer/SOHO   12,205   10.9   18,838   7.4
Total $ 575,646   12.2 % $ 532,827   11.6 %
 
 

                       
CONDENSED CONSOLIDATED STATEMENTS OF INCOME              
Three Months Ended September 30,       2011       2010  
(amounts in thousands, except per share data) Amount   % of Net Sales Amount  

% of Net Sales
 
Net sales $ 575,646 100.0 % $ 532,827 100.0 %
Cost of sales   505,210   87.8     470,856   88.4  
Gross profit 70,436 12.2 61,971 11.6
 
Selling, general and administrative expenses   54,554   9.4     47,640   8.9  
Income from operations 15,882 2.8 14,331 2.7
 
Interest expense (93 ) - (111 ) -
Other, net 32 - 49 -
Income tax provision   (6,435 ) (1.2 )   (5,643 ) (1.1 )
Net income $ 9,386   1.6 % $ 8,626   1.6 %
 
 
Earnings per common share:
Basic $ 0.35   $ 0.32  
Diluted $ 0.35   $ 0.32  
 
Weighted average common shares outstanding:
Basic   26,615     26,939  
Diluted   26,692     26,977  
 
 
                       
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended September 30,       2011     2010
(amounts in thousands, except per share data) Amount % of Net Sales   Amount % of Net Sales
 
Net sales $ 1,550,133 100.0 % $ 1,418,635 100.0 %
Cost of sales   1,353,984   87.4     1,252,031   88.3  
Gross profit 196,149 12.6 166,604 11.7
 
Selling, general and administrative expenses   160,321   10.3     139,615   9.8  
Income from operations 35,828 2.3 26,989 1.9
 
Interest expense (221 ) - (305 ) -
Other, net 129 - 159 -
Income tax provision   (14,376 ) 0.9     (10,760 ) (0.8 )
Net income $ 21,360   1.4 % $ 16,083   1.1 %
 
 
Earnings per common share:
Basic $ 0.80   $ 0.59  
Diluted $ 0.80   $ 0.59  
 
Weighted average common shares outstanding:
Basic   26,788     27,070  
Diluted   26,860     27,108  
 
 

                                     
CONDENSED CONSOLIDATED BALANCE SHEETS             September 30,         December 31,  
(amounts in thousands)                   2011               2010    
 
ASSETS
Current Assets:
Cash and cash equivalents $ 39,760 $ 35,374
Accounts receivable, net 269,916 238,011
Inventories 72,970 74,293
Deferred income taxes 4,520 3,813
Prepaid expenses and other current assets 3,931 4,210
Income taxes receivable   250     1,489  
Total current assets 391,347 357,190
Property and equipment, net 21,913 13,500
Goodwill 51,276 48,060
Other intangibles, net 5,389 1,786
Other assets   590     405  
Total Assets $ 470,515   $ 420,941  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of capital lease obligation to affiliate $ 945 $ 870
Accounts payable 138,819 114,632
Accrued expenses and other liabilities 26,611 23,963
Accrued payroll   13,788     12,652  

Total current liabilities
180,163 152,117
Deferred income taxes 8,462 5,822
Capital lease obligation to affiliate, less current maturities 1,242 1,960
Other liabilities   4,546     3,403  
Total Liabilities   194,413     163,302  
Stockholders’ Equity:
Common stock 276 275
Additional paid-in capital 99,369 98,871
Retained earnings 185,435 164,075
Treasury stock at cost   (8,978 )   (5,582 )
Total Stockholders’ Equity   276,102     257,639  
Total Liabilities and Stockholders’ Equity $ 470,515   $ 420,941  
 
 
                                         
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Nine Months Ended September 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 - - 698 - - - 698
 
Issuance of common stock under Employee Stock Purchase Plan 23 - 183 - - - 183
 
Nonvested stock awards - - (633 ) - 93 633 -
 
Tax benefit from stock-based compensation - - 68 - - - 68
 
Repurchase of common stock for treasury - - - - (487 ) (4,029 ) (4,029 )
 
Issuance of common stock under stock incentive plans 27 1 182 - - - 183
 
Net income and comprehensive income -   -   -     21,360   -     -     21,360  
 
Balance–September 30, 2011 27,557 $ 276 $ 99,369   $ 185,435   (1,248 ) $ (8,978 ) $ 276,102  
 
 

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, (amounts in thousands)         2011         2010  
     
Cash Flows from Operating Activities:
Net income $ 21,360 $ 16,083
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,375 4,152
Deferred income taxes 1,933 1,256
Provision for doubtful accounts 1,765 1,737
Stock-based compensation expense 698 1,102
Income tax benefit (deficiency) from stock-based compensation 68 (18 )
Loss on disposal of fixed assets 13 6
Fair value adjustment to contingent consideration (20 ) -
 
Changes in assets and liabilities:
Accounts receivable (30,407 ) (40,348 )
Inventories 1,617 (14,035 )
Prepaid expenses and other current assets 1,786 (1,467 )
Other non-current assets (157 ) 71
Accounts payable 22,100 24,675
Accrued expenses and other liabilities   (2,761 )   7,676  
Net cash provided by operating activities   22,370     890  
 
Cash Flows from Investing Activities:
Purchases of property and equipment (8,483 ) (2,350 )
Acquisition of ValCom Technology, net of cash acquired (4,745 ) -
Purchase of intangible asset (450 ) (800 )
Proceeds from sale of property and equipment   -     6  
Net cash used for investing activities   (13,678 )   (3,144 )
 
Cash Flows from Financing Activities:
Purchase of treasury shares (4,029 ) (3,067 )
Repayment of capital lease obligation to affiliate (643 ) (576 )
Issuance of stock under Employee Stock Purchase Plan 183 135
Exercise of stock options   183     -  
Net cash used for financing activities   (4,306 )   (3,508 )
Increase (decrease) in cash and cash equivalents 4,386 (5,762 )
Cash and cash equivalents, beginning of period   35,374     46,297  
Cash and cash equivalents, end of period $ 39,760   $ 40,535  
 
 
Non-cash Investing and Financing Activities:
Contingent consideration included in accrued expenses and other liabilities $ 1,900 $ -
Accrued capital expenditures 746 3,117
Issuance of nonvested stock from treasury 633 820

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