PC Connection, Inc. Reports Third Quarter Results.Business/Technology Editors MERRIMACK Merrimack, river, United States Merrimack, river, c.110 mi (180 km) long, formed at Franklin, S central N.H., by the junction of the Pemigewasset (rising in the White Mts.) and Winnipesaukee rivers. It flows S past Concord and Manchester into NE Mass. , N.H.--(BUSINESS WIRE)--Oct. 24, 2002 THIRD QUARTER HIGHLIGHTS: 9.0% growth in net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight 17.1% sequential One after the other in some consecutive order such as by name or number. growth in net sales $.09 earnings per share Earnings ahead of analyst expectations PC Connection, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : PCCC PCCC Passaic County Community College (Paterson, NJ) PCCC Platform Communication on Climate Change (The Netherlands) PCCC Porsche Ceramic Composite Clutch ), a leading direct marketer of information technology (IT) products and solutions, today announced results for the quarter ended September September: see month. 30, 2002. Net sales for the three months ended September 30, 2002 increased by $28.1 million, or 9.0% to $341.0 million from $312.9 million for the three months ended September 30, 2001. Net income for the quarter was $2.2 million, or $.09 per share, compared to $2.1 million, or $.08 per share for the three months ended September 30, 2001. Excluding the after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. effects of restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). costs and other special charges of $718.0 thousand and $1.2 million for the three months ended September 30, 2002 and 2001, respectively, the Company reported net income for the quarter ended September 30, 2002 of $2.6 million, or $.11 per share, compared to net income of $2.8 million, or $.11 per share, for the quarter ended September 30, 2001. Net sales for the nine months ended September 30, 2002 were $869.3 million compared to $912.6 million for the corresponding period a year ago. Net income for the nine months ended September 30, 2002 was $383.0 thousand, or $.02 per share, compared to net income of $5.9 million, or $.24 per share for the nine months ended September 30, 2001. Excluding the after-tax effects of restructuring costs and other special charges of $1.6 million and $2.1 million for the nine months ended September 30, 2002 and 2001, respectively, the Company reported net income for the nine months ended September 30, 2002 of $1.3 million, or $.05 per share, compared to net income of $7.2 million, or $.29 per share, for the nine months ended September 30, 2001. The Company previously reported net sales of $291.1 million and net income of $.01 per share for the three months ended June June: see month. 30, 2001. Patricia Gallup Gallup, town (1990 pop. 19,154), alt. 6,515 ft (1,986 m), seat of McKinley co., NW N.Mex., on the Puerco River near the Ariz. line; inc. 1891. It is a rail and trade center in a large mining, timber, and ranching area. , Chairman and Chief Executive Officer of PC Connection, Inc., said, "We are encouraged by the improvement in our overall performance. Sales for our public sector segment, GovConnection, Inc., aided by seasonally strong sales to the federal government and education customers, grew sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen by 50%, to $96 million. Our large account segment, MoreDirect, Inc., grew sequentially by 31% to $70 million. Sales for our small- and medium-sized Me´di`um-sized` a. 1. Having a medium size; as, a medium-sized man s>. Adj. 1. medium-sized - intermediate in size medium-size, moderate-size, moderate-sized business segment (SMB (1) (Small to Medium-sized Business) Also called "SME" (small to medium-sized enterprise), it refers to companies that are larger than the small office/home office (SOHO), but not huge. ), were essentially equal ($174 million) to the sales for second quarter of 2002." As of September 30, 2002, the number of Outbound out·bound adj. Outward bound; headed away: outbound trains. Adj. 1. outbound - that is going out or leaving; "the departing train"; "an outward journey"; "outward-bound ships" Sales Account Managers for all operating segments totaled 511 compared to 496 at September 30, 2001, and compared to 521 at June 30, 2002. Average order size for the three months ended September 30, 2002 was $1,323 compared to $1,259 in the corresponding period a year ago and $1,127 in the three months ended June 30, 2002. Ken Koppel Koppel, Koppell, or Kopel may refer to: Koppel
Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. sales productivity per account manager increased from $2 million in the second quarter of 2002 to $2.3 million for the third quarter of 2002, a 15% sequential improvement. In addition, our SMB segment improved gross profit margins Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. by 72 basis points from 11.61% for the quarter ended June 30, 2002, to 12.33% for the quarter ended September 30, 2002." Notebook Computer A laptop computer that weighs in a range from five to seven pounds. The term originated when laptops were routinely more than 10 pounds, and those that became lighter were placed in a special "notebook" category. In practice, notebook computer and laptop computer are synonymous. Systems was the Company's largest product category, accounting for 16.0% of net sales in the third quarter of 2002, compared to 22.5% for the corresponding period a year ago. Desktop/server systems accounted for 14.8% of net sales in the third quarter of 2002 compared to 12.0% of net sales for the corresponding period a year ago. Computer system average selling prices The average sales price of goods or commodities. Especially used in the retail sector and technology distribution. (ASPs) increased 2% in the third quarter compared to the corresponding period a year ago and increased 2% compared to the second quarter of 2002, resulting primarily from a 23% sequential increase in server ASPs. Gross profit margins as a percentage of net sales increased to 10.9% in the third quarter of 2002 from 10.7% in the second quarter of 2002. Gross profit margins in the Company's SMB segment improved sequentially by 72 basis points while gross profit margins in our Public Sector segment decreased by 37 basis points. As stated in previous releases, the Company expects that its gross profit margin as a percentage of net sales may vary by quarter based upon vendor support programs, product mix, pricing strategies There are many ways in which the price of a product can be determined. The following are the foremost strategies that businesses are likely to use. Competition-based pricing Setting the price based upon prices of the similar competitor products. , market conditions and other factors. Total selling, general, and administrative expenses (SG&A), as a percentage of net sales, were 9.6% in the third quarter of 2002, compared to 9.3% in the corresponding period a year ago, and 10.5% in the second quarter of 2002. The Company expects that its SG&A as a percentage of net sales may vary by quarter depending on changes in sales volume, as well as the levels of continuing investments in key growth initiatives. Subsequent to the issuance of the Company's consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge for the quarter ended June 30, 2002, the Company's management determined that it should have recorded revenue at the time of delivery to customers rather than upon shipment under Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB SAB Spontaneous abortion. See Abortion. 101"). The Company implemented SAB 101, effective January January: see month. 1, 1999 and, consistent with its historical practice, continued to record revenue at the time of shipment, concurrent At the same time. It implies that multiple processes are taking place simultaneously. See concurrent operation. with the passage of title under the Company's documentation with its customers. Historically, however, the Company generally covered customer losses and damage to shipments in transit transit, in astronomy, passage of a body across a meridian or passage of a small body across the visible disk of a larger one. (The passage of a large body across a smaller one is called an eclipse or occultation. . The Company established reserves each quarter to cover estimated losses and damages to in-transit goods which were included in SG&A expense. The Company recently learned of an SEC Staff interpretation of SAB 101 indicating that companies generally covering customer losses and damage to shipments in transit should record revenue at the time of delivery (the "de facto [Latin, In fact.] In fact, in deed, actually. This phrase is used to characterize an officer, a government, a past action, or a state of affairs that must be accepted for all practical purposes, but is illegal or illegitimate. " passage of title) rather than upon shipment. Although the effects of recording revenue at time of delivery, rather than at time of shipment, are not material to any prior fiscal year or quarter, if the Company had made a cumulative retroactive Having reference to things that happened in the past, prior to the occurrence of the act in question. A retroactive or retrospective law is one that takes away or impairs vested rights acquired under existing laws, creates new obligations, imposes new duties, or attaches a adjustment in the quarter ended September 30, 2002 it would have decreased results of operations by $.02 per share and this, therefore, would have been considered material. Accordingly, the Company will amend its annual report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December December: see month. 31, 2001 and its reports on Form 10-Q Form 10-Q See 10-Q. for the periods ended March 31, 2002 and June 30, 2002 for this change in revenue recognition practice. All prior year and prior quarter comparative figures contained herein reflect this change. Schedule A attached sets forth, for each such period, the previously reported financial statements, all adjustments resulting from the change in revenue recognition practice and the financial statements reflecting this change. Patricia Gallup, concluded, "Again, we are pleased with PC Connection's overall performance for the quarter. The investments we have made over the past year, and our efforts to improve the efficiency and effectiveness of our sales organizations, are beginning to produce results. We strongly believe we can continue to enhance our operating performance and build long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. shareholder value." PC Connection, Inc., a Fortune 1000 company, operates through three sales subsidiaries, PC Connection Sales Corporation of Merrimack, NH, GovConnection, Inc. of Rockville Rockville, city (1990 pop. 44,835), seat of Montgomery co., W central Md., a NW suburb of Washington, D.C.; settled c.1760s, inc. as a city 1860. It has several scientific research and technology laboratories that focus on the aerospace, electronics, nuclear energy, , MD and MoreDirect, Inc. of Boca Raton Boca Raton (bō`kə rətōn`), city (1990 pop. 61,492), Palm Beach co., SE Fla., on the Atlantic; inc. 1925. Boca Raton is a popular resort and retirement community that experienced significant industrial development in the 1970s and 80s. , FL. PC Connection Sales Corporation is a rapid-response provider of information technology (IT) products and solutions offering more than 100,000 brand-name products to businesses through its staff of technically trained outbound sales account managers and catalog catalog, descriptive list, on cards or in a book, of the contents of a library. Assurbanipal's library at Nineveh was cataloged on shelves of slate. The first known subject catalog was compiled by Callimachus at the Alexandrian Library in the 3d cent. B.C. telesales telesales Noun the selling of a commodity or service by telephone telesales npl → televentas fpl telesales npl → representatives, its comprehensive web sites at www.pcconnection.com and www.macconnection.com, and its catalogs PC Connection (1-800-800-5555) and MacConnection (1-800-800-2222). GovConnection, Inc. is a rapid-response provider of IT products and solutions, offering more than 100,000 brand-name products to federal, state and local government agencies and educational institutions (1-800-800-0019). MoreDirect, Inc. provides corporate technology buyers with a comprehensive web-based e-procurement (Electronic-PROCUREMENT) Purchasing online. E-procurement systems are used to obtain materials and parts via the Web or using traditional EDI standards either for internal manufacturing (direct procurement) or office supplies and equipment (indirect procurement). solution and in-depth in-depth adj. Detailed; thorough: an in-depth study. in-depth Adjective detailed or thorough: an in-depth analysis IT supply-chain expertise, serving as a one-stop one-stop adj. Relating to or providing a comprehensive selection of goods or services at a single location: one-stop shopping; a one-stop health-care center. source by aggregating more than 350,000 products from the inventories of leading IT wholesale distributors and manufacturers. All three subsidiaries can deliver custom-configured computer systems overnight. A live webcast of PC Connection Management's discussion of the third quarter will be available on the Company's Web site at www.pcconnection.com and on www.streetevents.com. The webcast will begin today at 10:00 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy . "Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. " Statement Under the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995: This release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 other risks detailed under the caption "Factors That May Affect Future Results and Financial Condition" in the Company's 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2001. More specifically, the statements in this release concerning the Company's outlook for the balance of 2002 and the statements concerning the Company's gross margin percentage, average selling prices and selling and administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. and other statements of a non-historical basis (including statements regarding implementing strategies for future growth and the ability of the Company to regain its model of profitable growth) 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 continuation - continuation passing style of key vendor relationships and support programs and the ability of the Company to hire and retain qualified sales account managers and other essential personnel.
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
At or for the Three Months Ended September 30,
(Dollars and shares in thousands, except
operating data, price/earnings ratio and
per share data)
2002 % of 2001 % of %
Net (Restated)(5) Net Change
Sales Sales
Operating Data:
Net sales growth
(decrease) 9.0% (21.3)%
Diluted earnings
per share change 12.5 (81.0)
Gross profit
margin 10.9 10.7
Operating margin 1.1 1.0
Return on
equity (2) 6.1 5.7
Catalogs
distributed 7,445,150 9,830,000 (24.3)%
Orders
entered (1) 314,000 297,000 5.7
Average order
size (1) $1,323 $1,259 5.1
Inventory
turns (2) 24 18
Days sales
outstanding 50 40
Product Mix:
Notebooks $ 54,726 16.0% $ 70,484 22.5% (22.4)%
Desktops/Servers 50,640 14.8 37,560 12.0 34.8
Storage Devices 30,706 9.0 28,673 9.2 7.1
Software 53,906 15.8 43,300 13.8 24.5
Networking
communications 27,757 8.1 29,389 9.4 (5.6)
Printers 29,262 8.6 26,143 8.4 11.9
Videos & Monitors 33,587 9.8 27,127 8.7 23.8
Memory 11,782 3.5 7,784 2.5 51.4
Accessories/
Other 48,673 14.4 42,425 13.5 14.7
$ 341,039 100.0% $ 312,885 100.0% 9.0%
Net Sales of
Enterprise Server
and Networking
Products (included
in the above
Product Mix): $ 74,992 22.0% $ 58,926 18.8% 27.3%
Stock Performance
Indicators:
Actual shares
outstanding 24,554 24,444
Total book value
per share $5.99 $5.89
Tangible book
value per
share (4) $4.90 $5.52
Closing price $4.06 $7.74
Market
capitalization $99,689 $189,197
Trailing price/
earnings
ratio (3) 58 17
(1) Does not reflect cancellations or returns.
(2) Annualized.
(3) Earnings are based on the last four quarters.
(4) Calculation is based on tangible net assets.
(5) Includes adjustments for change in revenue recognition
practice - see Schedule A.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30,
(Amounts in thousands, except per share data)
2002 2001
(Restated)(1)
Amount % of Amount % of
Net Sales Net Sales
Net sales $ 341,039 100.00% $ 312,885 100.00%
Cost of sales 303,869 89.10 279,352 89.28
Gross Profit 37,170 10.90 33,533 10.72
Selling, general
and administrative
expenses 32,625 9.57 29,117 9.31
Restructuring costs
and other special
charges 718 .21 1,200 .38
Income From
Operations 3,827 1.12 3,216 1.03
Interest expense (297) (.09) (264) (.08)
Other, net 94 .03 357 .11
Income tax provision (1,418) (.41) (1,257) (.40)
Net Income $ 2,206 .65% $ 2,052 .66%
Weighted average
common shares
outstanding:
Basic 24,533 24,524
Diluted 24,789 24,939
Earnings per common
share:
Basic $ .09 $ .08
Diluted $ .09 $ .08
(1) Includes adjustments for change in revenue recognition
practice - see Schedule A.
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30,
(Amounts in thousands, except per share data)
2002 2001
(Restated)(1)
Amount % of Amount % of
Net Sales Net Sales
Net sales $ 869,347 100.00% $ 912,581 100.00%
Cost of sales 775,903 89.25 810,873 88.85
Gross Profit 93,444 10.75 101,708 11.15
Selling, general
and administrative
expenses 90,712 10.43 90,210 9.89
Restructuring costs
and other special
charges 1,636 .19 2,051 .22
Income From
Operations 1,096 .13 9,447 1.04
Interest expense (835) (.10) (918) (.10)
Other, net 421 .05 1,041 .11
Income tax
provision (299) (.04) (3,636) (.40)
Net Income $ 383 .04% $ 5,934 .65%
Weighted average
common shares
outstanding:
Basic 24,546 24,455
Diluted 24,848 24,958
Earnings per common
share:
Basic $ .02 $ .24
Diluted $ .02 $ .24
(1) Includes adjustments for change in revenue recognition
practice - see Schedule A.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
Sept. 30, Dec. 31,
2002 2001
(Restated)(2)
ASSETS
Current Assets:
Cash and cash equivalents $ 13,862 $ 35,605
Accounts receivable, net 142,628 107,163
Inventories - merchandise 52,774 57,456
Deferred income taxes 3,203 2,559
Income tax receivable 3,037 1,312
Prepaid expenses and other
current assets 2,483 3,013
Total current assets 217,987 207,108
Property and equipment, net 27,464 27,472
Goodwill, net and other
intangibles, net 26,738 8,807
Restricted cash (1) 10,000 --
Other assets 381 258
Total assets $ 282,570 $ 243,645
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital
lease obligation to affiliate $ 185 $ 171
Current maturities of
long-term debt -- 1,000
Accounts payable 111,146 75,399
Accrued expenses and other
liabilities 14,139 10,096
Total current liabilities 125,470 86,666
Capital lease obligation to
affiliate, less current
maturities 6,481 6,621
Deferred taxes 3,643 3,523
Other liabilities 16 73
Total liabilities 135,610 96,883
Stockholders' Equity:
Common stock 249 247
Additional paid-in capital 74,957 74,393
Retained earnings 74,042 73,659
Treasury stock at cost (2,288) (1,537)
Total stockholders'
equity 146,960 146,762
Total liabilities and
stockholders' equity $ 282,570 $ 243,645
(1) Cash escrow established for the MoreDirect, Inc. acquisition.
(2) Includes adjustments for change in revenue recognition
practice - see Schedule A.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY(Restated)(1)
Nine months ended September 30, 2002 (Amounts in thousands)
Common Stock Treasury Shares
Addtl. Retained
Shares Amount Paid In Earnings Shares Amount Total
Balance - Capital
December
31, 2001 24,748 $247 $74,393 $73,659 (205) $(1,537) $146,762
Exercise of
stock
options,
including
income tax
benefits 78 1 252 - - - 253
Issuance of
stock under
employee
stock
purchase
plan 89 1 312 - - - 313
Repurchase of
common stock
for treasury - - - - (156) (751) (751)
Net income - - - 383 - - 383
Balance -
September
30, 2002 24,915 $249 $74,957 $74,042 (361) $(2,288) $146,960
(1) Includes adjustments for change in revenue recognition practice -
see Schedule A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, (Amounts in thousands)
2002 2001
(Restated)(1)
Cash Flows from Operating
Activities:
Net income $ 383 $ 5,934
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 5,997 5,763
Deferred income
taxes (524) 42
Provision for doubtful
accounts 5,838 8,590
Loss on disposal of
fixed assets -- 9
Changes in assets and
liabilities:
Accounts receivable (12,392) 14,829
Inventories 5,000 18,082
Prepaid expenses and
other current assets (865) 5,633
Other non-current assets (95) 191
Income tax benefits from
exercise of stock options 118 156
Accounts payable 12,845 (5,692)
Accrued expenses and other
liabilities 378 (1,513)
Net cash provided by
operating activities 16,683 52,024
Cash Flows from Investing
Activities:
Purchases of property and
equipment (4,428) (4,860)
Proceeds from sale of
property and equipment 16 16
Payments for acquisitions,
net of cash acquired (22,585) --
Cash escrow funded for
acquisition (10,000) --
Net cash used for investing
activities (36,997) (4,844)
Cash Flows from Financing
Activities:
Proceeds from short-term
borrowings 19,568 67,952
Repayment of short-term
borrowings (19,568) (67,952)
Repayment of notes payable (1,000) (1,000)
Repayment of capital lease
obligations to affiliate (126) (113)
Exercise of stock options 135 615
Issuance of stock under
employee stock purchase plan 313 728
Purchase of treasury shares (751) (1,497)
Net cash used for financing
activities (1,429) (1,267)
(Decrease)/increase in cash
and cash equivalents (21,743) 45,913
Cash and cash equivalents,
beginning of period 35,605 7,363
Cash and cash equivalents,
end of period $ 13,862 $ 53,276
(1) Includes adjustments for change in revenue recognition practice -
see Schedule A.
PC Connection, Inc.
Third Quarter Earnings - 10/24/02
CONSOLIDATED BALANCE SHEETS
ATTACHMENT A
Restatement
As Reported
At December 31,
(Dollars in thousands) 1999 2000 2001
Current Assets:
Cash and cash equivalents $ 20,416 $ 7,363 $ 35,605
Accounts receivable net 99,405 139,644 117,461
Inventories - merchandise 64,348 54,679 48,003
Deferred income taxes 1,991 2,175 2,304
Income taxes receivable 1,403 4,882 1,312
Prepaid expenses and other
current assets 3,248 3,064 3,013
Total Current Assets 190,811 211,807 207,698
Property and equipment, net 23,126 28,665 27,472
Deferred income taxes -- -- --
Goodwill, net 9,431 9,509 8,807
Other assets 169 432 258
Total Assets $ 223,537 $ 250,413 $ 244,235
Current Liabilities:
Current maturities of capital
lease obligation to affiliate $ 137 $ 153 $ 171
Current maturities of long
term debt 1,000 1,000 1,000
Accounts payable 105,547 86,216 75,399
Accrued expenses and other
liabilities 11,877 12,769 10,272
Total current liabilities 118,561 100,138 86,842
Long-term debt, less current
maturities 2,000 1,000 --
Capital lease obligations to
affiliate, less current
maturities 6,945 6,792 6,621
Deferred income taxes 1,579 3,555 3,523
Other liabilities 229 241 73
Total Liabilities 129,314 111,726 97,059
Stockholders' Equity
Common Stock 237 244 247
Additional paid-in capital 58,548 71,542 74,393
Retained earnings 35,438 66,901 74,073
Treasury stock at cost -- -- (1,537)
Total Stockholders'
Equity 94,223 138,687 147,176
Total Liabilities and
Stockholders' Equity $ 223,537 $ 250,413 $ 244,235
Adjustments
At December 31,
(Dollars in thousands) 1999 2000 2001
Current Assets:
Cash and cash equivalents
Accounts receivable net $ (5,883) $ (15,564)$ (10,298)
Inventories - merchandise 5,171 14,285 9,453
Deferred income taxes 215 381 255
Income taxes receivable
Prepaid expenses and other
current assets
Total Current Assets (497) (898) (590)
Property and equipment, net
Deferred income taxes
Goodwill, net
Other assets
Total Assets $ (497) $ (898) $ (590)
Current Liabilities:
Current maturities of capital
lease obligation to affiliate
Current maturities of long
term debt
Accounts payable
Accrued expenses and other
liabilities $ (146) $ (277) $ (176)
Total current liabilities (146) (277) (176)
Long-term debt, less current
maturities
Capital lease obligations to
affiliate, less current
maturities
Deferred income taxes
Other liabilities
Total Liabilities (146) (277) (176)
Stockholders' Equity
Common Stock
Additional paid-in capital
Retained earnings (351) (621) (414)
Treasury stock at cost
Total Stockholders'
Equity (351) (621) (414)
Total Liabilities and
Stockholders' Equity $ (497) $ (898) $ (590)
As Restated
At December 31,
(Dollars in thousands) 1999 2000 2001
Current Assets:
Cash and cash equivalents $ 20,416 $ 7,363 $ 35,605
Accounts receivable net 93,522 124,080 107,163
Inventories - merchandise 69,519 68,964 57,456
Deferred income taxes 2,206 2,556 2,559
Income taxes receivable 1,403 4,882 1,312
Prepaid expenses and
other current assets 3,248 3,064 3,013
Total Current Assets 190,314 210,909 207,108
Property and equipment, net 23,126 28,665 27,472
Deferred income taxes - - -
Goodwill, net 9,431 9,509 8,807
Other assets 169 432 258
Total Assets $ 223,040 $ 249,515 $ 243,645
Current Liabilities:
Current maturities of capital
lease obligation to affiliate $ 137 $ 153 $ 171
Current maturities of long
term debt 1,000 1,000 1,000
Accounts payable 105,547 86,216 75,399
Accrued expenses and other
liabilities 11,731 12,492 10,096
Total current liabilities 118,415 99,861 86,666
Long-term debt, less current
maturities 2,000 1,000 -
Capital lease obligations to
affiliate, less current
maturities 6,945 6,792 6,621
Deferred income taxes 1,579 3,555 3,523
Other liabilities 229 241 73
Total Liabilities 129,168 111,449 96,883
Stockholders' Equity
Common Stock 237 244 247
Additional paid-in capital 58,548 71,542 74,393
Retained earnings 35,087 66,280 73,659
Treasury stock at cost - - (1,537)
Total Stockholders' Equity 93,872 138,066 146,762
Total Liabilities and
Stockholders' Equity $ 223,040 $ 249,515 $ 243,645
NOTE:
Subsequent to the issuance of the Company's consolidated financial
statements for the quarter ended June 30, 2002, the Company's
management determined that it should have recordedecevenue at the time
of delivery to customers rather than upon shipment under Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" ("SAB 101"). The Company implemented SAB 101, effective
January 1, 1999 and, consistent with its historical practice,
continued to record revenue at the time of shipment, concurrent with
the passage of title under the Company's documentation with its
customers. Historically, however, the Company generally covered
customer losses and damage to shipments in-transit. The Company
established reserves each quarter to cover estimated losses and
damages to in-transit goods which were included in S,G&A expense. The
Company recently learned of an SEC Staff interpretation of SAB 101
indicating that companies generally covering customer losses and
damage to shipments in transit should record revenue at the time of
delivery (the "de facto" passage of title) rather than upon shipment.
Although the effects of recording revenue at time of delivery,
rather than at time of shipment, are not material to any prior fiscal
year or quarter, if the Company had made a cumulative retroactive
adjustment in the quarter ended September 30, 2002 it would have
decreased results of operations by $.02 per share and this, therefore,
would have been considered material. Accordingly, the Company will
amend its annual report on Form 10-K for the year ended December 31,
2001 and its reports on Form 10-Q for the periods ended March 31, 2002
and June 30, 2002 for this change in revenue recognition practice. All
prior year and prior quarter comparative figures contained herein
reflect this change. Schedule A attached sets forth, for each such
period, the previously reported financial statements, all adjustments
resulting from the change in revenue recognition practice, and the
financial statements reflecting this change.
PC Connection, Inc.
Third Quarter Earnings, Inc - 10/24/02
CONSOLIDATED STATEMENTS OF OPERATIONS
ATTACHEMENT A
Restatement
AS REPORTED
(Dollars in thousands)
1999 2000
For the Periods
Ended 3/31 6/30 9/30 12/31 TOTAL
Net Sales $1,080,835 $333,799 $366,090 $404,876 $345,143 $1,449,908
Cost of
Sales 951,489 293,169 321,145 355,146 304,227 1,273,687
Gross Profit 129,346 40,630 44,945 49,730 40,916 176,221
Selling,
general and
administrative
expenses 91,405 29,007 30,903 32,872 31,190 123,972
Restructuring
and other special
charges - - - - - -
Income From
Operations 37,941 11,623 14,042 16,858 9,726 52,249
Interest
Expense (1,392) (340) (334) (440) (972) (2,086)
Other, net 116 204 165 121 99 589
Income tax
provision (13,935) (4,368) (5,272) (6,284) (3,365) (19,289)
Net Income $ 22,730 $ 7,119 $ 8,601 $ 10,255 $ 5,488 $ 31,463
Earnings per common share:
Basic $ 0.97 $ 0.30 $ 0.36 $ 0.42 $ 0.23 $ 1.31
Diluted $ 0.94 $ 0.29 $ 0.34 $ 0.40 $ 0.22 $ 1.23
ADJUSTMENTS
(Dollars in thousands)
1999 2000
For the Periods
Ended 3/31 6/30 9/30 12/31 TOTAL
Net Sales $(1,487) $(6,867) $(7,146) $(7,400) $11,732 $(9,681)
Cost of
Sales (1,324) (6,228) (6,401) (7,436) 10,951 (9,114)
Gross Profit (163) (639) (745) 36 781 (567)
Selling,
general and
administrative
expenses (83) (155) (163) (10) 190 (138)
Restructuring
and other special
charges - - - - -
Income From
Operations (80) (484) (582) 46 591 (429)
Interest
Expense - -
Other, net and
cumulative
effect (305) - -
Income tax
provision 34 184 222 (18) (225) 163
Net Income $(351) $ (300) $ (360) $ 28 $ 366 $ (266)
Earnings per common share: (1)
Basic $(0.00) $(0.01) $(0.02) $ 0.00 $ 0.01 $(0.01)
Diluted $(0.00) $(0.02) $(0.02) $ 0.00 $ 0.01 $(0.01)
AS RESTATED
(Dollars in thousands)
1999 2000
For the Periods
Ended 3/31 6/30 9/30 12/31 TOTAL
Net Sales $1,079,348 $326,932 $358,944 $397,476 $356,875 $1,440,227
Cost of
Sales 950,165 286,941 314,744 347,710 315,178 1,264,573
Gross Profit 129,183 39,991 44,200 49,766 41,697 175,654
Selling,
general and
administrative
expenses 91,322 28,852 30,740 32,862 31,380 123,834
Restructuring
and other special
charges - - - - - -
Income From
Operations 37,861 11,139 13,460 16,904 10,317 51,820
Interest
Expense (1,392) (340) (334) (440) (972) (2,086)
Other, net (189) 204 165 121 99 589
Income tax
provision (13,901) (4,184) (5,050) (6,302) (3,590) (19,126)
Net Income $ 22,379 $ 6,819 $ 8,241 $ 10,283 $ 5,854 $ 31,197
Earnings per common share: (1)
Basic $ 0.97 $ 0.29 $ 0.34 $ 0.42 $ 0.24 $ 1.30
Diluted $ 0.94 $ 0.27 $ 0.32 $ 0.40 $ 0.23 $ 1.22
AS REPORTED
(Dollars in thousands)
2001
For the Periods
Ended 3/31 6/30 9/30 12/31 TOTAL
Net Sales $301,775 $297,338 $308,689 $273,149 $1,180,951
Cost of Sales 266,450 264,486 275,454 243,409 1,049,799
Gross Profit 35,325 32,852 33,235 29,740 131,152
Selling, general and
administrative
expenses 30,463 30,653 29,038 27,354 117,508
Restructuring
and other special
charges 851 - 1,200 153 2,204
Income From
Operations 4,011 2,199 2,997 2,233 11,440
Interest Expense (377) (277) (264) (261) (1,179)
Other, net 288 396 357 266 1,307
Income tax
provision (1,489) (882) (1,174) (851) (4,396)
Net Income $ 2,433 $ 1,436 $ 1,916 $ 1,387 $ 7,172
Earnings per common share:
Basic $ 0.10 $ 0.06 $ 0.08 $ 0.06 $ 0.29
Diluted $ 0.10 $ 0.06 $ 0.08 $ 0.06 $ 0.29
ADJUSTMENTS
(Dollars in thousands)
2001
For the Periods
Ended 3/31 6/30 9/30 12/31 TOTAL
Net Sales $ 1,535 $ (952) $ 4,196 $ 487 $ 5,266
Cost of Sales 1,446 (861) 3,898 349 4,832
Gross Profit 89 (91) 298 138 434
Selling, general and
administrative
expenses 13 (36) 79 46 102
Restructuring
and other special
charges - - - -
Income From
Operations 76 (55) 219 92 332
Interest Expense - -
Other, net and
cummulative effect - -
Income tax
provision (29) 21 (83) (34) (125)
Net Income $ 47 $ (34) $ 136 $ 58 $ 207
Earnings per common share: (1)
Basic $ 0.00 $ (0.00) $ 0.00 $ 0.00 $ 0.01
Diluted $ 0.00 $ (0.00) $ 0.00 $ 0.00 $ 0.01
AS RESTATED
(Dollars in thousands)
2001
For the Periods
Ended 3/31 6/30 9/30 12/31 TOTAL
Net Sales $ 303,310 $ 296,386 $ 312,885 $ 273,636 $1,186,217
Cost of Sales 267,896 263,625 279,352 243,758 1,054,631
Gross Profit 35,414 32,761 33,533 29,878 131,586
Selling, general and
administrative
expenses 30,476 30,617 29,117 27,400 117,610
Restructuring
and other special
charges 851 - 1,200 153 2,204
Income From
Operations 4,087 2,144 3,216 2,325 11,772
Interest Expense (377) (277) (264) (261) (1,179)
Other, net 288 396 357 266 1,307
Income tax
provision (1,518) (861) (1,257) (885) (4,521)
Net Income $ 2,480 $ 1,402 $ 2,052 $ 1,445 $ 7,379
Earnings per common share: (1)
Basic $ 0.10 $ 0.06 $ 0.08 $ 0.06 $ 0.30
Diluted $ 0.10 $ 0.06 $ 0.08 $ 0.06 $ 0.30
AS REPORTED
(Dollars in thousands)
2002
For the Periods
Ended 6/30 9/30 YTD
Net Sales $ 236,160 $ 292,188 $ 528,348
Cost of Sales 211,179 260,738 471,917
Gross Profit 24,981 31,450 56,431
Selling, general and
administrative expenses 27,489 30,652 58,141
Restructuring and other
special charges 813 105 918
Income From Operations (3,321) 693 (2,628)
Interest Expense (242) (296) (538)
Other, net 195 132 327
Income tax provision 1,280 (204) 1,076
Net Income $ (2,088) $ 325 $ (1,763)
Earnings per common share:
Basic $ (0.09) $ 0.01 $ (0.08)
Diluted $ (0.09) $ 0.01 $ (0.08)
ADJUSTMENTS
(Dollars in thousands)
2002
For the Periods
Ended 6/30 9/30 YTD
Net Sales $ 960 $ (1,000) $ (40)
Cost of Sales 991 (874) 117
Gross Profit (31) (126) (157)
Selling, general and
administrative expenses (11) (43) (54)
Restructuring and other
special charges - - -
Income From Operations (20) (83) (103)
Interest Expense - - -
Other, net and cumulative effect - - -
Income tax provision 8 35 43
Net Income $ (12) $ (48) $ (60)
Earnings per common share: (1)
Basic $ (0.00) $ (0.00) $ (0.00)
Diluted $ (0.00) $ (0.00) $ (0.00)
AS RESTATED
(Dollars in thousands)
2002
For the Periods
Ended 6/30 9/30 YTD
Net Sales $ 237,120 $ 291,188 $ 528,308
Cost of Sales 212,170 259,864 472,034
Gross Profit 24,950 31,324 56,274
Selling, general and
administrative expenses 27,478 30,609 58,087
Restructuring and other
special charges 813 105 918
Income From Operations (3,341) 610 (2,731)
Interest Expense (242) (296) (538)
Other, net 195 132 327
Income tax provision 1,288 (169) 1,119
Net Income $ (2,100) $ 277 $ (1,823)
Earnings per common share: (1)
Basic $ (0.09) $ 0.01 $ (0.08)
Diluted $ (0.09) $ 0.01 $ (0.08)
(1) EPS for 1999 is before the cumulative effect of change.
PC Connection, Inc.
Third Quarter Earnings - 10/24/02
SELECTED FINANCIAL HIGHLIGHTS
ATTACHMENT A
Restatement
AS REPORTED
(Dollars in thousands)
1999 2000
For the Periods
Ended 3/31 6/30 9/30 12/31 TOTAL
Product Mix:
Notebooks $ 250,801 $ 90,915 $ 96,068 $ 101,132 $ 76,952 $ 365,067
Desktop/
Servers 165,325 48,705 53,134 61,010 48,656 211,505
Storage
Devices 109,675 29,695 32,458 40,147 37,106 139,406
Software 129,484 35,889 40,200 35,822 38,071 149,982
Networking
Communi-
cations 69,065 23,953 28,943 31,798 28,328 113,022
Printers 99,287 24,565 24,523 29,447 24,590 103,125
Videos &
Monitors 81,805 24,927 29,007 33,772 29,896 117,602
Memory 38,318 12,274 14,517 17,161 14,513 58,465
Accessories/
Other 137,075 42,876 47,240 54,587 47,031 191,734
$ 1,080,835 $ 333,799 $366,090 $ 404,876 $345,143 1,449,908
Key Ratios:
Quarterly
Inventory
Turns 20 21 20 17
Quarterly
Days Sales
Outstanding 45 47 51 51
AS RESTATED
(Dollars in thousands)
1999 2000
For the Periods
Ended 3/31 6/30 9/30 12/31 TOTAL
Product Mix:
Notebooks $ 250,456 $ 89,045 $ 94,193 $ 99,284 $ 79,568 $ 362,090
Desktop/
Servers 165,098 47,703 52,097 59,895 50,310 210,005
Storage
Devices 109,524 29,084 31,824 39,413 38,367 138,688
Software 129,307 35,151 39,415 35,167 39,365 149,098
Networking
Communi-
cations 68,970 23,460 28,378 31,217 29,291 112,346
Printers 99,150 24,060 24,044 28,909 25,426 102,439
Videos &
Monitors 81,692 24,414 28,441 33,155 30,912 116,922
Memory 38,265 12,021 14,234 16,847 15,006 58,108
Accessories/
Other 136,886 41,994 46,318 53,589 48,630 190,531
$ 1,079,348 $ 326,932 $358,944 $ 397,476 $356,875$1,440,227
Key Ratios:
Quarterly
Inventory
Turns 17 17 15 13
Quarterly
Days Sales
Outstanding 40 41 43 44
AS REPORTED
(Dollars in thousands)
2001
For the Periods
Ended 3/31 6/30 9/30 12/31 TOTAL
Product Mix:
Notebooks $ 70,721 $ 58,846 $ 69,540 $ 55,936 $ 255,043
Desktop/
Servers 38,829 37,710 37,056 32,356 145,951
Storage
Devices 29,964 29,175 28,288 28,386 115,813
Software 37,018 39,457 42,719 39,292 158,486
Networking
Communi-
cations 26,985 27,613 28,995 23,435 107,028
Printers 23,910 26,142 25,792 21,361 97,205
Videos &
Monitors 24,608 29,200 26,763 25,588 106,159
Memory 10,092 9,180 7,680 6,592 33,544
Accessories/
Other 39,648 40,015 41,856 40,203 161,722
$301,775 $ 297,338 $308,689 $ 273,149 $1,180,951
Key Ratios:
Quarterly
Inventory
Turns 20 19 23 21
Quarterly
Days Sales
Outstanding 50 48 45 56
AS RESTATED
(Dollars in thousands)
2001
For the Periods
Ended 3/31 6/30 9/30 12/31 TOTAL
Product Mix:
Notebooks $ 71,081 $ 58,658 $ 70,484 $ 56,036 $ 256,259
Desktop/
Servers 39,027 37,589 37,560 32,414 146,590
Storage
Devices 30,116 29,082 28,673 28,437 116,308
Software 37,206 39,331 43,300 39,362 159,199
Networking
Communi-
cations 27,122 27,525 29,389 23,477 107,513
Printers 24,032 26,058 26,143 21,399 97,632
Videos &
Monitors 24,733 29,107 27,127 25,634 106,601
Memory 10,143 9,151 7,784 6,604 33,682
Accessories/
Other 39,850 39,885 42,425 40,273 162,433
$ 303,310 $ 296,386 $312,885 $ 273,636 $1,186,217
Key Ratios:
Quarterly
Inventory
Turns 16 16 18 17
Quarterly
Days Sales
Outstanding 43 42 40 51
AS REPORTED
(Dollars in thousands)
2002
For the Periods
Ended 3/31 6/30 YTD
Product Mix:
Notebooks $ 36,663 $ 44,240 $ 80,903
Desktop/Servers 34,377 45,250 79,627
Storage Devices 24,341 28,089 52,430
Software 33,892 41,115 75,007
Networking
Communications 20,984 24,530 45,514
Printers 20,802 27,122 47,924
Videos & Monitors 22,700 27,887 50,587
Memory 7,407 10,247 17,654
Accessories/Other 34,994 43,708 78,702
$ 236,160 $ 292,188 $ 528,348
Key Ratios:
Quarterly Inventory
Turns 19 27
Quarterly
Days Sales
Outstanding 58 52
AS RESTATED
(Dollars in thousands)
2002
For the Periods
Ended 3/31 6/30 YTD
Product Mix:
Notebooks $ 36,969 $ 46,443 $ 83,412
Desktop/Servers 34,594 42,988 77,582
Storage Devices 24,404 28,035 52,439
Software 33,669 40,513 74,182
Networking
Communications 20,899 24,304 45,203
Printers 20,819 26,820 47,639
Videos & Monitors 22,779 27,703 50,482
Memory 7,475 10,242 17,717
Accessories/Other 35,512 44,140 79,652
$ 237,120 $ 291,188 $ 528,308
Key Ratios:
Quarterly Inventory
Turns 16 22
Quarterly
Days Sales
Outstanding 52 48
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