What changed in this filing

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Item 1. Financial Statements

2020-08-10 compared with 2020-04-30 · 151 added, 67 removed, 206 unchanged (51% of the section changed)

14 unchanged sentences

Intangible assets, net

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

7 unchanged sentences

Total Liabilities

Stockholders’

Stockholders’ Equity:

Additional paid-in capital

1 unchanged sentence

Treasury stock, at cost

Total Stockholders’

Total Liabilities and Stockholders’

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

See notes to unaudited condensed consolidated financial statements.

4 unchanged sentences

Three Months Ended

Six Months Ended

Cost of sales

10 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(amounts in thousands)

Three months ended March 31, 2019

Three months ended June 30, 2020

Treasury Stock

1 unchanged sentence

Paid-In Capital

Balance at March 31, 2020

Stock-based compensation expense

Restricted stock units vested

Issuance of common stock under Employee Stock Purchase Plan

Shares withheld for taxes paid on stock awards

Balance at June 30, 2020

Six months ended June 30, 2020

Treasury Stock

Stockholders'

Paid-In Capital

Balance at December 31, 2019

2 unchanged sentences

Issuance of common stock under Employee Stock Purchase Plan

Shares withheld for taxes paid on stock awards

Repurchase of common stock for treasury

Balance at June 30, 2020

See notes to unaudited condensed consolidated financial statements.

Three months ended June 30, 2019

Treasury Stock

Stockholders'

Paid-In Capital

Balance at March 31, 2019

Three months ended March 31, 2020

Stock-based compensation expense

Restricted stock units vested

Issuance of common stock under Employee Stock Purchase Plan

Shares withheld for taxes paid on stock awards

Repurchase of common stock for treasury

Balance at June 30, 2019

Six months ended June 30, 2019

Treasury Stock

4 unchanged sentences

Restricted stock units vested

Issuance of common stock under Employee Stock Purchase Plan

Shares withheld for taxes paid on stock awards

Repurchase of common stock for treasury

Balance at March 31, 2020

Balance at June 30, 2019

See notes to unaudited condensed consolidated financial statements.

3 unchanged sentences

(amounts in thousands)

Three Months Ended

Six Months Ended

Cash Flows provided by Operating Activities:

3 unchanged sentences

Stock-based compensation expense

Deferred income taxes

Loss on disposal of fixed assets

Changes in assets and liabilities:

10 unchanged sentences

Purchase of treasury shares

Dividend payment

Dividend payments

Issuance of stock under Employee Stock Purchase Plan

Payment of payroll taxes on stock-based compensation through shares withheld

Payments of payroll taxes on stock-based compensation through shares withheld

Net cash used in financing activities

Increase in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

7 unchanged sentences

AND SUBSIDIARIES

PART I―FINANCIAL INFORMATION

Item 1―Financial Statements

PART I―FINANCIAL INFORMATION

Item 1―Financial Statements

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

(amounts in thousands, except per share data)

Note 1–Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of PC Connection, Inc.

and its subsidiaries (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting and in accordance with accounting principles generally accepted in the United States of America.

Such principles were applied on a basis consistent with the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (the “SEC”).

The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods reported and of the Company’s financial condition as of the date of the interim balance sheet.

The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K.

The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

Subsequent events have been evaluated through the date of issuance of these financial statements.

The operating results for the three months ended March 31, 2020 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2020.

The operating results for the three and six months ended June 30, 2020 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2020.

Use of Estimates in the Preparation of Financial Statements

1 unchanged sentence

These estimates and assumptions affect the amounts reported in the accompanying condensed consolidated financial statements.

Actual results could differ from those estimates.

The Company’s operations and financial performance in certain areas of its business were negatively impacted by the coronavirus pandemic (“COVID-19”) in the six months ended June 30, 2020.

The extent to which the COVID-19 pandemic impacts the Company’s financial results and operations for the remainder of 2020 and beyond will depend on future developments that are highly uncertain and cannot be predicted at this time.

The Company updated its estimates and judgements in response to the economic uncertainty associated with COVID-19, which were reflected in the amounts reported in the accompanying condensed consolidated financial statements.

The Company has experienced, and may continue to experience, delays in collecting amounts owed to it, and in some cases, may experience inabilities to collect altogether.

As a result, the Company increased its customer allowance for doubtful accounts by $ 3,250 in the six months ended June 30, 2020 compared with the same period a year ago.

The Company has also evaluated the potential impact of the pandemic on the carrying values of its goodwill and intangible assets, and based on the assessment, did not identify any indications to suggest that an impairment may exist.

These estimates may change as new events occur and actual results could differ materially from these estimates.

Restructuring and other charges

The restructuring and other charges recorded in the second quarter of 2020 were related to an involuntary reduction in workforce across our business segments and included cash severance and other related termination benefits.

These costs will be paid within a year of termination and any unpaid balances are included in accrued expenses at June 30, 2020.

All currently planned restructuring and other charges were incurred as of June 30, 2020, and as of the date of this report, the Company has no ongoing restructuring plans.

The restructuring and other charges recorded in 2019 were related to a reduction in workforce in the Company’s Headquarters/Other group and included cash severance payments and other related benefits.

Also included were exit costs incurred associated with the closing of one of our office facilities, which were expensed as incurred.

Restructuring and other charges are presented separately from SG&A expenses.

Costs incurred were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Employee separations

Lease termination costs

Total restructuring and other charges

Included in accrued expenses as of June 30, 2020 and 2019 were $ 549 and $ 373 , respectively, related to unpaid termination benefits.

Adoption of Recently Issued Financial Accounting Standards

4 unchanged sentences

The Company performs an annual goodwill impairment assessment in the fourth quarter of each calendar year, and more frequently if events or circumstances occur that would indicate a potential decline in fair value.

The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses , which adds an impairment model for financial instruments, including trade receivables, that is based on expected losses rather than incurred losses.

As a result of the adoption, and in accordance with the new guidance, the Company would not perform a step two analysis in the event an impairment loss is identified.

Under the new guidance, an entity recognizes as an allowance its estimate of lifetime expected losses, which is expected to result in more timely recognition of such losses.

The Company adopted this new standard beginning January 1, 2020 for both interim and annual reporting periods.

The impact of the adoption of this standard was limited to the Company’s trade receivables as it does not currently have any other financial instruments that would be affected by this standard.

At adoption, this ASU did not have a material impact on the Company’s consolidated financial statements.

The impact of the adoption of this standard was limited to the Company’s trade receivables as it does not currently have any other financial instruments that would be affected by this standard.

Customers are evaluated for their credit worthiness at the time of contract inception.

1 unchanged sentence

In addition, the Company analyzes its aged receivables for collectability at least quarterly, and if necessary, records a reserve against those receivable it determines may not be collectable.

As such, the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Financial Accounting Standards

2 unchanged sentences

This guidance provides temporary optional expedients and exceptions to the U.S.

GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate.

This ASU is applied prospectively and is effective immediately through December 31, 2022.

The Company’s secured credit facility agreement references LIBOR, which is expected to be discontinued as a result of reference rate reform.

The Company expects to adopt the guidance during the allowable time period but does not believe the adoption will have a material effect on its consolidated financial statements.

Note 2–Revenue

The Company disaggregates revenue from its arrangements with customers by type of products and services, as it believes this method best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The following tables represent a disaggregation of revenue from arrangements with customers for the three months ended March 31, 2020 and 2019, along with the reportable segment for each category.

Three Months Ended March 31, 2020

The following tables represent a disaggregation of revenue from arrangements with customers for the three months ended June 30, 2020 and 2019, along with the reportable segment for each category.

Three Months Ended June 30, 2020

Public Sector

5 unchanged sentences

Total net sales

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

Public Sector

5 unchanged sentences

Total net sales

The following table represents a disaggregation of revenue from arrangements with customers for the six months ended June 30, 2020 and 2019, along with the reportable segment for each category.

Six Months Ended June 30, 2020

Public Sector

Notebooks/Mobility

Servers/Storage

Net/Com Products

Displays and Sound

Other Hardware/Services

Total net sales

Six Months Ended June 30, 2019

Public Sector

Notebooks/Mobility

Servers/Storage

Net/Com Products

Displays and Sound

Other Hardware/Services

Total net sales

Contract Balances

The following table provides information about contract liabilities from arrangements with customers as of March 31, 2020 and December 31, 2019.

March 31, 2020

The following table provides information about contract liabilities from arrangements with customers as of June 30, 2020 and December 31, 2019.

June 30, 2020

December 31, 2019

Contract liabilities, which are included in "Accrued expenses and other liabilities"

Changes in the contract liability balances during the three months ended March 31, 2020 are as follows (in thousands):

Contract liabilities, which are included in "Accrued expenses and other liabilities"

Changes in the contract liability balances during the six months ended June 30, 2020 and 2019 are as follows (in thousands):

Balances at December 31, 2018

1 unchanged sentence

Amounts recognized as revenue as performance obligations satisfied

Balances at March 31, 2020

Note 3–Earnings Per Share

Balances at June 30, 2019

Balances at December 31, 2019

Cash received in advance and not recognized as revenue

Amounts recognized as revenue as performance obligations satisfied

Balances at June 30, 2020

Note 3–Earnings Per Share

Basic earnings per common share is computed using the weighted average number of shares outstanding.

1 unchanged sentence

The following table sets forth the computation of basic and diluted earnings per share:

Three Months Ended March 31 ,

Three Months Ended June 30,

Six Months Ended June 30,

Denominator for basic earnings per share

2 unchanged sentences

Earnings per share:

For the three months ended March 31, 2020 and 2019, we had no outstanding non-vested stock units that were excluded from the computation of diluted earnings per share because including them would have had an anti-dilutive effect.

Note 4—Leases

For the three and six months ended June 30, 2020 and 2019, the Company had no outstanding non-vested stock units that were excluded from the computation of diluted earnings per share because including them would have had an anti-dilutive effect.

Note 4—Leases

The Company leases certain facilities from a related party, which is a company affiliated with us through common ownership.

Included in the right-of-use asset as of March 31, 2020 was $4,353 and a corresponding lease liability of $4,353 associated with related party leases.

As of March 31, 2020, there were no additional operating leases that have not yet commenced.

Refer to the following table for quantitative information related to the Company’s leases:

Three months ended March 31, 2020

Three months ended March 31, 2019

Included in the right-of-use asset as of June 30, 2020 was $ 4,014 and a corresponding lease liability of $ 4,014 associated with related party leases.

As of June 30, 2020, there were no additional operating leases that have not yet commenced.

Refer to the following table for quantitative information related to the Company’s leases for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30, 2020

Six months ended June 30, 2020

Related Parties

10 unchanged sentences

Capitalized operating leases

As of March 31, 2020, future lease payments over the remaining term of capitalized operating leases were as follows:

Three months ended June 30, 2019

Six months ended June 30, 2019

Related Parties

Capitalized operating lease cost

Short-term lease cost

Total lease cost

Other Information

Cash paid for amounts included in the measurement of lease liabilities and capitalized operating leases:

Operating cash flows

Weighted-average remaining lease term (in years):

Capitalized operating leases

Weighted-average discount rate:

Capitalized operating leases

As of June 30, 2020, future lease payments over the remaining term of capitalized operating leases were as follows:

For the Years Ended December 31,

Related Parties

2020, excluding the three months ended March 31, 2020

2020, excluding the six months ended June 30, 2020

Imputed interest

Lease liability balance at March 31, 2020

As of March 31, 2020, the ROU asset had a balance of $15,776.

Lease liability balance at June 30, 2020

As of June 30, 2020, the ROU asset had a balance of $ 14,755 .

The long-term lease liability was $ 11,566 and the short-term lease liability , which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 3,999 .

Note 5–Segment Information

The internal reporting structure used by our chief operating decision maker (“CODM”) to assess performance and allocate resources determines the basis for our reportable operating segments.

Our CODM is our Chief Executive Officer, and he evaluates operations and allocates resources based on a measure of operating income.

Our operations are organized under three reportable segments—the Business Solutions segment, which serves primarily small- and medium-sized businesses;

Note 5–Segment Information

The internal reporting structure used by the Company’s chief operating decision maker (“CODM”) to assess performance and allocate resources determines the basis for our reportable operating segments.

The Company’s CODM is its Chief Executive Officer, and he evaluates operations and allocates resources based on a measure of operating income.

The Company’s operations are organized under three reportable segments—the Business Solutions segment, which serves primarily small- and medium-sized businesses;

the Enterprise Solutions segment, which serves primarily medium-to-large corporations;

2 unchanged sentences

Most of the operating costs associated with the Headquarters/Other group functions are charged to the operating segments based on their estimated usage of the underlying functions.

We report these charges to the operating segments as “Allocations.”

headquarters costs relating to executive oversight and other fiduciary functions that are not allocated to the operating segments are included under the heading of Headquarters/Other in the tables below.

Segment information applicable to our reportable operating segments for the three months ended March 31, 2020 and 2019 is shown below:

Three Months Ended March 31 ,

The Company reports these charges to the operating segments as “Allocations.” Certain headquarters costs relating to executive oversight and other fiduciary functions that are not allocated to the operating segments are included under the heading of Headquarters/Other in the tables below.

Segment information applicable to our reportable operating segments for the three and six months ended June 30, 2020 and 2019 is shown below:

Three Months Ended June 30,

Six Months Ended June 30,

Business Solutions

24 unchanged sentences

Assets reported under the Headquarters/Other group are managed by corporate headquarters, including cash, inventory, property and equipment, right-of-use assets, and intercompany balance, net.

As of March 31, 2020 and 2019, total assets for the Headquarters/Other group are presented net of intercompany balance eliminations of $7,024 and $11,201, respectively.

As of June 30, 2020 and 2019, total assets for the Headquarters/Other group are presented net of intercompany balance eliminations of $ 29,100 and $ 25,093 , respectively.

Our capital expenditures consist largely of IT hardware and software purchased to maintain or upgrade our management information systems.

These information systems serve all of our segments, to varying degrees, and accordingly, our CODM does not evaluate capital expenditures on a segment-by-segment basis.

Note 6–Commitments and Contingencies

We are subject to various legal proceedings and claims, including patent infringement claims, which have arisen during the ordinary course of business.

Note 6–Commitments and Contingencies

The Company is subject to various legal proceedings and claims, including patent infringement claims, which have arisen during the ordinary course of business.

In the opinion of management, the outcome of such matters is not expected to have a material, adverse effect on our financial position, results of operations, and/or cash flows.

We are subject to audits by states on sales and income taxes, employment matters, and other assessments.

Additional liabilities for these and other audits could be assessed, and such outcomes could have a material, adverse impact on our financial position, results of operations, and/or cash flows.

Note 7–Bank Borrowings

We have a $50,000 credit facility collateralized by our account receivables that expires February 10, 2022.

The Company is subject to audits by states on sales and income taxes, employment matters, and other assessments.

Additional liabilities for these and other audits could be assessed, but such outcomes are not expected to have a material, adverse impact on our financial position, results of operations, and/or cash flows.

Note 7–Bank Borrowings

The Company has a $ 50,000 credit facility collateralized by our account receivables that expires February 10, 2022 .

This facility can be increased, at our option, to $ 80,000 for permitted acquisitions or other uses authorized by the lender on substantially the same terms.

Amounts outstanding under this facility bear interest at the one-month London Interbank Offered Rate (“LIBOR”) (0.99% at March 31, 2020), plus a spread based on our funded debt ratio, or in the absence of LIBOR, the prime rate (3.25% at March, 31 2020).

Amounts outstanding under this facility bear interest at the one-month London

Interbank Offered Rate (“ LIBOR ”) ( 0.16 % at June 30, 2020), plus a spread based on our funded debt ratio, or in the absence of LIBOR, the prime rate ( 3.25 % at June 30, 2020).

The credit facility includes various customary financial ratios and operating covenants, including minimum net worth and maximum funded debt ratio requirements, and default acceleration provisions.

3 unchanged sentences

Decreases in our consolidated trailing twelve months Adjusted EBITDA could limit our potential borrowing capacity under the credit facility.

We had no outstanding bank borrowings at March 31, 2020 or 2019, and accordingly, the entire $50,000 facility was available for borrowings under the credit facility.

The Company had no outstanding bank borrowings at June 30, 2020 or 2019, and accordingly, the entire $ 50,000 facility was available for borrowings under the credit facility.

PC CONNECTION, INC.

AND SUBSIDIARIES

PART I―FINANCIAL INFORMATION

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements