What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-10 · 73 added, 64 removed, 293 unchanged (32% of the section changed)

4 unchanged sentences

(amounts in thousands)

September 30,

Current Assets:

30 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of sales

2 unchanged sentences

Income from operations

Interest income, net

Interest (expense) income, net

Income before taxes

7 unchanged sentences

(amounts in thousands)

Three months ended June 30, 2020

Three months ended September 30, 2020

Treasury Stock

1 unchanged sentence

Paid-In Capital

Balance at March 31, 2020

Balance at June 30, 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

Balance at September 30, 2020

Nine months ended September 30, 2020

Treasury Stock

7 unchanged sentences

Repurchase of common stock for treasury

Balance at June 30, 2020

Balance at September 30, 2020

See notes to unaudited condensed consolidated financial statements.

Three months ended June 30, 2019

Three months ended September 30, 2019

Treasury Stock

1 unchanged sentence

Paid-In Capital

Balance at March 31, 2019

Balance at June 30, 2019

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

Balance at September 30, 2019

Nine months ended September 30, 2019

Treasury Stock

7 unchanged sentences

Repurchase of common stock for treasury

Balance at June 30, 2019

Balance at September 30, 2019

See notes to unaudited condensed consolidated financial statements.

3 unchanged sentences

(amounts in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash Flows provided by Operating Activities:

21 unchanged sentences

Net cash used in financing activities

Increase (decrease) in cash and cash equivalents

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

19 unchanged sentences

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

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.

The operating results for the three and nine months ended September 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.

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 Company’s operations and financial performance in certain areas of its business were negatively impacted by the coronavirus pandemic (“COVID-19”) in the nine months ended September 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.

1 unchanged sentence

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.

As a result, the Company increased its customer allowance for doubtful accounts by $ 3,276 in the nine months ended September 30, 2020, compared to an increase of $ 181 for the same period in the prior year.

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.

Out of Period Adjustments

During the third quarter, the Company identified certain out of period adjustments, which were the result of errors identified related to revenue cutoff.

The impact of these errors was an understatement of net sales, gross profit and net income for the three- and six-months ended June 30, 2020 by $ 945 , $ 4,214 and $ 2,955 , respectively.

The related accounts receivable, inventory, and accrued expenses and other liability were also understated at June 30, 2020 as a result of these errors.

The Company corrected these errors in the three month period ended September 30, 2020, resulting in an overstatement of $ 945 , $ 4,214 and $ 2,955 in net sales, gross profit, and net income, respectively.

The Company evaluated the effect of these errors on the Company’s financial statements under Accounting Standards Codification (“ASC”) 250 – Accounting Changes and Error Corrections , along with Staff Accounting Bulletin No.

99 – Materiality.

Based on a review of both quantitative and qualitative factors of the materiality of the amounts, the Company concluded that the errors were not material to any previously issued condensed consolidated financial statements or for the current period in which they were corrected.

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.

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

The Company did not record any restructuring and other charges in the three months ended September 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.

Restructuring and other charges are presented separately from selling, general and administrative (“SG&A”) expenses.

Costs incurred were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Nine Months Ended September 30,

Employee separations

1 unchanged sentence

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.

Included in accrued expenses as of September 30, 2020 and 2019 were $ 133 and $ 216 , respectively, related to unpaid termination benefits.

Adoption of Recently Issued Financial Accounting Standards

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment , which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Simplifying the Test for Goodwill Impairment , which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test.

Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

1 unchanged sentence

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

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 Company expects to perform a step 1 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.

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.

10 unchanged sentences

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

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

This guidance provides temporary optional expedients and exceptions to

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.

This ASU is applied prospectively and becomes effective immediately upon the transition from LIBOR.

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.

The Company expects to adopt the guidance upon transition from LIBOR, 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 June 30, 2020 and 2019, along with the reportable segment for each category.

Three Months Ended June 30, 2020

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

Three Months Ended September 30, 2020

Public Sector

5 unchanged sentences

Total net sales

Three Months Ended June 30, 2019

Three Months Ended September 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

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

Nine Months Ended September 30, 2020

Public Sector

5 unchanged sentences

Total net sales

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Public Sector

6 unchanged sentences

Contract Balances

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

June 30, 2020

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

September 30, 2020

December 31, 2019

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):

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

Balances at December 31, 2019

1 unchanged sentence

Amounts recognized as revenue as performance obligations satisfied

Balances at June 30, 2019

Balances at September 30, 2020

Balances at December 31, 2018

1 unchanged sentence

Amounts recognized as revenue as performance obligations satisfied

Balances at June 30, 2020

Balances at September 30, 2019

Note 3–Earnings Per Share

2 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Denominator for basic earnings per share

2 unchanged sentences

Earnings per share:

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.

For the three and nine months ended September 30, 2020, 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 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

Included in the right-of-use asset (“ROU asset”) as of September 30, 2020 was $ 3,739 and a corresponding lease liability of $ 3,739 associated with related party leases.

As of September 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 nine months ended September 30, 2020 and 2019:

Three months ended September 30, 2020

Nine months ended September 30, 2020

Related Parties

10 unchanged sentences

Capitalized operating leases

Three months ended June 30, 2019

Six months ended June 30, 2019

Three months ended September 30, 2019

Nine months ended September 30, 2019

Related Parties

10 unchanged sentences

Capitalized operating leases

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

As of September 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 six months ended June 30, 2020

2020, excluding the nine months ended September 30, 2020

Imputed interest

Lease liability balance at June 30, 2020

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

Lease liability balance at September 30, 2020

As of September 30, 2020, the ROU asset had a balance of $ 13,768 .

The long-term lease liability was $ 10,579 and the short-term lease liability , which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 3,989 .

8 unchanged sentences

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

Business Solutions

8 unchanged sentences

Total operating income

Interest income, net

Interest (expense) income, net

Income before taxes

13 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 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.

As of September 30, 2020 and 2019, total assets for the Headquarters/Other group are presented net of intercompany balance eliminations of $ 60,802 and $ 36,077 , respectively.

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

7 unchanged sentences

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 ”) ( 0.16 % 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).

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 LIBOR ( 0.15 % at September 30, 2020), plus a spread based on our funded debt ratio, or in the absence of LIBOR, the prime rate ( 3.25 % at September 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.

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.

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

PC CONNECTION, INC.

2 unchanged sentences

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