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Item 9A. Controls and Procedures

2021-03-16 compared with 2020-02-06 · 298 added, 354 removed, 680 unchanged (49% of the section changed)

Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2019.

The term “disclosure controls and procedures,”

as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management’s Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as described above.

Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as described above.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

generally accepted accounting principles and includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly

reflect the transactions and dispositions of the assets of the Company;

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019.

In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) .

Based on its assessment, management concluded that, as of December 31, 2019, the Company’s internal control over financial reporting was effective based on those criteria.

The Company’s independent registered public accounting firm has issued an audit report on the Company’s internal control over financial reporting as of December 31, 2019.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020.

Based on its assessment, management concluded that, as of December 31, 2020, the Company’s internal control over financial reporting was effective based on those criteria.

The Company’s independent registered public accounting firm has issued an audit report on the Company’s internal control over financial reporting as of December 31, 2020.

This report appears below.

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We have audited the internal control over financial reporting of PC Connection, Inc.

and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in Internal Control —

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) .

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control —

Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 6, 2020, expressed an unqualified opinion on those financial statements and included an explanatory paragraph related to the adoption of a new accounting standard.

and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) .

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 16, 2021, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Boston, Massachusetts

February 6, 2020

March 16, 2021

Changes in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting (as defined in Rule 13a –

15(f) and 15d –

15(f) under the Exchange Act) occurred during the quarter ended December 31, 2019, which has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

In 2017, we began the process of implementing a new company-wide ERP system as part of a multi-year plan to integrate and upgrade our systems and processes.

The system became operational in May 2020.

As the implementation of the new ERP system has now been largely completed, we have experienced certain changes to our processes and procedures which, in turn, have resulted in changes to the design and operation of certain internal controls over financial reporting.

We believe the necessary steps have been taken to monitor and maintain appropriate internal control over financial reporting during this period of change and we will continue to evaluate the design and operating effectiveness of related key controls during subsequent periods.

While we ultimately expect the new ERP system to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as each of the affected areas evolves.

Furthermore, in response to the COVID-19 pandemic, we have undertaken measures to protect our employees, partners, and clients, including encouraging employees to work remotely.

These changes have compelled us to modify some of our control procedures, however, those changes have so far not been material.

Except for the changes as described in detail above, there were no additional changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.We are continually monitoring and assessing the potential impact of the COVID-19 pandemic on our internal controls to minimize the impact on their design and operating effectiveness.

Other information

On March 15, 2021, the Company entered into Incentive and Retention Agreements (each the “Retention Agreement” and together, the “Retention Agreements”) with our President, Timothy McGrath, and our Chief Financial Officer, Thomas Baker (each individually, the “Executive”).

The Retention Agreements provide that if we terminate the Executive’s employment without Cause (as defined in the applicable Retention Agreement) then, subject to the Executive signing and not revoking a release of claims, the Executive will receive the following:

● continued base salary for a period of up to 24 months (subject to offset for salary or consulting fees earned during that period);

● a pro-rated portion of the Executive’s target bonus as in effect for the fiscal year in which the termination occurs;

● continued payment by the Company of the share of COBRA premiums that the Company would pay for similarly situated employees, with such payment to extend for up to 24 months

In the event of a Change in Control (as defined in the applicable Retention Agreement), the Retention Agreements provide that 75% of the shares of our common stock underlying the unvested portion of each outstanding stock option and other equity award held by the Executive shall become fully vested, exercisable and otherwise free from forfeiture immediately prior to the closing of such Change in Control, with the remaining unvested portion of such equity awards continuing to vest and becoming fully exercisable and free from forfeiture on the first anniversary of the closing of the Change in Control (the “first anniversary vest date”).

In the case of each restricted stock unit that vests on the first anniversary vest date, the Executive will be entitled to the greater of (i) the per share consideration paid with respect to the Company common stock in connection with the Change in Control and (ii) if the Company common stock converts into stock of the acquiring or succeeding entity in connection with the Change in Control, then such stock or the cash value thereof as of the first anniversary vest date, if higher than the per share consideration.

The Retention Agreements also provide that if we terminate the Executive’s employment without Cause, or if an Executive terminates his employment for Good Reason (as defined in the applicable Retention Agreement), and such termination

occurs within the 12 month period following a Change of Control, then subject to the Executive signing and not revoking a release of claims, the Executive will receive the following

● continued base salary for a period of up to 24 months (subject to offset for salary or consulting fees earned during that period);

● the Executive’s full target bonus as in effect for the fiscal year in which the termination occurs;

● continued payment by the Company of the share of COBRA premiums that the Company would pay for similarly situated employees, with such payment to extend for up to 24 months;

● all outstanding and unvested equity awards in each case that vest solely based on continued service that are then held by Executive shall become fully vested, exercisable and otherwise free from forfeiture and, in the case of any restricted stock units, will be entitled to the greater of (i) the per share consideration paid with respect to the Change in Control and (ii) if the Company common stock converts into stock of the acquiring or succeeding entity in connection with the Change in Control, then such stock or the cash value thereof as of the Executive’s termination date, if higher than the per share consideration.

McGrath’s Retention Agreement also terminated the limitation on the number of shares of our common stock that may be sold by Mr.

McGrath in each calendar year contained in the restricted stock unit awards granted to Mr.

McGrath on each of November 12, 2012 and February 13, 2018, and changed the vesting with respect to restricted stock units granted to Mr.

McGrath on February 13, 2018 such that the tranches of such award that would have vested on or after January 1, 2028 will vest as two tranches, 50% on April 1, 2021 and 50% on July 1, 2021.

Directors, Executive Officers, and Corporate Governance

The information included under the headings, “Information about our Executive Officers”

in Part I hereof and “Election of Directors,”

“Information Concerning Directors, Nominees, and Executive Officers,”

“Section 16(a) Beneficial Ownership Reporting Compliance,”

“Code of Business Conduct and Ethics Policy,”

and “Board Committees –

Audit Committee”

in our definitive Proxy Statement for our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2019 (the “Proxy Statement”) is incorporated herein by reference.

The information included under the headings, “Information about our Executive Officers” in Part I hereof and “Election of Directors,” “Information Concerning Directors, Nominees, and Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Code of Business Conduct and Ethics Policy,” and “Board Committees – Audit Committee” in our definitive Proxy Statement for our 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2020 (the “Proxy Statement”) is incorporated herein by reference.

With the exception of the foregoing information and other information specifically incorporated by reference into this Form 10-K, the Proxy Statement is not being filed as a part hereof.

We have adopted a Code of Business Conduct and Ethics that applies to our officers, including our principal executive, financial and accounting officers, and our directors and employees.

We have posted the text of our Code of Business Conduct and Ethics under the “Investor Relations”

section of our website, www.connection.com.

We have posted the text of our Code of Business Conduct and Ethics under the “Investor Relations” section of our website, www.connection.com.

We intend to disclose on our website any amendments to, or waivers from, the Code of Business Conduct and Ethics that are required to be disclosed pursuant to the disclosure requirements of Item 5.05 of Form 8-K.

Executive Compensation

The information included under the headings “Executive Compensation”

and “Director Compensation”

in the Proxy Statement is incorporated herein by reference.

The information included under the headings “Executive Compensation” and “Director Compensation” in the Proxy Statement is incorporated herein by reference.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information included under the headings “Security Ownership of Certain Beneficial Owners and Management”

and “Equity Compensation Plan Information”

in the Proxy Statement is incorporated herein by reference.

The information included under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Proxy Statement is incorporated herein by reference.

Certain Relationships and Related Transactions, and Director Independence

The information included under the headings “Certain Relationships and Related Transactions”

and “Director Independence”

in the Proxy Statement is incorporated herein by reference.

The information included under the headings “Certain Relationships and Related Transactions” and “Director Independence” in the Proxy Statement is incorporated herein by reference.

Principal Accounting Fees and Services

The information included under the heading “Principal Accounting Fees and Services”

in the Proxy Statement is incorporated herein by reference.

The information included under the heading “Principal Accounting Fees and Services” in the Proxy Statement is incorporated herein by reference.

Exhibits and Financial Statement Schedules

(a) List of Documents Filed as Part of this Report:

List of Documents Filed as Part of this Report:

(1) Consolidated Financial Statements

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Consolidated Statements of Income

Consolidated Statement of Changes in Stockholders’

Consolidated Statement of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

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The following Consolidated Financial Statement Schedule, as set forth below, is filed with this report:

Schedule II—Valuation and Qualifying Accounts

All other schedules have been omitted because they are either not applicable or the relevant information has already been disclosed in the financial statements.

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Form of Registration Rights Agreement among the Registrant, Patricia Gallup, David Hall, and the 1998 PC Connection Voting Trust.

Amended and Restated 1997 Stock Incentive Plan.

Form of Incentive Stock Option Agreement for 2020 Stock Incentive Plan.

Amended and Restated 2007 Stock Incentive Plan, as amended.

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1, dated April 16, 2015, to Lease Agreement between the Registrant and Wilmington Investors, LLC, dated August 27, 2014, for property located at 3336 Progress Way, Building 11, Wilmington, OH

Amendment No.

2, dated August 29, 2019, to Lease Agreement between the Registrant and Wilmington Investors, LLC, dated August 27, 2014, for property located at 3336 Progress Way, Building 11, Wilmington, OH

Incentive and Retention agreement, dated as of March 15, 2021, between the Registrant and Timothy McGrath.

Incentvie and Retention agreement, dated March 15, 2021, between the Registrant and Thomas Baker

Form of Restricted Stock Units Agreement for 2020 Stock Incentive Plan

Subsidiaries of Registrant.

Consent of Deloitte & Touche LLP.

Certification of the Company’s President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of the Company’s Senior Vice President, Chief Financial Officer and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of the Company’s President and Chief Executive Officer pursuant to 18 U.S.C.

Certification of the Company’s President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of the Company’s Senior Vice President, Chief Financial Officer and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of the Company’s President and Chief Executive Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Certification of the Company’s Senior Vice President, Chief Financial Officer and Treasurer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XBRL Instance Document.

XBRL Taxonomy Extension Schema Document.

XBRL Taxonomy Calculation Linkbase Document.

XBRL Taxonomy Label Linkbase Document.

XBRL Taxonomy Presentation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

Incorporated by reference from the exhibits filed with the Company’s registration statement (333-41171) on Form S-1 filed under the Securities Act of 1933.

Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 31, 1999.

Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 30, 2001.

Incorporated by reference from exhibits filed with the Company’s proxy statement pursuant to Section 14(a), File Number 0-23827, filed on April 17, 2001.

Incorporated by reference from the exhibits filed with the Company’s registration statement (333-63272) on Form S-4 filed under the Securities Act of 1933.

Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 31, 2003.

Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 30, 2004.

Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0‑23827, filed on March 30, 2006.

Inline XBRL Instance Document* - The Instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Label Linkbase Document.

Inline XBRL Taxonomy Presentation Linkbase Document.

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

(1) Incorporated by reference from the exhibits filed with the Company’s registration statement (333-41171) on Form S-1 filed under the Securities Act of 1933.

(2) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 31, 1999.

(3) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 30, 2001.

(4) Incorporated by reference from exhibits filed with the Company’s proxy statement pursuant to Section 14(a), File Number 0-23827, filed on April 17, 2001.

(5) Incorporated by reference from the exhibits filed with the Company’s registration statement (333-63272) on Form S-4 filed under the Securities Act of 1933.

(6) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 31, 2003.

(7) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 30, 2004.

(8) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 30, 2006.

(9) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on August 10, 2007.

Incorporated by reference from exhibits filed with the Company’s current report on Form 8-K, filed on January 9, 2008.

(10) Incorporated by reference from exhibits filed with the Company’s current report on Form 8-K, filed on January 9, 2008.

(11) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on May 12, 2008.

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(13) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on November 10, 2008.

Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0‑23827, filed on March 16, 2009.

(14) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 16, 2009.

(15) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on November 10, 2010.

Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0‑23827, filed on February 28, 2012.

(16) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on February 28, 2012.

(17) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on August 8, 2012.

(18) Incorporated by reference from exhibits filed with the Company's annual report on Form 10-K, File Number 0-23827, filed on March 4, 2013.

Incorporated by reference from exhibits filed with the Company’s current report on Form 8-K, filed on May 29, 2013.

(19) Incorporated by reference from exhibits filed with the Company’s current report on Form 8-K, filed on May 29, 2013.

(20) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on May 9, 2014.

Incorporated by reference from Appendix A filed with the Company’s proxy statement pursuant to Section 14(a), File Number 0-23827, filed on April 9, 2019.

(21) Incorporated by reference from Appendix A filed with the Company’s proxy statement pursuant to Section 14(a), File Number 0-23827, filed on April 9, 2019.

(22) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on October 31, 2014.

Incorporated by reference from Appendix B filed with the Company’s proxy statement pursuant to Section 14(a), File Number 0-23827, filed on April 9, 2019.

Incorporated by reference from exhibits filed with the Company’s current report on Form 8-K, filed on February 16, 2017.

(23) Incorporated by reference from Appendix B filed with the Company’s proxy statement pursuant to Section 14(a), File Number 0-23827, filed on April 9, 2019.

(24) Incorporated by reference from exhibits filed with the Company’s current report on Form 8-K, filed on February 16, 2017.

(25) Incorporated by reference from exhibits filed with the Company's annual report on Form 10-K, File Number 0-23827, filed on March 3, 2017.

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(27) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on October 30, 2019.

(28) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-K, filed on February 6, 2020.

* Management contract or compensatory plan or arrangement.

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Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):

(i) Consolidated Balance Sheets at December 31, 2019 and December 31, 2018, (ii) Consolidated Statements of Income for the years ended December 31, 2019, 2018, and 2017, (iii) Consolidated Statements of Changes in Stockholders’

Equity for the years ended December 31, 2019, 2018, and 2017, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017, and (v) Notes to Consolidated Financial Statements.

(i) Consolidated Balance Sheets at December 31, 2020 and December 31, 2019, (ii) Consolidated Statements of Income for the years ended December 31, 2020, 2019, and 2018, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020, 2019, and 2018, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018, and (v) Notes to Consolidated Financial Statements.

Form 10-K Summary

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PC CONNECTION, INC.

February 6, 2020

March 16, 2021

/s/ TIMOTHY J.

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President and Chief Executive Officer (Principal Executive Officer)

February 6, 2020

March 16, 2021

/s/ THOMAS C.

Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

February 6, 2020

March 16, 2021

/s/ PATRICIA GALLUP

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Chairman of the Board

February 6, 2020

March 16, 2021

/s/ DAVID BEFFA-NEGRINI

David Beffa-Negrini

February 6, 2020

March 16, 2021

/s/ BARBARA DUCKETT

Barbara Duckett

February 6, 2020

March 16, 2021

/s/ JACK FERGUSON

Jack Ferguson

February 6, 2020

/s/ DAVID HALL

February 6, 2020

March 16, 2021

PC CONNECTION, INC.

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Consolidated Statements of Income for the years ended December 31, 2020, 2019, and 2018

Consolidated Statement of Changes in Stockholders’

Equity for the years ended December 31, 2019, 2018, and 2017

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020, 2019, and 2018

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

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We have audited the accompanying consolidated balance sheets of PC Connection, Inc.

and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of income, changes in stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, changes in stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 6, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for revenue contracts effective January 1, 2018 due to the adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers , using the modified retrospective method.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter Description

As described in Note 1 to the consolidated financial statements, the Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.

Significant judgment is exercised by the Company in determining revenue recognition for these customer agreements, and includes the following:

● Determination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together, such as hardware, software and maintenance products as well as services related to the installation or implementation of products.

● Determination of stand-alone selling prices for each distinct performance obligation and for products and services.

● As a reseller, the determination if they are the principal or the agent for each performance obligation, which impacts whether the related revenue for each performance obligations is recognized on a gross or net basis.

● The timing of transfer of control for each distinct performance obligation and the identification and treatment of contract terms that may impact the timing and amount of revenue recognized.

Given these factors and due to the volume of transactions, the related audit effort in evaluating management's judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company's revenue recognition for these customer agreements included the following:

● We evaluated management's significant accounting policies related to these customer agreements for reasonableness.

● We selected a sample of customer contracts and performed the following procedures:

– Obtained and read contract source documents for each selection, including master agreements, and other documents that were part of the agreement.

– Tested management's identification and treatment of contract terms.

– Assessed the terms in the customer agreement and evaluated the appropriateness of management's application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.

● We evaluated the reasonableness of management's estimate of stand-alone selling prices for products and services that are not sold separately.

● We selected a sample of products and services sold and performed an evaluation of the Company’s determination of principal versus agent.

● We selected a sample of orders shipped at year end and evaluated whether revenue has been properly recognized by comparing the IT products shipped to the respective contract or customer purchase order if applicable and evidence of transfer of control.

● We tested the mathematical accuracy of management's calculations of revenue and the associated timing of revenue recognized in the financial statements.

/s/ Deloitte & Touche LLP

Boston, Massachusetts

February 6, 2020

March 16, 2021

We have served as the Company's auditor since 1984

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Intangibles assets, net

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

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Total Liabilities

Stockholders’

Stockholders’ Equity:

Common Stock, $ .01 par value, 100,000 shares authorized, 28,943 and 28,870 issued, 26,170 and 26,345 outstanding at December 31, 2020 and 2019, respectively

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Treasury stock at cost, 2,773 and 2,526 shares at December 31, 2020 and 2019, respectively

Total Stockholders’

Total Liabilities and Stockholders’

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

See notes to consolidated financial statements.

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Income from operations

Other income, net

Interest expense

Interest income

Gain from life insurance

Income before taxes

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AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUIT Y

(amounts in thousands)

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Balance - December 31, 2017

Stock options exercised

Cumulative effect of adoption of ASC 606

Issuance of common stock under Employee Stock Purchase Plan

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Shares withheld for taxes paid on stock awards

Repurchase of common stock for treasury

Dividend declaration

Balance - December 31, 2018

Cumulative effect of adoption of ASC 606

Issuance of common stock under Employee Stock Purchase Plan

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Depreciation and amortization

Provision for doubtful accounts

Provision for credit losses

Stock-based compensation expense

Deferred income taxes

Gain from life insurance

Loss on disposal of fixed assets

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Purchase of treasury shares

Dividend payment

Proceeds from exercise of stock options

Dividend payments

Issuance of stock under Employee Stock Purchase Plan

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Accrued capital expenditures

Dividend declaration

Life insurance recorded as receivable

Dividend declarations

Supplemental Cash Flow Information:

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The Company also offers services involving design, configuration, and implementation of IT solutions.

These services are performed by the Company’s personnel and by first-party service providers.

The Company operates through three sales segments:

(a) the Business Solutions segment, which serves small- to medium-sized businesses, through its PC Connection Sales subsidiary, (b) the Enterprise Solutions segment, which serves large enterprise customers, through its MoreDirect subsidiary, and (c) the Public Sector Solutions segment, which serves federal, state, and local governmental and educational institutions, through its GovConnection subsidiary.

The following is a summary of the Company’s significant accounting policies:

Principles of Consolidation

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These estimates and assumptions affect the reported amounts and disclosures of assets and liabilities and the reported amounts and disclosures of revenue and expenses during the period.

Management bases its estimates and judgments on the information available at the time and various other assumptions believed to be reasonable under the circumstances, including estimates of the impact of the coronavirus pandemic (“COVID-19 pandemic”).

By nature, estimates are subject to an inherent degree of uncertainty.

Actual results could differ from those estimates and assumptions.

Reclassification of Prior Year Presentation

Certain 2017 amounts have been reclassified for consistency with current year presentation.

Restructuring and other charges have been separated from selling, general, and administrative expenses on the Consolidated Statements of Income.

These charges amount to $703, $967, and $3,636 for the years ending December 31, 2019, 2018, and 2017, respectively.

This change in classification does not affect previously reported net income or earnings per share figures in the Consolidated Statements of Income.

Actual results could differ from those estimates and assumptions, including the impact of the COVID-19 pandemic.

Revenue Recognition

On January 1, 2018, the Company adopted ASC 606—

Revenue from Contracts with Customers (“ASC 606”), which replaced existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements.

On January 1, 2018, the Company adopted ASC 606— Revenue from Contracts with Customers (“ASC 606”), which replaced existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements.

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.

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The Company accounts for an arrangement when it has approval and commitment from both parties, the rights are identified, the contract has commercial substance, and collectability of consideration is probable.

generally obtains oral or written purchase authorizations from its customers for a specified amount of product at a specified price, which constitutes an arrangement.

The Company generally obtains oral or written purchase authorizations from its customers for a specified amount of product at a specified price, which constitutes an arrangement.

Revenue is recognized at the amount expected to be collected, net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

The Company generally invoices for its products at the time of shipping, and accordingly there is not a significant financing component included in our arrangements.

Prior to the adoption of ASC 606, revenue on product sales was recognized at the point in time when persuasive evidence of an arrangement existed, the price was fixed or determinable, delivery had occurred, and there was a reasonable assurance of collection of the sales proceeds.

Service revenue was recognized over time as the services were performed.

The Company evaluated such engagements to determine whether it or the third party assumed the general risk and reward of ownership in these transactions.

This evaluation was the basis by which we determined that revenue from these transactions would be recognized on a gross or a net basis.

In multiple-element revenue arrangements, each service performed and product delivered was considered a separate deliverable and qualified as a separate unit of accounting.

For material multiple element arrangements, the Company allocated revenue based on vendor-specific objective evidence of fair value of the underlying services and products.

In the absence of vendor-specific objective evidence, the Company would utilize third-party evidence to allocate the selling price.

If neither vendor-specific objective evidence nor third-party evidence was available, the Company would estimate the selling price based on market price and company-specific factors .

Cost of Sales and Certain Other Costs

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Accounts Receivable

The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on payment history and customer creditworthiness.

The Company maintains an allowance for estimated doubtful accounts based on its historical experience and the customer credit issues identified.

The Company’s customers do not post collateral for open accounts receivable.

The Company monitors collections regularly and adjusts the allowance for doubtful accounts as necessary to recognize any changes in credit exposure.

Account Receivable are recorded at the invoice amount, net of allowances.

Customers are evaluated for their credit worthiness at the time of contract inception and, the Company performs ongoing credit evaluations of its customers and adjusts credit limits based on payment history and customer creditworthiness.

Based on the results of the credit assessments, the Company will extend credit under its standard payment terms or may request alternative early payment actions.

The Company determines the required allowance for expected credit losses using information such as its customer credit history and financial condition, industry and market segment information, credit reports, and economic trends and conditions such as the impacts of COVID-19 pandemic in the year ended December 31, 2020.

Allowances can be affected by changes in the industry, customer credit issues or customer bankruptcies or expectations of any such events in a future period when reasonable and supportable.

Historical information is utilized beyond reasonable and supportable forecast periods.

Amounts are charged against the allowance when it is determined that expected credit losses may occur.

We assessed collectability by reviewing account receivable on an aggregated basis where similar characteristics exist and on an individual basis when we identify specific customers with collectability issues, and if necessary, records a reserve against those receivables it determines may not be collectable.

Trade receivables are written off in the period in which they are deemed uncollectible.

Recoveries of trade receivables previously charged are recorded when received.

As of December 31, 2020, allowances include collectability concerns stemming from business and market disruption caused by the COVID-19 pandemic and may fluctuate materially in future periods as the duration and severity of the impact of the COVID-19 pandemic remains uncertain.

Inventories (all finished goods) consisting of software packages, computer systems, and peripheral equipment, are stated at cost (determined under a weighted-average cost method which approximates the first-in, first-out method) or net realizable value, whichever is lower.

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The Company receives funding from merchandise vendors for price protections, discounts, product rebates, and other programs.

These allowances are treated as a reduction of the vendor’s prices and are recorded as adjustments to cost of sales.

Allowances for product rebates that require certain volumes of product sales or purchases are recorded as the related milestones are probable of being met.

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Vendors have the ability to fund advertising activities for which the Company receives advertising consideration.

This vendor consideration, to the extent that it represents specific reimbursements of incremental and identifiable costs, is offset against SG&A expenses.

Advertising consideration that cannot be associated with a specific program or that exceeds the fair value of advertising expense associated with that program is classified as an offset to cost of sales.

The Company’s vendor partners generally consolidate their funding of advertising and other marketing programs, and accordingly, the Company classifies substantially all vendor consideration as a reduction of cost of sales rather than a reduction of advertising expense.

This vendor consideration, to the extent that it represents specific reimbursements of incremental and identifiable costs, is offset against selling, general and administrative expenses (“SG&A”) expenses.

Advertising consideration that cannot

be associated with a specific program or that exceeds the fair value of advertising expense associated with that program is classified as an offset to cost of sales.

Other advertising costs are expensed as incurred.

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Depreciation and amortization is provided for financial reporting purposes over the estimated useful lives of the assets ranging from three to seven years .

Computer software, including licenses and internally developed software, is capitalized and amortized over lives generally ranging from three to seven years.

Computer software, including licenses and internally developed software, is capitalized and amortized over lives generally ranging from three to ten years .

Depreciation is recorded using the straight-line method.

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The Company recognizes impairment when it is probable that such estimated future cash flows will be less than the asset carrying value.

No property and equipment impairment was recognized for each of the years ended December 31, 2020, 2019 and 2018.

The Company enters into operating lease contracts, as assessed at contract inception, primarily for real estate and equipment.

On the lease commencement date, the Company records operating lease liabilities based on the present value of the future lease payments.

In determining the present value of future lease payments, the Company utilized estimated rates that it would have incurred to borrow, over a similar term, the funds necessary to purchase the respective leased asset with cash.

The Company elects to apply the short-team lease exception to any leases with contractual obligations of one year or less.

These leases will not have a right-of-use (“ROU”) assets and associated lease liabilities on the balance sheet.

Instead, rent will be recognized on a straight-line

Goodwill and Other Intangible Assets

The Company’s intangible assets consist of (1) goodwill, which is not subject to amortization;

(2) an internet domain name, which is an indefinite-lived intangible not subject to amortization;

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When a potential impairment has been identified, forecasted undiscounted net cash flows of the operations to which the asset relates are compared to the current carrying value of the long-lived assets present in that operation.

If such cash flows are less than such carrying amounts, long-lived assets including such intangibles, are written down to their respective fair values.

If such cash flows are less than such carrying amounts, long-lived assets including such intangibles, are written down to

their respective fair values.

No intangible assets impairment was recognized for each of the years ended December 31, 2020, 2019 and 2018.

Concentrations

Concentrations of credit risk with respect to trade account receivables are limited due to the large number of customers comprising the Company’s customer base.

No single customer accounted for more than 5 % of total net sales in 2020, 2019, and 2018.

While no single agency of the federal government comprised more than 3 % of total sales, aggregate sales to the federal government as a percentage of total net sales were 4.6 %, 6.9 %, and 5.4 % in 2020, 2019, and 2018, respectively.

Product purchases from Ingram Micro, Inc.

(“Ingram”), the Company’s largest supplier, and Synnex accounted for approximately 21% and 14%, respectively, of the Company’s total product purchases in 2019.

No other vendor supplied more than 10% of the Company’s total product purchases in the year.

In addition to these vendors, product purchases from other distributors, such as Dell, HP Inc.

and Tech Data comprised a total of 59% of our product purchases in 2019.

The Company believes that, while it may experience some short-term disruption if products from Ingram, Synnex, or any of its other large suppliers become unavailable to us, alternative sources for these products are available.

Product purchases from Ingram Micro, Inc., our largest supplier, Synnex and HP Inc.

accounted for approximately 21 %, 15 % and 12 % respectively, of our total product purchases in 2020.

Product purchases from Ingram Micro, Inc., our largest supplier, Synnex and HP Inc.

accounted for approximately 21 %, 14 % and 8 % respectively, of our total product purchases in 2019.

Product purchases from Ingram Micro, Inc., our largest supplier, Synnex and HP Inc.

accounted for approximately 22 %, 12 % and 7 % respectively, of our total product purchases in 2018.

No other singular vendor supplied more than 10% of our total product purchases in 2020, 2019 and 2018.

In addition to these vendors, product purchases, whether purchased directly or from a wholesale distributor, from Dell and Tech Data comprised a total of 66 % of our product purchases in 2020.

We believe that, while we may experience some short-term disruption if products from Ingram, Synnex, HP Inc., or any of these vendors become unavailable to us, alternative sources for these products are available.

Products manufactured by Hewlett Packard Enterprise and HP Inc.

collectively represented approximately 19% of the Company’s net sales in 2019, 18% in 2018 and 20% in 2017.

We believe that in the event we experience either a short-term or permanent disruption of supply of HP products, such disruption would likely have a material adverse effect on the Company’s results of operations and cash flows.

collectively represented approximately 18 % of the Company’s net sales in 2020, 19 % in 2019 and 18 % in 2018.

Restructuring and other charges

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Lease termination costs

Relocation expenses

Employee compensation

Total restructuring and other charges

The restructuring and other charges recorded in 2020 were related to a reduction in workforce across our business segments and included cash severance and other related termination benefits.

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

These costs will be paid within a year of termination and any unpaid amounts are included in accrued expenses at December 31, 2019.

Also included in net restructuring charges were exit costs incurred associated with the closing of one of our office facilities.

Also included in restructuring charges were exit costs incurred associated with the closing of one of our office facilities.

The restructuring and other charges recorded in 2018 were related to a reduction in workforce at our Business Solutions, Public Sector Solutions, and Headquarter segments and included cash severance payments and other related benefits.

The restructuring and other charges recorded in 2017 were primarily driven by a reduction in workforce at our Headquarters segment, along with costs related to the Softmart business, which was acquired in 2016, including expenses to retain certain key personnel brought over in the acquisition.

Also in 2017, we incurred additional expense of $2,700 related to a one-time cash bonus paid to all non-executive employees at the end of the year.

Overall, restructuring and other charges consist primarily of employee termination benefits, which are accrued in the period incurred and paid within a year of termination.

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The amount accrued as of December 31, 2020 is expected to be paid in 2021.

Other restructuring-related charges such as acquisition costs, relocation expenses and significant marketing campaigns are expensed and paid as incurred.

All planned restructuring and other charges were incurred as of December 31, 2019 and we have no ongoing restructuring plans.

All planned restructuring and other charges were incurred as of December 31, 2020 and the Company has no ongoing restructuring plans.

Earnings Per Share

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Earnings per share:

For the years ended December 31, 2019, 2018, and 2017, the Company did not exclude any outstanding nonvested stock units or stock options from the computation of diluted earnings per share because including them would have had an anti-dilutive effect.

For the years ended December 31, 2020, 2019, and 2018, the Company did no t exclude any outstanding nonvested stock units or stock options from the computation of diluted earnings per share because including them would have had an anti-dilutive effect.

Other Income, Net

Other income, net for the year ended December 31, 2020 consisted of $ 1,061 related to a gain from life insurance, which was realized upon the passing of one of our co-founders and a member of the Company’s Board of Directors, David H.

Also included in other income, net for the year ended December 31, 2020 was interest income of $ 168 , partially offset by interest expense of $ 107 .

Other income, net for the year ended December 31, 2019 consisted of interest income of $ 810 , which was partially offset by interest expense of $ 103 .

Other income, net for the year ended December 31, 2018 consisted of $ 2,255 related to a gain, net of costs incurred of $ 745 , that was realized upon execution of a favorable $ 3,000 cash resolution of a contract dispute that arose in 2017.

The Company included the $3,000 it was owed in other assets as of December 31, 2018.

Also included in other income, net for the year ended December 31, 2018 was interest income of $ 868 , offset partially by interest expense of $ 145 .

Other income, net for the year ended December 31, 2017 consisted of interest income of $224, which was partially offset by interest expense of $126.

Comprehensive Income

The Company had no items of comprehensive income, other than its net income for each of the periods presented.

Adoption of Recently Issued Financial Accounting Standards

In February 2016, the Financial Accounting Standards Board, or the FASB, issued ASC 842 - Leases , which amended the accounting standards for leases.

The core principle of the guidance is that an entity should establish a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months.

The Company adopted ASC 842 effective January 1, 2019 using a modified retrospective transition approach to each lease that existed as of the adoption date and any leases entered into after that date.

The Company elected the package of practical expedients which permits it to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification of any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date.

The Company also elected the hindsight practical expedient, which allows it to use hindsight in determining the lease term.

The adoption did not result in a cumulative adjustment to opening equity.

The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

In assessing the impact of the adoption, the Company elected to apply the short-team lease exception to any leases with contractual obligations of one year or less.

In accordance with the new accounting standard, these leases will not have a ROU asset and associated lease liability on the balance sheet.

Instead, rent will be recognized on a straight-line basis over the term of the lease.

Consequently, the adoption resulted in the capitalization of a number of the Company’s office leases as of January 1, 2019, for which it recognized a lease liability of $18,835, which was based on the present value of the future payments for these leases.

The Company recorded a corresponding right-of-use asset of $18,723, which was adjusted for $114 of remaining unamortized lease incentives as of December 31, 2018.

Only those components that were considered integral to the right to use an underlying asset were considered lease components when determining the amounts to capitalize.

None of the nonlease components identified were capitalized and are instead expensed as incurred.

In accordance with ASC 842, the discount rates used in the present value calculations for each lease should be the rates implicit in the lease, if readily available.

Since none of the lease agreements contain an implicit rate that is readily available, the Company utilized estimated rates that it would have incurred to borrow, over a similar term, the funds necessary to purchase the respective leased asset with cash.

The remaining contractual term for these leases as of January 1, 2019 ranged from 20 to 197 months.

Options to renew were considered in determining the present value of the future lease payments in the event the Company believed it was reasonably certain it will assert its respective options to renew.

On May 28, 2014, the FASB issued ASC 606 –

Revenue from Contracts with Customers , which amended the accounting standards for revenue recognition and expanded our disclosure requirements.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

On January 1, 2018 the Company adopted ASC 606 using the modified retrospective transition method, which resulted in an adjustment at January 1, 2018 to retained earnings for the cumulative effect of applying the standard to all contracts not completed as of the adoption date.

Upon adoption we recorded $1,197 as an increase to retained earnings.

The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The adoption resulted in an acceleration of the timing of revenue recognized for certain transactions where product that remained in the Company’s possession has been recognized as of the transaction date when all revenue recognition criteria have been met.

The following table presents the effect of the adoption of ASC 606 on the Company’s consolidated balance sheets as of January 1, 2018:

December 31, 2017

January 1, 2018

Balance Sheet

Accounts receivable, net

Prepaid expenses and other current assets

Long-term accounts receivable

Accounts payable

Accrued expenses and other liabilities

Accrued payroll

Deferred income taxes

Stockholders' Equity

Retained earnings

In addition to the timing of revenue recognition impacted by the above-described transactions, upon adoption of ASC 606, the amount of revenue to be recognized prospectively was affected by the presentation of revenue transactions as an agent instead of principal in certain transactions.

Specifically, revenue related to the sale of cloud products, as well as certain security software, is now being recognized net of costs as the Company determined that it acts as an agent in these transactions.

These sales are recorded on a net basis at a point in time when the Company’s vendor and the customer accept the terms and conditions in the sales arrangement.

In addition, the Company sells third-party software maintenance that is delivered over time either separately or bundled with the software license.

The Company has determined that software maintenance is a distinct performance obligation that it does not control, and accordingly, the Company acts as an agent in these transactions and recognizes the related revenue on a net basis under ASC 606.

The Company previously recognized revenue for cloud products, security software, and software maintenance on a gross basis (i.e., acting as a principal).

This change reduced both net sales and cost of sales with no impact on reported gross profit as compared to the Company’s prior accounting policies.

The following tables present the effect of the adoption of ASC 606 on the Company’s consolidated income statement and balance sheet for the year ended December 31, 2018 and as of December 31, 2018, respectively:

Year Ended December 31, 2018

Balances without

Income statement

Costs and expenses

Cost of sales

Income from operations

Income before taxes

December 31, 2018

Balances without

Balance Sheet

Accounts receivable, net

Prepaid expenses and other current assets

Accrued expenses and other liabilities

Accrued payroll

Deferred income taxes

Stockholders' Equity

Retained earnings

The Company has elected the use of certain practical expedients in its adoption of the new standard, which includes continuing to record revenue reported net of applicable taxes imposed on the related transaction and the application of the new standard to all arrangements not completed as of the adoption date.

The Company has also elected to use the practical expedient to not account for the shipping and handling as separate performance obligations.

Adoptions of the standard related to revenue recognition had no net impact on our consolidated statement of cash flows.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.

The Company adopted this standard on January 1, 2017.

The new standard simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.

Under this guidance, a company recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement.

This change eliminates the notion of the additional paid-in capital pool and reduces the complexity in accounting for excess tax benefits and tax deficiencies.

The primary impact of the adoption was the recognition of excess tax benefits related to equity compensation in the Company’s provision for income taxes rather than paid-in capital, which is a change required to be applied on a prospective basis in accordance with the new guidance.

There were no unrecognized excess tax benefits at implementation.

Accordingly, the Company recorded discrete income tax benefits in the consolidated

statements of income of $1,054 in the year ended December 31, 2017, for excess tax benefits related to equity compensation.

The corresponding cash flows were reflected in cash provided by operating activities instead of financing activities, as was previously required.

The Company adopted the cash flow presentation that requires presentation of excess tax benefits within operating activities on a prospective basis.

Additionally, under ASU 2016-09, the Company has elected to continue to estimate equity award forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period.

Additional amendments to the accounting for income taxes and minimum statutory withholding tax requirements had no impact on the Company’s results of operations.

The presentation requirements for cash flows related to employee taxes paid for withheld shares also had no impact to any of the periods presented in the Company’s consolidated statements of cash flows since such cash flows have historically been presented as a financing activity.

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.

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.

ASU 2017-04 also clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity's testing of reporting units for goodwill impairment and clarifies that an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

The new standard is effective for fiscal years beginning January 1, 2020 for both interim and annual reporting periods.

The Company expects to adopt this standard in the first quarter of 2020 and it does not expect the adoption to have a material impact on its 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.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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.

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 new standard is effective for fiscal years beginning after December 15, 2019 for both interim and annual reporting periods.

The Company has evaluated the requirements of this ASU and determined that the potential exposure is limited to the impact this standard may have on its trade receivables.

The Company 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.

Based on the results of the assessment, the Company will extend credit under its standard payment terms or may request alternative early payment actions.

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 Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

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

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.

Recently Issued Financial Accounting Standards

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) :

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

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 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 upon transition from LIBOR, but does not believe the adoption will have a material effect on its consolidated financial statements.

Nature of Products and Services

Information technology (“IT”) products typically represent a distinct performance obligation, and revenue is recognized at the point in time when control is transferred to the customer which is generally upon delivery to the customer.

The Company recognizes revenue as the principal in the transaction with the customer (i.e., on a gross basis), as it controls the product prior to delivery to the customer and derive the economic benefits from the sales transaction given the Company’s control over customer pricing.

The Company does not recognize revenue for goods that remain in its physical possession before the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from the products, the goods are ready for physical transfer to and identified as belonging to the customer, and when the Company has no ability to use the product or to direct it to another customer.

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On-premise licenses are considered distinct performance obligations when sold with the software maintenance, as the Company sells these items separately.

The Company recognizes revenue related to the software maintenance as the agent in these transactions because it do not have control over the on-going software maintenance service.

Revenue allocated to software maintenance is recognized at the point in time when the Company’s vendor and customer accept the terms and conditions in the sales arrangements.

Certain of the Company’s larger customers are offered the opportunity by vendors to purchase software licenses and maintenance under enterprise agreements (“EAs”).

The Company recognizes revenue related to the software maintenance as the agent in these transactions because it does not have control over the on-going software maintenance service.

Revenue allocated to software maintenance is recognized at the point in time when the Company’s vendor and customer accept the terms and conditions in the sales arrangements.

Certain of the Company’s larger customers are offered the opportunity by vendors to purchase software licenses and maintenance under enterprise agreements (“EAs”).

Under EAs, customers are considered to be compliant with applicable license requirements for the ensuing year, regardless of changes to their employee base.

Customers are charged an annual true-up fee for changes in the number of users over the year.

With most EAs, the Company’s vendors will transfer the license and bill the customer directly, paying resellers, such as the Company, an agency fee or commission on these sales.

The Company records these agency fees as a component of net sales as earned and there is no corresponding cost of sales amount.

In certain instances, the Company invoices the customer directly under an EA and account for the individual items sold based on the nature of each item.

The Company’s vendors typically dictate how the EA will be sold to the customer.

The Company also offers extended service plans (“ESP”) on IT products, both as part of the initial arrangement and separately from the IT products.

The Company’s vendors typically dictate how the EA will be sold to the customer.

The Company also offers extended service plans (“ESP”) on IT products, both as part of the initial arrangement and separately from the IT products.

The Company recognizes revenue related to ESP as the agent in the transaction because it does not have control over the on-going ESP service and does not provide any service after the sale.

Revenue allocated to ESP is recognized at the point in time when the Company’s vendor and customer accept the terms and conditions in the sales arrangement.

The Company uses its own engineering personnel to assist in projects involving the design and installation of systems and networks, and also engages third-party service providers to perform warranty maintenance, implementations, asset disposal, and other services.

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Significant Judgments

The Company’s contracts with customers often include promises to transfer multiple products or services to a customer.

Determining whether the Company is the agent or the principal and whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

The Company estimates the standalone selling price (“SSP”) for each distinct performance obligation when a single arrangement contains multiple performance obligations and the fulfillment occurs at different points of times.

The Company maximizes the use of observable inputs in the determination of the estimate for SSP for the items that it does not sell separately, including on-premise licenses sold with software maintenance, and IT products sold with ESP.

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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 twelve months ended December 31, 2019 and 2018, along with the reportable segment for each category.

Twelve Months Ended December 31, 2019

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

For the Year Ended December 31, 2020

Public Sector

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Total net sales

Twelve Months Ended December 31, 2018

For the Year Ended December 31, 2019

Public Sector

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December 31, 2019

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

Significant changes in the contract liability balances during the years ended December 31, 2019 and 2018 are as follows (in thousands):

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

Changes in the contract liability balances during the years ended December 31, 2020 and 2019 are as follows (in thousands):

Balances at December 31, 2018

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GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is held by the Company’s Large Account and SMB segments.

Goodwill and intangible assets with indefinite lives are subject to an annual impairment test as of November 30 and tested more frequently if events or circumstances occur that would indicate a potential decline in fair value.

For 2018 and 2017, using both income and market valuation approaches, the Company has performed a two-step quantitative test to compare the fair value of its reporting units with their respective carrying values, including goodwill.

If the fair values were determined to be less than the carrying values, the second step would be performed to measure the amounts, if any, of the impairment.

For 2019, the Company performed a qualitative “Step 0”

ASC 350—Intangible –

Goodwill and Other states that an entity may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

This analysis allows the Company to consider qualitative factors that might impact the carrying amount of its goodwill to determine whether a more detailed

quantitative analysis would be necessary.

Factors considered when performing the “Step 0”

impairment assessment included the Company’s performance relative to historical and projected future operating results, macroeconomic conditions, industry and market trends, cost factors that may have a negative impact on earnings and cash flows, changes in the Company’s stock price and market capitalization, and other relevant entity-specific events.

In 2020, the Company used a discounted cash flow methodology to determine the fair value of each reporting unit.

Internal forecasts were used to estimate the future year cash flow and long-term growth rates was estimated based on the most recent views of each reporting unit.

Discount rate used in the model reflects the risk and uncertainty associated with the respective businesses.

For 2019, the Company performed a qualitative “Step 0” analysis.

ASC 350— Intangible – Goodwill and Other states that an entity may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

This analysis allows the Company to consider qualitative factors that might impact the carrying amount of its goodwill to determine whether a more detailed quantitative analysis would be necessary.

Factors considered when performing the “Step 0” impairment assessment included the Company’s performance relative to historical and projected future operating results, macroeconomic conditions, industry and market trends, cost factors that may have a negative impact on earnings and cash flows, changes in the Company’s stock price and market capitalization, and other relevant entity-specific events.

Based on the analysis, there were no indications that an impairment was more than likely to exist.

Goodwill is held by the Company’s Large Account and SMB segments.

The Company concluded that the fair values of the domain name and the two reporting units each exceeded the respective carrying values, and accordingly, an impairment was not identified in the annual test.

The Company also did not identify any events or circumstances that would indicate that it is more likely than not that the carrying values of the reporting units or the domain name were in excess of the respective fair values during the year ended December 31, 2019.

The Company concluded that the fair values of the domain name and the two reporting units each substantially exceeded the respective carrying values, and accordingly, an impairment was not identified in the annual test.

The Company also did not identify any events or circumstances that would indicate that it is more likely than not that the

carrying values of the reporting units or the domain name were in excess of the respective fair values during the year ended December 31, 2020.

The carrying amount of goodwill for the periods presented is detailed below:

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Intangible Assets

At December 31, 2019, the Company’s intangible assets included a domain name for $450, which has an indefinite life and is not subject to amortization.

At December 31, 2020, the Company’s intangible assets included a domain name for $ 450 , which has an indefinite life and is not subject to amortization.

In addition, in 2016 the Company acquired customer relationships from its Softmart and GlobalServe acquisitions, which will be amortized on a straight-line basis over their estimated useful lives of 10 years .

The Company’s remaining intangible assets are amortized in proportion to the estimates of the future cash flows underlying the valuation of the assets.

Intangible assets and related accumulated amortization are detailed below:

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Sales returns

Doubtful accounts

Credit losses

Accounts receivable, net

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As of December 31, 2020, the Company had no leases that were classified as financing leases and there were no additional operating or financing leases that have not yet commenced.

Twelve months ended December 31, 2019

For the Year Ended December 31, 2020

Related Parties

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Related Parties

2025 and thereafter

Imputed interest

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The long-term lease liability was $ 9,631 and the short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 3,928 .

Future aggregate minimum annual lease payments as of December 31, 2018 reported in our 2018 Form 10-K under the previous lease accounting standard were as follows:

For the Years Ended December 31,

Related Parties

2024 and thereafter

As of December 31, 2019, the ROU asset had a balance of $ 13,842 .

The long-term lease liability was $ 10,330 and the short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 4,316 .

ACCRUED EXPENSES AND OTHER LIABILITIES

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Accrued expenses and other liabilities

GAIN ON LIFE INSURANCE

On November 14, 2020, David Hall, one of the Company co-founders and a member of the Company’s Board of Directors passed away.

The Company owned and was the beneficiary of two life insurance policies on Mr.

These policies had a total cash value of approximately $ 0.4 million recorded as “Other assets” on the Company’s balance sheet as of December 31, 2019.

After the death of Mr.

Hall, $ 1.5 million was recorded as receivable on the Company’s balance sheet.

The difference between the total insurance proceeds and the cash surrender value of the policies was approximately $ 1.1 million, which was recorded as non-operating income.

The life insurance proceeds are not subject to federal or state income taxes.

The Company also owns and is the beneficiary of one life insurance policy on Patricia Gallup, the Company’s Chair and Chief Administrative Officer.

This policy had a total cash value recorded as “Other assets” on the Company’s balance sheet of approximately $ 0.2 million as of December 31, 2020 and $ 0.1 million as of December 31, 2019.

BANK BORROWINGS

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

This facility can be increased, at the Company’s 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”) (1.76% at December 31, 2019) , plus a spread based on our funded debt ratio, or in the absence of LIBOR, the prime rate (4.75% at December 31, 2019).

This facility can be increased, at the Company’s 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 ”) ( 0.14 % at December 31, 2020) , plus a spread based on our funded debt ratio, or in the absence of LIBOR, the prime rate ( 3.25 % at December 31, 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.

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The maximum allowable funded debt ratio under the agreement is 2.0 to 1.0.

Decreases in the Company’s consolidated Adjusted EBITDA could limit its potential borrowing capacity under the credit facility.

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

STOCKHOLDERS’

EQUITY AND SHARE-BASED COMPENSATION

As of December 31, 2020, the Company was in compliance with the financial covenants.

STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Preferred Stock

The Company’s Amended and Restated Certificate of Incorporation (the “Restated Certificate”) authorizes the issuance of up to 10,000 shares of preferred stock, $.01 par value per share (the “Preferred Stock”).

The Company’s Amended and Restated Certificate of Incorporation (the “Restated Certificate”) authorizes the issuance of up to 10,000 shares of preferred stock, $ .01 par value per share (the “Preferred Stock”).

Under the terms of the Restated Certificate, the Board is authorized, subject to any limitations prescribed by law, without stockholder approval, to issue by a unanimous vote such shares of Preferred Stock in one or more series.

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Share Repurchase Authorization

On December 17, 2018, the Company’s Board approved a new share repurchase program authorizing up to $25,000 in additional share repurchases.

As of December 31, 2017, there was $ 30.0 million authorized for share repurchase.

In 2018, the Company’s Board approved a share repurchase program authorizing up to $ 25.0 million in additional share repurchases.

There is no fixed termination date for this repurchase program.

Purchases may be made in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions.

Purchases may be made in open-market transactions, block transactions on

or off an exchange, or in privately negotiated transactions.

The timing and amount of any share repurchases will be based on market conditions and other factors.

In 2019, the Company repurchased 135 shares for $4,478 under Board-authorized repurchase programs.

As of December 31, 2019, the Company has repurchased an aggregate of 2,351 shares for $32,086 under Board-authorized repurchase programs, and the maximum approximate dollar value of shares that may yet be purchased under the Company’s existing Board-authorized program is $22,914.

The Company repurchased 247 , 135 , and 535 shares for $ 10.2 million, $ 4.5 million, $ 15.4 million during the years ended December 31, 2020, 2019, 2018, respectively, under Board-authorized repurchase programs.

As of December 31, 2020, the Company has repurchased an aggregate of 2,599 shares for $ 42.3 million under Board-authorized repurchase programs, and the maximum approximate dollar value of shares that may yet be purchased under the Company’s existing Board-authorized program is $ 12.7 million.

Dividend Payments

The following table summarizes the Company’s special cash dividends declared in the three years ended December 31, 2019:

The following table summarizes the Company’s special cash dividends declared in the years ended December 31, 2020, 2019 and 2018:

Dividend per share

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The dividends paid in January 2021, 2020 and 2019 were included in accrued expenses and other liabilities at December 31, 2020, 2019, and 2018, respectively.

The Company has no current plans to pay additional cash dividends on its common stock in the foreseeable future, and declaration of any future cash dividends will depend upon the Company’s financial position, strategic plans, and general business conditions.

Declaration of any future cash dividends will depend upon the Company’s financial position, strategic plans, and general business conditions.

Equity Compensation Plan Descriptions

In 2007, the Board adopted and the Company’s stockholders approved the 2007 Stock Incentive Plan.

In 2010, the Board adopted and the stockholders approved the Amended and Restated 2007 Stock Incentive Plan (the “2007 Plan”), which, among other things, extended the term of the 2007 Plan to 2020.

In May 2019, the Company’s stockholders approved an amendment to the 2007 Plan, which authorized the issuance of 1,900 shares of common stock.

In 2007, the Board adopted and the Company’s stockholders approved the 2007 Stock Incentive Plan.

In May 2019, the Company’s stockholders approved an amendment to the 2007 Plan, which authorized the issuance of 1,900 shares of common stock.

Under the terms of the 2007 Plan, the Company is authorized, for a ten-year period, to grant options, stock appreciation rights, nonvested stock, nonvested stock units, and other stock-based awards to employees, officers, directors, and consultants.

In 2020, the Board adopted and the Company’s stockholders approved the 2020 Stock Incentive Plan (the “2020 plan”), which replaces the Amended and Restated 2007 Stock Incentive Plan.

The 2020 plan extended the term of the Restated 2007 plan and authorized the issuance of 350 shares of common stock plus any shares remain available for grant under the Restated 2007 plan.

As of December 31, 2020, there were 356 shares eligible for future grants under the 2020 Plan.

1997 Employee Stock Purchase Plan

In November 1997, the Board adopted and the Company’s stockholders approved the 1997 Employee Stock Purchase Plan (the “Purchase Plan”).

The Purchase Plan authorizes the issuance of common stock to participating employees.

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An aggregate of 1,203 shares of common stock has been reserved for issuance under the Purchase Plan, of which 1,200 shares have been purchased.

In 2020, after the first offering was executed in June, 2020, the purchase plan was suspended by the Board.

Accounting for Share-Based Compensation

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The Company values grants with multiple vesting periods as a single award, estimate expected forfeitures based upon historical patterns of employee turnover, and record share-based compensation as a component of SG&A expenses.

In 2018 and in 2019, the Company granted nonvested stock units.

No equity awards were granted in 2017.

The following table summarizes the components of share-based compensation recorded as expense for the three years ended December 31, 2019:

The following table summarizes the share-based compensation expenses included in the consolidated statements of net income (dollars in thousands):

Pre-tax expense for nonvested units

Net effect on net income

In 2018 and in 2019, the Company issued nonvested stock units that settle in stock and vest over periods up to ten years.

No awards were issued in 2017.

In 2020, 2019, and 2018, the Company issued nonvested stock units that settle in stock and vest over periods up to ten years .

Recipients of nonvested stock units do not possess stockholder rights.

value of nonvested stock units is based on the end of day market value of our common stock on the grant date.

The fair value of nonvested stock units is based on the end of day market value of our common stock on the grant date.

The following table summarizes our nonvested stock unit activity in 2020:

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The weighted-average grant-date fair value of nonvested stock units granted in 2020, 2019 and 2018 was $ 44.31 , $ 42.06 and $ 24.9 , respectively.

No awards were granted in 2017.

The total fair value of nonvested stock units that vested in 2020, 2019, and 2018 was $ 4,044 , $ 3,476 , and $ 1,635 , respectively.

Unearned compensation cost related to the nonvested portion of outstanding nonvested stock units was $ 13,780 as of December 31, 2020, and is expected to be recognized over a weighted-average period of approximately 4.6 years.

The aggregate intrinsic value of the nonvested stock units at December 31, 2019, which is calculated based on the positive difference between the fair value of the Company’s stock on December 31, 2019 and the grant price of the underlying awards, was $23,489.

The aggregate intrinsic value of the nonvested stock units at December 31, 2020, which is calculated based on the positive difference between the fair value of the Company’s stock on December 31, 2020 and the grant price of the underlying awards, was $ 21,749 .

Stock Equivalent Units

The Company has also issued stock equivalent units, (“SEUs”), which settle in cash and vest ratably over four years, to non-executive employees.

The fair value of these liability awards is based on the closing market price of the Company’s common stock, and is remeasured at the end of each reporting period until the SEUs vest.

The Company has also previously issued stock equivalent units, (“SEUs”), which settle in cash and vest ratably over four years , to non-executive employees.

The fair value of these liability awards is based on the closing market price of the Company’s common stock, and is remeasured at the end of each reporting period until the SEUs vest.

The Company reports the compensation as a component of SG&A expense and the related liability as accrued payroll on the consolidated balance sheets.

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Deferred tax assets:

Provisions for doubtful accounts

Allowance for credit losses

Inventory costs capitalized for tax purposes

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State tax loss carryforwards

Federal benefit for uncertain state tax positions

Total gross deferred tax assets

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These loss carryforwards are subject to between five , fifteen , and twenty-year carryforward periods, with $ 3 expiring after 2021, $ 3 expiring after 2022, $ 4 expiring after 2023, $ 3 expiring after 2024, $ 4 expiring after 2025, $ 1,277 expiring beyond 2025, and $ 70 with no expiration.

The Company has provided valuation allowances of $992 and $839 at December 31, 2019 and 2018, respectively, against the state tax loss carryforwards, representing the portion of carryforward losses that the Company believes are not likely to be realized.

The net change in the total valuation allowance reflects a $153, $94, and $260 increase in 2019, 2018, and 2017, respectively.

The valuation allowance was increased in 2019, 2018, and 2017 to offset the corresponding increase to the deferred tax asset associated with state net operating loss carryforwards.

A reconciliation of the Company’s 2019, 2018, and 2017 income tax provision to total income taxes at the statutory federal tax rate is as follows:

The Company has provided valuation allowances of $ 942 and $ 992 at December 31, 2020 and 2019, respectively, against the state tax loss carryforwards, representing the portion of carryforward losses that the Company

believes are not likely to be realized.

The net change in the total valuation allowance reflects a $ 50 decrease in 2020, and a $ 153 and $ 94 increase in 2019 and 2018.

A reconciliation of the Company’s 2020, 2019, and 2018 income tax provision to total income taxes at the statutory federal tax rate is as follows:

Federal income taxes, at statutory tax rate

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Nondeductible expenses

Remeasurement of net deferred tax balances

Income tax provision

On December 22, 2017, the U.S.

government enacted comprehensive tax legislation (the “Tax Act”), which significantly revises the ongoing U.S.

corporate income tax law by lowering the U.S.

federal corporate income tax rate from 35.0% to 21.0%, and setting limitations on deductibility of certain costs.

This rate reduction, which took effect on January 1, 2018, required the revaluation of the Company’s net deferred tax liability.

The revaluation resulted in the recording of an income tax benefit of $7.7 million for the fourth quarter of 2017.

The Company files one consolidated U.S.

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Balance at December 31,

The unrecognized tax benefits decreased by $368 related to the expiration of various state statute of limitation periods.

For the year ended December 31, 2019, the unrecognized tax benefits decreased by $ 368 related to the expiration of various state statute of limitation periods.

Previously, the Company recognized interest and penalties related to unrecognized income tax benefits as a component of income tax expense, and the corresponding accrual was included as a component of our liability for unrecognized income tax benefits.

At December 31, 2018 and 2017, accrued interest aggregated $481 and accrued penalties aggregated $93.

The Company did not recognize any interest and penalties during the years ended December 31, 2019, 2018 or 2017.

The Company did no t recognize any interest and penalties for the years ended December 31, 2020, 2019 or 2018.

EMPLOYEE BENEFIT PLAN

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No contributions to the profit-sharing element of the plan were made by the Company in 2020, 2019, or 2018.

The Company made matching contributions to the employee savings element of such plan of $2,778, $2,538, and $2,396 in 2019, 2018, and 2017, respectively.

The Company made matching contributions to the employee savings element of such plan of $ 5,656 , $ 2,778 , $ 2,538 in 2020, 2019, and 2018, respectively.

COMMITMENTS AND CONTINGENCIES

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

The Company records a liability when its believes that a loss is both probable and reasonably estimable.

On a quarterly basis, the Company reviews each of these legal proceedings to determine whether it is probable, reasonably possible, or remote that a liability has been incurred and, if it is at least reasonably possible, whether a range of loss can be reasonably estimated.

The Company records a liability when it believes that a loss is both probable and reasonably estimable.

be reasonably estimated.

Significant judgment is required to determine both the likelihood of there being a loss and the estimated amount of such loss.

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SEGMENT AND RELATED DISCLOSURES

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 reporting segments—the Business Solutions segment, which serves primarily small- and medium-sized businesses;

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 reporting segments—the Business Solutions segment, which serves primarily small- and medium-sized businesses;

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

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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.

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.

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.

Net sales presented below exclude inter-segment product revenues.

Segment information applicable to the Company’s reportable operating segments for the years ended December 31, 2019, 2018, and 2017 is shown below:

Segment information applicable to the Company’s reportable operating segments for the years ended December 31, 2020, 2019, and 2018 is shown below:

Years Ended December 31,

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Headquarters/Other

The assets of the Company’s operating segments presented above consist primarily of accounts receivable, net intercompany receivable, goodwill, and other intangibles.

Goodwill of $ 66,236 and $ 7,366 is held by the Enterprise Solutions and Business Solutions segments, respectively, as of December 31, 2020.

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Total assets for the Headquarters/Other group are presented net of intercompany balances eliminations of $ 43,388 and $ 39,813 for the years ended December 31, 2020 and 2019, respectively.

The Company’s capital expenditures consist largely of IT hardware and software purchased to maintain or upgrade its management information systems.

These systems serve all of the Company’s subsidiaries, to varying degrees, and as a result, the CODM does not evaluate capital expenditures on a segment basis.

Substantially, all of the Company’s sales in 2019, 2018, and 2017 were made to customers located in the United States.

The Company’s capital expenditures consist largely of IT hardware and software purchased to maintain or upgrade its management information systems.

These systems serve all of the Company’s subsidiaries, to varying degrees, and as a result, the CODM does not evaluate capital expenditures on a segment basis.

Substantially all of the Company’s sales in 2020, 2019, and 2018 were made to customers located in the United States.

Shipments to customers located in foreign countries were not more than 2 % of total net sales in 2020, 2019, and 2018.

All of the Company’s assets at December 31, 2019 and 2018 were located in the United States.

The Company’s primary target customers are SMBs, medium-to-large corporate accounts, and federal, state, and local government agencies, educational institutions, and medium-to-large corporate accounts.

All of the Company’s assets at December 31, 2020 and 2019 were located in the United States.

No single customer accounted for more than 5 % of total net sales in 2020, 2019, or 2018.

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AND SUBSIDIARIES

SCHEDULE I I—VALUATION AND QUALIFYING ACCOUNTS

(amounts in thousands)

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Year Ended December 31, 2020

Allowance for Doubtful Accounts

Allowance for Credit Losses

Year Ended December 31, 2018

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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-K

Item 9A. Controls and Procedures