What changed in this filing

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Item 1. Financial Statements

2021-05-07 compared with 2020-11-09 · 57 added, 160 removed, 206 unchanged (51% of the section changed)

4 unchanged sentences

(amounts in thousands)

September 30,

Current Assets:

2 unchanged sentences

Inventories, net

Income taxes receivable

Prepaid expenses and other current assets

2 unchanged sentences

Right-of-use assets

Intangible assets, net

Intangibles assets, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

20 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of sales

Selling, general and administrative expenses

Restructuring and other charges

Income from operations

Interest (expense) income, net

Other (expenses) income, net

Income before taxes

7 unchanged sentences

(amounts in thousands)

Three months ended September 30, 2020

Treasury Stock

Stockholders'

Paid-In Capital

Balance at June 30, 2020

Stock-based compensation expense

Restricted stock units vested

Shares withheld for taxes paid on stock awards

Balance at September 30, 2020

Nine months ended September 30, 2020

Treasury Stock

Stockholders'

Paid-In Capital

Balance at December 31, 2019

Stock-based compensation expense

Restricted stock units vested

Issuance of common stock under Employee Stock Purchase Plan

Shares withheld for taxes paid on stock awards

Repurchase of common stock for treasury

Balance at September 30, 2020

See notes to unaudited condensed consolidated financial statements.

Three months ended September 30, 2019

Treasury Stock

Stockholders'

Three months ended March 31, 2021

Treasury Shares

Paid-In Capital

Balance at June 30, 2019

Balance - December 31, 2020

Stock-based compensation expense

1 unchanged sentence

Shares withheld for taxes paid on stock awards

Repurchase of common stock for treasury

Balance at September 30, 2019

Nine months ended September 30, 2019

Treasury Stock

Stockholders'

Balance - March 31, 2021

Three months ended March 31, 2020

Treasury Shares

Paid-In Capital

Balance at December 31, 2018

Balance - December 31, 2019

Stock-based compensation expense

Restricted stock units vested

Issuance of common stock under Employee Stock Purchase Plan

Shares withheld for taxes paid on stock awards

Repurchase of common stock for treasury

Balance at September 30, 2019

Balance - March 31, 2020

See notes to unaudited condensed consolidated financial statements.

3 unchanged sentences

(amounts in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash Flows provided by Operating Activities:

1 unchanged sentence

Depreciation and amortization

Provision for doubtful accounts

Adjustments to credit losses reserve

Stock-based compensation expense

Deferred income taxes

Loss on disposal of fixed assets

Changes in assets and liabilities:

6 unchanged sentences

Cash Flows used in Investing Activities:

Purchases of equipment

Purchases of equipment and capitalized software

Proceeds from life insurance

Net cash used in investing activities

Cash Flows used in Financing Activities:

Cash Flows (used in) provided by Financing Activities:

Purchase of treasury shares

Dividend payments

Issuance of stock under Employee Stock Purchase Plan

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

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

Net cash used in financing activities

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Non-cash Investing and Financing Activities:

17 unchanged sentences

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

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

The operating results for the three months ended March 31, 2021 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2021.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions.

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

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

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

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

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

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

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

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

Out of Period Adjustments

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

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

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

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

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

99 – Materiality.

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

Restructuring and other charges

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

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

The Company did not record any restructuring and other charges in the three months ended September 30, 2020, and as of the date of this report, the Company has no ongoing restructuring plans.

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

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

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

Costs incurred were as follows:

Nine Months Ended September 30,

Employee separations

Lease termination costs

Total restructuring and other charges

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

Adoption of Recently Issued Financial Accounting Standards

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

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

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

The Company expects to perform a step 1 annual goodwill impairment assessment in the fourth quarter of each calendar year, and more frequently if events or circumstances occur that would indicate a potential decline in fair value.

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

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.

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

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

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

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

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

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.

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.

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.

By nature, estimates are subject to an inherent degree of uncertainty, including uncertainty in the current economic environment due to the coronavirus pandemic (“COVID-19 pandemic”).

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

Recently Issued Financial Accounting Standards

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

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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

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.

1 unchanged sentence

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.

The optional amendments are effective as of March 12, 2020 through December 31, 2022.

The Company is currently evaluating the effect of the adoption of this standard on the Company, but does not believe the adoption will have a material effect on its consolidated financial statements.

Note 2–Revenue

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

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

Three Months Ended September 30, 2020

Public Sector

Notebooks/Mobility

Servers/Storage

Net/Com Products

Displays and Sound

Other Hardware/Services

Total net sales

Three Months Ended September 30, 2019

Public Sector

Notebooks/Mobility

Servers/Storage

Net/Com Products

Displays and Sound

Other Hardware/Services

Total net sales

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

Nine Months Ended September 30, 2020

The following tables represent a disaggregation of revenue from arrangements with customers for the three months ended March 31, 2021 and 2020, along with the reportable segment for each category.

Three Months Ended March 31, 2021

Public Sector

5 unchanged sentences

Total net sales

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Public Sector

6 unchanged sentences

Contract Balances

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

September 30, 2020

The following table provides information about contract liabilities from arrangements with customers as of March 31, 2021 and December 31, 2020.

March 31, 2021

December 31, 2020

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

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

Changes in the contract liability balances during the three months ended March 31, 2021 and 2020 are as follows (in thousands):

Balances at December 31, 2020

1 unchanged sentence

Amounts recognized as revenue as performance obligations satisfied

Balances at September 30, 2020

Balances at March 31, 2021

Balances at December 31, 2019

1 unchanged sentence

Amounts recognized as revenue as performance obligations satisfied

Balances at September 30, 2019

Balances at March 31, 2020

Note 3–Earnings Per Share

2 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31 ,

Denominator for basic earnings per share

Dilutive effect of unvested employee stock awards

Dilutive effect of employee stock awards

Denominator for diluted earnings per share

Earnings per share:

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

For the three months ended March 31, 2021 and 2020, the Company had no outstanding non-vested stock units that were excluded from the computation of diluted earnings per share because including them would have had an anti-dilutive effect.

Note 4—Leases

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

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

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

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

Three months ended September 30, 2020

Nine months ended September 30, 2020

Related Parties

Capitalized operating lease cost

Short-term lease cost

Total lease cost

Other Information

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

Operating cash flows

Weighted-average remaining lease term (in years):

Capitalized operating leases

Weighted-average discount rate:

Capitalized operating leases

Three months ended September 30, 2019

Nine months ended September 30, 2019

Included in the right-of-use asset (“ROU asset”) as of March 31, 2021 was $ 3,179 and a corresponding lease liability of $ 3,179 associated with related party leases.

As of March 31, 2021, there were no additional operating leases that have not yet commenced.

Refer to the following table for quantitative information related to the Company’s leases for the three months ended March 31, 2021 and 2020:

Three months ended March 31, 2021

Three months ended March 31, 2020

Related Parties

10 unchanged sentences

Capitalized operating leases

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

As of March 31, 2021, future lease payments over the remaining term of capitalized operating leases were as follows:

For the Years Ended December 31,

Related Parties

2020, excluding the nine months ended September 30, 2020

2021, excluding the three months ended March 31, 2021

Imputed interest

Lease liability balance at September 30, 2020

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

Lease liability balance at March 31, 2021

As of March 31, 2021, the ROU asset had a balance of $ 11,857 .

The long-term lease liability was $ 8,792 and the short-term lease liability , which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 3,812 .

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

The long-term lease liability was $ 12,551 and the short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 4,062 .

Note 5–Segment Information

7 unchanged sentences

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

Segment information applicable to our reportable operating segments for the three months ended March 31, 2021 and 2020 is shown below:

Three Months Ended

Business Solutions

8 unchanged sentences

Total operating income

Interest (expense) income, net

Other (expenses) income, net

Income before taxes

13 unchanged sentences

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

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

As of March 31, 2021 and 2020, total assets for the Headquarters/Other group are presented net of intercompany balance eliminations of $ 48,026 and $ 7,024 , respectively.

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

9 unchanged sentences

on substantially the same terms.

Amounts outstanding under this facility bear interest at the one-month LIBOR ( 0.15 % at September 30, 2020), plus a spread based on our funded debt ratio, or in the absence of LIBOR, the prime rate ( 3.25 % at September 30, 2020).

Amounts outstanding under this facility bear interest at the one-month LIBOR ( 0.11 % at March 31, 2021), plus a spread based on our funded debt ratio, or in the absence of LIBOR, the prime rate ( 3.25 % at March 31, 2021).

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

3 unchanged sentences

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

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

The Company had no outstanding bank borrowings at March 31, 2021 or 2020, and accordingly, the entire $ 50,000 facility was available for borrowings under the credit facility.

As of March 31, 2021, the Company was in compliance with all financial covenants contained in the agreement governing the credit facility.

PC CONNECTION, INC.

2 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements