Attached files
file | filename |
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EX-32.2 - EX-32.2 - PC CONNECTION INC | pccc-20180930ex32298f068.htm |
EX-32.1 - EX-32.1 - PC CONNECTION INC | pccc-20180930ex3211a43b4.htm |
EX-31.2 - EX-31.2 - PC CONNECTION INC | pccc-20180930ex3120e8a89.htm |
EX-31.1 - EX-31.1 - PC CONNECTION INC | pccc-20180930ex31197bc3e.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934*
For the quarterly period ended September 30, 2018
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-23827
PC CONNECTION, INC.
(Exact name of registrant as specified in its charter)
02-0513618 |
|
(State or other jurisdiction of |
(I.R.S. Employer Identification No.) |
incorporation or organization) |
|
730 MILFORD ROAD, |
|
MERRIMACK, NEW HAMPSHIRE |
03054 |
(Address of principal executive offices) |
(Zip Code) |
|
(603) 683-2000 |
|
|
(Registrant's telephone number, including area code) |
|
Former name, former address and former fiscal year, if changed since last report: N/A
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ☑ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES ☑ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ☐ |
|
Accelerated filer ☑ |
|
Non-accelerated filer ☐ |
|
Smaller reporting company ☐ |
|
|
|
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ☐ NO ☑
The number of shares outstanding of the issuer’s common stock as of October 30, 2018 was 26,730,061.
PC CONNECTION, INC. AND SUBSIDIARIES
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1FINANCIAL STATEMENTS
PC CONNECTION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(amounts in thousands)
|
|
September 30, |
|
December 31, |
|
||
|
|
2018 |
|
2017 |
|
||
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
102,243 |
|
$ |
49,990 |
|
Accounts receivable, net |
|
|
400,831 |
|
|
449,682 |
|
Inventories, net |
|
|
105,283 |
|
|
106,753 |
|
Income taxes receivable |
|
|
2,658 |
|
|
3,933 |
|
Prepaid expenses and other current assets |
|
|
6,068 |
|
|
5,737 |
|
Total current assets |
|
|
617,083 |
|
|
616,095 |
|
Property and equipment, net |
|
|
48,176 |
|
|
41,491 |
|
Goodwill |
|
|
73,602 |
|
|
73,602 |
|
Intangibles assets, net |
|
|
9,924 |
|
|
11,025 |
|
Other assets |
|
|
1,442 |
|
|
5,638 |
|
Total Assets |
|
$ |
750,227 |
|
$ |
747,851 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
$ |
165,190 |
|
$ |
194,257 |
|
Accrued payroll |
|
|
20,359 |
|
|
22,662 |
|
Accrued expenses and other liabilities |
|
|
23,475 |
|
|
31,096 |
|
Total current liabilities |
|
|
209,024 |
|
|
248,015 |
|
Deferred income taxes |
|
|
16,125 |
|
|
15,696 |
|
Other liabilities |
|
|
1,836 |
|
|
1,888 |
|
Total Liabilities |
|
|
226,985 |
|
|
265,599 |
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
Common stock |
|
|
287 |
|
|
287 |
|
Additional paid-in capital |
|
|
115,039 |
|
|
114,154 |
|
Retained earnings |
|
|
428,162 |
|
|
383,673 |
|
Treasury stock, at cost |
|
|
(20,246) |
|
|
(15,862) |
|
Total Stockholders’ Equity |
|
|
523,242 |
|
|
482,252 |
|
Total Liabilities and Stockholders’ Equity |
|
$ |
750,227 |
|
$ |
747,851 |
|
See notes to unaudited condensed consolidated financial statements.
1
PC CONNECTION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(amounts in thousands, except per share data)
Three Months Ended |
Nine Months Ended |
||||||||||||
September 30, |
September 30, |
||||||||||||
2018 |
2017 |
2018 |
2017 |
||||||||||
Net sales |
$ |
658,504 |
$ |
729,230 |
$ |
1,989,969 |
$ |
2,149,616 |
|||||
Cost of sales |
558,060 |
633,087 |
1,685,685 |
1,867,070 |
|||||||||
Gross profit |
100,444 |
96,143 |
304,284 |
282,546 |
|||||||||
Selling, general and administrative expenses |
81,494 |
74,404 |
244,915 |
226,915 |
|||||||||
Income from operations |
18,950 |
21,739 |
59,369 |
55,631 |
|||||||||
Interest income (expense), net |
114 |
(8) |
412 |
20 |
|||||||||
Income before taxes |
19,064 |
21,731 |
59,781 |
55,651 |
|||||||||
Income tax provision |
(5,298) |
(8,614) |
(16,489) |
(21,517) |
|||||||||
Net income |
$ |
13,766 |
$ |
13,117 |
$ |
43,292 |
$ |
34,134 |
|||||
Earnings per common share: |
|||||||||||||
Basic |
$ |
0.52 |
$ |
0.49 |
$ |
1.62 |
$ |
1.28 |
|||||
Diluted |
$ |
0.51 |
$ |
0.49 |
$ |
1.61 |
$ |
1.27 |
|||||
Shares used in computation of earnings per common share: |
|||||||||||||
Basic |
26,716 |
26,802 |
26,745 |
26,754 |
|||||||||
Diluted |
26,902 |
26,899 |
26,883 |
26,886 |
See notes to unaudited condensed consolidated financial statements.
2
PC CONNECTION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
Common Stock |
|
Additional |
|
Retained |
|
Treasury Stock |
|
Stockholders' |
|
|||||||||
|
|
Shares |
|
Amount |
|
Paid-In Capital |
|
Earnings |
|
Shares |
|
Amount |
|
Equity |
|
|||||
Balance at December 31, 2017 |
|
28,709 |
|
|
$ 287 |
|
|
$ 114,154 |
|
|
$ 383,673 |
|
(1,856) |
|
|
$ (15,862) |
|
|
$ 482,252 |
|
Cumulative effect of adoption of ASC 606 |
|
— |
|
|
— |
|
|
— |
|
|
1,197 |
|
— |
|
|
— |
|
|
1,197 |
|
Stock-based compensation expense |
|
— |
|
|
— |
|
|
207 |
|
|
— |
|
— |
|
|
— |
|
|
207 |
|
Repurchases of treasury shares |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
(116) |
|
|
(2,998) |
|
|
(2,998) |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
11,300 |
|
— |
|
|
— |
|
|
11,300 |
|
Balance at March 31, 2018 |
|
28,709 |
|
|
287 |
|
|
114,361 |
|
|
396,170 |
|
(1,972) |
|
|
(18,860) |
|
|
491,958 |
|
Stock-based compensation expense |
|
— |
|
|
— |
|
|
257 |
|
|
— |
|
— |
|
|
— |
|
|
257 |
|
Repurchases of treasury shares |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
(54) |
|
|
(1,386) |
|
|
(1,386) |
|
Issuance of common stock under Employee Stock Purchase Plan |
|
19 |
|
|
— |
|
|
605 |
|
|
— |
|
— |
|
|
— |
|
|
605 |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
18,226 |
|
— |
|
|
— |
|
|
18,226 |
|
Balance at June 30, 2018 |
|
28,728 |
|
|
287 |
|
|
115,223 |
|
|
414,396 |
|
(2,026) |
|
|
(20,246) |
|
|
509,660 |
|
Stock-based compensation expense |
|
— |
|
|
— |
|
|
273 |
|
|
— |
|
— |
|
|
— |
|
|
273 |
|
Restricted stock units vested |
|
28 |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
Shares withheld for taxes paid on stock awards |
|
— |
|
|
— |
|
|
(457) |
|
|
— |
|
— |
|
|
— |
|
|
(457) |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
13,766 |
|
— |
|
|
— |
|
|
13,766 |
|
Balance at September 30, 2018 |
|
28,756 |
|
|
$ 287 |
|
|
$ 115,039 |
|
|
$ 428,162 |
|
(2,026) |
|
|
$ (20,246) |
|
|
$ 523,242 |
|
See notes to unaudited condensed consolidated financial statements.
3
PC CONNECTION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
|
|
Nine Months Ended |
|
||||
|
|
September 30, |
|
||||
|
|
2018 |
|
2017 |
|
||
Cash Flows provided by Operating Activities: |
|
|
|
|
|
|
|
Net income |
|
$ |
43,292 |
|
$ |
34,134 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
10,362 |
|
|
8,645 |
|
Provision for doubtful accounts |
|
|
1,428 |
|
|
1,116 |
|
Stock-based compensation expense |
|
|
737 |
|
|
560 |
|
Deferred income taxes |
|
|
429 |
|
|
164 |
|
Loss on disposal of fixed assets |
|
|
51 |
|
|
— |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
63,881 |
|
|
28,101 |
|
Inventories |
|
|
(9,399) |
|
|
(16,189) |
|
Prepaid expenses, income tax receivables and other current assets |
|
|
812 |
|
|
(2,191) |
|
Other non-current assets |
|
|
283 |
|
|
(3,945) |
|
Accounts payable |
|
|
(29,361) |
|
|
(13,162) |
|
Accrued expenses and other liabilities |
|
|
(1,262) |
|
|
(8,872) |
|
Net cash provided by operating activities |
|
|
81,253 |
|
|
28,361 |
|
Cash Flows used in Investing Activities: |
|
|
|
|
|
|
|
Purchases of equipment |
|
|
(15,641) |
|
|
(7,944) |
|
Net cash used in investing activities |
|
|
(15,641) |
|
|
(7,944) |
|
Cash Flows used in Financing Activities: |
|
|
|
|
|
|
|
Proceeds from short-term borrowings |
|
|
859 |
|
|
— |
|
Repayment of short-term borrowings |
|
|
(859) |
|
|
— |
|
Purchase of treasury shares |
|
|
(4,384) |
|
|
— |
|
Dividend payment |
|
|
(9,123) |
|
|
(9,041) |
|
Exercise of stock options |
|
|
— |
|
|
1,679 |
|
Issuance of stock under Employee Stock Purchase Plan |
|
|
605 |
|
|
603 |
|
Payment of payroll taxes on stock-based compensation through shares withheld |
|
|
(457) |
|
|
(500) |
|
Net cash used in financing activities |
|
|
(13,359) |
|
|
(7,259) |
|
Increase in cash and cash equivalents |
|
|
52,253 |
|
|
13,158 |
|
Cash and cash equivalents, beginning of period |
|
|
49,990 |
|
|
49,180 |
|
Cash and cash equivalents, end of period |
|
$ |
102,243 |
|
$ |
62,338 |
|
|
|
|
|
|
|
|
|
Non-cash Investing and Financing Activities: |
|
|
|
|
|
|
|
Accrued capital expenditures |
|
$ |
1,055 |
|
$ |
294 |
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
15,134 |
|
$ |
24,293 |
|
See notes to unaudited condensed consolidated financial statements.
4
PC CONNECTION, INC. AND SUBSIDIARIES
PART I―FINANCIAL INFORMATION
Item 1―Financial Statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
Note 1–Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of PC Connection, Inc. and its subsidiaries (the “Company,” “we,” “us,” or “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting and in accordance with accounting principles generally accepted in the United States of America. Such principles were applied on a basis consistent with the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission (the “SEC”), other than the adoption of Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASC 606”) under the modified retrospective method as of January 1, 2018, as discussed below. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in our Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods reported and of the Company’s financial condition as of the date of the interim balance sheet. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements. The operating results for the three and nine months ended September 30, 2018 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2018.
Revenue Recognition
On January 1, 2018, we adopted ASC 606, which replaced existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. See Adoption of Recently Issued Accounting Standards within this footnote for additional information.
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. In most instances, when several performance obligations are aggregated into one single transaction, these performance obligations are fulfilled at the same point in time. We account 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. We generally obtain oral or written purchase authorizations from our 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. We generally invoice for our products at the time of shipping, and accordingly there is not a significant financing component included in our arrangements.
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. We recognize revenue as the principal in the transaction with the customer (i.e., on a gross basis), as we control the product prior to delivery to the customer and derive the economic benefits from the sales transaction given our control over customer pricing.
We do not recognize revenue for goods that remain in our 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 we have no ability to use the product or to direct it to another customer.
5
Licenses for on-premise software provide the customer with a right to take possession of the software. Customers may purchase perpetual licenses or enter into subscriptions to the licensed software. We are the principal in these transactions and recognize revenue for the on-premise license at the point in time when the software is made available to the customer and the commencement of the term of the software license or when the renewal term begins, as applicable.
For certain on-premise licenses for security software, the customer derives substantially all of the benefit from these arrangements through the third-party delivered software maintenance, which provides software updates and other support services. We do not have control over the delivery of these performance obligations, and accordingly we are the agent in these transactions. We recognize revenue for security software net of the related costs of sales at the point in time when our vendor and customer accept the terms and conditions in the sales arrangement. Cloud products allow customers to use hosted software over the contractual period without taking possession of the software and are provided on a subscription basis. We do not exercise control over these products or services and therefore are an agent in these transactions. We recognize revenue for cloud products net of the related costs of sales at the point in time when our vendor and customer accept the terms and conditions in the sales arrangements.
Certain software sales include on-premise licenses that are combined with software maintenance. Software maintenance conveys rights to updates, bug fixes and help desk support, and other support services transferred over the underlying contract period. On-premise licenses are considered distinct performance obligations when sold with the software maintenance, as we sell these items separately. We recognize revenue related to the software maintenance as the agent in these transactions because we do not have control over the on-going software maintenance service. Revenue allocated to software maintenance is recognized at the point in time when our vendor and customer accept the terms and conditions in the sales arrangements.
Certain of our 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, our vendors will transfer the license and bill the customer directly, paying resellers, such as us, an agency fee or commission on these sales. We record these agency fees as a component of net sales as earned and there is no corresponding cost of sales amount. In certain instances, we invoice the customer directly under an EA and account for the individual items sold based on the nature of each item. Our vendors typically dictate how the EA will be sold to the customer.
We also offer extended service plans (“ESP”) on IT products, both as part of the initial arrangement and separately from the IT products. We recognize revenue related to ESP as the agent in the transaction because we do not have control over the on-going ESP service and do not provide any service after the sale. Revenue allocated to ESP is recognized at the point in time when our vendor and customer accept the terms and conditions in the sales arrangement.
We use our own engineering personnel in projects involving the design and installation of systems and networks, and we also engage third-party service providers to perform warranty maintenance, implementations, asset disposal, and other services. Service revenue is recognized in general over time as we perform the underlying services and satisfy our performance obligations. We evaluate such engagements to determine whether we are the principal or the agent in each transaction. For those transactions in which we do not control the service, we act as an agent and recognize the transaction revenue on a net basis at a point in time when the vendor and customer accept the terms and conditions in the sales arrangement.
All amounts billed to a customer in a sales transaction related to shipping and handling, if any, represent revenues earned for the goods provided, and these amounts have been included in net sales. Costs related to shipping and handling billing are classified as cost of sales. Sales are reported net of sales, use, or other transaction taxes that are collected from customers and remitted to taxing authorities.
Significant Judgments
Our contracts with customers often include promises to transfer multiple products or services to a customer. Determining whether we are 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.
6
We estimate 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. We maximize the use of observable inputs in the determination of the estimate for SSP for the items that we do not sell separately, including on-premise licenses sold with software maintenance, and IT products sold with ESP. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs.
We provide our customers with a limited thirty-day right of return which is generally limited to defective merchandise. Revenue is recognized at delivery and a reserve for sales returns is recorded. We make estimates of product returns based on significant historical experience and record our sales return reserves as a reduction of revenues and either as reduction of accounts receivable or, for customers who have already paid, as accrued expenses.
Description of Revenue
We disaggregate revenue from our arrangements with customers by type of products and services, as we believe this method best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
The following table represents a disaggregation of revenue from arrangements with customers for the three months ended September 30, 2018 and 2017, along with the reportable segment for each category.
|
|
Three Months Ended September 30, 2018 |
||||||||||
|
|
Business |
|
Enterprise |
|
Public Sector |
|
Total |
||||
Notebooks/Mobility |
|
$ |
68,822 |
|
$ |
63,926 |
|
$ |
50,079 |
|
$ |
182,827 |
Software (1) |
|
|
31,578 |
|
|
25,718 |
|
|
15,541 |
|
|
72,837 |
Desktops |
|
|
25,828 |
|
|
30,075 |
|
|
13,112 |
|
|
69,015 |
Servers/Storage |
|
|
26,386 |
|
|
21,424 |
|
|
13,115 |
|
|
60,925 |
Net/Com products |
|
|
27,380 |
|
|
16,601 |
|
|
12,745 |
|
|
56,726 |
Other hardware/services |
|
|
64,878 |
|
|
107,733 |
|
|
43,563 |
|
|
216,174 |
Total net sales |
|
$ |
244,872 |
|
$ |
265,477 |
|
$ |
148,155 |
|
$ |
658,504 |
(1) Certain software sales are reported on a net basis for the three months ended September 30, 2018 as a result of the adoption of ASC 606, but in the prior year would have been reported on a gross basis under the previous revenue recognition guidance – see the information below under the caption “Adoption of Recently Issued Accounting Standards”.
|
|
Three Months Ended September 30, 2017 |
||||||||||
|
|
Business |
|
Enterprise |
|
Public Sector |
|
Total |
||||
Notebooks/Mobility |
|
$ |
77,374 |
|
$ |
50,835 |
|
$ |
39,369 |
|
$ |
167,578 |
Software |
|
|
66,094 |
|
|
67,623 |
|
|
39,579 |
|
|
173,296 |
Desktops |
|
|
29,849 |
|
|
25,873 |
|
|
16,869 |
|
|
72,591 |
Servers/Storage |
|
|
29,142 |
|
|
19,090 |
|
|
14,110 |
|
|
62,342 |
Net/Com products |
|
|
24,085 |
|
|
14,645 |
|
|
11,855 |
|
|
50,585 |
Other hardware/services |
|
|
64,025 |
|
|
89,956 |
|
|
48,857 |
|
|
202,838 |
Total net sales |
|
$ |
290,569 |
|
$ |
268,022 |
|
$ |
170,639 |
|
$ |
729,230 |
7
The following table represents a disaggregation of revenue from arrangements with customers for the nine months ended September 30, 2018 and 2017, along with the reportable segment for each category.
|
|
Nine Months Ended September 30, 2018 |
||||||||||
|
|
Business |
|
Enterprise |
|
Public Sector |
|
Total |
||||
Notebooks/Mobility |
|
$ |
222,550 |
|
$ |
195,909 |
|
$ |
109,238 |
|
$ |
527,697 |
Software (1) |
|
|
104,377 |
|
|
91,522 |
|
|
33,447 |
|
|
229,346 |
Desktops |
|
|
82,518 |
|
|
91,307 |
|
|
41,948 |
|
|
215,773 |
Servers/Storage |
|
|
85,190 |
|
|
70,262 |
|
|
46,753 |
|
|
202,205 |
Net/Com products |
|
|
83,546 |
|
|
49,093 |
|
|
36,618 |
|
|
169,257 |
Other hardware/services |
|
|
200,011 |
|
|
325,693 |
|
|
119,987 |
|
|
645,691 |
Total net sales |
|
$ |
778,192 |
|
$ |
823,786 |
|
$ |
387,991 |
|
$ |
1,989,969 |
(1) Certain software sales are reported on a net basis for the nine months ended September 30, 2018 as a result of the adoption of ASC 606, but in the prior year would have been reported on a gross basis under the previous revenue recognition guidance – see the information below under the caption “Adoption of Recently Issued Accounting Standards”.
|
|
Nine Months Ended September 30, 2017 |
||||||||||
|
|
Business |
|
Enterprise |
|
Public Sector |
|
Total |
||||
Notebooks/Mobility |
|
$ |
226,152 |
|
$ |
150,799 |
|
$ |
99,999 |
|
$ |
476,950 |
Software |
|
|
195,972 |
|
|
203,320 |
|
|
76,384 |
|
|
475,676 |
Desktops |
|
|
85,994 |
|
|
76,015 |
|
|
78,045 |
|
|
240,054 |
Servers/Storage |
|
|
85,949 |
|
|
59,864 |
|
|
40,290 |
|
|
186,103 |
Net/Com products |
|
|
71,831 |
|
|
51,115 |
|
|
45,565 |
|
|
168,511 |
Other hardware/services |
|
|
194,724 |
|
|
281,904 |
|
|
125,694 |
|
|
602,322 |
Total net sales |
|
$ |
860,622 |
|
$ |
823,017 |
|
$ |
465,977 |
|
$ |
2,149,616 |
Contract Balances
The following table provides information about contract liability from arrangements with customers as of September 30, 2018 and January 1, 2018:
|
|
September 30, 2018 |
|
January 1, 2018 |
||
Contract liability, which are included in "Accrued expenses and other liabilities" |
|
$ |
2,629 |
|
$ |
2,914 |
Significant changes in the contract liability balances during the three and nine months ended September 30, 2018 are as follows (in thousands):
|
|
Three Months Ended |
|
|
|
September 30, |
|
Balances at July 1,2018 |
|
$ |
8,433 |
Cash received in advance and not recognized as revenue |
|
|
1,024 |
Amounts recognized as revenue as performance obligations satisfied |
|
|
(6,828) |
Balances at September 30, 2018 |
|
$ |
2,629 |
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
Balances at January 1, 2018 |
|
$ |
2,914 |
Cash received in advance and not recognized as revenue |
|
|
9,520 |
Amounts recognized as revenue as performance obligations satisfied |
|
|
(9,805) |
Balances at September 30, 2018 |
|
$ |
2,629 |
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
8
amounts reported in the accompanying condensed consolidated financial statements. Actual results could differ from those estimates.
Comprehensive Income
We had no items of comprehensive income, other than our net income for each of the periods presented.
Adoption of Recently Issued Accounting Standards
On May 28, 2014, the Financial Accounting Standards Board, or the FASB, issued ASC 606, 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 we 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 our 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 our condensed consolidated balance sheet as of January 1, 2018:
|
|
|
|
Adjustments |
|
|
|
|
Balance at |
|
Due to ASU |
|
Balance at |
|
|
December 31, 2017 |
|
2014-09 |
|
January 1, 2018 |
Balance Sheet |
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Accounts receivable, net |
$ |
449,682 |
$ |
14,568 |
$ |
464,250 |
Inventories |
|
106,753 |
|
(10,869) |
|
95,884 |
Prepaid expenses and other current assets |
|
5,737 |
|
(132) |
|
5,605 |
Long-term accounts receivable |
|
— |
|
1,890 |
|
1,890 |
Other assets |
|
5,638 |
|
(3,914) |
|
1,724 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Accounts payable |
|
194,257 |
|
(62) |
|
194,195 |
Accrued expenses and other liabilities |
|
31,096 |
|
(312) |
|
30,784 |
Accrued payroll |
|
22,662 |
|
291 |
|
22,953 |
Deferred income taxes |
|
15,696 |
|
429 |
|
16,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
Retained earnings |
$ |
383,673 |
$ |
1,197 |
$ |
384,870 |
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 the following transactions:
Revenue related to the sale of cloud products as well as certain security software is now being recognized net of costs of sales as we determined that we act as an agent in these transactions. These sales are recorded on a net basis at a point in time when our vendor and the customer accept the terms and conditions in the sales arrangement. In addition,
9
we sell third-party software maintenance that is delivered over time either separately or bundled with the software license. We have determined that software maintenance is a distinct performance obligation that we do not control, and accordingly, we act as an agent in these transactions and recognize the related revenue on a net basis under ASC 606. We 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 our prior accounting policies.
The following tables present the effect of the adoption of ASC 606 on our condensed consolidated income statement and balance sheet for the three and nine months ended September 30, 2018 and as of September 30, 2018, respectively:
|
|
Three Months Ended September 30, 2018 |
|
|
Nine Months Ended September 30, 2018 |
||||||||
|
|
|
|
|
|
Balances without |
|
|
|
|
|
|
Balances without |
|
|
As |
|
|
|
Adoption of |
|
|
As |
|
|
|
Adoption of |
|
|
Reported |
|
Adjustments |
|
ASC 606 |
|
|
Reported |
|
Adjustments |
|
ASC 606 |
Income statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
658,504 |
$ |
107,826 |
$ |
766,330 |
|
$ |
1,989,969 |
$ |
296,583 |
$ |
2,286,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
558,060 |
|
107,575 |
|
665,635 |
|
|
1,685,685 |
|
295,540 |
|
1,981,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
18,950 |
|
224 |
|
19,174 |
|
|
59,369 |
|
808 |
|
60,177 |
Income before taxes |
|
19,064 |
|
224 |
|
19,288 |
|
|
59,781 |
|
808 |
|
60,589 |
Net income |
|
13,766 |
|
162 |
|
13,928 |
|
|
43,292 |
|
584 |
|
43,876 |
|
|
September 30, 2018 |
||||