PC Connection Inc. Annual Report 2000

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FY2000 Annual Report · PC Connection Inc.

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LOOKING
AHEAD

2000

P C C O N N E C T I ON , INC .
A N N UA L R E P O R T

FOR NEARLY TWENTY YEARS
WE’VE BEEN PREDICTING

FUTU

AND PROFITING

THE

FROM IT
T

o stay on top in the information technology industry, it’s not enough to keep pace. A company must have vision.
A company must anticipate the future. That’s what PC Connection has done since we opened our doors nearly
twenty years ago when the personal computer industry was still in its infancy. It was a new world, and we were

there – ready to listen, learn, and lend our customers a helping hand. Whether it was selling solutions, offering world-class
service, or delivering the goods, we made it happen.

By establishing and building close one-on-one relationships with our customers, we gained a unique insight into the industry.
These relationships helped us to understand what was in demand, and also what would be needed next. We became a key
source of information to both our customers and manufacturers. And they were eager to hear what we knew.

The results speak for themselves. From an original investment of $8,000, PC Connection has grown into one of the country’s
top direct marketing resellers, with sales in 2000 of more than $1.4 billion. And over the last five years alone, our net income
increased more than 60% on a compounded annual basis.

Along the way, PC Connection has received numerous awards. PC Magazine recognized us three years in a row as the
top reseller in its list of the “100 Most Influential Companies” in the computer industry, most recently in its issue titled
“100 Technology Companies That Are Changing The World.” PC World has honored us with its coveted “World Class Award”
an unprecedented nine times. In June 2000, Business Week ranked PC Connection #7 among the world’s top 100 information
technology companies. And due to our record 2000 revenue, PC Connection is now included on the “Fortune 1000.”

Today, as we enter our third decade of providing information technology solutions, we remain focused on understanding
the IT needs of small- and medium-sized businesses, government agencies and educational institutions. By listening to
our customers, we are better able to provide what they need today and predict what they’ll want tomorrow.

So what’s ahead? Keep your eye on us.

P C C onnec t ion, Inc .

dear fellow shareholders

NET SALES
($ MILLIONS)

C A G R

9
.
9
4
4
,
1
$

8
.
0
8
0
,
1
$

9
.
9
4
7
$

5
.
2
6
5
8 $
.
0
4
3
$

1996 1997 1998 1999 2000

EARNINGS PER SHARE
(EPS)

31%

I N 2 0 0 0

4
9
.
$

$1,600

1,400

1,200

1,000

800

600

400

200

1.4

1.2

0.8

0.6

0.4

0.2

2000 was a year of significant advancement for PC Connection, Inc.
We continued to build our company’s strong brand name by providing our
traditional exemplary customer service. At the same time, we continued to
enhance our already outstanding reputation as a rapid-response provider of
information technology solutions. Through these efforts, we were able to meet
our stated financial goals of 30% or more year-over-year revenue and earnings
growth. We were also able to invest in key areas that we believe will serve the
best long-term interests of the Company and our Shareholders.

Our 2000 Financial Results Continued to Improve
PC Connection’s 2000 annual financial results showed significant improvement
year over year. For the full year, net sales grew by 34% to a new record level
of $1.45 billion. Earnings per share increased by 31% to $1.23 a share, as
compared to $.94 for the prior year. Gross margins and operating margins
increased slightly to 12.2% and 3.6%, respectively. Significantly, our average
order size increased 43% to $1,115 for the full year.

3
2
.
1
$

In April 2000, the Company announced its first stock split since going public
in 1998. The three-for-two common stock split increased the number of
outstanding shares from approximately 16 million to 24 million.

9
5
.
$

1998*

1999

2000

*1998 Pro Forma

A Year That Brought Opportunities and Challenges
The robust economy during the first three quarters of 2000 helped propel
PC Connection’s growth, as we posted very strong results in both net sales
and earnings per share. However, as the year drew to a close, slowing economic
conditions created uncertainties in the marketplace that adversely affected both
manufacturers and distributors across the information technology sector. As a
result, PC Connection experienced a corresponding decline in sales growth,
negatively affecting our fourth quarter revenue and earnings. This trend has
continued through the first quarter of 2001.

By emphasizing service and value, however, PC Connection has created a loyal
and growing customer base of businesses, government agencies, and educational
institutions that rely on us for IT solutions. We believe we are experienced and
resourceful enough to weather the present economic conditions, and quick
enough on our feet to seek new opportunities brought by changing times.

Progress Made in Core Growth Strategies
2000 was also a year in which we made significant progress in executing
our core business growth strategies:
• Accelerating the growth of our Outbound Sales Managed Account Program;
• Serving the small- and medium-sized business sector;
• Expanding our high-end product and service offerings;
• Focusing on high-growth customer segments;
• Capitalizing on and leveraging the power of Internet technology; and
• Exploring strategic acquisitions and alliances.

2 0 0 0 A n n u a l R e p o r t

Patricia Gallup
Chairman and
Chief Executive Officer

Wayne L. Wilson
President and
Chief Operating Officer

Outbound Sales Increased 56%
The success of our Outbound Sales Managed Account Program is a key component
of our plans for achieving continued growth. In fact, outbound sales represented
more than 75% of our total net sales in 2000, up 56% from 1999.

$1,200

1,000

In our letter to shareholders last year, we set a goal to increase the number of
Account Managers from 345 to at least 500. We surpassed that goal by 15%,
raising the number to 575 by the end of 2000, a 67% increase. Almost 50% of
the growth occurred in the fourth quarter. Our goal for 2001 is to increase the
number of Account Managers to at least 700.

In addition, we are continuing to make significant investments in training,
marketing, and lead-generation programs to further improve the overall
productivity of our Outbound Sales Account Managers. During 2000, Account
Manager productivity, as measured by average order size, grew by more than 34%.

Opportunity in the Small- to Medium-Sized Business Sector
We believe expanding the number of Account Managers is critical to increasing
our penetration of the small- and medium-sized business (SMB) sector in
the United States. Comprised of more than 7.5 million potential customers,
SMBs constitute two of the largest markets for information technology
products and services.

These SMB customers, along with the government agencies and educational
organizations we serve, need suppliers who can keep them informed about the
latest technological innovations. They also need suppliers who can reliably
deliver a wide range of IT products and services quickly and efficiently to all
of their locations. The combination of our telesales-based Outbound Sales
Managed Account Program, and our rapid-response delivery capabilities
(such as our Everything Overnight service), make PC Connection an ideal
choice to meet the growing IT needs of SMB customers.

Enterprise-Class Products Up 102%
Networking infrastructure products, including PC-based servers, routers, and
switches, were among our fastest growing product categories in 2000. Sales of
these enterprise-class products increased almost 55% in the fourth quarter of
2000 and 102% for the year. They accounted for 17.4% of total net sales in
2000, up from 11.6% of total net sales in 1999, a 50% increase.

Data storage solutions are clearly “the next big thing” in terms of networking
infrastructure product sales. As companies become more adept at generating
and capturing data in electronic formats, data storage systems take on increasing
importance. In the past year, PC Connection became the first direct marketing
reseller to be authorized by EMC Corporation to sell its CLARiiON mid-range
storage systems, including the new IP4700 network attached storage (NAS)
product. The “plug and play ” ease of NAS products makes them ideal for SMB

800

600

400

200

600

500

400

300

200

100

$300
$300

250
250

200
200

150
150

100
100

50
50

0
0

OUTBOUND SALES
GROWTH ($ MILLIONS)

0
0
1
,
1
$

I N 2 0 0 0

6
0
7
$

9
9
3
$

3
6
2
$

0
3
1
$

1996 1997 1998 1999 2000

OUTBOUND SALES
ACCOUNT MANAGE R S

67%

I N 2 0 0 0

5
7
5

5
4
3

0
0
2

5
5
3 1
1
1

1996 1997 1998 1999 2000

ENTERPRISE SERVER
& NETWORKING PRODUCTS
NET SALES ($ MILLIONS)

102%
102%

2000 vs.1999

I N 2 0 0 0

1
5
.
2
5
2
5
$
.
2
5
2
$

0
8
.
0
8
0
,
1
$

0
.
5
2
1
$

0
9
.
9
4
7
$

1
.
5
5
$

0
5
.
2
6
5
$

4
.
0
3
$

8
.
0
4
3
$

7
7.
1
$

1996 1997 1998 1999 2000
5.2% 5.4% 7.3% 11.6% 17.4%

P C C onnec t ion, Inc .

INTERNET
BUSINESS ACCOUNTS
E STABLISHED

41%

Q 4 2 0 0 0

0
0
5
,
5
1

0
0
0
,
1
1

0
0
5
7,

0
0
6
,
4

0
0
4
,
2

0
0
0
,
1

1999
Q3

1999
Q4

2000
Q1

2000
Q2

2000
Q3

2000
Q4

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

customers. Storage product authorizations from numerous other vendors
including Compaq, Hewlett-Packard, nStor and StorageTek were also added
to our product offerings during 2000.

In addition, we added other important high-end products, including
Hewlett-Packard’s VISUALIZE NT and UNIX workstations and Kodak’s profes-
sional digital imaging products. All of these new products position us to provide
the very latest technology to our SMB, government and education customers.

Identifying the Most Promising Market Segments
The build-out of networks and e-commerce technologies by companies in
the SMB space continues. The most technologically advanced small- and
medium-sized businesses are adding wide area networks (WANs) and enterprise
applications to their IT infrastructures, and integrating them with Web-enabled
front-end applications.

A key focus of our marketing programs is the identification of the SMB market
segments most likely to purchase significant volumes of IT products. For
example, market research reveals that the top 25% of small businesses, based
on spending profiles, account for over 60% of all small business IT spending.
Among medium-sized businesses, the top 36% account for 57% of medium-
sized business IT spending. We are continually analyzing market trends and IT
spending patterns to ensure that we are focused on the best prospects. For 2001,
we see promising opportunities in a number of industries, including energy and
healthcare. Efficiently servicing the large numbers and dispersed locations of
small-and medium-sized businesses plays well to PC Connection’s strengths
as a telesales-based direct marketing reseller.

86% Online Business Growth Driven by IBA Program
Another of our key business strategies is to capitalize on the power of Internet
technology. PC Connection’s online business grew 86% in 2000 to $113 million
for the year, or 7.8% of total net sales. During 2000, we made significant
progress in broadening our Internet sales capabilities to meet the needs of our
SMB customers. In particular, we saw rapid acceptance and adoption of our
Internet Business Account™ (IBA) program, which gives customers the ability
to view their accounts 24 hours a day, request price quotes, and place electronic
purchase orders.

By the end of 2000, the number of corporate buyers using their Internet
Business Accounts grew to more than 15,500 – an increase of 41% in Q4 over
Q3 of 2000. This also represented an increase of more than 500% over the
number at the end of 1999. Our IBA customers have embraced the opportunity
to leverage the speed, convenience and flexibility of the Internet to simplify
their procurement process. In addition, we expanded our award-winning suite
of Smart Selector™ online comparison tools, adding selectors for monitors,

Robert F. Wilkins
Executive Vice President

Mark A. Gavin
Senior Vice President of
Finance and CFO

John L. Bomba
Vice President of
Information Services
and CIO

Bradley G. Mousseau
Vice President of
Human Resources

2 0 0 0 A n n u a l R e p o r t

networking products, printers and digital cameras. We will continue to invest in our PC Connection and
MacConnection Web sites with particular emphasis on enhancing the ease of use and speed of the online
ordering process.

ComTeq Federal, Inc. Successfully Integrated and Growing
Our business goal to pursue strategic acquisitions and alliances is exemplified in the successful integration
of ComTeq Federal, Inc. which has met or exceeded our revenue and earnings expectations in each of the six
quarters since becoming part of the PC Connection family. During 2000, we merged our PC Connection
Federal Government sales operation into the ComTeq organization to position us for accelerating growth in
the Federal Government sector.

Marketplace consolidation is increasing across all information technology product and distribution channels.
This consolidation may provide unique opportunities for us to achieve our business objectives by means of
strategic acquisitions. We will continue to seek opportunities that strengthen and enhance our market position
through the addition of new customers, product offerings, and management talent. Our management team has
significant acquisition-related experience, and we will be disciplined in focusing our resources on opportunities
that we believe will augment our other key business objectives.

PC Connection Continued to Receive National Recognition
2000 was another year of accolades for PC Connection. We began the year by winning IBM’s Personal Systems
Group Business Partner Award as the top North American SMB reseller. In June, Business Week ranked
PC Connection #7 among the world's top 100 technology companies. Smart Business selected PC Connection
as the “Editors Choice” for the best place to buy computer equipment online for 11 straight months. Also, in
2000, PC Connection won its 9th PC World World Class Award, taking honors for “Best Online Computer Store.”

An Optimistic Long-Term Outlook
While the near-term outlook remains somewhat uncertain, we continue to be optimistic about the long-term
market demand for IT products and solutions. We are confident that our core business strategies position us
well for effectively satisfying this demand. In addition, we will continue to make investments in high value
opportunities we believe will enhance the overall performance of the Company.

We are thankful to all who have helped PC Connection work toward our goals to grow revenue, improve our
financial results, and exceed customer expectations. As we look ahead, we also want to thank our shareholders
for their continuing support of PC Connection.

Sincerely,

Patricia Gallup
Chairman & Chief Executive Officer

Wayne Wilson
President & Chief Operating Officer

P C C onnec t ion, Inc .

SELLING
SOLUTIO

BY LISTENING

f you want to know what customers are going to
need next in terms of information technology,
the best place to go is to the source.

we’ve always supported our standalone system
customers. The result? Networking is our fastest
growing product category.

That’s how we’ve always worked to prepare for the
next trend in sales. For example, because of our close
relationship with our customers, we were able to
anticipate the growing need for competitively-priced
and intelligently- supported networking products and
expertise. So, we added a wide range of high-end
network components and enterprise storage systems
to our product offerings. We also assembled one of the
best teams of certified network engineers, integration
specialists, and technical advisors in the industry so
we could support our network customers as well as

We’re always looking for new partnerships and
cutting-edge products to offer. We were the very first
computer direct market reseller to sign distribution
agreements for products such as EMC’s CLARiiON
midrange storage systems, Hewlett-Packard’s
VISUALIZE NT and UNIX Workstations, and Kodak’s
high-end digital imaging products. All are products that
had never before been available through our channel.

These investments of time and energy to building
customer and vendor relationships have certainly
paid off. Our secret is simple. We listen.

2 0 0 0 A n n u a l R e p o r t

W H AT ’ S
N E XT ?

Comparison Shopping

We’ve always provided customers
with comparison charts in our
catalogs and talked them through
product selection on the phone.
Now they can do it themselves
interactively on the Web with
our new Smart Selectors™.
The Selectors let customers
easily search, find, and compare
products from our vast inventory.
It’s like having a virtual salesperson
guiding you through the range of
available products and options
that fit your needs. In an instant,
customers can view side-by-side
comparisons
and features for
cameras, memory,
monitors, networks,
printers, and
systems based
on the criteria
they feel are
most important.
According to
PC Magazine,
“the site’s System
Selector is a
real time-saver...
PC Connection is ideal for the
comparison shopper who hates
to leave home.”

Customized e-Commerce
for Major Accounts

Corporate, government, and

education customers
can now use the
power of the Web to
oversee their ordering
process from start to

finish. By utilizing
PC Connection’s Internet
Business Account™ program,
online customers can place
and track orders anytime, plus
retrieve online quotes and
specific account pricing.

P C C onnec t ion, Inc .

DEFININ
SERVICE

BY I N N OVATI N G

ustomer Relationship Management is
now a buzzword. But, putting the customer
first has always been second nature to us.

After all, we started this business because we needed
better support for our own PCs! And we’ve never
forgotten it.

More than 18 years ago, we were rewarding our
customers with unlimited toll-free service and
support before, during, and after the sale. And we
made sure they had all the information they needed
to buy the right equipment and software, and to
use it effectively.

anytime. This not only empowers them, but saves
time and offers flexibility.

Of course, you can now read about “customer
friendly” Web sites in just about any annual report.
But, in this case, you don’t have to take our word
for it. Smart Business repeatedly placed us on their
Editor’s Choice A-List as the best online source for
computer equipment. Yahoo Internet Life named
us the “best place to buy computers” in their annual
list of 100 best sites. And we also earned our ninth
“World Class Award” from PC World, which
named us “Best Online Computer Store.”

Over the years, we’ve supported our customers
throughout the simplest product evolutions and
the most complex revolutions, building the kind
of repeat business that’s essential to any sales effort.
We employ teams of pre- and post-sale technicians,
plus a dedicated networking team that works with
account managers to offer design consulting,
configuration, and trouble- shooting services.
Plus, our Web sites feature tools that help customers
to get answers and information about their orders

As we develop high-level product categories such
as networking and enterprise storage solutions,
customers will need our expertise more than ever.
And that already has us envisioning whole new
avenues of service. Live interactive customer support
on the Web? Virtual remote software installation?
If it helps us keep our commitment to our
customers, we’ll go the extra mile. Because when
it comes to defining service, we don’t see doing it
any other way.

2 0 0 0 A n n u a l R e p o r t

W H AT ’ S
N E XT ?

The Leader
& Still Champion!

In the early 1990s, we
were among the first direct
marketing resellers
in the world to
use Caller-ID
technology
to improve
service. Our
One-Minute Mail Order
service enabled customer
information to appear instantly
on a salesperson’s screen
when the call connected, and
allowed an order to be taken
in as little as one minute.

From the very beginning,
we’ve been recognized
as a service leader in our
industry and that tradition
has continued.

2000 Awards

PC Connection received
substantial industry
recognition in 2000.

Business Week
#7 Among World’s Top 100
Technology Companies

PC World
World Class Award:
“Best Online Computer Store”
(PC Connection has received
a World Class Award an
unprecedented 9 times!)

Smart Business
A-List: Online Source
for Computer Equipment
(11 months in a row!)

Yahoo Internet Life
“Best Place to Buy Computers”

P C C onnec t ion, Inc .

EXCEEDING
EXPECTAT

BY D E LIVE R I N G

hen PC Connection opened for business
nearly 20 years ago, we wanted to provide
customers with more than just intelligent

information and low prices – we wanted the whole
shopping experience to be easier than fighting traffic
jams and crowds to get to the nearest mall. And that
meant shipping Everything Overnight.

When we finally reached that goal in 1987, customers
thought it was amazing. And us? We just kept looking
for ways to improve it – until we were able to offer
next-day delivery for orders placed as late (or as early)
as 2 a.m.

Shipping software and peripherals overnight was
one thing. But what about customers who wanted
those products installed in a brand new computer?

Could they get Everything Overnight too? Well, by
1990 we were the first, and are still the only, company
that lets customers order a custom-configured system
with the software and peripherals they want, as late
as midnight, and still have it arrive the very next day.

What’s next in delivering the goods? We’ve recently
enhanced our Web sites to allow all orders to be
tracked, whether placed by phone, fax, or online.
And we’ve implemented Phase I of FAST (Fast
Accurate Shipping Technology), a program designed
and developed in-house that will enable us to achieve
more than a 99.9% shipping accuracy. This program
reduces labor costs, and will help us move toward a
completely automated and paperless picking system.

How fast is fast delivery? Just wait and see...

IONS

2 0 0 0 A n n u a l R e p o r t

W H AT ’ S
N E XT ?

Everything Overnight

Customers can place
in-stock orders as late as
2:00 a.m. ET Monday through
Friday for next day delivery
anywhere in the continental
United States. Orders placed
on Saturday, or by 11 a.m.
Sunday, are delivered
Monday. Eleven years after
introducing this service,
no one in the industry
has been able to compete
with PC Connection when
it comes to delivering
the goods.

Custom-Configured
Systems

PC Connection is the only
company that will ship a
custom-configured
system loaded with
the software and
peripherals
the customer
wants, ordered
up until midnight,
for next day delivery.

Everything
Everything
Overnight
Overnight

We Keep Upgrading
Ourselves, too!

We don’t just sell IT
equipment. Behind the
scenes, we make major
IT investments ensuring
continued improvement
in all areas, and to take
advantage of WHAT’S NEXT!

P C C onnec t ion, Inc .

financial review

CONSOLIDATED FINANCIAL AND OPERATING HIGHLIGHTS

(amounts in thousands, except per share and selected operating data)

2000

1999

Years Ended December 31,
1998

1997

1996

STATEMENT OF OPERATIONS DATA:

Net sales(1)
Cost of sales(1)
Gross profit
Selling, general and

administrative expenses

Additional stockholder/officer

compensation(2)

Income from operations
Interest expense
Other, net
Income before income taxes
Income tax provision(3)
Net Income

Basic net income per share(5)
Diluted net income per share(5)

SELECTED OPERATING DATA:

Active customers(6)
Catalogs distributed
Orders entered(7)
Average order size(7)

$ 1,449,908 $ 1,080,835 $ 749,905 $ 562,511
486,545
75,966

1,273,687
176,221

951,489
129,346

656,631
93,274

$ 340,811
289,606
51,205

123,972

91,405

68,521

56,596

43,739

–
52,249
(2,086)
589
50,752
(19,289)
31,463 $

–
37,941
(1,392)
116
36,665
(13,935)
22,730 $

2,354
22,399
(415)
565
22,549
(3,905)
18,644 $

12,130
7,240
(1,355)
(42)
5,843
(639)
5,204

1,259
6,207
(1,269)
70
5,008
(252)
4,756

1.31 $
1.23 $

0.97 $
0.94 $

0.61 $
0.59 $

0.17
0.17

Pro Forma Data(4)

$
$

626,000
45,028,000
1,521,000

732,000
47,325,000
1,622,000

684,000
42,150,000
1,510,000

1,115 $

781 $

580 $

510,000
33,800,000
1,252,000
524

424,000
18,600,000
910,000
453

2000

1999

December 31,
1998

1997

1996

BALANCE SHEET DATA:
Working capital
Total assets
Short-term debt
Long-term debt (less current maturities):

$ 111,669 $
250,413
1,153

72,250 $

53,768 $

223,537
1,137

164,510
123

18,907
105,442
29,568

Capital lease obligations
Notes payable
Term loan

Total stockholders’ equity

6,792
1,000
–
138,687

6,945
2,000
–
94,223

7,081
–
–
69,676

–
–
3,250
24,120

14,622
77,358
13,057

–
–
4,250
18,043

(1) All net sales amounts reflect the reclassification of amounts billed to customers in sales transactions related to shipping and handling as revenue, in accordance with the
Emerging Issues Task Force (EITF) consensus on Issue 00-10, “Accounting for Shipping and Handling Fees and Costs.” Previously, the Company recorded such charges as
a reduction of cost of goods sold.

(2) Represents amounts accrued or distributed in excess of aggregate annual base salaries approved by the Board of Directors prior to the Company’s Initial Public Offering

and generally represented Company-related federal income tax obligations payable by the stockholders.

(3) For all periods prior to March 6, 1998, the Company had been an S Corporation and, accordingly, had not been subject to federal income taxes.
(4) Pro forma adjustments have been made to the historical results of operations to make the pro forma presentation comparable to what would have been reported had the
Company operated as a C Corporation for 1998 and 1997. The computation of income tax expense was made assuming an effective tax rate of approximately 39%.

(5) All per share data has been adjusted for a 3-for-2 stock split distributed on May 23, 2000.
(6) Represents estimates of all customers included in the Company’s mailing list who have made a purchase within the last twelve month period.
(7) Does not reflect cancellations or returns.

Complete financial statements for the Company and Management’s Discussion and Analysis of financial condition and results of operations are included in the Company’s Form 10-K.

CONSOLIDATED BALANCE SHEET DATA

(amounts in thousands)

ASSETS:

Current Assets:

Cash and cash equivalents
Accounts receivable, net
Inventories –merchandise
Deferred income taxes
Income taxes receivable
Prepaid expenses and other current assets

Total current assets

Property and equipment, net
Goodwill
Other assets

Total assets

LIABILITIES AND STO CKHOLDERS’ EQUITY:

Current liabilities:

Current maturities of capital lease obligation to affiliate
Current maturities of long-term debt
Accounts payable
Accrued expenses and other liabilities

Total current liabilities

Long-term debt, less current maturities
Capital lease obligation to affiliate, less current maturities
Deferred taxes
Other liabilities

Total liabilities
Stockholders’ equity:
Common stock
Additional paid-in capital
Retained earnings

Total stockholders’ equity
Total liabilities and stockholders’ equity

2 0 0 0 A n n u a l R e p o r t

December 31,

2000

1999

7,363
139,644
54,679
2,175
4,882
3,064
211,807
28,665
9,509
432
$ 250,413

153
1,000
86,216
12,769
100,138
1,000
6,792
3,555
241
111,726

244
71,542
66,901
138,687
$ 250,413

$ 20,416
99,405
64,348
1,991
1,403
3,248
190,811
23,126
9,431
169
$ 223,537

137
1,000
105,547
11,877
118,561
2,000
6,945
1,579
229
129,314

237
58,548
35,438
94,223
$ 223,537

Complete financial statements for the Company and Management’s Discussion and Analysis of financial condition and results of operations are included in the Company’s Form 10-K.

P C C onnec t ion, Inc .

CONSOLIDATED SUMMARY FINANCIAL DATA

(amounts in thousands, except per share data)

Years Ended December 31,

2000

% of Net Sales

1999

% of Net Sales

INCOME STATEMENT DATA:

Net sales
Cost of sales

Gross profit

Selling, general and administrative expenses

Income from operations

Interest expense
Other, net
Income before income taxes
Income tax provision

Net Income

Weighted average common shares outstanding:

Basic
Diluted

Earnings per common share:

Basic
Diluted

$ 1,449,908
1,273,687
176,221
123,972
52,249
(2,086)
589
50,752
(19,289)
31,463

24,054
25,572

$
$

1.31
1.23

100.00 %
87.85
12.15
8.55
3.60
(0.14)
.04
3.50
1.33
2.17 %

100.00 %
88.03
11.97
8.46
3.51
(0.13)
.01
3.39
1.29
2.10 %

$1,080,835
951,489
129,346
91,405
37,941
(1,392)
116
36,665
(13,935)
$ 22,730

23,475
24,167

$
$

0.97
0.94

CONSOLIDATED CHANGES IN STO CKHOLDERS’ EQUITY

(amounts in thousands)

Balance, December 31, 1999
Exercise of stock options,

including income tax benefits
Issuance of stock under employee

stock purchase plan

Compensation under nonstatutory

stock option agreements

Net income
Balance, December 31, 2000

Common Stock

23,653

687

–
–
24,416

Amount

$ 237

–
–
$ 244

Year Ended December 31,
2000

Additional
Paid in Capital

Retained
Earnings

Total

$ 58,548

$ 35,438

$ 94,223

12,012

931

–

12,018

932

51
–
$ 71,542

–
31,463
$ 66,901

51
31,463
$138,687

Complete financial statements for the Company and Management’s Discussion and Analysis of financial condition and results of operations are included in the Company’s Form 10-K.

2 0 0 0 A n n u a l R e p o r t

CONSOLIDATED CASH FLOW DATA

(amounts in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income
Adjustments to reconcile net income to net cash provided by

(used for) operating activities:

Depreciation and amortization
Deferred income taxes
Compensation under nonstatutory stock option agreements
Provisions for doubtful accounts
(Gain)/loss on disposal of fixed assets

Changes in assets and liabilities:

Accounts receivable
Inventories
Prepaid expenses and other current assets
Other non-current assets
Accounts payable
Income tax benefits from exercise of stock options
Accrued expenses and other liabilities

Net cash provided by (used for) operation activities

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Proceeds from sale of property and equipment
Payments for acquisitions, net of cash acquired
Net cash used for investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings
Repayment of short-term borrowings
Repayment of notes-payable
Repayment of capital lease obligation to affiliate
Issuance of stock upon exercise of nonstatutory stock options
Issuance of stock under employee stock purchase plan
Net cash provided by financing activities

Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid
Income taxes paid

NON-CASH ACTIVITIES:

Years Ended December 31,

2000

1999

$ 31,463

$ 22,730

6,566
1,540
51
9,868
(13)

(49,607)
9,669
(3,295)
(263)
(19,077)
8,193
897
(4,008)

(12,581)
2,074
(2,158)
(12,665)

583,042
(583,042)
(1,000)
(137)
3,825
932
3,620

5,334
2,153
162
6,821
159

(42,795)
(305)
(504)
–
19,945
370
1,969
16,039

(7,653)
2,155
(3,198)
(8,696)

442,731
(442,731)
–
(122)
814
471
1,163

(13,053)
20,416

$ 7,363

8,506
11,910
$ 20,416

$ 1,923
13,242

$ 1,398
9,374

Issuance of notes payable in connection with acquisition of subsidiary

$ –

3,000

Complete financial statements for the Company and Management’s Discussion and Analysis of financial condition and results of operations are included in the Company’s Form 10-K.

1 6

P C C onnec t ion, Inc .

ack in the early 1980s, shortly after the IBM-PC
was introduced, a solitary raccoon with a keyboard

over his shoulder made his debut on the pages of
PC magazines everywhere. The raccoon symbolizes

innovation, adaptability and tenacity – traits
that underlie PC Connection’s remarkable
success. As the Company’s now-legendary
mascot walked peacefully through the snow
towards the welcoming light of our then-
headquarters at the Christmas Trees Inn,
he began a quiet revolution in the way
people shop for personal computers – by
proving that even the most advanced high-
tech products can be successfully sold and supported
from any location directly over the phone.

PC Connection is now one of the largest and most
respected direct marketers of brand-name information
technology products. As we have grown, our raccoon
trademark has become a familiar face to technology
users all over the world. For millions of customers, it
is a promise of great selection, competitive prices, reliable
information, and remarkably fast delivery. For us, it is a
reminder of our founding and guiding principles that has
made us one of the best and most influential companies
in the information technology industry today.

©PC Connection, 2001. All rights reserved. PC Connection, MacConnection, One-Minute Mail Order, Everything Overnight, and the raccoon
character(s) are registered trademarks of PC Connection Sales Corporation. All other trademarks remain the property of their respective companies.

Board of Directors

Patricia Gallup
Chairman and
Chief Executive Officer

David Hall
Vice Chairman

David B. Beffa-Negrini
Vice President of
Media Development

Martin C. Murrer
Managing Director of
AEA Investors Inc.
Audit and Compensation
Committees

Peter J. Baxter
Audit and Compensation
Committees

Executive Officers

Patricia Gallup
Chairman and
Chief Executive Officer

Wayne L. Wilson
President and
Chief Operating Officer

Robert F. Wilkins
Executive Vice President

Mark A. Gavin
Senior Vice President
of Finance and
Chief Financial Officer

John L. Bomba
Vice President of
Information Services and
Chief Information Officer

Bradley G. Mousseau
Vice President of
Human Resources

Market Information
The Company’s Common Stock commenced trading on March 3, 1998 on
the Nasdaq National Market under the “PCCC” symbol. As of March 22, 2001,
there were 24,418,860 shares outstanding of the Common Stock of the
Company held by approximately 80 stockholders of record.

The following table shows the range of high and low bid prices for the
Company’s Common Stock on the Nasdaq National Market for 1999 and
2000. These prices reflect the 3-for-2 stock split distributed on May 23, 2000.

2000

Quarter Ended:
December 31
September 30
June 30
March 31

1999
Quarter Ended:
December 31
September 30
June 30
March 31

High

Low

$56.38
70.25
58.50
23.33

High

$23.25
11.58
12.67
18.08

$ 8.63
42.44
17.67
14.17

Low

$ 9.11
8.00
8.00
7.42

The Company has never declared or paid cash dividends on its capital stock.
The Company currently anticipates that it will retain all future earnings, if any,
to fund the development and growth of its business and does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future.
Shareholder Information
PC Connection’s Corporate Communications Department is responsible
for shareholder communications and welcomes shareholder inquiries about
PC Connection, either by telephone, or in writing. The Annual Report, filings
with the U.S. Securities and Exchange Commission and general information
can be obtained upon written request to:

Corporate Communications
PC Connection, Inc.
730 Milford Road, Merrimack, NH 03054-4631
(603) 683-2163

Or by visiting PC Connection’s Web site at www.pcconnection.com
Annual Meeting
The annual meeting of shareholders will be held at 10 a.m. on
May 24, 2001 at the Crowne Plaza Hotel, Somerset Parkway, Nashua, NH.
Transfer Agent
American Stock Transfer & Trust Co.
40 Wall Street, 46th Floor, New York, NY 10005
(800) 937-5449

This Annual Report contains a number of forward-looking statements. Any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words “believes,” “plans,” “expects,” “intends,” and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements contain these words.
There are a number of important factors that could cause actual events or the Company’s actual results to
differ materially from those indicated by such forward-looking statements. These factors include, without
limitation, those set forth under “Factors That May Affect Future Results and Financial Condition” included
under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in ITEM 7
of the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2000.
The Company does not assume any obligation to update any forward-looking statements made herein.

Locations

PC Connection, Inc.
Corporate Headquarters
730 Milford Road
Merrimack, NH 03054-4631

PC Connection Sales Corporation
730 Milford Road
Merrimack, NH 03054-4631

With additional offices in:
Dover, NH
Keene, NH

PC Connection Sales of Massachusetts, Inc.
293 Boston Post Road
Marlborough, MA 01752

ComTeq Federal, Inc.
7503 Standish Place
Rockville, MD 20855

ComTeq Federal of New Hampshire, Inc.
7 Route 101A, Colonial Park
Amherst, NH 03031

Merrimack Services Corporation
730 Milford Road
Merrimack, NH 03054-4631

Distribution Center:
Wilmington, OH

730 Milford Road
Merrimack, NH 03054-4631