PC Connection Inc. Annual Report 2003

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FY2003 Annual Report · PC Connection Inc.

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24/7

IMAGINEmpact

every where

every day

DEAR FELLOW SHAREHOLDERS,

In 2003, PC Connection continued to make progress in meeting
our business objectives. During the year, all of our major
customer segments experienced increased activity, which led to
rising sales, productivity, and profits. We believe PC Connection
is a financially healthy company that is in a strong position to
build business, win new customers, and improve profitability.
A review of the past year’s highlights
shows positive results in many areas.

Selling and Marketing

Given 2003’s favorable business trends, we augmented our sales
team throughout the year. Overall, we increased the number
of sales representatives in all divisions from 512 to 567, a rise
of 11 percent. The number of sales representatives serving the
SMB segment increased from 341 to 378; in the public sector,
from 99 to 104; and in the large account
segment, from 72 to 85.

Financial Results

Total net sales for 2003 were $1.31 billion
compared to $1.19 billion the previous year,
an increase of 10.1 percent. Growing sales
caused PC Connection to rise 24 places on
the Fortune 1000 list, up to 937 in 2003
from 961 in 2002. We continued to invest
in strengthening our ability to meet the
needs of our customers, while at the same
time our total income in 2003 rose to $5.9
million, or $.23 per share, compared to $3.2
million, or $.13 per share the previous year.

From playing or listening to

music to sending e-mail or IM

to friends or business colleagues,

from creating school projects

to managing government

proceedings, from routing

fire and police personnel to

managing the IT data for the

largest corporation...we

provide the products and

services that have an impact

on every aspect of your life—
every day,
everywhere.

At the same time, productivity increased
to $2.5 million per sales representative by
the fourth quarter of 2003, up from $2.2
million per sales representative in the first
quarter of 2003. This improvement was
partly due to increased Account Manager
tenure. In the fourth quarter of 2003,
average tenure rose to 25 months in our
SMB segment and 37 months in the public
sector segment; this is a significant
improvement from a consolidated average
of 21 months in the fourth quarter of 2001.
During the year, we progressively enhanced
the training options for our sales force,
including courses in selling, leadership, and

Sales to small- and medium-sized (SMB)
customers, targeted by our PC Connection
Sales Corporation subsidiary, were $744
million in 2003, compared to $704 million the previous year.
Net sales for our GovConnection subsidiary, which serves
government and education customers, were $321 million in
2003, compared to $294 million the previous year. Net sales
for our MoreDirect subsidiary, which manages IT hardware
procurement for large corporate customers, were $248 million
in 2003, compared to $194 million the previous year. The results
for MoreDirect reflect sales posted only since this subsidiary
was acquired by PC Connection in April 2002.

technology offered through our PC Connection University program.

In addition, our customers are very loyal. In 2003, 87 percent
of our net sales were made to customers who had already
purchased from us before. Also, we continue to have strong
relationships with our vendors, which results in favorable
product allocations and marketing assistance.

To build PC Connection’s image in 2003, we continued to invest
in strategic high profile marketing efforts, including sponsorships

Rising Sales
(IN MILLIONS)

Increasing Income and Earnings
(IN MILLIONS EXCEPT EARNINGS PER SHARE)

Building Our Sales Team

$744

^10%

$321

$248

$5.9

23¢

^11%

378

104

02 03

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of major league sports teams and arenas,
airports, billboards, and specialized
catalogs. We were a highly visible sponsor
of the Boston Red Sox baseball team, and
pursued a unique partnership with the
Boston Bruins and Celtics teams that
included promotions on the Fleet Center’s
interactive television network.

Operations and Technology

During 2003, PC Connection continued
to focus on operational efficiency and
lowering our overall cost structure.
Through a variety of initiatives throughout
the year, we succeeded in lowering
SG&A expenses to 9.5 percent in 2003
compared to 10.2 percent the prior year,
excluding restructuring costs and other
special charges. Also, our cost of doing
business was reduced by continued process
improvements and growth in the Internet
as a sales channel. In 2003, Internet or
Internet-assisted sales grew to 21 percent
of our total business, compared to 19 percent
the prior year. Our award-winning efforts in
using e-commerce technologies enabled us
to grow our business, better serve customers,
and improve overall operations.

Looking Ahead
Overall, we were pleased with our 2003
results. Looking ahead, we intend to remain
competitive in every way, while upholding
our founding principle of offering the

highest possible standards of customer
service and satisfaction. To meet this goal,
in 2004 we plan to:

• Expand our product and service offerings

• Improve sales productivity

• Increase product margins

• Continue to review our internal
processes to gain efficiencies

• Sharpen our focus on high-growth
customer segments

• Pursue strategic alliances and acquisitions

With recent trends in the technology sales
market, we believe demand will continue
to strengthen for the products and services
that PC Connection offers. To meet this need,
we will continue to serve as a trusted and
reliable source of IT product information,
competitive prices, and excellent customer
service. We believe maintaining this focus
remains the key to creating satisfied long-term
customers, employees, and shareholders.

Patricia Gallup
Chairman & Chief Executive Officer
PC Connection, Inc.

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 12, 2004, there were 24,997,877

shares outstanding of the Common Stock of the Company held by approximately 100

Board of Directors

stockholders of record.

The following table shows the range of high and low sales prices for the Company’s

Common Stock on the Nasdaq National Market for 2002 and 2003:

2003
Quarter Ended:

2002
Quarter Ended:

1
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HIGH

$11.90

$13.47

$10.82

LOW

6.50

6.54

4.94

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$8.33

4.69

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HIGH

LOW

$7.49

3.72

$6.27

3.86

$10.90

$15.36

3.83

8.33

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 the PC Connection Web site at www.pcconnection.com

Annual Meeting
The annual meeting of shareholders will be held at 10 a.m. on June 8, 2004

at the Nashua Marriott, Southwood Drive, Nashua, NH.

Transfer Agent
American Stock Transfer & Trust Co.

40 Wall Street, 46th Floor,

New York, NY 10005
(800) 937-5449

Patricia Gallup
Chairman

David Hall
Vice Chairman

David Beffa-Negrini
Vice President Corporate Communications

Bruce Barone
Audit and Compensation Committees

Peter Baxter
Audit and Compensation Committees

Joseph Baute
Audit and Compensation Committees

Executive Officers

Patricia Gallup
President and CEO

Robert Wilkins
Executive Vice President

Mark Gavin
Senior Vice President Finance and CFO

Bradley Mousseau
Vice President Human Resources

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

GovConnection, Inc.
7503 Standish Place
Rockville, MD 20855

With additional offices in:
Merrimack, NH
Fairfield, CT

MoreDirect, Inc.
7300 N. Federal Hwy. Suite 200
Boca Raton, FL 33487

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 “anticipate,”
“believe,” “plan,” “estimate,” “expect,” “may,” “hope,” “project,” “will,” “would,” “intend,” 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, 2003. The Company does not assume any obligation to update any forward-looking statements made herein.

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

Distribution Center:
Wilmington, OH

The breadth and variety of the PC Connection

product line allows us to have an impact

on virtually every aspect of life...regardless

of time or place.

Boston Red Sox
When you manage the IT department for a professional baseball team your system not only runs
the company, it also helps keep the fans coming in the gates and the balls going out of the park.

“Our business is very fluid, real time, and fan oriented. It’s critical that

our system stays up, is accurate and provides play-by-play information

for our fans. PC Connection helped us design one of the best IT

systems in the Major Leagues. We run a very lean organization and

count on PC Connection for all of our information technology needs.

Regardless of what we need, they have it and support it.”

—Steve Conley, IT Director, Boston Red Sox

Northeastern University
Northeastern University was a pioneer in cooperative education and is now leading the way
towards the use of tablet PCs in its business curriculum.

“We immediately saw the educational value of tablet PCs. Students

can use them to organize, search, and reuse handwritten notes;

faculty can use them to grade student assignments, or mark up their

PowerPoint lecture slides with handwritten notes. PC Connection

has partnered with us to provide our students and faculty with fully

imaged tablets and a unique online Self-Service Account for

equipment purchases and comprehensive support.”

— Les Ball, Northeastern University, College of Business Administration

Medarex
Medarex, Inc., a biotechnology company, was operating at hyper-growth, rapidly adding new
employees, bringing up PC systems, and navigating the often-bumpy road of drug development.

“In order to sustain our growth, we had to have an IT system robust
enough to support us in the future. We formed a small central IT
group and a close working partnership with PC Connection. This
allowed us to leverage their broad product range and configuration
expertise to build a more reliable and secure network. They’re much
more than a box provider—it’s more like having PC Connection
on my internal staff to rely on to get things done.”

— Robert McQueen, Director Information Technology, Medarex, Inc.

730 Milford Road

Merrimack, NH 03054-4631