PC Connection, Inc. Reports Second Quarter Results

SECOND QUARTER HIGHLIGHTS:

-- Q2 net sales: $449.4 million, up 2% year over year

-- Gross margin: 12.65%, up from 12.25% last year

-- Net income: $5.1 million

-- Diluted earnings per share: $.19 per share
MERRIMACK, N.H.--(Business Wire)--
PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of
information technology (IT) products and services, today announced
results for the quarter ended June 30, 2008. Net sales for the three
months ended June 30, 2008 increased by $8.3 million, or 1.9%, to
$449.4 million from $441.1 million for the three months ended June 30,
2007. Net income for the quarter was $5.1 million, or $.19 per share,
compared to $5.8 million, or $.21 per share, for the corresponding
prior year quarter. Management believes the current economic
environment affected the level of demand for IT solutions during the
quarter.

Net sales for the six months ended June 30, 2008 increased by
$33.8 million, or 4.0%, to $873.1 million from $839.3 million for the
six months ended June 30, 2007. Net income for the six months ended
June 30, 2008 was $9.9 million, or $.37 per share, compared to
$9.1 million, or $.34 per share, for the six months ended June 30,
2007.

Quarterly Sales Growth by Business Segment:

-- Net sales for the small- and medium-sized business (SMB)
segment increased by 1.9% to $236.4 million compared to the
second quarter of 2007. Corporate sales within the segment
grew year over year, as sales to consumers continued to
decline, reflecting our focus on business customers.

-- Net sales for MoreDirect, Inc., the Company's Large Account
segment, decreased by 4.7% to $127.4 million compared to the
second quarter of 2007. MoreDirect experienced decreased
revenues from its larger enterprise customers, but partly
offset these during the quarter with the addition of new
accounts.

-- Net sales to GovConnection, Inc., the Company's Public Sector
segment, increased by $10.1 million, or 13.3%, to $85.7
million compared to the second quarter of 2007. Strong federal
government contract sales and larger education sales
contributed to this double-digit increase.

Quarterly Sales Growth by Product Mix:

-- Net/Com Products sales increased 43% year over year,
accounting for 11% of net sales in the second quarter of 2008
compared to 8% of net sales for the corresponding period a
year ago. We experienced double digit year-over-year growth in
all three segments, and with several vendors.

-- Video, Imaging and Sound sales increased 9% year over year,
accounting for 14% of net sales in the second quarter of 2008
compared to 13% for the corresponding prior year quarter.
Strong video product sales continued to drive the majority of
this revenue growth.

-- Sales of Notebooks and PDAs decreased 3% year over year,
accounting for 16% of net sales in both second quarters of
2008 and 2007.

Gross profit dollars increased by $2.8 million, or 5.2%, in the
second quarter of 2008 from the corresponding period a year ago due to
improved rate and volume in 2008. Gross profit margin, as a percentage
of net sales, increased 40 basis-points to 12.6% in the second quarter
of 2008 compared to the second quarter of 2007, primarily due to
increased vendor allowances in 2008.

Overall annualized sales productivity was unchanged in the second
quarter of 2008 compared to the second quarter of 2007. Sales
productivity in our Large Account segment increased 5% in the second
quarter of 2008 compared to the second quarter of 2007. Sales
productivity in our Public Sector segment increased 9% year over year
primarily due to increased Federal contract and education sales in
2008. For our SMB segment, productivity decreased 3% year over year
due to the addition of new sales representatives. On a consolidated
basis, the total number of sales representatives was 667 at June 30,
2008, compared to 652 at June 30, 2007.

Total selling, general and administrative expenses for the quarter
increased year over year by $3.2 million, or 7.0%, and increased as a
percentage of net sales to 10.7% for the second quarter of 2008 from
10.3% for the second quarter of 2007. The year-over-year dollar and
rate increase was primarily attributable to the incremental variable
compensation associated with higher gross profits, additional
investment in sales and promotion costs in 2008, as well as the weaker
demand environment.

The Company believes revenue for the third quarter of 2008 will be
in the same range as the third quarter of 2007, reflecting the current
economic environment. "We are continuing to move our business forward
and are taking a number of actions to bring costs in line with
expected sales levels," said Patricia Gallup, Chairman and Chief
Executive Officer. "We believe that our talented and experienced team
will be successful in executing our plans, and that we will continue
to build long-term shareholder value."

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, has three sales
subsidiaries: PC Connection Sales Corporation, MoreDirect, Inc., and
GovConnection, Inc., headquartered in Merrimack, NH, Boca Raton, FL,
and Rockville, MD, respectively. All three companies can deliver
custom-configured computer systems overnight. Investors and media can
find more information about PC Connection, Inc. at
http://ir.pcconnection.com.

PC Connection Sales Corporation (1-800-800-5555), the original
business of PC Connection, Inc. serving the small- and medium-sized
business sector (SMB), is a rapid-response provider of information
technology (IT) products and services. It offers more than 150,000
brand-name products through its staff of technically trained sales
account managers and catalog telesales representatives, catalogs, and
publications, and its website at www.pcconnection.com. The subsidiary
serves the Apple/Macintosh community through its MacConnection
division (1-800-800-2222), which also publishes specialized catalogs
and is online at www.macconnection.com.

MoreDirect, Inc. (561-237-3300), www.moredirect.com, provides
corporate technology buyers with a comprehensive web-based
e-procurement solution and in-depth IT supply-chain expertise, serving
as a one-stop source by aggregating more than 300,000 products from
the inventories of leading IT wholesale distributors and
manufacturers. MoreDirect's TRAXX(TM) system is a seamless end-to-end
interface that empowers clients to electronically source, evaluate,
compare prices, and track related technology product purchases in
real-time.

GovConnection, Inc. (1-800-800-0019) is a provider of IT products
and services to federal, state, and local government agencies and
educational institutions through specialized account managers,
catalogs, and publications, and online at www.govconnection.com.

pccc-g

"Safe Harbor" Statement Under the Private Securities Litigation
Reform Act of 1995: This release contains forward-looking statements
that are subject to risks and uncertainties, including, but not
limited to, the impact of changes in market demand and the overall
level of economic activity, or in the level of business investment in
information technology products, competitive products and pricing,
product availability and market acceptance, new products, fluctuations
in operating results, and the ability of the Company to hire and
retain essential personnel, and other risks that could cause actual
results to differ materially from these detailed under the caption
"Risk Factors" in the Company's Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission for the quarter ended
March 31, 2008. More specifically, the statements in this release
concerning the Company's outlook for 2008 and the statements
concerning the Company's gross margin percentage, productivity, and
selling and administrative costs and other statements of a
non-historical basis (including statements regarding implementing
strategies for future growth and the ability of the Company to improve
sales productivity) are forward-looking statements that involve
certain risks and uncertainties. Such risks and uncertainties include
the ability to realize market demand for and competitive pricing
pressures on the products and services marketed by the Company, the
continued acceptance of the Company's distribution channel by vendors
and customers, continuation of key vendor and customer relationships
and support programs and the ability of the Company to hire and retain
qualified sales representatives and other essential personnel. The
Company assumes no obligation to update the information in this press
release or revise any forward-looking statements, whether as a result
of any new information, future events, or otherwise.

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*T
PC Connection, Inc. -- Second Quarter Earnings -- 07/31/08
----------------------------------------------------------------------

CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------
At or for the Three
Months Ended June 30, 2008 2007
------------------------------------------ ------------------ --------
(Dollars and shares in
thousands, except
operating data, % of % of
price/earnings ratio, Net Net %
and per share data) Sales Sales Change
------------------------------------------ ------------------ --------

Operating Data:
Net sales $ 449,399 $ 441,122 2%
Diluted earnings per
share $ .19 $ .21 (10%)

Gross profit margin 12.6% 12.3%
Operating margin 1.9 2.0
Return on equity (1) 8.8 11.2

Catalogs distributed 3,060,000 3,404,000 (10%)
Orders entered (2) 361,500 365,200 (1%)
Average order size
(2) $ 1,462 $ 1,396 5%

Inventory turns (1) 24 22
Days sales
outstanding 45 42

Product Mix:
Notebooks & PDAs $ 69,939 16% $ 72,374 16% (3%)
Video, Imaging &
Sound 64,521 14 59,146 13 9
Desktops/Servers 62,035 14 62,479 14 (1)
Software 57,010 13 56,205 13 1
Net/Com Products 51,046 11 35,630 8 43
Printers & Printer
Supplies 40,305 9 41,743 10 (3)
Storage Devices 36,583 8 39,649 9 (8)
Memory & System
Enhancements 17,887 4 24,032 6 (26)
Accessories/Other 50,073 11 49,864 11 -
----------- ------ ----------- ------
Total $ 449,399 100% $ 441,122 100% 2%
=========== ====== =========== ======

Net Sales of Enterprise Server and Networking Products (included in
the above Product Mix):

$ 163,228 36% $ 144,552 33% 13%
=========== ===========

Stock Performance
Indicators:
Actual shares
outstanding (4) 27,057 26,824
Total book value per
share $ 8.72 $ 7.80
Tangible book value
per share $ 6.50 $ 5.54
Closing price $ 9.31 $ 13.24
Market capitalization $ 251,901 $ 355,150
Trailing
price/earnings ratio
(3) 11 19

(1) Annualized
(2) Does not reflect cancellations or returns
(3) Earnings is based on the last four quarters
(4) Includes outstanding nonvested stock awards

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SELECTED SEGMENT INFORMATION
----------------------------------------------------------------------
For the Three Months Ended June 30, 2008 2007
------------------------------------------------------ ---------------
(Dollars in thousands) Gross Gross
Net Margin Net Margin
Sales (%) Sales (%)
------------------------------------------------------ ---------------

PC Connection Sales Corporation (SMB) $236,375 14.0% $231,935 13.3%
MoreDirect (Large Account) 127,368 11.8 133,602 11.3
GovConnection (Public Sector) 85,656 10.0 75,585 10.8
-------- --------
Total $449,399 12.6% $441,122 12.3%
======== ========
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CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Three Months Ended June 30, 2008 2007
----------------------------------------------------------------------
(amounts in thousands, except % of Net % of Net
per share data) Amount Sales Amount Sales
-------------------------------------------------- -------------------

Net sales $ 449,399 100.0% $441,122 100.0%
Cost of sales 392,559 87.4 387,082 87.7
----------- -------- ---------- --------
Gross Profit 56,840 12.6 54,040 12.3

Selling, general and
administrative expenses 48,173 10.7 45,005 10.3
----------- -------- ---------- --------
Income From Operations 8,667 1.9 9,035 2.0

Interest expense (199) - (242) (0.1)
Other, net 205 - 260 0.1
Income tax provision (3,586) (0.8) (3,300) (0.7)
----------- -------- ---------- --------
Net Income $ 5,087 1.1% $ 5,753 1.3%
=========== ======== ========== ========

Weighted average common
shares outstanding:
Basic 26,807 26,798
=========== ==========
Diluted 26,930 26,995
=========== ==========
Earnings per common share:
Basic $ 0.19 $ 0.21
=========== ==========
Diluted $ 0.19 $ 0.21
=========== ==========

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CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Six Months Ended June 30, 2008 2007
-------------------------------------------------- ------------------
(amounts in thousands, % of Net % of Net
except per share data) Amount Sales Amount Sales
-------------------------------------------------- ------------------

Net sales $ 873,123 100.0% $839,302 100.0%
Cost of sales 763,539 87.5 735,347 87.6
----------- -------- --------- --------
Gross Profit 109,584 12.5 103,955 12.4

Selling, general and
administrative expenses 93,566 10.7 89,198 10.6
----------- -------- --------- --------
Income From Operations 16,018 1.8 14,757 1.8

Interest expense (361) - (450) (0.1)
Other, net 364 - 461 0.1
Income tax provision (6,160) (0.7) (5,630) (0.7)
----------- -------- --------- --------
Net Income $ 9,861 1.1% $ 9,138 1.1%
=========== ======== ========= ========

Weighted average common shares outstanding:
Basic 26,834 26,740
=========== =========
Diluted 26,952 27,002
=========== =========
Earnings per common share:
Basic $ 0.37 $ 0.34
=========== =========
Diluted $ 0.37 $ 0.34
=========== =========
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CONSOLIDATED BALANCE SHEETS June 30, December 31,
----------------------------------------------------------------------
(amounts in thousands) 2008 2007
----------------------------------------------------------------------

ASSETS
Current Assets:
Cash and cash equivalents $ 40,916 $ 13,741
Accounts receivable, net 193,599 202,216
Inventories-merchandise 64,968 76,090
Deferred income taxes 2,732 2,858
Income taxes receivable 917 345
Prepaid expenses and other current assets 4,000 4,322
--------- ------------
Total current assets 307,132 299,572
Property and equipment, net 23,199 20,831
Goodwill 56,867 56,867
Other intangibles, net 2,756 3,291
Other assets 306 318
--------- ------------
Total Assets $390,260 $380,879
========= ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Current maturities of capital lease obligation
to affiliate $ 615 $ 527
Accounts payable 110,924 111,140
Accrued expenses and other liabilities 20,349 20,557
Accrued payroll 9,622 10,816
--------- ------------
Total current liabilities 141,510 143,040
Capital lease obligation to affiliate, less
current maturities 3,969 4,309
Deferred income taxes 7,061 5,436
Other liabilities 3,742 3,784
--------- ------------
Total Liabilities 156,282 156,569
--------- ------------
Stockholders' Equity:
Common stock 273 273
Additional paid-in capital 93,452 94,132
Retained earnings 141,831 131,970
Treasury stock at cost (1,578) (2,065)
--------- ------------
Total Stockholders' Equity 233,978 224,310
--------- ------------
Total Liabilities and Stockholders' Equity $390,260 $380,879
========= ============

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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
Six months ended June 30, 2008 (amounts in thousands)
----------------------------------------------------------------------
Common Stock Additional Treasury Shares
------------- Paid-In Retained ---------------
Shares Amount Capital Earnings Shares Amount Total
----------------------------------------------------------------------

Balance -
January 1,
2008 27,252 $ 273 $94,132 $131,970 (327) ($2,065) $224,310

Stock
compen-
sation
expense - - 531 - - - 531

Issuance of
common
stock
under
stock
incentive
plans,
including
income
tax
benefits 11 - 86 - - - 86

Issuance of
common
stock
under
Employee
Stock
Purchase
Plan 14 - 129 - - - 129

Repurchase
of common
stock for
Treasury - - - - (92) (939) (939)

Issuance of
nonvested
stock - - (1,426) - 199 1,426 -

Net income - - - 9,861 - - 9,861
------ ------ ---------- -------- ------ -------- ---------

Balance -
June 30,
2008 27,277 $ 273 $93,452 $141,831 (220) ($1,578) $233,978
====== ====== ========== ======== ====== ======== =========
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CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------
Six Months Ended June 30, (amounts in thousands) 2008 2007
----------------------------------------------------------------------

Cash Flows from Operating Activities:

Net income $ 9,861 $ 9,138
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,505 3,472
Provision for doubtful accounts 696 894
Deferred income taxes 1,751 79
Stock compensation expense 531 (23)
Excess tax benefit from exercise of stock
options (3) (358)
Income tax benefit related to employee equity
awards 10 918
Loss on disposal of fixed assets - 8

Changes in assets and liabilities:
Accounts receivable 7,921 25
Inventories 11,122 (5,835)
Prepaid expenses and other current assets (250) 70
Other non-current assets 12 (35)
Accounts payable (89) (10,168)
Accrued expenses and other liabilities (1,444) 2,252
--------- ---------
Net cash provided by operating activities 33,623 437
--------- ---------

Cash Flows from Investing Activities:

Purchases of property and equipment (5,465) (3,151)
--------- ---------
Net cash used for investing activities (5,465) (3,151)
--------- ---------

Cash Flows from Financing Activities:

Proceeds from short-term borrowings 35,345 1,461
Repayment of short-term borrowings (35,345) (1,461)
Repayment of capital lease obligation (252) (438)
Purchase of treasury shares (939) -
Exercise of stock options 76 2,544
Issuance of stock under Employee Stock Purchase
Plan 129 134
Excess tax benefit from exercise of stock options 3 358
--------- ---------
Net cash (used for) provided by financing
activities (983) 2,598
--------- ---------
Increase (decrease) in cash and cash equivalents 27,175 (116)
Cash and cash equivalents, beginning of period 13,741 17,582
--------- ---------
Cash and cash equivalents, end of period $ 40,916 $ 17,466
========= =========
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PC Connection, Inc.
Stephen Baldridge, 603-683-2322
Sr. Vice President of Finance & Corporate Controller

Copyright Business Wire 2008