[July 28, 2016] |
|
PC Connection, Inc. Reports Second Quarter 2016 Results
PC Connection, Inc. (NASDAQ: PCCC), a national provider of a full
range of information technology (IT) solutions to business, government,
healthcare, and education markets, today announced results for the
quarter ended June 30, 2016. The Q2 results include one month of
activity for Softmart, Inc. which was acquired on May 27, 2016. Softmart
is a national solution provider of hardware, software, and services, and
annual revenues are approximately $200 million. Softmart has significant
expertise with Microsoft, and has built a team of cloud experts, in
addition to having attained Microsoft Tier 1 Cloud Solution Provider
status.
Net sales for the second quarter of 2016 increased by 7.7% to $676.2
million, compared to $627.6 million for the prior year quarter. Gross
profit increased by 13.1% from $83.0 million to $93.9 million primarily
due to an increase in gross margin from 13.2% to 13.9% in the second
quarter of 2016. Net income for the quarter ended June 30, 2016
increased by 7.1% to $12.5 million, or $0.47 per diluted share, compared
to net income of $11.6 million, or $0.44 per diluted share for the prior
year quarter.
The second quarter 2016 results include $0.8 million of acquisition and
restructuring costs. This charge includes professional fees related to
the Softmart acquisition, severance related to internal restructuring
activities, and duplicate costs incurred in our office move from Itasca,
Illinois to Schaumburg, Illinois. The Company will continue to evaluate
additional restructuring in the third quarter. In addition, the Company
will break out amortization of acquired intangible assets in the income
statement, which is estimated to be approximately $0.3 million per
quarter. Earnings per share, adjusted for acquisition costs,
restructuring charges, and amortization of acquired intangibles,
increased to $0.49 cents per share for the quarter ended June 30, 2016,
compared to $0.44 cents per share for the prior year quarter.
Net sales for the six months ended June 30, 2016 were $1,248.6 million,
an increase of $39.7 million or 3.3%, compared to $1,208.9 million for
the six months ended June 30, 2015. Net income for the six months ended
June 30, 2016 increased by 6.5% to $21.5 million, or $0.81 per diluted
share, compared to net income of $20.2 million, or $0.76 per diluted
share, for the six months ended June 30, 2015. Earnings before interest,
taxes, acquisition and restructuring costs, depreciation and
amortization, and stock-based compensation expense ("Adjusted EBITDA")
totaled $93.1 million for the twelve months ended June 30, 2016,
compared to $84.1 million for the twelve months ended June 30, 2015.
Quarterly Performance by Segment:
-
Net sales for the SMB segment increased by 8.3% to $280.8 million in
the second quarter of 2016, compared to the prior year quarter.
Softmart's revenues for June are included in SMB since most of their
customer base falls into this segment. Gross margin increased by 78
basis points to 16.2% due to strong performance in advanced technology
solution categories, which contributed to a 13.8% increase in gross
profit.
-
Net sales for the Large Account segment increased by 12.0% to $259.6
million in the second quarter of 2016, compared to the prior year
quarter. Strong performance in software generated most of the increase.
-
Net sales to the Public Sector segment were basically unchanged at
$135.7 million in the second quarter of 2016, compared to the prior
year quarter. Gross margin improved by 149 basis points due to
increased software and net/com sales; this resulted in a 13.7%
increase in gross profit.
Quarterly Sales by Product Mix:
-
Notebook/mobility sales, the Company's largest product category,
increased by 6% year over year and accounted for 23% of net sales in
the second quarter of 2016 compared to 24% of net sales in the prior
year quarter. Mobility continues to be a strategic focus area for
customers in each of our three segments.
-
Software sales increased by 35% year over year and accounted for 22%
of net sales in the second quarter of 2016 compared to 18% of net
sales in the prior year quarter. We experienced growth in cloud-based
offerings, security, and virtualization.
Overall gross profit increased by $10.9 million, or 13.1%, in the second
quarter of 2016, compared to the prior year quarter. Consolidated gross
margin, as a percentage of net sales, increased to 13.9% for the second
quarter of 2016, compared to 13.2% for the prior year quarter.
Selling, general and administrative expenses, excluding acquisition
costs, restructuring charges, and amortization of acquired intangibles,
increased in the second quarter of 2016 to $71.9 million from $63.1
million in the prior year quarter, with variable cost increasing due to
higher levels of gross profit. We continue to invest in technical
solution sales capabilities and expect SG&A expenses to rise
accordingly. However, we are highly focused on improving efficiencies
and streamlining wherever possible.
Total cash was $47.3 million at June 30, 2016, compared to $80.2 million
at December 31, 2015. The primary cause of the decline was the $34
million acquisition price for Softmart. Days sales outstanding were 45
days at June 30, 2016, and inventory turns were 22 turns in the second
quarter of 2016.
"The Softmart acquisition solidifies our position as one of Microsoft's
largest partners, and it provides us with enhanced cloud and services
capabilities," said Timothy McGrath, President and Chief Executive
Officer. "Our strong revenue and gross profit performance drove
significant growth in net income this quarter. We believe our team and
the strategies we have in place position us well to gain market share
and increase long-term shareholder value."
Non-GAAP Financial Information
Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures. This
information is included to provide information with respect to the
Company's operating performance and earnings.
About PC Connection, Inc.
PC Connection, Inc., a Fortune 1000 company, has three wholly owned
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 from our ISO 9001:2008
certified technical configuration lab at our distribution center in
Wilmington, OH. In addition, the company has over 2,500 technical
certifications to ensure that we can solve the most complex issues of
our customers. Investors and media can find more information about
PC Connection, Inc. at http://ir.pcconnection.com.
PC Connection Sales Corporation (800-800-5555), the original business of
PC Connection, Inc. serving primarily the small- and medium-sized
business sector, is a rapid-response provider of IT products and
services. It offers more than 300,000 brand-name products through its
staff of technically trained sales account managers, catalogs,
publications, and its website at www.pcconnection.com.
This company also serves consumer and small office users and is, under
its MacConnection brand (800-800-2222), one of Apple's largest
authorized online resellers at www.macconnection.com.
MoreDirect, Inc. (561-237-3300), www.moredirect.com,
provides corporate technology buyers with best-in-class IT solutions,
in-depth IT supply-chain expertise, and access to over 300,000 products
and 1,600 vendors through TRAXX™, our proprietary cloud-based
eProcurement system. MoreDirect's team of engineers, software licensing
specialists, and project managers help reduce the cost and complexity of
buying hardware, software, and services throughout the entire IT
lifecycle.
GovConnection, Inc. (800-800-0019) is a rapid-response provider of IT
products and services to federal, state, and local government agencies
and educational institutions through specialized account managers,
catalogs, 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 and environment, 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 manage costs in
response to fluctuations in revenue, and other risks that could cause
actual results to differ materially from expectations, including those
detailed under the caption "Risk Factors" in the Company's Annual Report
on Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 2015. More specifically, the statements in this
release concerning the Company's outlook for selling, general, and
administrative expenses, the Company's efforts in improving efficiencies
and streamlining its business and other statements of a non-historical
basis (including statements regarding the Company's ability to increase
market share and enhance long-term shareholder value and the Company's
continuing investments in technical solution sales capabilities) 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, the ability
of the Company to gain or maintain market share, and the ability of the
Company to hire and retain qualified sales representatives and other
essential personnel. The Company disclaims any 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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CONSOLIDATED SELECTED FINANCIAL INFORMATION
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At or for the Three Months Ended June 30,
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2016
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2015
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% of
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% of
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%
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(Amounts and shares in thousands, except operating data, P/E
ratio, and per share data)
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Net Sales
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Net Sales
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Change
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Operating Data:
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Net sales
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$
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676,165
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$
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627,622
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8
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%
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Diluted earnings per share
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$
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0.47
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$
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0.44
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7
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%
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Gross margin
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13.9
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%
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13.2
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%
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Operating margin
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3.1
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%
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3.1
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%
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Return on equity (1)
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12.3
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%
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12.4
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%
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Inventory turns
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22
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24
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Days sales outstanding (2)
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45
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43
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% of
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% of
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Product Mix:
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Net Sales
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Net Sales
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Notebooks/Mobility
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23
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%
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24
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%
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Software
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22
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18
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Servers/Storage
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10
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12
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Net/Com Products
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7
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8
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Other Hardware/Services
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38
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38
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Total Net Sales
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100
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%
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100
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%
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Stock Performance Indicators:
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Actual shares outstanding
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26,522
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26,396
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Total book value per share
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$
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15.65
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$
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14.23
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Tangible book value per share
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$
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12.63
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$
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12.23
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Closing price
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$
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23.80
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$
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24.74
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Market capitalization
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$
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631,224
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$
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653,037
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Trailing price/earnings ratio
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13.1
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14.8
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LTM Adjusted EBITDA (3)
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$
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93,092
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$
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84,084
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Adjusted market capitalization/LTM Adjusted EBITDA (4)
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6.3
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6.9
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(1) Based on last twelve months' net income.
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(2) Excludes the impact of the Softmart acquisition.
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(3) Adjusted EBITDA is defined as EBITDA (earnings before interest,
taxes, depreciation and amortization) adjusted for stock-based
compensation.
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and acquisition and restructuring costs.
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(4) Adjusted market capitalization is defined as gross market
capitalization less cash balance.
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REVENUE AND MARGIN INFORMATION
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For the Three Months Ended June 30,
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2016
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2015
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Net
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Gross
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Net
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Gross
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(amounts in thousands)
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Sales
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Margin
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Sales
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Margin
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SMB
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$
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280,814
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16.2
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%
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$
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259,346
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15.4
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%
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Large Account
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259,630
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12.4
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231,803
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12.4
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Public Sector
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135,721
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11.9
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136,473
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10.5
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Total
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$
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676,165
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13.9
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%
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$
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627,622
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13.2
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%
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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Three Months Ended June 30,
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2016
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2015
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(amounts in thousands, except per share data)
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Amount
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% of Net Sales
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Amount
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% of Net Sales
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Net sales
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$
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676,165
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100.0
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%
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$
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627,622
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100.0
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%
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Cost of sales
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582,291
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86.1
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544,635
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86.8
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Gross profit
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93,874
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|
13.9
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82,987
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13.2
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Acquisition and restructuring costs
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|
841
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0.1
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|
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271
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-
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Amortization of acquired intangible assets
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83
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-
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-
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-
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Selling, general and administrative expenses, other
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71,940
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10.7
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|
|
63,093
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10.1
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Income from operations
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21,010
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3.1
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19,623
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3.1
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Interest/other expense, net
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(12
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)
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-
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(39
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)
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-
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Income tax provision
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(8,540
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)
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(1.3
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)
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(7,955
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)
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(1.2
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)
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Net income
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$
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12,458
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1.8
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%
|
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$
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11,629
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1.9
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%
|
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Earnings per common share:
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Basic
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$
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0.47
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$
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0.44
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Diluted
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$
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0.47
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$
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0.44
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Shares used in the computation of earnings per common share:
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Basic
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26,501
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26,363
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Diluted
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26,691
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|
26,616
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|
|
|
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|
|
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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|
|
|
|
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Six Months Ended June 30,
|
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2016
|
|
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2015
|
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(amounts in thousands, except per share data)
|
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Amount
|
|
% of Net Sales
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|
Amount
|
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% of Net Sales
|
|
|
|
|
|
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|
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Net sales
|
|
$
|
1,248,559
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|
|
100.0
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%
|
|
$
|
1,208,881
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|
|
100.0
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%
|
Cost of sales
|
|
|
1,072,492
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|
|
85.9
|
|
|
|
1,048,281
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|
|
86.7
|
|
Gross profit
|
|
|
176,067
|
|
|
14.1
|
|
|
|
160,600
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
Acquisition and restructuring costs
|
|
|
841
|
|
|
0.1
|
|
|
|
271
|
|
|
-
|
|
Amortization of acquired intangible assets
|
|
|
83
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Selling, general and administrative expenses, other
|
|
|
138,969
|
|
|
11.1
|
|
|
|
126,527
|
|
|
10.5
|
|
Income from operations
|
|
|
36,174
|
|
|
2.9
|
|
|
|
33,802
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
Interest/other expense, net
|
|
|
(26
|
)
|
|
-
|
|
|
|
(38
|
)
|
|
-
|
|
Income tax provision
|
|
|
(14,627
|
)
|
|
(1.2
|
)
|
|
|
(13,551
|
)
|
|
(1.1
|
)
|
Net income
|
|
$
|
21,521
|
|
|
1.7
|
%
|
|
$
|
20,213
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|
|
1.7
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%
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
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Basic
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$
|
0.81
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|
|
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$
|
0.77
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|
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Diluted
|
|
$
|
0.81
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|
|
|
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$
|
0.76
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|
|
|
|
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Shares used in the computation of earnings per common share:
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|
|
|
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|
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Basic
|
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26,500
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|
|
|
|
|
26,354
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Diluted
|
|
|
26,681
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|
|
|
|
|
26,605
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|
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EBITDA AND ADJUSTED EBITDA
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A reconciliation of EBITDA and Adjusted EBITDA is detailed below.
Adjusted EBITDA is defined as EBITDA (earnings before interest,
taxes, depreciation and amortization) adjusted for stock-based
compensation. Both EBITDA and Adjusted EBITDA are considered
non-GAAP financial measures. Generally, a non-GAAP financial measure
is a numerical measure of a company's performance, financial
position, or cash flows that either includes or excludes amounts
that are not normally included or excluded in the most directly
comparable measure calculated and presented in accordance with GAAP.
We believe that EBITDA and Adjusted EBITDA provide helpful
information with respect to our operating performance including our
ability to fund our future capital expenditures and working capital
requirements. Adjusted EBITDA also provides helpful information as
it is the primary measure used in certain financial covenants
contained in our credit agreements.
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(amounts in thousands)
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Three Months Ended June 30,
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LTM Ended June 30, (1)
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2016
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2015
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% Change
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2016
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2015
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% Change
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Net income
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$ 12,458
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$ 11,629
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$ 48,135
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$ 44,334
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Depreciation and amortization
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2,388
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2,179
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9,394
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8,599
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Income tax expense
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8,540
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7,955
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32,716
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29,886
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Interest/other expense, net
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12
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39
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75
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88
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EBITDA
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23,398
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21,802
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90,320
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82,907
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Acquisition and restructuring costs (2)
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841
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271
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1,596
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271
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Stock-based compensation
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356
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225
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1,176
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906
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Adjusted EBITDA
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$ 24,595
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$ 22,298
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10%
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$ 93,092
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$ 84,084
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11%
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(1) LTM: Last twelve months
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(2) Acquisition and restructuring costs consist of professional
fees related to the Softmart acquisition, severance related to
internal restructuring activities, duplicate costs incurred in our
office move of our Chicago-area office, and in 2015, duplicate
costs incurred in the transition to a new distribution center.
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ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
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A reconciliation from Net Income to Adjusted Net Income is detailed
below. Adjusted Net Income is defined as Net Income plus the
Amortization of Acquired Intangible Assets and Acquisition and
Restructuring Costs, net of tax. Adjusted Net Income and Adjusted
Earnings Per Share are considered non-GAAP financial measures (see
note above in Adjusted EBITDA for a description of non-GAAP
financial measures). The Company believes that these non-GAAP
disclosures provide helpful information with respect to the
Company's operating performance.
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(amounts in thousands, except per share data)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2016
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2015
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% Change
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2016
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2015
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% Change
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Net income
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$
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12,458
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$
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11,629
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$
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21,521
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$
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20,213
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Acquisition and restructuring costs, net of tax (1)
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499
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161
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499
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161
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Amortization of acquired intangible assets, net of tax (2)
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49
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-
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49
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-
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Adjusted Net Income
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$
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13,006
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$
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11,790
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$
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22,069
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$
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20,374
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Diluted shares
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26,691
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26,616
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26,681
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26,605
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Adjusted Diluted Earnings per Share
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$
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0.49
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$
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0.44
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10.0
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%
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$
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0.83
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$
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0.77
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8
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%
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(1) Acquisition and restructuring costs consist of professional
fees related to the Softmart acquisition, severance related to
internal restructuring activities, duplicate costs incurred in our
office move of our Chicago-area office, and in 2015, duplicate
costs incurred in the transition to a new distribution center.
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(2) Amortization of acquired intangible assets relates to
intangible assets acquired from Softmart, including the existing
customer base and other intangible assets.
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June 30,
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December 31,
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CONDENSED CONSOLIDATED BALANCE SHEETS
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2016
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2015
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(amounts in thousands)
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$
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47,299
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$
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80,188
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Accounts receivable, net
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387,975
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356,145
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Inventories
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112,494
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102,780
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Deferred income taxes
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-
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7,909
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Prepaid expenses and other current assets
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5,348
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4,254
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Income taxes receivable
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2,119
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1,575
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Total current assets
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555,235
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552,851
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Property and equipment, net
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33,765
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32,227
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Goodwill
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67,510
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51,276
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Other intangibles, net
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12,586
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1,668
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Other assets
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1,078
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1,052
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Total Assets
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$
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670,174
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$
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639,074
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
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Accounts payable
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$
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191,183
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$
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166,516
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Accrued expenses and other liabilities
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27,502
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36,207
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Accrued payroll
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19,840
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19,280
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Total current liabilities
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238,525
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222,003
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Deferred income taxes
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13,733
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21,615
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Other liabilities
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2,834
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3,005
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Total Liabilities
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255,092
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246,623
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Stockholders' Equity:
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Common stock
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284
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284
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Additional paid-in capital
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110,271
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109,161
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Retained earnings
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320,389
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298,868
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Treasury stock at cost
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(15,862
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)
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(15,862
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)
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Total Stockholders' Equity
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415,082
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392,451
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Total Liabilities and Stockholders' Equity
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$
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670,174
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$
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639,074
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Six Months Ended June 30,
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2016
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2015
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(amounts in thousands)
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Cash Flows from Operating Activities:
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Net income
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$ 21,521
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$ 20,213
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Adjustments to reconcile net income to net cash provided by
operating activities:
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Depreciation and amortization
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4,803
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4,370
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Stock-based compensation expense
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645
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463
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Provision for doubtful accounts
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131
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718
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Deferred income taxes
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27
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61
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Excess tax benefit from exercise of equity awards
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(32)
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(95)
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Changes in assets and liabilities:
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Accounts receivable
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(10,370)
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(40,590)
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Inventories
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(9,558)
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(7,658)
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Prepaid expenses and other current assets
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(1,192)
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(1,742)
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Other non-current assets
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(26)
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(94)
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Accounts payable
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10,457
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37,231
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Accrued expenses and other liabilities
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596
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3,597
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Net cash provided by operating activities
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17,002
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16,474
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Cash Flows from Investing Activities:
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|
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|
|
Purchases of equipment
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(5,782)
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|
(5,752)
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Purchase of Softmart
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(33,983)
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-
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Net cash used for investing activities
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|
(39,765)
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(5,752)
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Cash Flows from Financing Activities:
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Dividend payment
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(10,591)
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-
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Issuance of stock under Employee Stock Purchase Plan
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|
473
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|
435
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Exercise of stock options
|
|
-
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|
379
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Excess tax benefit from exercise of equity awards
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|
32
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|
95
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Payment of payroll taxes on stock-based compensation through shares
withheld
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(40)
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(43)
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Net cash (used for) provided by financing activities
|
|
(10,126)
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|
866
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(Decrease) increase in cash and cash equivalents
|
|
(32,889)
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|
11,588
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Cash and cash equivalents, beginning of period
|
|
80,188
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|
60,909
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Cash and cash equivalents, end of period
|
|
$ 47,299
|
|
$ 72,497
|
|
|
|
|
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Non-cash Investing Activities:
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|
|
|
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Accrued capital expenditures
|
|
$ 338
|
|
$ 455
|
|
|
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Supplemental Cash Flow Information:
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Income taxes paid
|
|
$ 15,658
|
|
$ 16,500
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pccc-g
View source version on businesswire.com: http://www.businesswire.com/news/home/20160728006561/en/
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