Basis of Presentation | Note 1–Basis of Presentation The accompanying unaudited condensed consolidated financial statements of PC Connection, Inc. and its subsidiaries (the “Company,” “we,” “us,” or “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting and in accordance with accounting principles generally accepted in the United States of America. Such principles were applied on a basis consistent with the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (the “SEC”), other than the adoption of Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASC 842”) using a modified retrospective approach as of January 1, 2018, as discussed below. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in our Annual Report on Form 10-K. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods reported and of the Company’s financial condition as of the date of the interim balance sheet. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements. The operating results for the three months ended March 31, 2019 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2019. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the amounts reported in the accompanying condensed consolidated financial statements. Actual results could differ from those estimates. Comprehensive Income We had no items of comprehensive income, other than our net income for each of the periods presented. Restructuring and other charges Three months ended March 31, 2019 Employee separations $ 553 Lease termination costs 150 Total restructuring and other charges $ 703 The restructuring and other charges recorded in the first quarter of 2019 were related to a reduction in workforce in our Headquarters/Other group and included cash severance payments and other related benefits. These costs will be paid within a year of termination and are included in accrued expenses at March 31, 2019. Also included were exit costs incurred associated with the closing of one of our office facilities. There were no restructuring and other charges recorded in the first quarter of 2018. All planned restructuring and other charges were incurred as of March 31, 2019 and we have no ongoing restructuring plans. Adoption of Recently Issued Accounting Standards In February 2016, the Financial Accounting Standards Board, or the FASB, issued ASC 842 - Leases , which amended the accounting standards for leases. The core principle of the guidance is that an entity should establish a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. The Company adopted ASC 842 effective January 1, 2019 using a modified retrospective transition approach to each lease that existed as of the adoption date and any leases entered into after that date. We elected the package of practical expedients which permits us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification of any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date. The Company also elected the hindsight practical expedient, which allows it to use hindsight in determining the lease term. The adoption did not result in a cumulative adjustment to opening equity. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. In assessing the impact of the adoption, the Company elected to apply the short-team lease exception to any leases with contractual obligations of one year or less. These leases will continue to be treated as operating leases in accordance with the new accounting standard. Consequently, the adoption resulted in the capitalization of a number of the Company’s office leases, for which it recognized a lease liability of $18,835, which was based on the present value of the future payments for these leases. The Company recorded a corresponding right-of-use asset of $18,723, which was adjusted for $114 of remaining unamortized lease incentives as of December 31, 2018. Only those components that were considered integral to the right to use an underlying asset were considered lease components when determining the amounts to capitalize. In accordance with ASC 842, the discount rates used in the present value calculations for each lease should be the rates implicit in the lease, if readily available. Since none of the lease agreements contain explicit discount rates, the Company utilized estimated rates that it would have incurred to borrow, over a similar term, the funds necessary to purchase the respective leased asset with cash. The remaining contractual term for these leases as of January 1, 2019 ranged from 20 to 197 months. Options to renew were considered in determining the present value of the future lease payments in the event the Company believed it was reasonably certain it will assert its respective options to renew. The Company leases certain facilities from a related party, which is a company affiliated with us through common ownership. Included in the right-of-use asset as of March 31, 2019 was $5,998 and a corresponding lease liability of $5,675 associated with related party leases. As of March 31, 2019, the Company had no leases that were classified as financing leases and there were no additional operating or financing leases that have not yet commenced. Refer to the following table for quantitative information related to the Company’s leases: Three months ended March 31, 2019 Related Parties Others Total Lease Cost Capitalized operating lease cost $ 379 $ 831 $ 1,210 Short-term lease cost 41 2 43 Total lease cost $ 420 $ 833 $ 1,253 Other Information Cash paid for amounts included in the measurement of lease liabilities and capitalized operating leases: Operating cash flows $ 379 $ 884 $ 1,263 Weighted-average remaining lease term (in years): Capitalized operating leases 4.59 10.55 8.64 Weighted-average discount rate: Capitalized operating leases As of March 31, 2019, future lease payments over the remaining term of capitalized operating leases were as follows: For the Years Ended December 31, Related Parties Others Total 2019, excluding the three months ended March 31, 2019 $ 1,137 $ 2,534 $ 3,671 2020 1,385 3,379 4,764 2021 1,253 2,481 3,734 2022 1,253 1,484 2,737 2023 1,149 1,034 2,183 2024 — 1,043 1,043 Thereafter — 583 583 $ 6,177 $ 12,538 $ 18,715 Imputed interest (964) Lease liability balance at March 31, 2019 $ 17,751 Future aggregate minimum annual lease payments as of December 31, 2018 reported in our 2018 Form 10-K under the previous lease accounting standard were as follows: For the Years Ended December 31, Related Parties Others Total 2019 $ 1,516 $ 3,519 $ 5,035 2020 1,407 3,386 4,793 2021 1,253 2,466 3,719 2022 1,253 1,490 2,743 2023 1,149 820 1,969 2024 and thereafter — 1,395 1,395 $ 6,578 $ 13,076 $ 19,654 As of March 31, 2019, the ROU asset had a net balance of $16,750. The long-term lease liability was $13,215 and the short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $4,536. Recently Issued Financial Accounting Standards In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment , which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU 2017-04 also clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity's testing of reporting units for goodwill impairment and clarifies that an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new standard is effective for fiscal years beginning January 1, 2020 for both interim and annual reporting periods. The Company expects to adopt this new standard in 2019 when it performs its annual goodwill impairment test in the fourth quarter. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements. |