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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

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FORM 10-Q
(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-23827

PC CONNECTION, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 02-0513618
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)

730 MILFORD ROAD, 03054
MERRIMACK, NEW HAMPSHIRE
(Address of principal (Zip Code)
executive offices)

Registrant's telephone number, including area code (603) 423-2000

Indicate by check mark ((check mark)) whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

YES ____(check mark) NO

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of the issuer's Common Stock, $.01 par
value, as of April 30, 2002 was 24,559,145.

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PC CONNECTION, INC. AND SUBSIDIARIES
FORM 10-Q

TABLE OF CONTENTS

Page
----

PART I FINANCIAL INFORMATION

Item 1 Financial Statements:

Independent Accountants' Report...................................................... 1

Condensed Consolidated Balance Sheets - March 31, 2002 and December 31, 2001......... 2

Condensed Consolidated Statements of Operations - Three months ended March 31, 2002
and 2001............................................................................. 3

Condensed Consolidated Statement of Changes in Stockholders' Equity - Three months
ended March 31, 2002................................................................. 4

Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2002
and 2001............................................................................. 5

Notes to Condensed Consolidated Financial Statements................................. 6

Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 12

Item 3 Quantitative and Qualitative Disclosures About Market Risk........................... 17

PART II OTHER INFORMATION

Item 1 Legal Proceedings.................................................................... 18

Item 2 Changes in Securities and Use of Proceeds............................................ 18

Item 3 Defaults Upon Senior Securities...................................................... 18

Item 4 Submission of Matters to a Vote of Security Holders.................................. 18

Item 5 Other Information.................................................................... 18

Item 6 Exhibits and Reports on Form 8-K..................................................... 18

SIGNATURES........................................................................... 19

INDEPENDENT ACCOUNTANTS' REPORT

To the Board of Directors and Stockholders of
PC Connection, Inc. and Subsidiaries
Merrimack, New Hampshire

We have reviewed the accompanying condensed consolidated balance sheet of PC
Connection, Inc. and subsidiaries (the "Company") as of March 31, 2002, and the
related condensed consolidated statements of operations and cash flows for the
three-month periods ended March 31, 2002 and 2001 and the condensed statement
of changes in stockholders' equity for the three month period ended March 31,
2002. These financial statements are the responsibility of the Company's
management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States
of America, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express such
an opinion.

Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with accounting principles generally accepted in the United
States of America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of PC
Connection, Inc. and subsidiaries as of December 31, 2001, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated January 24,
2002, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2001 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.

DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 18, 2002

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 1--Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)

March 31, December 31,
2002 2001
----------- ------------
(unaudited)
ASSETS

Current Assets:

Cash and cash equivalents.................................... $ 41,895 $ 35,605
Accounts receivable, net..................................... 98,909 117,461
Inventories-merchandise...................................... 36,962 48,003
Deferred income taxes........................................ 2,284 2,304
Income taxes receivable...................................... 3,084 1,312
Prepaid expenses and other current assets.................... 3,271 3,013
-------- --------
Total current assets................................... 186,405 207,698

Property and equipment, net................................... 27,801 27,472
Goodwill, net................................................. 8,807 8,807
Other assets.................................................. 594 258
-------- --------

Total assets........................................... $223,607 $244,235
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Current maturities of capital lease obligation to affiliate.. $ 176 $ 171
Current maturities of long-term debt......................... 500 1,000
Accounts payable............................................. 59,193 75,399
Accrued expenses and other liabilities....................... 8,219 10,272
-------- --------

Total current liabilities.............................. 68,088 86,842
-------- --------

Capital lease obligation to affiliate, less current maturities 6,576 6,621
Deferred income taxes......................................... 3,711 3,523
Other liabilities............................................. 47 73
-------- --------

Total liabilities...................................... 78,422 97,059
-------- --------

Stockholders' Equity:

Common stock................................................. 248 247
Additional paid-in capital................................... 74,489 74,393
Retained earnings............................................ 71,985 74,073
Treasury stock at cost....................................... (1,537) (1,537)
-------- --------
Total stockholders' equity............................. 145,185 147,176
-------- --------
Total liabilities and stockholders' equity............. $223,607 $244,235
======== ========

See accompanying notes to condensed consolidated financial statements.

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 1--Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(amounts in thousands, except per share data)

Three Months Ended
March 31,
------------------
2002 2001
-------- --------

Net sales.................................... $236,160 $301,775
Cost of sales................................ 211,179 266,450
-------- --------
Gross profit.............................. 24,981 35,325

Selling, general and administrative expenses. 27,489 30,463
Restructuring costs and other special charges 813 851
-------- --------
Income (loss) from operations............. (3,321) 4,011

Interest expense............................. (242) (377)
Other, net................................... 195 288
-------- --------
Income (loss) before taxes................ (3,368) 3,922

Income tax (provision) credit................ 1,280 (1,489)
-------- --------
Net income (loss)......................... $ (2,088) $ 2,433
======== ========

Weighted average common shares outstanding:
Basic....................................... 24,551 24,417
======== ========
Diluted..................................... 24,551 24,931
======== ========

Earnings (loss) per common share:
Basic....................................... $ (.09) $ .10
======== ========
Diluted..................................... $ (.09) $ .10
======== ========

See accompanying notes to condensed consolidated financial statements.

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 1--Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 2002
(Unaudited)
(amounts in thousands)

Common Stock Treasury Shares
------------- Additional Retained --------------
Shares Amount Paid In Capital Earnings Shares Amount Total
------ ------ --------------- -------- ------ ------- --------

Balance--December 31, 2001.......... 24,748 $247 $74,393 $74,073 (205) $(1,537) $147,176

Exercise of stock options, including
income tax benefits............... 12 1 96 -- -- -- 97

Net loss............................ -- -- -- (2,088) -- -- (2,088)
------ ---- ------- ------- ---- ------- --------

Balance--March 31, 2002............. 24,760 $248 $74,489 $71,985 (205) $(1,537) $145,185
====== ==== ======= ======= ==== ======= ========

See accompanying notes to condensed consolidated financial statements.

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 1--Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)

Three Months Ended
March 31,
------------------
2002 2001
-------- --------

Cash Flows from Operating Activities:

Net income (loss).............................................. $ (2,088) $ 2,433
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization.............................. 1,703 1,865
Deferred income taxes...................................... 208 164
Provision for doubtful accounts............................ 1,684 2,994
(Gain)/loss on disposal of fixed assets.................... (3) 24
Changes in assets and liabilities:
Accounts receivable........................................ 16,868 20,073
Inventories................................................ 11,041 (11,107)
Prepaid expenses and other current assets.................. (2,030) 4,184
Other non-current assets................................... (336) 151
Accounts payable........................................... (16,206) 26,220
Income tax benefits from exercise of stock options......... 17 2
Accrued expenses and other liabilities..................... (2,028) (2,502)
-------- --------
Net cash provided by operating activities...................... 8,830 44,501
-------- --------

Cash Flows from Investing Activities:

Purchases of property and equipment............................ (2,089) (2,467)
Proceeds from sale of property and equipment................... 9 --
-------- --------
Net cash used for investing activities......................... (2,080) (2,467)
-------- --------

Cash Flows from Financing Activities:

Proceeds from short-term borrowings............................ 2,847 45,385
Repayment of short-term borrowings............................. (2,847) (45,385)
Repayment of capital lease obligation to affiliate............. (40) (37)
Repayment of notes payable..................................... (500) --
Exercise of stock options...................................... 80 34
-------- --------
Net cash used for financing activities......................... (460) (3)
-------- --------

Increase in cash and cash equivalents.......................... 6,290 42,031
Cash and cash equivalents, beginning of period................. 35,605 7,363
-------- --------
Cash and cash equivalents, end of period....................... $ 41,895 $ 49,394
======== ========

See accompanying notes to condensed consolidated financial statements.

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 1--Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1--Basis of Presentation

The accompanying condensed consolidated financial statements of PC
Connection, Inc. and Subsidiaries ("PCC") have been prepared in accordance with
accounting principles generally accepted in the United States of America. Such
principles were applied on a basis consistent with those of the financial
statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2001 filed with the Securities and Exchange Commission ("SEC").
The accompanying condensed consolidated financial statements should be read in
conjunction with the 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. The operating
results for the three months ended March 31, 2002 may not be indicative of the
results expected for any succeeding quarter or the entire year ending December
31, 2002.

We adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets" on January 1, 2002. SFAS No. 142
requires, among other things, the discontinuance of the amortization of
goodwill and certain other identified intangibles. We have ceased amortization
of goodwill in 2002. The following is a reconciliation of reported net income
to adjusted net income for the three months ended, taking into account the
cessation of goodwill amortization:

Three Months Ended
------------------
March 31, (amounts in thousands, except per share data) 2002 2001
------------------------------------------------------- ---- ----

Reported net income (loss)........................ ($2,088) $2,433
Add back goodwill amortization, net of taxes...... -- 109
------- ------
Adjusted net income (loss)........................ ($2,088) $2,542
======= ======
Basic and diluted earnings (loss) per share:
Reported net income (loss)........................ ($ 0.09) $ 0.10
Add back goodwill amortization, net of taxes...... -- --
------- ------
Adjusted net income (loss)........................ ($ 0.09) $ 0.10
======= ======

SFAS No. 142 also includes provisions for the reassessment of the value and
useful lives of existing recognized intangibles (including goodwill),
reclassification of certain intangibles both in and out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill and other intangibles. We will
finalize our assessment under SFAS No. 142 during the second quarter of 2002,
but do not expect this assessment to have a significant impact on either the
balance sheet or the statement of operations.

We also adopted SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" on January 1, 2002. SFAS No. 144, among other things,
modifies and updates the methodology for recognizing impairment in long-lived
assets. The adoption of this standard did not have a significant impact on
either the balance sheet or the statement of operations.

PC CONNECTION, INC. AND SUBSIDIARIES
Part I - Financial Information
Item 1 - Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Unaudited)

Revenue Recognition

Revenue on product sales is recognized at the point in time when persuasive
evidence of an arrangement exists, the price is fixed and final, delivery has
occurred and there is a reasonable assurance of collection of the sales
proceeds. We generally obtain oral or written purchase authorizations from our
customers for a specified amount of product at a specified price and consider
delivery to have occurred at the point of shipment, except for sales to federal
agencies for which delivery occurs at destination. We provide our customers
with a limited thirty day right of return only for defective merchandise.
Revenue is recognized at delivery and a reserve for sales returns is recorded.
We have demonstrated the ability to make reasonable and reliable estimates of
product returns in accordance with SFAS No. 48, "Revenue Recognition When Right
of Return Exists," based on significant historical experience.

All amounts billed to a customer in a sales transaction relating to shipping
and handling, if any, represent revenues earned for the goods provided and have
been classified as "net sales." Costs related to such shipping and handling
billings are classified as "cost of sales."

Accounts Receivable

Ongoing credit evaluations of our customers are performed, and credit limits
are adjusted, based on payment history and customer credit-worthiness. An
allowance for estimated doubtful accounts is maintained based on our historical
experience and the customer credit issues identified. Collections are monitored
continuously, and the allowance is adjusted as necessary to recognize any
changes in credit exposure.

Inventories--Merchandise

Inventories (all finished goods) consisting of software packages, computer
systems and peripheral equipment, are stated at cost (determined under the
first-in, first-out method) or market, whichever is lower. Inventory quantities
on hand are reviewed regularly, and provisions are made for obsolete, slow
moving and nonsalable inventory, based on management's forecast of customer
demand for those products in inventory.

Note 2--Earnings (Loss) Per Share

Basic earnings (loss) per common share is computed using the weighted
average number of shares outstanding. Diluted earnings (loss) per common share
is computed using the weighted average number of shares outstanding adjusted
for the incremental shares attributed to options outstanding to purchase common
stock, if dilutive.

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 1--Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Unaudited)

Note 2--Earnings (Loss) Per Share-Cont'd.

The following table sets forth the computation of basic and diluted earnings
per share:

Three Months Ended
------------------
March 31, (amounts in thousands, except per share data) 2002 2001
------------------------------------------------------- ------- -------

Numerator:
Net income (loss).............................. $(2,088) $ 2,433
======= =======

Denominator:
Denominator for basic earnings per share:
Weighted average shares.................... 24,551 24,417

Dilutive effect of unexercised employee
stock options................................ -- 514
------- -------

Denominator for diluted earnings per share........ 24,551 24,931
======= =======

Earnings (loss) per share:
Basic.......................................... $ (.09) $ .10
======= =======
Diluted........................................ $ (.09) $ .10
======= =======

The following unexercised stock options were excluded from the computation
of diluted earnings per share for the three months ended March 31, 2002 and
2001 because the effect of the options on the calculation would have been
anti-dilutive:

Three Months Ended
------------------
March 31, (amounts in thousands) 2002 2001
-------------------------------- ----- ----

Anti-dilutive stock options... 2,883 685
===== ===

Note 3--Reporting Comprehensive Income

We have no other comprehensive income in any of the periods presented.
Accordingly, a separate statement of comprehensive income is not presented.

Note 4--Segment and Related Disclosures

SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires that public companies report profits and losses and
certain other information on its "reportable operating segments" in its annual
and interim financial statements.

In January 2002 we reorganized our operations to create two reportable
operating segments -- the "Public Sector" segment, which contains federal,
state and local governmental organizations and educational institutions, and
the "Commercial" segment, which contains small and large corporations,
partnerships and proprietorships as well as consumers. Accordingly, beginning
in 2002, financial information for each reportable segment has been provided to
and used by the "chief operating decision maker" of the Company to allocate
resources and assess our performance.

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 1--Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Unaudited)

Note 4--Segment and Related Disclosures-Cont'd.

Segment information applicable to the Company's reportable operating
segments for the three months ended March 31, 2002 is shown below:

Commercial Public Sector
Segment Segment Eliminations Consolidated
(amounts in thousands) ---------- ------------- ------------ ------------

Sales to external customers $185,552 $50,608 $ -- $236,160
Transfers between segments. 33,258 -- (33,258) --
======== ======= ======== ========
Net sales.................. $218,810 $50,608 $(33,258) $236,160
======== ======= ======== ========
Operating loss............. $ (2,148) $(1,173) -- $ (3,321)
Interest and other - net... (63) 16 -- (47)
-------- ------- -------- --------
Loss before taxes.......... $ (2,211) $(1,157) -- $ (3,368)
======== ======= ======== ========

Total assets............... $199,563 $59,633 $(35,589) $223,607
======== ======= ======== ========

General and administrative expenses were charged to the reportable operating
segments, based on their estimated usage of the underlying functions. Interest
and other expense was charged to the segments, based on the actual costs
incurred by each segment, net of interest and other income generated. The
amount shown above representing total assets eliminated consists of
inter-segment receivables, resulting primarily from inter-segment sales
transfers reported above and from inter-segment service charges.

In 2001 we had only one reportable operating segment. It is impractical for
us to restate prior year balances into the two operating segments established
in 2002. Senior management monitored revenue in 2001 and 2002 by sales channel
(Corporate Outbound, Inbound Telesales and Online Internet) and product mix
(Notebooks, Desktops and Servers, Storage Devices, Software, Networking
Communications, Printers, Video and Monitors, Memory and Accessories and Other).

Net sales by sales channel and product mix are presented below:

Three Months Ended
------------------
March 31, (amounts in thousands) 2002 2001
- -------------------------------- -------- --------

Sales Channel
Corporate Outbound.................................... $179,306 $233,216
Inbound Telesales..................................... 28,516 40,161
On-Line Internet...................................... 28,338 28,398
-------- --------
Total............................................. $236,160 $301,775
======== ========
Product Mix
Notebooks............................................. $ 36,663 $ 70,721
Desktop/Servers....................................... 34,377 38,829
Storage Devices....................................... 24,341 29,964
Software.............................................. 33,892 37,018
Networking Communications............................. 20,984 26,985
Printers.............................................. 20,802 23,910
Videos & Monitors..................................... 22,700 24,608
Memory................................................ 7,407 10,092
Accessories/Other..................................... 34,994 39,648
-------- --------
Total............................................. $236,160 $301,775
======== ========

PC CONNECTION, INC. AND SUBSIDIARIES
Part I - Financial Information
Item 1--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Note 4--Segment and Related Disclosures-Cont'd.

Substantially all of our net sales for the quarters ended March 31, 2002 and
2001 were made to customers located in the United States. Shipments to
customers located in foreign countries aggregated less than 2% in those
respective quarters. All of our assets at March 31, 2002 and December 31, 2001
were located in the United States. Our primary target customers are small- to
medium-size businesses ("SMBs") comprised of 20 to 1,000 employees, although
our customers also include individual consumers, larger companies, federal,
state and local governmental agencies and educational institutions. Except for
the federal government, no single customer accounted for more than 3% of total
net sales in the three months ended March 31, 2002 and 2001. Sales to the
federal government accounted for $24.1 million, or 10.2% of total net sales for
the three months ended March 31, 2002, and $24.1 million, or 8.0% of total net
sales for the three months ended March 31, 2001.

Note 5--Credit Facility

We have modified our $70 million credit facility so that it is currently
secured by substantially all the business assets of PC Connection, Inc. Amounts
outstanding under this facility bear interest at various rates ranging from the
prime rate (4.75% at March 31, 2002) to prime less 1%, depending on the ratio
of senior debt to EBITDA (earnings before interest, taxes, depreciation and
amortization). The credit facility includes various customary financial and
operating covenants, including restrictions on the payment of dividends, none
of which we believe significantly restricts our operations. No borrowings were
outstanding under this credit facility at March 31, 2002. The credit facility
matures on May 31, 2002. Amounts outstanding under our existing facility did
not exceed $6.3 million for the year ended December 31, 2001.

Note 6--Restructuring Costs and Other Special Charges

On March 15, 2002, we announced that we had settled litigation commenced by
Microsoft Corporation involving alleged trademark and copyright infringement.
While denying the allegations, we agreed to pay Microsoft $625,000 to settle
the case. The settlement costs and related legal fees of approximately $125,000
were included as a special charge in our first quarter 2002 financial results.
We also took a $63,000 charge related to staff reductions in the quarter ended
March 31, 2002.

A rollforward of restructuring costs and other special charges for the three
months ended March 31, 2002, is shown below:

Beginning Total Cash Liabilities at
(amounts in thousands) Balance Charges Payments March 31, 2002
- ---------------------- --------- ------- -------- --------------

Settlement of Microsoft litigation charges $ -- $750 $ 678 $ 72
Workforce reduction....................... 425 63 338 150
---- ---- ------ ----
Total.................................. $425 $813 $1,016 $222
==== ==== ====== ====

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 1--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--(CONTINUED)

Note 7 - Acquisition of MoreDirect, Inc.

On March 25, 2002, we signed a definitive agreement to acquire all of the
outstanding stock of MoreDirect, Inc., an e-procurement supplier of information
technology products for medium-to-large corporate and government organizations
nationwide. We completed the acquisition on April 5, 2002, and MoreDirect
became a wholly-owned subsidiary of PC Connection, Inc. Under the terms of the
agreement, all outstanding stock options of MoreDirect were cashed out for
approximately $4.1 million, which amount was funded by us, and we paid the sole
shareholder of MoreDirect approximately $18.0 million in cash at closing.
MoreDirect also distributed approximately $7.9 million to the shareholder from
available cash balances for previously taxed but undistributed S Corporation
earnings. In addition, we will pay additional cash to the MoreDirect
shareholder based upon MoreDirect achieving targeted levels of annual earnings
before income taxes through December 31, 2004. We also escrowed $10.0 million
in cash at closing to fund a portion of these contingent payments.

The transaction will be accounted for by the purchase method, and
accordingly, MoreDirect's results of operations will be included in our
consolidated financial statements only for the periods after the date of
closing. MoreDirect reported unaudited net sales and pre-tax income of $51.3
million and $2.7 million, respectively, for the three months ended March 31,
2002.

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations 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 other risks detailed under the caption,
"Factors That May Affect Future Results and Financial Condition" in our 2001
Annual Report on Form 10-K filed with the Securities and Exchange Commission
for the year ended December 31, 2001. All statements, trends, analyses and
other information contained in this report relative to trends in net sales,
gross margin and anticipated expense levels, as well as other statements,
including words such as "anticipate", "believe", "plan", "estimate", "expect",
and "intend" and other similar expressions, constitute forward-looking
statements. These forward-looking statements involve risks and uncertainties,
and actual results may differ materially from those anticipated or expressed in
such statements. More specifically, the statements in this report concerning
our outlook for the balance of 2002 and the statements concerning our gross
margin percentage and selling and administrative costs and other statements of
a non-historical basis (including statements regarding implementing strageties
for future growth, our ability to regain our model of profitable growth and the
expected benefits of our electronic commerce strategy) are foward-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 us, the continued
acceptance of our distribution channel by vendors and customers, continuation
of key vendor relationship and support programs and our ability to hire and
retain qualified sales account managers and other essential personnel. Except
as required by law, we undertake no obligation to update any forward-looking
statement, whether as a result of new information, future events or otherwise.
Readers, however, should carefully review the factors set forth in other
reports or documents that we file from time to time with the SEC.

General

We were founded in 1982 as a mail-order business offering a broad range of
software and accessories for IBM and IBM-compatible personal computers ("PCs").
The founders' goal was to provide consumers with superior service and high
quality branded products at competitive prices. We initially sought customers
through advertising in selected computer industry publications and the use of
inbound toll free telemarketing. Currently, we seek to generate sales through
(i) outbound telemarketing by account managers focused on the business,
education and government markets, (ii) inbound calls from customers responding
to our catalogs and other advertising and (iii) our Internet web site.

We offer both PC compatible products and Mac compatible products. Reliance
on Mac product sales has decreased over the last three years, from 19.4% of net
sales for the year ended December 31, 1998 to 10.9% of net sales for the three
months ended March 31, 2002. We believe that sales attributable to Mac products
will continue to decrease as a percentage of net sales and may decline in
absolute dollar volume in 2002 and future years.

The weakness in demand for information technology products experienced by us
in 2001 continued through the first quarter of 2002 resulting in overall
conservative buying patterns, order deferrals and longer sales cycles.

Critical Accounting Policies

In our December 31, 2001 Form 10-K, under the caption "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
in the Notes to the Condensed Consolidated Financial

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--(CONTINUED)

Statements, we disclosed what we consider to be our critical accounting
policies. We applied those same accounting policies in the preparation of the
accompanying condensed consolidated financial statements, except for the
adoption on January 1, 2002 of SFAS Nos. 142 and 144 and the corresponding
cessation of goodwill amortization.

Results of Operations

Three Months Ended March 31, 2002 Compared with the Three Months Ended March
31, 2001.

The following table sets forth for the periods indicated information derived
from our statements of operations expressed as a percentage of net sales.

Three Months
Ended March 31,
--------------
2002 2001
------ ------

Net sales (in millions)..................... $236.2 $301.8
====== ======
Net sales................................... 100.0% 100.0%
Gross profit................................ 10.6 11.7
Selling, general and administrative expenses 11.6 10.1
Non-recurring charge........................ 0.4 0.3
Income (loss) from operations............... (1.4) 1.3

The following table sets forth our percentage of net sales by sales channel
and product mix:

Three Months
Ended March 31,
--------------
2002 2001
---- ----

Sales Channel
Corporate Outbound........ 76% 77%
Inbound Telesales......... 12 13
On-Line Internet.......... 12 10
--- ---
Total................. 100% 100%
=== ===

Product Mix
Notebooks................. 15% 24%
Desktop/Servers........... 15 13
Storage Devices........... 10 10
Software.................. 14 12
Networking Communications. 9 9
Printers.................. 9 8
Videos & Monitors......... 10 8
Memory.................... 3 3
Accessories/Other......... 15 13
--- ---
Total................. 100% 100%
=== ===

Sales of enterprise server and networking products (included in the above
product mix) were 21.1% and 19.4% of net sales for the three months ended March
31, 2002 and March 31, 2001, respectively.

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--(CONTINUED)

Results of Operations--General-Cont'd.

Net sales decreased $65.6 million, or 21.7%, to $236.2 million for the
quarter ended March 31, 2002 from $301.8 million for the comparable period in
2001 due to the continued weakness in demand for information technology
products. Outbound sales decreased by $53.9 million, or 23.1%, to $179.3
million for the quarter ended March 31, 2002 from $233.2 million for the
comparable period in 2001. On-line Internet sales decreased by $0.1 million, or
0.4%, to $28.3 million for the three months ended March 31, 2002 from $28.4
million for the same period in 2001. Inbound sales, which primarily serve our
consumer and very small business customers, decreased by $11.7 million, or
29.1%, to $28.5 million for the quarter ended March 31, 2002 from $40.2 million
for the comparable period in 2001. All product categories continue to be
affected by the economic slowdown, with first quarter 2002 sales of notebooks
declining by 48.1% to $36.7 million, from $70.7 million for the comparable
period in 2001. Desktop/server sales declined by 11.3% to $34.4 million for the
quarter ended March 31, 2002, from $38.8 million for the comparable period in
2001. However, desktop/server units and net sales volumes increased
sequentially by 17.6% and 6.2%, respectively. As desktop unit prices continue
to decline, more business customers are replacing notebooks with desktops when
upgrading existing systems.

Net sales of enterprise server and networking products decreased 15.3% to
$49.7 million for the quarter ended March 31, 2002 from $58.7 million for the
comparable period in 2001. Management believes that while in the comparative
periods sales declined, these product categories will eventually grow
substantially as our customers further upgrade their network and communication
infrastructure. Enterprise server and networking products represented 21.1% of
overall net sales for the first quarter in 2002, up from 19.4% of net sales for
the comparable period in 2001. If economic conditions do not improve in the
near term, the anticipated sales growth of these types of products will not
likely occur.

Average order size decreased $146, or 14.0%, to $894 for the quarter ended
March 31, 2002 from $1,040 in the first quarter of 2001. Average order size
declined sequentially by 15.7% in the first quarter due to the seasonal decline
in the average order size of sales to our federal government customers. The
total number of orders received for the quarter actually increased 5.5%,
compared to the fourth quarter of 2001, and declined by 10.8% year-over-year,
compared to the 21.7% year-over-year decline in total net sales dollars.

Gross profit decreased $10.3 million, or 29.2%, to $25.0 million for the
quarter ended March 31, 2002 from $35.3 million for the comparable period in
2001, primarily due to the decrease in sales described above. Gross profit
margin as a percentage of sales decreased to 10.6% of net sales in the first
quarter of 2002 from 11.7% for the comparable period in 2001. A more
competitive pricing environment and lower overall demand during the first
quarter of 2002 negatively impacted our gross margin percentage. Our profit
margins are also influenced by the relative mix of inbound, outbound and
on-line Internet sales. Since outbound sales are typically to corporate and
government accounts that purchase at volume discounts, the gross margin
percentage of such sales is generally lower than inbound sales. However, the
gross profit dollar contribution per outbound sales order is generally higher
as average order sizes are usually larger. We expect that our gross margin, as
a percentage of sales, may vary by quarter based upon vendor support programs,
product mix, pricing strategies, market conditions and other factors.

Selling, general and administrative expenses decreased $3.0 million, or
9.8%, to $27.5 million for the quarter ended March 31, 2002 from $30.5 million
for the first quarter in 2001. Selling, general and administrative expenses
(SG&A), as a percentage of sales, were 11.6% of net sales in the first quarter
of 2002, compared to 10.1% in the comparable period a year ago. Increases
related to our Web site initiatives were offset by decreases in volume
sensitive costs, such as variable compensation and credit card fees. We expect
that our SG&A may

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--(CONTINUED)

Results of Operations--General-Cont'd.

vary depending on changes in sales volume, as well as the levels of continued
investments in key growth initiatives such as hiring more experienced outbound
sales account managers, improving marketing programs, and deploying our new
Internet Web technology to support the sales organization. SG&A in the first
quarter of 2001 also included goodwill amortization of $176 thousand. There
were no such charges in the corresponding 2002 quarter. Had the $176 thousand
not been in amortized in 2001, earnings per share of $0.10 would not have been
significantly impacted.

Restructuring costs and other special charges totaling $0.8 million were
recorded in the first quarter of 2002 compared to $0.9 million for the
comparable period in 2001. On March 15, 2002, we announced that we had settled
litigation commenced by Microsoft Corporation involving alleged trademark and
copyright infringement. While denying the allegations, PC Connection agreed to
pay Microsoft $0.63 million to settle the case. The settlement costs and
related legal fees of approximately $0.13 million were included as a special
charge in the first quarter of 2002. We also took a $0.06 million charge
related to staff reductions in the quarter ended March 31, 2002.

A rollforward of restructuring costs and other special charges for the three
months ended March 31, 2002, is shown below:

Beginning Total Cash Liabilities at
(amounts in thousands) Balance Charges Payments March 31, 2002
- ---------------------- --------- ------- -------- --------------

Income (loss) from operations decreased $7.3 million, or 182.5%, to a loss
of $3.3 million for the quarter ended March 31, 2002, from income of $4.0
million for the comparable period in 2001. Income from operations as a
percentage of sales decreased from income of 1.3% in the three months ended
March 31, 2001 to a loss of 1.4% for the comparable period in 2002 for the
reasons discussed above.

Interest expense decreased $0.2 million, or 50.0%, to $0.2 million for the
quarter ended March 31, 2002 from $0.4 million for the comparable quarter in
2001. This decrease in interest expense was attributed to lower average
borrowings in the first quarter in 2002 as compared to the first quarter of
2001.

Other, net which is essentially comprised of interest income decreased $0.1
million, or 33.3%, to $0.2 million in the quarter ended March 31, 2002 from
$0.3 million for the comparable period in 2001 due to lower interest rates and
lower investment levels.

Income taxes for the quarter ended March 31, 2002 consisted of a $1.3
million tax benefit compared to $1.5 million tax provision for the comparable
quarter in 2001. The effective tax rate was 38% for both periods.

Net income (loss) for the quarter ended March 31, 2002 decreased $4.5
million, or 187.5%, to a net loss of $2.1 million from net income of $2.4
million for the comparable quarter in 2001, as a result of the decrease in
income from operations.

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--(CONTINUED)

Liquidity and Capital Resources

We have historically financed our operations and capital expenditures
through cash flow from operations and bank borrowings. We believe that funds
generated from operations, together with available credit under our bank line
of credit, will be sufficient to finance our working capital and capital
expenditure requirements at least through the next twelve months. Our ability
to continue funding our planned growth is dependent upon our ability to
generate sufficient cash flow from operations or to obtain additional funds
through equity or debt financing, or from other sources of financing, as may be
required. If demand for information technology products continues to decline,
our cash flows from operations may be substantially reduced.

At March 31, 2002, we had cash and cash equivalents of $41.9 million and
working capital of $118.3 million. At December 31, 2001, we had cash and cash
equivalents of $35.6 million and working capital of $120.9 million.

We have received a firm commitment letter from two banks for a new $45
million secured credit facility. This commitment letter provides that the new
credit facility may be reduced by $10 million if an additional lender does not
commit to fund $10 million of this new credit facility within 90 days of the
date of the commitment letter. The commitment letter provides that the new
credit facility will mature in two years. We are in the process of finalizing
this new facility, which we expect will occur on or about May 31, 2002. If we
are unsuccessful in finalizing the new facility on or prior to May 31, 2002, we
believe we will have sufficient capital resources and liquidity to operate our
business at current levels, but our ability to grow our business would be
adversely affected.

Net cash provided by operating activities was $8.8 million for the three
months ended March 31, 2002, as compared to $44.5 million provided by operating
activities in the comparable period in 2001. The primary factors historically
affecting cash flows from operations are our net income and changes in the
levels of accounts receivable, inventories and accounts payable.

At March 31, 2002, we had $59.2 million in outstanding accounts payable.
Such accounts are generally paid within 30 days of incurrence and will be
financed by cash flows from operations or, if necessary, short-term borrowings
under the line of credit. This amount includes $5.6 million payable to two
financial institutions under security agreements to facilitate the purchase of
inventory.

Capital expenditures were $2.1 million in the three months ended March 31,
2002 as compared to $2.5 million in the comparable period in 2001. The majority
of the capital expenditures for the respective 2002 and 2001 periods relate to
computer hardware and software purchases for our information systems. Total
capital expenditures for the year ending December 31, 2002 are estimated to be
$6.8 million.

We have disclosed significant related party transactions and our future
commitments in our Form 10-K. There have been no substantial changes in those
disclosures since year-end.

Inflation

We have historically offset any inflation in operating costs by a
combination of increased productivity and price increases, where appropriate.
We do not expect inflation to have a significant impact on our business in the
future.

PC CONNECTION, INC. AND SUBSIDIARIES
Part I--Financial Information
Item 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest cash balances in excess of operating requirements in short-term
securities, generally with maturities of 90 days or less. In addition, our
unsecured credit agreement provides for borrowings which bear interest at
variable rates based on the prime rate. We had no borrowings outstanding
pursuant to our credit agreement as of March 31, 2002. We believe that the
effect, if any, of reasonably possible near-term changes in interest rates on
our financial position, results of operations and cash flows should not be
material.

PC CONNECTION, INC. AND SUBSIDIARIES
Part II--Other Information

Item 1--Legal Proceedings

Not applicable.

Item 2--Changes in Securities and Use of Proceeds

Not applicable.

Item 3--Defaults Upon Senior Securities

Not applicable.

Item 4--Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5--Other Information

Not applicable.

Item 6--Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit
Number Description
------- -----------

15 Letter on unaudited interim financial information

(b) Reports on Form 8-K

None.

PC CONNECTION, INC. AND SUBSIDIARIES
March 31, 2002

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

PC CONNECTION, INC. AND SUBSIDIARIES

May 15, 2002 By: /s/ WAYNE WILSON
-------------------------------
Wayne Wilson
President and Chief Operating
Officer

May 15, 2002 By: /s/ MARK GAVIN
-------------------------------
Mark Gavin
Senior Vice President of Finance
and Chief Financial Officer