pccc_Current_Folio

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934*

For the quarterly period ended September 30, 2017

☐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 jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)


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


	(603) 683-2000
	(Registrant's telephone number, including area code)

Former name, former address and former fiscal year, if changed since last report: N/A

Indicate by 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 ☑ NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ☑ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


	Large accelerated filer ☐		Accelerated filer ☑
	Non-accelerated filer ☐		Smaller reporting company ☐
	(Do not check if smaller reporting company)		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐ NO ☑

The number of shares outstanding of the issuer’s common stock as of November 3, 2017 was 26,815,634.

PC CONNECTION, INC. AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(amounts in thousands)


	September 30,		December 31,
	2017		2016

ASSETS
Current Assets:
Cash and cash equivalents	$	62,338	$	49,180
Accounts receivable, net		382,666		411,883
Inventories		106,724		90,535
Prepaid expenses and other current assets		5,185		5,453
Income taxes receivable		4,579		2,120
Total current assets		561,492		559,171
Property and equipment, net		40,077		39,402
Goodwill		73,602		73,602
Other intangibles, net		11,393		12,586
Other assets		5,318		1,373
Total Assets	$	691,882	$	686,134
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	164,883	$	177,862
Accrued expenses and other liabilities		18,294		31,047
Accrued payroll		16,938		21,345
Total current liabilities		200,115		230,254
Deferred income taxes		19,766		19,602
Other liabilities		2,083		2,836
Total Liabilities		221,964		252,692
Stockholders’ Equity:
Common stock		287		285
Additional paid-in capital		113,421		111,081
Retained earnings		372,072		337,938
Treasury stock, at cost		(15,862)		(15,862)
Total Stockholders’ Equity		469,918		433,442
Total Liabilities and Stockholders’ Equity	$	691,882	$	686,134

PC CONNECTION, INC. AND SUBSIDIARIES

PART I―FINANCIAL INFORMATION

Item 1―Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(amounts in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Net sales	$	729,230	$	708,485	$	2,149,616	$	1,957,044
Cost of sales		633,087		611,518		1,867,070		1,684,010
Gross profit		96,143		96,967		282,546		273,034
Selling, general and administrative expenses		74,404		74,522		226,915		214,415
Income from operations		21,739		22,445		55,631		58,619
Interest income (expense)		(8)		(27)		20		(53)
Income before taxes		21,731		22,418		55,651		58,566
Income tax provision		(8,614)		(8,825)		(21,517)		(23,452)
Net income	$	13,117	$	13,593	$	34,134	$	35,114

Earnings per common share:
Basic	$	0.49	$	0.51	$	1.28	$	1.32
Diluted	$	0.49	$	0.51	$	1.27	$	1.32

Shares used in computation of earnings per common share:
Basic		26,802		26,542		26,754		26,514
Diluted		26,899		26,736		26,886		26,699

PC CONNECTION, INC. AND SUBSIDIARIES

PART I―FINANCIAL INFORMATION

Item 1―Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)


	Nine Months Ended
	September 30,
	2017		2016
Cash Flows from Operating Activities:
Net income	$	34,134	$	35,114
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,645		7,504
Provision for doubtful accounts		1,116		239
Stock-based compensation expense		560		975
Deferred income taxes		164		165
Excess tax benefit from exercise of equity awards		—		(385)
Changes in assets and liabilities:
Accounts receivable		28,101		19,530
Inventories		(16,189)		954
Prepaid expenses and other current assets		(2,191)		506
Other non-current assets		(3,945)		(141)
Accounts payable		(13,162)		(20,922)
Accrued expenses and other liabilities		(8,872)		(3,757)
Net cash provided by operating activities		28,361		39,782
Cash Flows from Investing Activities:
Purchases of equipment		(7,944)		(8,746)
Cash paid for Softmart		—		(33,983)
Net cash used for investing activities		(7,944)		(42,729)
Cash Flows from Financing Activities:
Dividend payment		(9,041)		(10,591)
Exercise of stock options		1,679		—
Issuance of stock under Employee Stock Purchase Plan		603		473
Excess tax benefit from exercise of equity awards		—		385
Payment of payroll taxes on stock-based compensation through shares withheld		(500)		(625)
Net cash used for financing activities		(7,259)		(10,358)
Increase (decrease) in cash and cash equivalents		13,158		(13,305)
Cash and cash equivalents, beginning of period		49,180		80,188
Cash and cash equivalents, end of period	$	62,338	$	66,883

Non-cash Investing and Financing Activities:
Accrued capital expenditures	$	294	$	160
Supplemental Cash Flow Information:
Income taxes paid	$	24,293	$	23,953

PC CONNECTION, INC. AND SUBSIDIARIES

PART I―FINANCIAL INFORMATION

Item 1―Financial Statements

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except per share data)

Note 1–Basis of Presentation

The accompanying condensed consolidated financial statements of PC Connection, Inc. and its subsidiaries (the “Company,” “we,” “us,” or “our”) 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 the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (the “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 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 and nine months ended September 30, 2017 may not be indicative of the results expected for any succeeding quarter or the entire year ending December 31, 2017.

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.

Recently Issued Financial Accounting Standards

On May 28, 2014, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which amends the existing accounting standards for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB voted to amend ASU 2014-09 by approving a one-year deferral of the mandatory effective date as well as providing the option to early adopt the standard on the original effective date. Accordingly, the Company will adopt the standard in its first quarter of 2018. An entity may choose to adopt the new standard either through a full retrospective method with application to all periods presented or on a modified retrospective method through a cumulative effect adjustment as of the start of the first period for which it applies the new standard. We are in the process of determining the effect that the adoption will have on our consolidated financial statements. Based on our analysis to date, we have reached the following tentative conclusions regarding the new standard and how we expect it to affect our consolidated financial statements and related disclosures:

We expect to adopt the standard in the first quarter of 2018 and will not early adopt.

We expect to use the full retrospective method. Such method provides that upon applying the new standard, prior periods will be retrospectively adjusted and the cumulative effect of the change recognized in the opening retained earnings and other accounts as of January 1, 2016.

We believe that since substantially all of our revenue is contractual, substantially all of our revenue falls within the scope of ASU No. 2014-09, as amended.

Our hardware revenue is generally recognized on a gross basis upon delivery. Upon adoption of the new standard, we do expect to recognize revenue at an earlier point in time than we are recognizing under current accounting standards for contracts where shipping terms are FOB shipping point. However, we are continuing to analyze each of our other revenue streams, including software to determine any changes that may be required under the new standard.

We hold inventories not available for sale related to certain product sales transactions in which we are warehousing the product and will be deploying the product to our clients’ designated locations subsequent to period-end. We are currently evaluating the effect of the new standard on our inventories not available for sale to identify the differing performance obligations within the underlying contracts and to determine if a portion of revenue under the contracts should be recognized at an earlier point in time than we are recognizing under current accounting standards.

We expect that our disclosures in our notes to our consolidated financial statements related to revenue recognition will be significantly expanded under the new standard.

Our analysis and evaluation of the new standard will continue through its effective date in the first quarter of 2018. A substantial amount of work remains to be completed due to the complexity of the new standard, the application of judgment, and the requirement for the use of estimates in applying the new standard, as well as the volume of our client portfolio and the related terms and conditions of our contracts that must be reviewed.

In February 2016, the FASB issued ASU 2016-02, Leases. The new standard establishes 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. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently assessing the potential impact of the adoption of ASU 2016-02 on our consolidated financial statements.

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. ASU 2017-04 is effective for us beginning January 1, 2020 for both interim and annual reporting periods. We are currently assessing the potential impact of the adoption of ASC 2017-04 on our consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which modifies existing requirements regarding measuring inventory at the lower of cost or market. Under prior standards, the market amount required consideration of replacement cost, net realizable value (NRV), and NRV less an approximately normal profit margin. The new ASU replaces market with NRV, defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This eliminates the need to determine and consider replacement cost or NRV less an approximately normal profit margin when measuring inventory. We adopted the standard in the first quarter of 2017 and applied the provisions prospectively. The adoption of ASU 2015-11 did not have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The new standard simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under this guidance, a company recognizes all excess tax benefits and tax deficiencies as

income tax expense or benefit in the income statement. This change eliminates the notion of the additional paid-in capital pool and reduces the complexity in accounting for excess tax benefits and tax deficiencies. The primary impact of our adoption was the recognition of excess tax benefits related to equity compensation in our provision for income taxes rather than paid-in capital, which is a change required to be applied on a prospective basis in accordance with the new guidance. There were no unrecognized excess tax benefits at implementation. Accordingly, we recorded discrete income tax benefits in the consolidated statements of income of $995 during the nine months ended September 30, 2017, for excess tax benefits related to equity compensation. The corresponding cash flows are reflected in cash provided by operating activities instead of financing activities, as was previously required. We adopted the cash flow presentation that requires presentation of excess tax benefits within operating activities on a prospective basis. Additionally, under ASU 2016-09, we have elected to continue to estimate equity award forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. Additional amendments to the accounting for income taxes and minimum statutory withholding tax requirements had no impact on our results of operations. The presentation requirements for cash flows related to employee taxes paid for withheld shares also had no impact to any of the periods presented in our condensed consolidated statements of cash flows since such cash flows have historically been presented as a financing activity.

Note 2–Earnings Per Share

Basic earnings per common share is computed using the weighted average number of shares outstanding. Diluted earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributable to nonvested stock units and stock options outstanding, if dilutive.

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


	Three Months Ended				Nine Months Ended
September 30,	2017		2016		2017		2016
Numerator:
Net income	$	13,117	$	13,593	$	34,134	$	35,114
Denominator:
Denominator for basic earnings per share		26,802		26,542		26,754		26,514
Dilutive effect of employee stock awards		97		194		132		185
Denominator for diluted earnings per share		26,899		26,736		26,886		26,699
Earnings per share:
Basic	$	0.49	$	0.51	$	1.28	$	1.32
Diluted	$	0.49	$	0.51	$	1.27	$	1.32

For the three and nine months ended September 30, 2017 and 2016, the following outstanding nonvested stock units were excluded from the computation of diluted earnings per share because including them would have had an anti-dilutive effect:


	Three Months Ended				Nine Months Ended
September 30,	2017		2016		2017		2016
Employee stock based awards	$	—	$	—	$	—	$	80

Note 3–Acquisitions

Softmart Acquisition

On May 27, 2016, we acquired substantially all of the assets of Softmart Inc. (“Softmart”), a global supplier of information technology and software services solutions. The purchase of Softmart is consistent with our strategy to expand our software services capabilities. Under the terms of the asset purchase agreement, we paid $31,889, net of cash acquired, and allocated the total purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. The excess of the purchase price over the net assets acquired represents potential synergies from Softmart’s customer base and its assembled workforce of sales representatives and software service specialists that we acquired in the transaction. This excess of purchase price over the aggregate fair values was recorded as goodwill. We incurred $357 of transaction costs in 2016 related to the

acquisition which we reported in selling, general and administrative expenses, or SG&A, in our consolidated statement of income for the year ended December 31, 2016. The operating results of Softmart have been included in the SMB and Large Accounts segments. The revenues and income from operations of Softmart were not material to our consolidated results, and accordingly, we have not presented Softmart’s revenues or operating results on a pro forma basis.

The following table reflects components of the net assets acquired and liabilities assumed at fair value as of the closing date.


	Purchase Price
	Allocation
Current assets	$	22,812
Fixed assets		343
Goodwill		14,314
Customer relationships		11,300
Total assets acquired		48,769
Acquired liabilities		(16,252)
Net assets acquired		32,517
Less cash acquired		(628)
Purchase price at closing, net of cash acquired	$	31,889

We recorded goodwill of $7,366 and $6,948 in our SMB and Large Account segments, respectively, and the aggregate is expected to be fully deductible for tax purposes.

GlobalServe Acquisition

On October 11, 2016, we acquired the outstanding common shares of GlobalServe, Inc. (“GlobalServe”), which has developed an internet portal tool that simplifies customers’ global IT procurement. Under the terms of the stock purchase agreement, we paid $11,101, net of cash acquired. The purchase of GlobalServe allows us to service our customers’ global IT needs through their OneSource internet portal with consistent delivery, reporting, pricing, and logistics. We allocated the total purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition and recorded the excess of purchase price over the aggregate fair values as goodwill. In 2016 we incurred $118 of transaction costs related to the acquisition which we reported in SG&A expenses in our consolidated statement of income for the year ended December 31, 2016. We have included the operating results of GlobalServe in the Large Account segment since the acquisition date. The revenues and income from operations of GlobalServe were not material to our consolidated results, and accordingly, we have not presented GlobalServe’s revenues or operating results on a pro forma basis.

The following table reflects components of the net assets acquired and liabilities assumed at fair value as of the closing date.


	Purchase Price
	Allocation
Current assets	$	1,486
Fixed assets		4,609
Goodwill		8,012
Customer relationships		900
Total assets acquired		15,007
Acquired liabilities		(734)
Deferred taxes and unrecognized tax benefits		(2,390)
Net assets acquired		11,883
Less cash acquired		(782)
Purchase price at closing, net of cash acquired	$	11,101

We recorded $8,012 of goodwill as a result of our acquisition of GlobalServe in our Large Account segment. None of the goodwill related to this acquisition will be deductible for tax purposes.

Segment information applicable to our reportable operating segments for the three and nine months ended September 30, 2017 and 2016 is shown below:


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2017		2016		2017		2016
Net sales:
SMB	$	290,569	$	281,915	$	860,622	$	814,123
Large Account		268,022		254,273		823,017		723,864
Public Sector		170,639		172,297		465,977		419,057
Total net sales	$	729,230	$	708,485	$	2,149,616	$	1,957,044
Operating income (loss):
SMB	$	9,543	$	9,989	$	29,430	$	32,104
Large Account		12,389		11,832		35,777		31,188
Public Sector		2,793		3,593		169		4,555
Headquarters/Other		(2,986)		(2,969)		(9,745)		(9,228)
Total operating income		21,739		22,445		55,631		58,619
Interest income (expense)		(8)		(27)		20		(53)
Income before taxes	$	21,731	$	22,418	$	55,651	$	58,566
Selected operating expense:
Depreciation and amortization:
SMB	$	145	$	184	$	448	$	252
Large Account		519		466		1,661		1,138
Public Sector		45		40		126		121
Headquarters/Other		2,226		2,011		6,410		5,993
Total depreciation and amortization	$	2,935	$	2,701	$	8,645	$	7,504
Total assets:
SMB					$	241,030
Large Account						376,001
Public Sector						69,162
Headquarters/Other						5,689
Total assets					$	691,882

The assets of our three operating segments presented above consist primarily of accounts receivable, intercompany receivable, goodwill, and other intangibles. Assets reported under the Headquarters/Other group are managed by corporate headquarters, including cash, inventory, and property and equipment. Total assets for the Headquarters/Other group are presented net of intercompany balance eliminations of $16,728 as of September 30, 2017. Our capital expenditures consist largely of IT hardware and software purchased to maintain or upgrade our management information systems. These information systems serve all of our segments, to varying degrees, and accordingly, our CODM does not evaluate capital expenditures on a segment basis.

Note 5–Commitments and Contingencies

We are subject to various legal proceedings and claims, including patent infringement claims, which have arisen during the ordinary course of business. In the opinion of management, the outcome of such matters is not expected to have a material effect on our financial position, results of operations, and cash flows.

We are subject to audits by states on sales and income taxes, employment matters, and other assessments. Additional liabilities for these and other audits could be assessed, and such outcomes could have a material, negative impact on our financial position, results of operations, and cash flows.

PC CONNECTION, INC. AND SUBSIDIARIES

PART I―FINANCIAL INFORMATION

Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Statements contained or incorporated by reference in this Quarterly Report on Form 10‑Q that are not based on historical fact are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of management including, without limitation, our expectations with regard to the industry’s rapid technological change and exposure to inventory obsolescence, availability and allocations of goods, reliance on vendor support and relationships, competitive risks, pricing risks, and the overall level of economic activity and the level of business investment in information technology products. Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “could,” “expect,” “believe,” “estimate,” “anticipate,” “continue,” “seek,” “plan,” “intend,” or similar terms, variations of such terms, or the negative of those terms.

We cannot assure investors that our assumptions and expectations will prove to have been correct. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We therefore caution you against undue reliance on any of these forward-looking statements. Important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements include those discussed in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q and in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which this Quarterly Report on Form 10-Q was first filed. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by law.

OVERVIEW

We are a leading solutions provider of a wide range of information technology, or IT, solutions. We help our customers design, enable, manage, and service their IT environments. We provide IT products, including computer systems, software and peripheral equipment, networking communications, and other products and accessories that we purchase from manufacturers, distributors, and other suppliers. We also offer services involving design, configuration, and implementation of IT solutions. These services are performed by our personnel and by third-party service providers. We operate through three sales segments, which serve primarily: (a) small- to medium-sized businesses, or SMBs, through our PC Connection Sales subsidiary, (b) large enterprise customers, in our Large Account segment, through our MoreDirect subsidiary, and (c) federal, state, and local governmental and educational institutions, in our Public Sector segment, through our GovConnection subsidiary.

We generate sales primarily through outbound telemarketing and field sales contacts by account managers focused on the business, education, and government markets, our websites, and inbound calls from customers responding to our catalogs and other advertising media. We seek to recruit, retain, and increase the productivity of our sales personnel through training, mentoring, financial incentives based on performance, and updating and streamlining our information systems to make our operations more efficient.

As a value added reseller in the IT supply chain, we do not manufacture IT hardware or software. We are dependent on our suppliers—manufacturers and distributors that historically have sold only to resellers rather than directly to end users. However, certain manufacturers have on multiple occasions attempted to sell directly to our customers, and in some cases, have restricted our ability to sell their products directly to certain customers, thereby attempting to eliminate our role. We believe that the success of these direct sales efforts by suppliers will depend on their ability to meet our customers’ ongoing demands and provide objective, unbiased solutions to meet their needs. We believe more of our customers are seeking comprehensive IT solutions, rather than simply the acquisition of specific IT products. Our

advantage is our ability to be product-neutral and provide a broader combination of products, services, and advice tailored to customer needs. By providing customers with customized solutions from a variety of manufacturers, we believe we can mitigate the negative impact of continued direct sales initiatives from individual manufacturers. Through our Technology Solutions Group, we are able to provide customers complete IT solutions, from identifying their needs, to designing, developing, and managing the integration of products and services to implement their IT projects. Such service offerings carry higher margins than traditional product sales. Additionally, the technical certifications of our service engineers permit us to offer higher-end, more complex solutions that generally carry higher gross margins. We expect these service offerings and technical certifications to continue to play a role in sales generation and improve gross margins in this competitive environment.

The primary challenges we continue to face in effectively managing our business are (1) increasing our revenues while at the same time improving our gross margin in all three segments, (2) recruiting, retaining, and improving the productivity of our sales personnel, and (3) effectively controlling our selling, general and administrative, or SG&A, expenses while making major investments in our IT systems and solution selling personnel, especially in relation to changing revenue levels.

To support future growth, we are expanding our IT solution business, which requires the addition of highly-skilled advanced solution engineers. Although we expect to realize the ultimate benefit of higher-margin advanced solution services and product revenues under this multi-year initiative, we believe that our cost of sales may increase significantly as we add such engineers. If our advanced solution revenues do not grow enough to offset the cost of these headcount additions, our operating results may decline.

Market conditions and technology advances significantly affect the demand for our products and services. Virtual delivery of software products and advanced internet technology providing customers enhanced functionality have substantially increased customer expectations, requiring us to invest more heavily in our own IT development to meet these new demands. This investment includes significant planned expenditures to update our websites, as buying trends change and electronic commerce continues to grow.

Our investments in IT infrastructure are designed to enable us to operate more efficiently and to provide our customers enhanced functionality. In October 2017, we began a multi-year initiative to upgrade our IT infrastructure, and accordingly we expect to increase our related capital investments over the next two to three years. This will also likely increase SG&A expenses as assets are placed into service and depreciated.

RESULTS OF OPERATIONS

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


	Three Months Ended						Nine Months Ended
	2017			2016			2017			2016
Net sales (in millions)	$	729.2		$	708.5		$	2,149.6		$	1,957.0
Gross margin		13.2	%		13.7	%		13.1	%		14.0	%
Selling, general and administrative expenses		10.2	%		10.5	%		10.5	%		11.0	%
Income from operations		3.0	%		3.2	%		2.6	%		3.0	%

Net sales in the third quarter of 2017 increased year over year by $20.7 million, or 2.9%, compared to the third quarter of 2016, due to increased revenues in the Large Account and SMB sales segments. Net sales of software and desktops grew year over year by 14% and 8%, respectively. SG&A expenses decreased year over year in dollars and as a percentage of net sales. The decrease as a percentage of net sales was primarily due to higher net sales in the third quarter of 2017, compared to the prior year quarter. Gross margin decreased due to a competitive demand environment and changes in vendor funding programs. The decrease in SG&A expenses in dollars was primarily due to lower personnel costs due to lower gross profit and cost reductions implemented in the second quarter of 2017. Operating income in the third quarter of 2017 decreased year over year in dollars and as a percentage of net sales compared to the prior year period due to lower gross profit. Gross profit was adversely affected by lower invoice selling margins and lower vendor funding which reduces our cost of sales.

Net Sales Distribution

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


	Three Months Ended				Nine Months Ended
	2017		2016		2017		2016
Sales Segment
SMB	40	%	40	%	40	%	42	%
Large Account	37		36		38		37
Public Sector	23		24		22		21
Total	100	%	100	%	100	%	100	%

Product Mix
Software	24	%	21	%	22	%	20	%
Notebooks/Mobility	23		24		22		24
Servers/Storage	8		9		9		10
Net/Com Product	7		8		8		8
Other Hardware/Services	38		38		39		38
Total	100	%	100	%	100	%	100	%

Gross Profit Margin

The following table summarizes our gross margin, as a percentage of net sales, over the periods indicated:


	Three Months Ended				Nine Months Ended
	2017		2016		2017		2016
Sales Segment
SMB	14.9	%	15.5	%	15.3	%	15.8	%
Large Account	12.7		13.4		12.5		13.1
Public Sector	11.0		11.1		10.4		11.8
Total	13.2	%	13.7	%	13.1	%	14.0	%

Operating Expenses

The following table reflects our SG&A expenses for the periods indicated (dollars in millions):


	Three Months Ended						Nine Months Ended
	2017			2016			2017			2016
Personnel costs	$	57.4		$	58.6		$	175.4		$	167.2
Advertising		3.6			3.5			10.8			12.4
Facilities operations		3.7			3.5			11.1			10.1
Professional fees		2.0			1.8			6.4			5.4
Credit card fees		1.8			1.9			5.5			5.0
Depreciation and amortization		2.9			2.7			8.7			7.5
Other, net		3.0			2.5			9.0			6.8
Total	$	74.4		$	74.5		$	226.9		$	214.4
Percentage of net sales		10.2	%		10.5	%		10.6	%		11.0	%

Year-Over-Year Comparisons

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

Changes in net sales and gross profit by segment are shown in the following table (dollars in millions):


	Three Months Ended September 30,
	2017				2016
			% of				% of		%
	Amount		Net Sales		Amount		Net Sales		Change
Sales:
SMB	$	290.6	39.8	%	$	281.9	39.8	%	3.1	%
Large Account		268.0	36.8			254.3	35.9		5.4
Public Sector		170.6	23.4			172.3	24.3		(1.0)
Total	$	729.2	100.0	%	$	708.5	100.0	%	2.9	%
Gross Profit:
SMB	$	43.4	14.9	%	$	43.7	15.5	%	(0.6)	%
Large Account		34.0	12.7			34.1	13.4		(0.2)
Public Sector		18.7	11.0			19.2	11.1		(2.6)
Total	$	96.1	13.2	%	$	97.0	13.7	%	(0.8)	%

Net sales increased in the third quarter of 2017 compared to the third quarter of 2016, as explained below:

Net sales for the SMB segment increased due to higher sales of desktops and notebook/mobility products. Desktop sales increased by $6.7 million and notebook/mobility products increased by $7.7 million primarily driven by customer refresh of these client devices.

Net sales for the Large Account segment increased due to higher sales of software and mobility. On a dollar basis, software and mobility product revenues increased by $4.0 million and $3.1 million, respectively in the third quarter. Software increased by 6% due to increased demand of security and office productivity products. Mobility increased by 6% due to Large Account customers refresh of client devices.

Net sales to the Public Sector segment decreased in the quarter. Net sales to state and local government and educational institutions decreased by $3.0 million primarily due to lower sales to higher education customers. Net sales to the federal government however increased by $1.3 million as federal defense spending continued to grow in the quarter. On a dollar basis, mobility, servers/storage, and other hardware/services decreased $10.1 million, $4.1 million, and $3.8 million, respectively, in the third quarter. The decrease in these product sales were offset by an increase of $17.6 million in software sales driven by security and office productivity products.

Gross profit for the third quarter of 2017 decreased year over year in dollars and as a percentage of net sales (gross margin), as explained below:

Gross profit for the SMB segment decreased due to lower invoice selling margins. Invoice selling margins decreased by 91 basis points due to lower vendor funding and a shift in both client and product mix, which included increased sales of lower-margin transactional products (notebooks/mobility and desktops). We also receive agency fees from suppliers for certain software and hardware sales which are recorded as revenue with no corresponding cost of goods sold, and accordingly such fees have a positive impact on gross margin. A 30 basis point increases in these agency revenues partially offset the decrease in invoice selling margins.

Gross profit for the Large Account segment decreased due to lower invoice selling margins. Invoice selling margins decreased by 101 basis points in the quarter due to a hyper-competitive demand environment. This margin decrease was partially offset by higher agency revenues (14 basis points).

Gross profit for the Public Sector segment decreased due to a decrease in both net sales and invoice selling margins. Invoice selling margins decreased by 18 basis points due to lower vendor funding.

Selling, general and administrative expenses decreased in dollars and as a percentage of net sales in the third quarter of 2017 compared to the prior year quarter. SG&A expenses attributable to our three segments and the remaining unallocated Headquarters/Other group expenses are summarized in the table below (dollars in millions):


	Three Months Ended September 30,
	2017				2016
			% of				% of Net
			Segment Net				Segment Net		%
	Amount		Sales		Amount		Sales		Change
SMB	$	33.8	11.6	%	$	33.7	11.9	%	0.3	%
Large Account		21.7	8.1			22.3	8.8		(2.7)
Public Sector		15.9	9.3			15.6	9.0		1.9
Headquarters/Other, unallocated		3.0				2.9			3.4
Total	$	74.4	10.2	%	$	74.5	10.5	%	(0.1)	%

SG&A expenses for the SMB segment increased in dollars, but decreased as a percentage of net sales. The year-over year increase in SG&A dollars was due to $0.1 million of higher usage of Headquarter services. The decrease in SG&A as a percentage of net sales was due to the leveraging of fixed costs over larger net sales.

SG&A expenses for the Large Account segment decreased in dollars and as a percentage of net sales. The year-over-year decrease in SG&A dollars was due to a decrease of $1.0 million in personnel costs related to cost reductions implemented in April 2017 and transfers of technical staff to Headquarters, offset by an increase in bad debt expense of $0.3 million. The decrease in SG&A as a percentage of net sales was due to the leveraging of fixed costs over larger net sales.

SG&A expenses for the Public Sector segment increased in dollars and as a percentage of net sales. The year-over-year increase in SG&A dollars was primarily due to an increase of $0.2 million of personnel costs related to the transfers of technical solutions staff from Headquarters.

SG&A expenses for the Headquarters/Other group increased due to an increase in unallocated executive oversight costs. The Headquarters/Other group provides services to the three segments in areas such as finance, human resources, IT, marketing, and product management. Most of the operating costs associated with such corporate Headquarters services are charged to the segments based on their estimated usage of the underlying services. The amounts shown above represent the remaining unallocated costs.

Income from operations for the third quarter of 2017 decreased to $21.7 million, compared to $22.4 million for the third quarter of 2016, due to the decrease in gross profit. Income from operations as a percentage of net sales was 3.0% for the third quarter of 2017, compared to 3.2% of net sales for the prior year quarter.

Our effective tax rate was 39.6% for the third quarter of 2017, compared to 39.4% for the third quarter of 2016. Our tax rate will vary based on fluctuations in state tax levels for certain subsidiaries, valuation reserves, and accounting for uncertain tax positions.

Net income for the third quarter of 2017 decreased to $13.1 million, compared to $13.6 million for the third quarter of 2016, due to the decrease in operating income.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Changes in net sales and gross profit by segment are shown in the following table (dollars in millions):


	Nine Months Ended September 30,
	2017				2016
			% of				% of		%
	Amount		Net Sales		Amount		Net Sales		Change
Sales:
SMB	$	860.6	40.0	%	$	814.1	41.6	%	5.7	%
Large Account		823.0	38.3			723.9	37.0		13.7
Public Sector		466.0	21.7			419.0	21.4		11.2
Total	$	2,149.6	100.0	%	$	1,957.0	100.0	%	9.8	%
Gross Profit:
SMB	$	131.4	15.3	%	$	128.8	15.8	%	2.0	%
Large Account		102.8	12.5			94.6	13.1		8.7
Public Sector		48.3	10.4			49.6	11.8		(2.7)
Total	$	282.5	13.1	%	$	273.0	14.0	%	3.5	%

Net sales increased for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, as explained below:

Net sales for the SMB segment increased due to higher sales of software and transactional products. Software sales increased by $17.7 million due to the inclusion of revenue from Softmart, which we acquired on May 27, 2016, and due to our investments in advanced solution sales including security and software services. On a dollar basis, notebooks/mobility and desktop products increased by $21.9 million and $11.1 million, respectively for the nine months ended September 30, 2017. Mobility continues to be a strategic focus for SMB customers.

Net sales for the Large Account segment increased significantly due to an increase in large project rollouts. On a dollar basis, software, accessories, and net/com products increased year over year by $39.7 million, $19.5 million, and $13.5 million, respectively. All three product categories increased by double-digit rates year over year.

Net sales to the Public Sector segment increased significantly in the nine months ended September 30, 2017. Net sales to the federal government increased by $35.4 million due to higher sales made under federal government contracts and a large project rollout to the federal government. Net sales to state and local government and educational institutions increased by $11.5 million due to increased sales to higher education and K-12 customers. On a dollar basis, desktops, software, and net/com products increased year over year by $36.1 million, $21.0 million, and $8.7 million, respectively.

Gross profit for the nine months ended September 30, 2017 increased year over year in dollars, but decreased as a percentage of net sales (gross margin), as explained below:

Gross profit for the SMB segment increased due to higher net sales. However, invoice selling margins decreased by 87 basis points due to a shift in both client and product mix, which reflected increased sales of lower-margin mobility products, as well as lower vendor funding. The decrease in invoice selling margins was partially offset by higher agency revenues (33 basis points).

Gross profit for the Large Account segment increased due to higher net sales. However, invoice selling margins decreased by 71 basis points due to a shift in product mix and an increase in large project rollouts, which generally carry lower gross margins. The decrease in invoice selling margins was partially offset by higher agency revenues (9 basis points).

Gross profit for the Public Sector segment decreased despite higher net sales. Invoice selling margins decreased by 115 basis points due to a shift in sales mix to lower-margin transactional products, including several large federal government project rollout.

Selling, general and administrative expenses increased in dollars, but decreased as a percentage of net sales in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. SG&A expenses attributable to our three segments and the remaining unallocated Headquarters/Other group expenses are summarized in the table below (dollars in millions):


	Nine Months Ended September 30,
	2017				2016
			% of				% of
			Segment Net				Segment Net		%
	Amount		Sales		Amount		Sales		Change
SMB	$	102.0	11.9	%	$	96.7	11.9	%	5.5	%
Large Account		67.0	8.1			63.4	8.8		5.7
Public Sector		48.1	10.3			45.1	10.8		6.7
Headquarters/Other, unallocated		9.8				9.2			6.5
Total	$	226.9	10.6	%	$	214.4	11.0	%	5.8	%

SG&A expenses for the SMB segment increased in dollars and remained unchanged as a percentage of net sales. The year-over-year increase in SG&A dollars was due to the inclusion of $2.4 million of personnel costs related to technical staff transferred from Headquarters and higher usage of Headquarter services of $2.5 million. The increase in Headquarter services was related to our investments in technical and engineering support provided to the SMB segment.

SG&A expenses for the Large Account segment increased in dollars, but decreased as a percentage of net sales. The year-over-year increase in SG&A dollars was due to the inclusion of $2.7 million of operating expenses for Globalserve and higher usage of Headquarter services of $0.8 million. The increase in Headquarter services was related to our investments in technical and engineering support provided to the Large Account segment. The decrease in SG&A as a percentage of net sales was due to the leveraging of fixed costs over larger net sales.

SG&A expenses for the Public Sector segment increased in dollars, but decreased as a percentage of net sales. The year-over-year increase in SG&A dollars was due to $1.0 million of personnel costs which is primarily due to transfers of technical staff transferred from Headquarters and increased headcount, an increase in credit card fees of $0.4 million, and $1.3 million of higher usage of Headquarter services. The increase in Headquarter services was related to our investments in technical and engineering support provided to the Public Sector segment. The decrease in SG&A as a percentage of net sales was due to the leveraging of fixed costs over larger net sales.

SG&A expenses for the Headquarters/Other group increased due to an increase in unallocated executive oversight costs. The Headquarters/Other group provides services to the three segments in areas such as finance, human resources, IT, marketing, and product management. Most of the operating costs associated with such corporate headquarters services are charged to the segments based on their estimated usage of the underlying services. The amounts shown above represent the remaining unallocated costs.

Income from operations for the nine months ended September 30, 2017 decreased to $55.7 million, compared to $58.6 million for the nine months ended September 30, 2016, due to the increase in SG&A. Income from operations as a percentage of net sales was 2.6% for the nine months ended September 30, 2017, compared to 3.0% of net sales for the nine months ended September 30, 2016.

Our effective tax rate was 38.7% for the nine months ended September 30, 2017, compared to 40.0% for the nine months ended September 30, 2016. Our effective tax rate was mainly impacted by the recognition of excess tax benefit associated with stock based compensation exercised during the nine months ended September 30, 2017.

Net income for the nine months ended September 30, 2017 decreased to $34.1 million, compared to $35.1 million for the nine months ended September 30, 2016, due to the decrease in operating income.

Liquidity and Capital Resources

Our primary sources of liquidity have historically been internally generated funds from operations and borrowings under our bank line of credit. We have used those funds to meet our capital requirements, which consist primarily of working capital for operational needs, capital expenditures for computer equipment and software used in our business, special dividend payments, repurchases of common stock for treasury, and as opportunities arise, acquisitions of new businesses.

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, capital expenditures, and other requirements for at least the next twelve calendar months. We expect our capital needs for the next twelve months to consist primarily of capital expenditures of $18.0 to $20.0 million, and payments on leases and other contractual obligations of approximately $5.0 million. We have completed a comprehensive review and assessment of our entire business software needs, including commercially available software that meets, or can be configured to meet, those needs better than our existing software. In October 2017, we began a multi-year initiative to upgrade our IT infrastructure, and accordingly we expect our related capital investments to range from $20.0 to $25.0 million over the next two to three years.

We expect to meet our cash requirements for the next twelve months through a combination of cash on hand, cash generated from operations, and borrowings on our bank line of credit, as follows:

Cash on Hand. At September 30, 2017, we had approximately $62.3 million in cash and cash equivalents.

Cash Generated from Operations. We expect to generate cash flows from operations in excess of operating cash needs by generating earnings and managing net changes in inventories and receivables with changes in payables to generate a positive cash flow.

Credit Facilities. As of September 30, 2017, no borrowings were outstanding against our $50.0 million bank line of credit, which is available until February 10, 2022. Accordingly, our entire line of credit was available for borrowing at September 30, 2017. This line of credit can be increased, at our option, to $80.0 million for approved acquisitions or other uses authorized by the bank. Borrowings are, however, limited by certain minimum collateral and earnings requirements, as described more fully below.

Our ability to continue funding our planned growth, both internally and externally, 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. While we do not anticipate needing any additional sources of financing to fund our operations at this time, if demand for IT products declines, our cash flows from operations may be substantially affected. See also related risks listed below under “Item 1A. “Risk Factors.”

Summary of Sources and Uses of Cash

The following table summarizes our sources and uses of cash over the periods indicated (in millions):



	Nine Months Ended
	2017		2016
Net cash provided by operating activities	$	28.4	$	39.8
Net cash used for investing activities		(7.9)		(42.7)
Net cash used for financing activities		(7.3)		(10.4)
Increase (decrease) in cash and cash equivalents	$	13.2	$	(13.3)

Cash provided by operating activities was $28.4 million in the nine months ended September 30, 2017. Cash flow provided for operations in the nine months ended September 30, 2017 resulted primarily from net income before depreciation and amortization and a decrease in accounts receivable, offset by an increase in inventory and a decrease in accounts payable. Accounts receivable decreased by $28.1 million from the prior year-end balance. Days sales outstanding increased to 43 days at September 30, 2017, compared to 42 days at September 30, 2016. Inventory increased from the prior year-end balance by $16.2 million due to higher levels of inventory on-hand related to future backlog and an increase in shipments not received by our customers as of September 30, 2017 compared to December

31, 2016. Inventory turns decreased to 22 turns for the third quarter of 2017 compared to 23 turns for the prior year quarter.

At September 30, 2017, we had $164.9 million in outstanding accounts payable. Such accounts are generally paid within 30 days of incurrence, or earlier when favorable cash discounts are offered. This balance will be paid by cash flows from operations or short-term borrowings under the line of credit. We believe we will be able to meet our obligations under our accounts payable with cash flows from operations and our existing line of credit.

Cash used for investing activities in the nine months ended September 30, 2017 represented $7.9 million of purchases of property and equipment. These expenditures were primarily for computer equipment and capitalized internally-developed software in connection with investments in our IT infrastructure. Whereas in the prior year period, investing activities represented $34.0 million payment for the acquisition of Softmart, Inc. and $8.7 million of purchases of property and equipment.

Cash used for financing activities in the nine months ended September 30, 2017 consisted primarily of a $9.0 million payment of a special $0.34 per share dividend, offset by $1.6 million of proceeds from the exercise of stock options. Whereas in the prior year period, financing activities primarily represented a $10.6 million payment of a special $0.40 per share dividend.

Debt Instruments, Contractual Agreements, and Related Covenants

Below is a summary of certain provisions of our credit facilities and other contractual obligations. For more information about the restrictive covenants in our debt instruments and inventory financing agreements, see “Factors Affecting Sources of Liquidity” below. For more information about our obligations, commitments, and contingencies, see our condensed consolidated financial statements and the accompanying notes included in this Quarterly Report.

Bank Line of Credit. Our bank line of credit extends until February 2022 and is collateralized by our accounts receivable. Our borrowing capacity is up to $50.0 million at the one-month London Interbank Offered Rate, or LIBOR, plus a spread based on our funded debt ratio, or in the absence of LIBOR, the prime rate (4.25% at September 30, 2017). The one-month LIBOR rate at September 30, 2017 was 1.23%. In addition, we have the option to increase the facility by an additional $30.0 million to meet additional borrowing requirements. Our credit facility is subject to certain covenant requirements which are described below under “Factors Affecting Sources of Liquidity.” At September 30, 2017, the entire $50.0 million facility was available for borrowing.

Cash receipts are automatically applied against any outstanding borrowings. Any excess cash on account may either remain on account to generate earned credits to offset up to 100% of cash management fees, or may be invested in short-term qualified investments. Borrowings under the line of credit are classified as current.

Operating Leases. We lease facilities from our principal stockholders and facilities and equipment from third parties under non-cancelable operating leases which have been reported in the “Contractual Obligations” section of our Annual Report on Form 10-K for the year ended December 31, 2016.

Off-Balance Sheet Arrangements. We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues and expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Contractual Obligations. The disclosures relating to our contractual obligations in our Annual Report on Form 10-K for the year ended December 31, 2016 have not materially changed since the report was filed.

Factors Affecting Sources of Liquidity

Internally Generated Funds. The key factors affecting our internally generated funds are our ability to minimize costs and fully achieve our operating efficiencies, timely collection of our customer receivables, and management of our inventory levels.

Bank Line of Credit. Our bank line of credit extends until February 2022 and is collateralized by our accounts receivable. As of September 30, 2017, the entire $50.0 million facility was available for borrowing. Our credit facility

PART II - OTHER INFORMATION

Item 1A - Risk Factors

In addition to other information set forth in this report, you should carefully consider the factors discussed in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial position, and results of operations. Risk factors which could cause actual results to differ materially from those suggested by forward-looking statements include but are not limited to those discussed or identified in this document, in our public filings with the SEC, and those incorporated by reference in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.

Item 6 - Exhibits


Exhibit Number		Description
31.1	*	Certification of the Company’s President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certification of the Company’s Vice President and Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	*	Certification of the Company’s President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	*	Certification of the Company’s Vice President and Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	**	XBRL Instance Document.
101.SCH	**	XBRL Taxonomy Extension Schema Document.
101.CAL	**	XBRL Taxonomy Calculation Linkbase Document.
101.DEF	**	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	**	XBRL Taxonomy Label Linkbase Document.
101.PRE	**	XBRL Taxonomy Presentation Linkbase Document.



*		Filed herewith.
**		Submitted electronically herewith.

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (ii) Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017 and September 30, 2016, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and September 30, 2016, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.


	PART I FINANCIAL INFORMATION

		Page
ITEM 1.	Unaudited Condensed Consolidated Financial Statements:

	Condensed Consolidated Balance Sheets–September 30, 2017 and December 31, 2016	1

	Condensed Consolidated Statements of Income–Three and Nine Months Ended September 30, 2017 and 2016	2

	Condensed Consolidated Statements of Cash Flows–Nine Months Ended September 30, 2017 and 2016	3

	Notes to Unaudited Condensed Consolidated Financial Statements	4

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	11

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	21

ITEM 4.	Controls and Procedures	22




	PART II OTHER INFORMATION

ITEM 1A.	Risk Factors	23

ITEM 6.	Exhibits	23

SIGNATURES		24


Date:	November 9, 2017	By:	/S/ TIMOTHY MCGRATH
			Timothy McGrath
			President and Chief Executive Officer (Duly Authorized Officer)

Date:	November 9, 2017	By:	/s/ G. WILLIAM SCHULZE
			G. William Schulze
			Vice President, Interim Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)