UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 December 31, 2002 |
or
| ¨ | 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: 000-26926
SCANSOURCE, INC.
(Exact name of registrant as specified in its charter)
| South Carolina |
57-0965380 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 6 Logue Court, Greenville, South Carolina |
29615 | |
| (Address of principal executive offices) |
(Zip Code) |
(864) 288-2432
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 x No ¨
As of February 1, 2003, 12,170,970 shares of the registrant’s common stock, no par value, were outstanding.
SCANSOURCE, INC.
December 31, 2002
| Page No. | ||||||
| PART I. |
FINANCIAL INFORMATION |
|||||
| Item 1. |
Financial Statements (Unaudited): |
|||||
| Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2002 |
3 | |||||
| 5 | ||||||
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2001 and 2002 |
7 | |||||
| 8 | ||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 | ||||
| Item 3. |
24 | |||||
| Item 4. |
25 | |||||
| PART II. |
OTHER INFORMATION |
|||||
| Item 1. |
26 | |||||
| Item 2. |
26 | |||||
| Item 3. |
26 | |||||
| Item 4. |
26 | |||||
| Item 5. |
27 | |||||
| Item 6. |
27 | |||||
| 28 | ||||||
| 29 | ||||||
Cautionary Statements
Certain of the statements contained in this Form 10-Q, as well as in the Company’s other filings with the Securities and Exchange Commission, that are not historical facts are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The Company cautions readers of this report that a number of important factors could cause the Company’s activities and/or actual results in fiscal 2003 and beyond to differ materially from those expressed in any such forward-looking statements. These factors include, without limitation, the Company’s dependence on vendors, product supply, senior management, centralized functions, and third-party shippers, the Company’s ability to compete successfully in a highly competitive market and manage significant additions in personnel and increases in working capital, the Company’s entry into new product markets in which it has no prior experience, the Company’s susceptibility to quarterly fluctuations in net sales and results of operations, the Company’s ability to manage successfully pricing or stock rotation opportunities associated with inventory value decreases, and other factors described herein and in other reports and documents filed by the Company with the Securities and Exchange Commission, including Exhibit 99.1 to the Company’s Form 10-K for the year ended June 30, 2002.
2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
| June 30, 2002* |
December 31, 2002 | |||||
| Assets |
||||||
| Current Assets: |
||||||
| Cash |
$ |
1,296 |
$ |
3,463 | ||
| Receivables: |
||||||
| Trade, less allowance for doubtful accounts of $9,580 at June 30, 2002 and $9,710 at December 31, 2002 |
|
119,158 |
|
135,510 | ||
| Other |
|
7,860 |
|
6,106 | ||
| Inventories |
|
182,636 |
|
152,499 | ||
| Prepaid expenses and other assets |
|
1,258 |
|
1,140 | ||
| Prepaid taxes |
|
— |
|
5,015 | ||
| Deferred income taxes |
|
10,225 |
|
10,423 | ||
| Total current assets |
|
322,433 |
|
314,156 | ||
| Property and equipment, net |
|
25,995 |
|
26,940 | ||
| Goodwill |
|
9,575 |
|
9,841 | ||
| Other assets, including identifiable intangible assets |
|
1,029 |
|
1,328 | ||
| Total assets |
$ |
359,032 |
$ |
352,265 | ||
| * | Derived from audited financial statements at June 30, 2002 |
See notes to condensed consolidated financial statements (unaudited).
3
SCANSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
(Continued)
| June 30, 2002* |
December 31, 2002 | |||||
| Liabilities and Shareholders’ Equity |
||||||
| Current Liabilities: |
||||||
| Current portion of long-term debt |
$ |
769 |
$ |
779 | ||
| Subsidiary lines of credit |
|
1,559 |
|
703 | ||
| Trade accounts payable |
|
175,406 |
|
152,163 | ||
| Accrued expenses and other liabilities |
|
8,261 |
|
8,960 | ||
| Income taxes payable |
|
935 |
|
406 | ||
| Total current liabilities |
|
186,930 |
|
163,011 | ||
| Deferred income taxes |
|
517 |
|
1,295 | ||
| Borrowings under revolving credit facility |
|
43,780 |
|
40,151 | ||
| Long-term debt |
|
8,319 |
|
7,925 | ||
| Total liabilities |
|
239,546 |
|
212,382 | ||
| Minority interest |
|
1,437 |
|
1,470 | ||
| Commitments and contingencies |
||||||
| Shareholders’ equity: |
||||||
| Preferred stock, no par value; 3,000 shares authorized, none issued |
|
— |
|
— | ||
| Common stock, no par value; 25,000 shares authorized, 11,661 and 12,160 shares issued and outstanding at June 30, 2002 and December 31, 2002, respectively |
|
48,223 |
|
56,055 | ||
| Retained earnings |
|
68,732 |
|
80,545 | ||
| Accumulated other comprehensive income—cumulative currency translation adjustment |
|
1,094 |
|
1,813 | ||
| Total shareholders’ equity |
|
118,049 |
|
138,413 | ||
| Total liabilities and shareholders’ equity |
$ |
359,032 |
$ |
352,265 | ||
| * | Derived from audited financial statements at June 30, 2002 |
See notes to condensed consolidated financial statements (unaudited).
4
SCANSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
(In thousands)
| Quarter ended December 31, |
Six months ended December 31, |
|||||||||||||||
| 2001 |
2002 |
2001 |
2002 |
|||||||||||||
| Net sales |
$ |
207,856 |
|
$ |
250,117 |
|
$ |
396,699 |
|
$ |
510,720 |
| ||||
| Cost of goods sold |
|
185,898 |
|
|
223,207 |
|
|
353,829 |
|
|
453,615 |
| ||||
| Gross profit |
|
21,958 |
|
|
26,910 |
|
|
42,870 |
|
|
57,105 |
| ||||
| Operating expenses: |
||||||||||||||||
| Selling, general and admin. expenses |
|
14,204 |
|
|
16,467 |
|
|
27,208 |
|
|
36,144 |
| ||||
| Impairment of capitalized software |
|
840 |
|
|
— |
|
|
840 |
|
|
— |
| ||||
|
|
15,044 |
|
|
16,467 |
|
|
28,048 |
|
|
36,144 |
| |||||
| Operating income |
|
6,914 |
|
|
10,443 |
|
|
14,822 |
|
|
20,961 |
| ||||
| Other expense (income): |
||||||||||||||||
| Interest expense |
|
690 |
|
|
556 |
|
|
1,584 |
|
|
1,249 |
| ||||
| Interest income |
|
(308 |
) |
|
(282 |
) |
|
(648 |
) |
|
(586 |
) | ||||
| Other (income) expense |
|
(16 |
) |
|
126 |
|
|
38 |
|
|
331 |
| ||||
| Other expense, net |
|
366 |
|
|
400 |
|
|
974 |
|
|
994 |
| ||||
| Income before income taxes and extraordinary gain |
|
6,548 |
|
|
10,043 |
|
|
13,848 |
|
|
19,967 |
| ||||
| Provision for income taxes |
|
2,490 |
|
|
4,221 |
|
|
5,264 |
|
|
8,154 |
| ||||
| Income before extraordinary gain |
|
4,058 |
|
|
5,822 |
|
|
8,584 |
|
|
11,813 |
| ||||
| Extraordinary gain on excess of fair value of net assets acquired over cost, net of income taxes of $508 |
|
829 |
|
|
— |
|
|
829 |
|
|
— |
| ||||
| Net income |
$ |
4,887 |
|
$ |
5,822 |
|
$ |
9,413 |
|
$ |
11,813 |
| ||||
See notes to condensed consolidated financial statements (unaudited).
5