SCANSOURCE INC - 10-Q Quarterly Report

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, 2003

¨	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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes x No ¨

As of February 9, 2004, 12,444,480 shares of the registrant’s common stock, no par value, were outstanding.

SCANSOURCE, INC.

INDEX TO FORM 10-Q

December 31, 2003


			Page No.
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited):
		Condensed Consolidated Balance Sheets as of December 31, 2003 and June 30, 2003	3
		Condensed Consolidated Income Statements for the Quarter and Six Months Ended December 31, 2003 and 2002	5
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2003 and 2002	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
	Item 4.	Controls and Procedures	30

PART II.	OTHER INFORMATION

	Item 4.	Submission of Matters to a Vote of Security Holders	31
	Item 6.	Exhibits and Reports on Form 8-K	32

SIGNATURES			33

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 (“SEC”), 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 2004 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, third-party shippers, the Company’s ability to compete successfully in a highly competitive market, ability to manage significant additions in personnel and increases in working capital, the Company’s ability to collect outstanding accounts receivable, 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 SEC, including Exhibit 99.1 to the Company’s Form 10-K for the year ended June 30, 2003.

Additional discussion of these and other factors affecting our business and prospects is contained in our periodic filings with the SEC, copies of which can be obtained at the Investor Relations section of our website at www.scansource.com. We provide our annual and quarterly reports free of charge on www.scansource.com, as soon as reasonably practicable after they are electronically filed, or furnished to, the SEC. We provide a link to all SEC filings where current reports on Form 8-K and any amendments to previously filed reports may be accessed, free of charge.

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands)


	December 31, 2003		June 30, 2003*
Assets	December 31, 2003		June 30, 2003*
Current assets:
Cash	$	736	$	2,565
Trade and notes receivable:
Trade, less allowance for doubtful accounts of $11,013 at December 31, 2003 and $9,419 at June 30, 2003		146,644		129,105
Other		3,144		4,420
Inventories		153,262		152,261
Prepaid expenses and other assets		1,743		1,739
Deferred income taxes		8,986		9,498

Total current assets		314,515		299,588

Property and equipment, net		25,767		27,270
Goodwill		9,978		9,841
Other assets, including identifiable intangible assets		8,567		7,648

Total assets	$	358,827	$	344,347

*	Derived from audited financial statements at June 30, 2003.

See notes to condensed consolidated financial statements (unaudited).

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except for share information)

(Continued)


Liabilities and Shareholders’ Equity	December 31, 2003		June 30, 2003*
Current Liabilities:
Current portion of long-term debt	$	871	$	914
Subsidiary lines of credit		560		—
Trade accounts payable		147,621		151,389
Accrued expenses and other liabilities		11,304		12,246
Income taxes payable		1,402		62

Total current liabilities		161,758		164,611

Deferred income taxes		1,546		1,673
Long-term debt		6,997		7,385
Borrowings under revolving credit facility		19,352		18,118

Total liabilities		189,653		191,787

Minority interest		1,034		1,673
Commitments and contingencies

Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, none issued		—		—
Common stock, no par value; 25,000,000 shares authorized, 12,426,857 and 12,243,230 shares issued and outstanding at December 31, 2003 and June 30, 2003, respectively		59,933		56,706
Retained earnings		104,053		91,306
Accumulated other comprehensive income - equity adjustment from foreign currency translation		4,154		2,875

Total shareholders’ equity		168,140		150,887

Total liabilities and shareholders’ equity	$	358,827	$	344,347

*	Derived from audited financial statements at June 30, 2003.

See notes to condensed consolidated financial statements (unaudited).

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)

(In thousands)


	Quarter ended December 31,						Six months ended December 31,
	2003			2002			2003			2002
Net sales	$	288,966		$	250,117		$	565,440		$	510,720
Cost of goods sold		258,063			223,207			503,693			453,615

Gross profit		30,903			26,910			61,747			57,105

Operating expenses:
Selling, general and admin. expenses		20,045			16,467			41,204			36,144

Operating income		10,858			10,443			20,543			20,961

Other expense (income):
Interest expense		284			556			627			1,249
Interest income		(85	)		(282	)		(246	)		(586	)
Other, net		(64	)		16			(229	)		48

Total other expense		135			290			152			711

Income before income taxes and minority interest		10,723			10,153			20,391			20,250

Provision for income taxes		3,935			4,221			7,524			8,154

Income before minority interest		6,788			5,932			12,867			12,096

Minority interest in income of consolidated subsidiaries, net of income taxes of $45, and $42, respectively, and $45 and $108, respectively		121			110			120			283

Net income	$	6,667		$	5,822		$	12,747		$	11,813

See notes to condensed consolidated financial statements (unaudited).

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)

(In thousands, except per share data)

(Continued)


	Quarter ended December 31,				Six months ended December 31,
	2003		2002		2003		2002
Per share data:
Net income per common share, basic	$	0.53	$	0.49	$	1.03	$	1.00

Weighted-average shares outstanding, basic		12,508		11,947		12,389		11,822

Net income per common share, assuming dilution	$	0.52	$	0.46	$	1.00	$	0.94

Weighted-average shares outstanding, assuming dilution		12,942		12,646		12,771		12,527

See notes to condensed consolidated financial statements (unaudited).

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Six Months Ended December 31,
	2003			2002
Cash flows from operating activities:
Net income	$	12,747		$	11,813
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		2,490			2,375
Amortization of intangible assets		112			54
Provision for doubtful accounts		1,267			1,902
Deferred income tax benefit		(109	)		421
Tax benefit of stock option exercises		882			3,420
Minority interest in net income of subsidiaries		(120	)		224
Changes in operating assets and liabilities, net of acquisitions:
Trade and notes receivables		(17,836	)		(17,919	)
Other receivables		1,283			1,757
Inventories		(197	)		30,442
Prepaid expenses and other assets		9			118
Other noncurrent assets		(1,085	)		(335	)
Trade accounts payable		(4,523	)		(23,319	)
Accrued expenses and other liabilities		(24	)		867
Income taxes payable		1,333			(5,545	)

Net cash provided by (used in) operating activities		(3,771	)		6,275

Cash flows used in investing activities:
Capital expenditures		(1,209	)		(3,331	)
Cash paid for acquisition of minority interest		(277	)		(457	)

Net cash used in investing activities		(1,486	)		(3,788	)

Cash flows from financing activities:
Advances (repayments) on revolving credit, net		1,234			(4,485	)
Repayments of long-term debt borrowings		(431	)		(384	)
Exercise of stock options		2,316			4,412

Net cash provided by (used in) financing activities		3,119			(457	)

Effect of exchange rate changes upon cash		309			137

(Decrease) Increase in cash

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