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 March 31, 2004

¨	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 May 5, 2004, 12,535,357 shares of the registrant’s common stock, no par value, were outstanding.

SCANSOURCE, INC.

INDEX TO FORM 10-Q

March 31, 2004


			Page No.
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited):
		Condensed Consolidated Balance Sheets as of March 31, 2004 and June 30, 2003	3
		Condensed Consolidated Income Statements for the Quarter and Nine Months Ended March 31, 2004 and 2003	5
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2004 and 2003	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 6.	Exhibits and Reports on Form 8-K	31

SIGNATURES			32

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)


	March 31, 2004		June 30, 2003*
Assets

Current assets:
Cash	$	3,245	$	2,565
Trade and notes receivable:
Trade, less allowance for doubtful accounts of $10,956 at March 31, 2004 and $9,419 at June 30, 2003		151,595		129,105
Other		2,918		4,420
Inventories		183,808		152,261
Prepaid expenses and other assets		1,823		1,739
Deferred income taxes		9,901		9,498

Total current assets		353,290		299,588

Property and equipment, net		25,115		27,270
Goodwill		9,978		9,841
Other assets, including identifiable intangible assets		9,204		7,648

Total assets	$	397,587	$	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)


	March 31, 2004		June 30, 2003*
Liabilities and Shareholders’ Equity

Current liabilities:
Current portion of long-term debt	$	850	$	914
Subsidiary line of credit		560		—
Trade accounts payable		163,937		151,389
Accrued expenses and other liabilities		13,734		12,246
Income taxes payable		2,305		62

Total current liabilities		181,386		164,611

Deferred income taxes		1,492		1,673
Long-term debt		6,804		7,385
Borrowings under revolving credit facility		29,955		18,118

Total liabilities		219,637		191,787

Minority interest		1,027		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, 12,519,683 and 12,243,230 shares issued and outstanding at March 31, 2004 and June 30, 2003, respectively		60,969		56,706
Retained earnings		112,274		91,306
Accumulated other comprehensive income - equity adjustment from foreign currency translation		3,680		2,875

Total shareholders’ equity		176,923		150,887

Total liabilities and shareholders’ equity	$	397,587	$	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 March 31,						Nine months ended March 31,
	2004			2003			2004			2003
Net sales	$	293,574		$	227,452		$	859,014		$	738,172
Cost of goods sold		260,603			202,029			764,296			655,644

Gross profit		32,971			25,423			94,718			82,528

Operating expenses:
Selling, general and admin. expenses		19,828			16,815			61,032			52,959

Operating income		13,143			8,608			33,686			29,569

Other expense (income):
Interest expense		229			453			856			1,702
Interest income		(141	)		(327	)		(387	)		(913	)
Other, net		(61	)		104			(290	)		152

Total other expense		27			230			179			941


Income before income taxes and minority interest		13,116			8,378			33,507			28,628

Provision for income taxes		4,912			3,923			12,436			12,077

Income before minority interest		8,204			4,455			21,071			16,551

Minority interest in (loss) income of consolidated subsidiaries, net of income taxes of $0 and $0, respectively, and $54 and $117, respectively		(17	)		(94	)		103			189

Net income	$	8,221		$	4,549		$	20,968		$	16,362

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 March 31,				Nine months ended March 31,
	2004		2003		2004		2003
Per share data:

Net income per common share, basic	$	0.65	$	0.37	$	1.68	$	1.37

Weighted-average shares outstanding, basic		12,603		12,171		12,459		11,939

Net income per common share, assuming dilution	$	0.63	$	0.36	$	1.63	$	1.31

Weighted-average shares outstanding, assuming dilution		13,095		12,500		12,833		12,407

See notes to condensed consolidated financial statements (unaudited).

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Nine Months Ended March 31,
	2004			2003
Cash flows from operating activities:
Net income	$	20,968		$	16,362
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		3,744			3,655
Amortization of intangible assets		160			52
Provision for doubtful accounts		1,498			3,341
Deferred income tax benefit		(1,078	)		420
Tax benefit of stock option exercises		882			3,063
Minority interest in (loss) income of subsidiaries		(128	)		204
Changes in operating assets and liabilities, net of acquisitions:
Trade and notes receivables		(23,420	)		(5,278	)
Other receivables		1,519			3,200
Inventories		(30,895	)		32,227
Prepaid expenses and other assets		63			(1,069	)
Other noncurrent assets		(1,766	)		(471	)
Trade accounts payable		12,033			(34,585	)
Accrued expenses and other liabilities		1,826			338
Income taxes payable		2,106			(935	)

Net cash (used in) provided by operating activities		(12,488	)		20,524

Cash flows used in investing activities:
Capital expenditures		(1,801	)		(5,133	)
Cash paid for acquisition of minority interest		(277	)		(457	)

Net cash used in investing activities		(2,078	)		(5,590	)

Cash flows from financing activities:
Advances (repayments) on revolving credit, net		12,397			(16,870	)
Repayments of long-term debt borrowings		(645	)		(584	)
Exercise of stock options		3,352			4,997

Net cash provided by (used in) financing activities		15,104			(12,457	)

Effect of exchange rate changes upon cash		142

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