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, 2000
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 (I.R.S. Employer Identification No.)
incorporation or organization)
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)
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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 December 31, 2000, 5,700,189 shares of the registrant's common stock, no
par value, were outstanding.
SCANSOURCE, INC.
INDEX TO FORM 10-Q
December 31, 2000
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Unaudited Consolidated Financial Statements................................ 3
Unaudited Condensed Consolidated Balance Sheets............................ 3
Unaudited Condensed Consolidated Income Statements......................... 5
Unaudited Condensed Consolidated Statements of Cash Flows.................. 6
Notes to Unaudited Condensed Consolidated Financial Statements............. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 11
Item 3. Quantitative and Qualitative Disclosures About Market
Risk..................................................... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 15
Item 2. Changes in Securities and Use of Proceeds......................... 15
Item 3. Defaults Upon Senior Securities................................... 15
Item 4. Submission of Matters to a Vote of Security Holders............... 15
Item 5. Other Information................................................. 15
Item 6. Exhibits and Reports on Form 8-K.................................. 15
SIGNATURES .................................................................................. 16
Cautionary Statements
Certain of the statements contained in this Form 10Q, 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 2001 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 operating results, the Company's ability to manage successfully price
protection or stock rotation opportunities associated with inventory value
decreases, and other factors described in this Form 10Q, including, without
limitation, the factors set forth in Exhibit 99.1 hereto, and in other reports
and documents filed by the Company with the Securities and Exchange Commission.
2
SCANSOURCE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Assets June 30, 2000 (1) December 31, 2000
------ ----------------- -----------------
Current Assets:
Cash $ 4,612 $ 1,127
Receivables, net of allowance of
$5,464 at June 30, 2000 and
$6,618 at December 31, 2000 66,983 64,675
Other receivables 3,060 1,741
Inventories 101,654 128,682
Prepaid expenses and other assets 451 3,496
Deferred income taxes 8,632 10,231
-------- --------
Total current assets 185,392 209,952
-------- --------
Property and equipment, net 18,390 19,412
Intangible assets, net 1,635 1,542
Other assets 463 435
-------- --------
Total assets $205,880 $231,341
======== ========
(1) Derived from audited financial statements at June 30, 2000.
See notes to unaudited condensed consolidated financial statements.
3
SCANSOURCE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
Liabilities and Shareholders' Equity June 30, 2000 (1) December 31, 2000
------------------------------------ ----------------- -----------------
Current Liabilities:
Current portion of long-term debt $ 26 $ 168
Trade accounts payable 98,627 103,934
Accrued expenses and other liabilities 6,195 5,782
----------------- -----------------
Total current liabilities 104,848 109,884
Deferred income taxes ---- 54
Long-term debt 1,647 8,774
Revolving line of credit 24,919 29,202
----------------- -----------------
Total liabilities 131,414 147,914
----------------- -----------------
Shareholders' equity:
Common stock, no par value; 10,000 shares
authorized, 5,611 and 5,700 shares issued
and outstanding at June 30, 2000 and
December 31, 2000, respectively 42,140 43,345
Retained earnings 32,326 40,082
----------------- -----------------
Total shareholders' equity 74,466 83,427
----------------- -----------------
Total liabilities and shareholders'
equity $ 205,880 $ 231,341
================= =================
(1) Derived from audited financial statements at June 30, 2000.
See notes to unaudited condensed consolidated financial statements.
4
SCANSOURCE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
Quarter ended Six months ended
December 31 December 31
1999 2000 1999 2000
-------- -------- -------- --------
Net sales $113,922 $146,187 $227,101 $302,473
Cost of goods sold 100,707 128,918 202,866 268,284
-------- -------- -------- --------
Gross profit 13,215 17,269 24,235 34,189
-------- -------- -------- --------
Selling, general and administrative
expenses 8,411 10,436 15,092 20,669
Amortization of intangibles 34 46 67 92
-------- -------- -------- --------
Total operating expenses 8,445 10,482 15,159 20,761
-------- -------- -------- --------
Operating income 4,770 6,787 9,076 13,428
-------- -------- -------- --------
Other income (expense):
Interest (expense), net (144) (483) (48) (958)
Other income, net 6 40 14 40
-------- -------- -------- --------
Net other (expense) (138) (443) (34) (918)
-------- -------- -------- --------
Income before income taxes 4,632 6,344 9,042 12,510
Income tax provision 1,760 2,411 3,436 4,754
-------- -------- -------- --------
Net income $ 2,872 $ 3,933 $ 5,606 $ 7,756
======== ======== ======== ========
Basic EPS
Net income per share $0.52 $0.69 $1.02 $1.37
======== ======== ======== ========
Weighted average shares
outstanding 5,531 5,693 5,521 5,671
======== ======== ======== ========
Diluted EPS
Net income per share $0.48 $0.64 $0.95 $1.26
======== ======== ======== ========
Weighted average shares
outstanding 5,994 6,154 5,922 6,146
======== ======== ======== ========
See notes to unaudited condensed consolidated financial statements.
5
SCANSOURCE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
December 31
1999 2000
---- ----
(In thousands)
Cash flows from operating activities:
Net income $ 5,606 $ 7,756
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation 935 1,940
Amortization of intangible assets 67 92
Deferred income tax provision (2,691) (1,545)
Provision for doubtful accounts (2,590) (1,124)
Changes in operating assets and liabilities:
Receivables 2,341 3,432
Other receivables (141) 1,319
Inventories (36,353) (27,028)
Prepaid expenses and other assets (84) (3,045)
Accounts payable 3,237 5,307
Accrued expenses and other liabilities 1,050 699
Income tax payable (61) (1,112)
Other noncurrent assets 2 29
--------- ---------
Net cash used in operating activities (28,682) (13,280)
--------- ---------
Cash flows used in investing activities:
Capital expenditures (1,671) (2,962)
Purchase of building (6,990) ----
--------- ---------
Net cash used in investing activities (8,661) (2,962)
--------- ---------
Cash flows from financing activities:
Net borrowings on revolving line of credit 22,168 7,269
Net proceeds from stock option exercises 610 1,205
(Payments) borrowings on long term debt, net (11) 4,283
--------- ---------
Net cash provided by financing activities 22,767 12,757
--------- ---------
Decrease in cash (14,576) (3,485)
Cash at beginning of period 15,282 4,612
--------- ---------
Cash at end of period $ 706 $ 1,127
========= =========
See notes to unaudited condensed consolidated financial statements
6
SCANSOURCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) Basis of Presentation
The interim financial information included herein is unaudited. Certain
information and footnote disclosures normally included in the consolidated
financial statements have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC), although the
Company believes that the disclosures made are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and related notes contained in the
Company's June 30, 2000 annual report on Form 10-K. Other than as indicated
herein, there have been no significant changes from the financial data published
in that report. In the opinion of management, such unaudited information
reflects all adjustments, consisting only of normal recurring accruals and other
adjustments as disclosed herein, necessary for a fair presentation of the
unaudited information.
Results for interim periods are not necessarily indicative of results
expected for the full year, or for any subsequent period.
(2) Significant Accounting Policies
Consolidation Policy - The consolidated financial statements include the
accounts of ScanSource, Inc. and its wholly owned and majority owned
subsidiaries. All significant inter-company accounts and transactions have been
eliminated.
Minority Interest - Beginning in April 2000, the Company invested
approximately $1 million for a majority interest in a newly formed subsidiary to
perform e-logistics. The minority shareholders share of income since the
acquisition has been insignificant. Accordingly, no amounts have been recognized
for minority interests in the accompanying consolidated balance sheets or
statements of operations.
Use of Estimates - 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 that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition - Revenues are recognized for the sale of products upon
shipment.
Sales of products are primarily recorded on a gross basis with a separate
display of cost of goods sold to arrive at gross profit. In addition, the
Company currently has arrangements in which it earns a service fee determined as
a percentage of the value of products shipped on behalf of the manufacturer who
retains the risk of ownership and credit loss. Such service fees earned by the
Company are included in net sales.
7
SCANSOURCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Inventories - Inventories (consisting of automatic data capture, point-of-
sale, business phone and computer telephony equipment) are stated at the lower
of cost (first-in, first-out method) or market.
Net Income Per Share - Basic net income per share is computed by dividing
net income by the weighted average number of common shares outstanding. Diluted
net income per share is computed by dividing net income by the weighted average
number of common and potential common shares outstanding. Diluted weighted
average common and potential common shares include common shares and stock
options using the treasury stock method.
The reconciliation of basic and diluted income per share is as follows:
Per Share
Income Shares Amount
------ ------ ---------
(in thousands)
Three months ended December 31, 2000:
Basic income per share $3,933 5,693 $ 0.69
========
Effect of dilutive stock options 461
------ -----
Diluted income per share $3,933 6,154 $ 0.64
====== ===== ========
Three months ended December 31, 1999:
Basic income per share $2,872 5,531 $ 0.52
========
Effect of dilutive stock options 463
------ -----
Diluted income per share $2,872 5,994 $ 0.48
====== ===== ========
Six months ended December 31, 2000:
Basic income per share $7,756 5,671 $ 1.37
=======
Effect of dilutive stock options ------ 475
Diluted income per share $7,756 6,146 $ 1.26
====== ===== =======
Six months ended December 31, 1999: ------
Basic income per share $5,606 5,521 $ 1.02
====== =======
Effect of dilutive stock options 401
------ -----
Diluted income per share $5,606 5,922 $ 0.95
====== ===== =======
8
SCANSOURCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(3) Revolving Credit Facility
In November 2000, the Company amended and restated the revolving credit
facility with its bank, extending the facility to September 2002, with a
borrowing limit of the lesser of (i) $50 million or (ii) the total of 85% of
eligible accounts receivable plus 50% of eligible inventory. The facility bears
interest at the 30 day LIBOR rate of interest plus a rate varying from 1.25% to
2.50% tied to the Company's debt-to-net worth ratio ranging from 0.75:1 to
2.75:1. The revolving credit facility is collateralized by accounts receivable
and eligible inventory. The credit agreement contains certain financial
covenants including minimum net worth requirements, capital expenditure limits
and a maximum debt to tangible net worth ratio. The effective interest rate at
December 31, 2000 was 8.62% and the outstanding balance was $29.2 million on a
borrowing base that exceeded $50 million, leaving $20.8 million available for
additional borrowings at December 31, 2000. The Company was in compliance with
the various covenants at December 31, 2000.
(4) Long-term Debt
The Company has a non-recourse loan in the amount of $1,719,000 related to
the purchase of its Greenville office building. The loan has a fixed interest
rate of 9.19%, is due in November 2006, and is collateralized by the land and
building acquired.
In August 2000, the Company closed a separate real estate loan in the
amount of $7,350,000, at the 30 day LIBOR rate of interest plus a rate varying
from 1.40% to 2.65% tied to the Company's debt to net worth ratio ranging from
0.75:1 to 2.75:1. The loan is due September 2005 and is collateralized by the
Company's Memphis distribution center land and building. The loan agreement
contains certain financial covenants including minimum net worth requirements,
capital expenditure limits and a maximum debt to tangible net worth ratio. The
effective interest rate at December 31, 2000 was 8.78%. The Company was in
compliance with the various covenants at December 31, 2000.
(5) Segment Information
The Company sells only in the United States and Canada. Its sales to Canada
were $5,198,000 and $3,595,000 for the quarters ended December 31, 1999 and
2000, respectively. Its sales to Canada were $9,867,000 and $8,325,000 for the
six months ended December 31, 1999 and 2000, respectively.
The Company operates in two reportable segments: value-added distribution
and its e-logistics unit that operates under the name ChannelMax.
The first reportable segment, value-added distribution, offers
approximately 18,000 products for sale in two primary categories: i) automatic
data capture and point-of-sale equipment sold by the ScanSource sales team and
ii) business telephones and computer/phone convergence products sold by the
Catalyst Telecom sales team. These products are sold to more than 11,000
resellers and
9
SCANSOURSE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
integrators of technology products, that are geographically disbursed over North
America in a pattern that mirrors population concentration. Of its customers, no
single account represented more than 3% and 4% of total Company sales in the
second quarter of 1999 and 2000, respectively.
The second reportable segment is the e-logistics unit, which provides real-
time inventory availability and web catalog, order entry, order tracking and
logistics for customers in the bar code and business telephone markets. This
unit serves fewer than 15 customers, the largest of whom accounted for 7% and 4%
of total Company sales in the second quarter of 1999 and 2000, respectively.
Sales by this unit include some programs that are accounted for on a gross
revenue recognition basis and others that are accounted for on a net revenue
recognition basis (see note 2).
Operating results for each business unit are summarized below with
historical data for 1999 restated to conform to the current organization
structure:
(In thousands, except percentages)
Three months ended Six months ended
December 31 December 31
1999 2000 1999 2000
-------- -------- -------- --------
Net Sales
Value-added distribution $103,640 91% $127,670 87% $207,227 91% $265,343 88%
E-logistics 10,282 9% 18,517 13% 19,874 9% 37,130 12%
-------- ---- -------- ---- -------- ---- -------- -----
$113,922 100% $146,187 100% $227,101 100% $302,473 100%
======== ==== ======== ==== ======== ==== ======== =====
Operating income
Value-added distribution $ 12,024 11.6% $ 15,598 12.2% $ 22,277 10.8% $ 31,122 11.7%
E-logistics 1,191 11.6% 1,671 9.0% 1,958 10.6% 3,067 8.3%
-------- ---- -------- ---- -------- ---- -------- -----
Gross Profit $ 13,215 11.6% $ 17,269 11.8% $ 24,235 10.7% $ 34,189 11.3%
Corporate operating and
distribution center expenses 8,445 10,482 15,159 20,761
-------- -------- -------- --------
Operating income $ 4,770 $ 6,787 $ 9,076 $ 13,428
======== ======== ======== ========
Capital expenditures
E-logistics $ 7,790 $ 682 $ 7,790 $ 1,326
Corporate 331 546 871 1,636
-------- -------- -------- --------
$ 8,121 $ 1,228 $ 8,661 $ 2,962
======== ======== ======== ========
Depreciation and amortization
E-logistics $ 56 $ 190 $ 56 $ 409
Corporate 562 922 946 1,623
-------- -------- -------- --------
$ 618 $ 1,112 $ 1,002 $ 2,032
======== ======== ======== ========
June 30, 2000 December 31, 2000
------------- -----------------
Assets
Value-added distribution $ 148,778 $ 180,973
E-logistics 29,061 22,169
Corporate 28,041 28,199
-------------- ---------------
$ 205,880 $ 231,341
============== ===============
10
Item 2. Management's Discussion and Analysis
Results of Operations
Net Sales. Net sales for the quarter ended December 31, 2000 increased
28.3% to $146.2 million from $113.9 million for the comparable prior year
quarter. Net sales increased 33.2% to $302.5 million for the six months ended
December 31, 2000 from $227.1 million for the comparable prior year period. The
Company is organized in two business units. Sales through value-added
distribution increased 23.2% to $127.7 million for the quarter ended December
31, 2000 from $103.6 million for the comparable prior year quarter. E-logistics
sales increased 80.1% to $18.5 million for the quarter ended December 31, 2000
from $10.3 million for the comparable prior year quarter. Canada sales were
less than 5% and 3% of total Company sales in the quarter ended December 31,
1999 and 2000, respectively. Growth of net sales resulted primarily from
additions to the Company's sales force, competitive product pricing, selective
expansion of its product line, and increased marketing efforts to specialty
technology resellers.
Gross Profit. Gross profit for the quarter ended December 31, 2000
increased 30.7% to $17.3 million from $13.2 million for the comparable prior
year quarter. Gross profit increased 41.1% to $34.2 million for the six months
ended December 31, 2000 from $24.2 million for the comparable prior year period.
Gross profit as a percentage of sales was 11.8% and 11.3%, respectively, for the
quarter and six months ended December 31, 2000, compared to 11.6% and 10.7%,
respectively, for the comparable prior year periods. Gross margins from value-
added distribution were 12.2% and 11.6% for each of the quarters ended December
31, 2000 and 1999, respectively. The increase in gross profit as a percentage
of sales is the result of a change in the mix of sales to smaller orders and
higher margin products. Gross margins for e-logistics were 9.0% and 11.6% for
each of the quarters ended December 31, 2000 and 1999, respectively. The
decrease in margins for 2000 was caused by a change in the mix of customers and
changes in some programs provided to customers in 2000.
Operating Expenses. Operating expenses, which include selling, general and
administrative expenses and amortization, for the quarter ended December 31,
2000 increased 24.1% to $10.5 million compared to $8.4 million for the
comparable prior year period. Operating expenses for the six months ended
December 31, 2000 increased 37.0% to $20.8 million from $15.2 million for the
comparable prior year period. Operating expenses as a percentage of sales were
7.2% and 6.9% , respectively, for the quarter and six months ended December 31,
2000, compared to 7.4% and 6.7%, respectively, for the comparable prior year
periods. Generally, higher gross margin sales require the Company to provide
greater levels of customer consultation and service causing a corresponding
increase in operating expenses. For the 2000 quarter the general and
administrative portion of operating expenses also decreased as a percentage of
sales due to reductions from greater economies of scale.
11
Item 2. Management's Discussion and Analysis
Operating Income. Operating income for the quarter ended December 31, 2000
increased 42.3% to $6.8 million from $4.8 million for the same period in 1999,
driven by the improvement in gross profit as described above. Operating income
increased 48.0% to $13.4 million for the six months ended December 31, 2000 from
$9.1 million for the comparable prior period. Operating income as a percentage
of sales was 4.6% and 4.4%, respectively, for the quarter and six months ended
December 31, 2000, compared to 4.2% and 4.0%, respectively, for the comparable
prior year periods.
Other Income (Expense). Total other income (expense), net, consists of
interest income (expense), net, and other income, net. Net interest expense for
the quarter ended December 31, 2000 was $483,000 resulting primarily from
interest expense on the revolving credit facility and long term debt of $756,000
offset by interest income of $273,000 for interest charged to customers. Net
interest expense for the quarter ended December 31, 1999 was $144,000 resulting
primarily from interest expense on the revolving credit facility and building
loan of $180,000 offset by interest income of $36,000 earned from invested cash.
Income Taxes. Income tax expense was provided at an effective rate of 38%
for both the quarterly and six month periods, and represents the state and
federal tax expected to be due after annualizing income to the fiscal year end.
Net Income. Improved operating income caused net income to increase 36.9%
to $3.9 million for the quarter ended December 31, 2000 from $2.9 million for
the comparable prior year quarter. Net income for the six months ended December
31, 2000 increased 38.4% to $7.8 million from $5.6 million for the comparable
year period. Net income as a percentage of sales was 2.7% and 2.6%,
respectively, for the quarter and six months ended December 31, 2000 compared to
2.5% for both of the comparable prior year periods.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flows from operations,
borrowings under its revolving credit facility, and proceeds from the sales of
securities.
In August 2000, the Company closed a real estate loan in the amount of
$7,350,000, at the 30 day LIBOR rate of interest plus a rate varying from 1.40%
to 2.65% tied to the Company's debt to net worth ratio ranging from 0.75:1 to
2.75:1. The loan is due September 2005 and is collateralized by the Company's
Memphis distribution center land and building. The loan agreement contains
certain financial covenants including minimum net worth requirements, capital
expenditure limits and a maximum debt to tangible net worth ratio. The Company
was in compliance with the various covenants at December 31, 2000.
12
Item 2. Management's Discussion and Analysis
In November 2000, the Company amended and restated the revolving credit
facility with its bank, extending the facility to September 2002 with a
borrowing limit of the lesser of (i) $50.0 million or (ii) the total of 85% of
eligible accounts receivable plus 50% of eligible inventory. The facility bears
interest at the 30 day LIBOR rate of interest plus a rate varying from 1.25% to
2.50% tied to the Company's debt-to-net worth ratio ranging from 0.75:1 to
2.75:1. The revolving credit facility is collateralized by accounts receivable
and eligible inventory. The credit agreement contains certain financial
covenants including minimum net worth requirements, capital expenditure limits
and a maximum debt to tangible net worth ratio. The effective interest rate at
December 31, 2000 was 8.62% and the outstanding balance was $29.2 million on a
borrowing base that exceeded $50 million, leaving $20.8 million available for
additional borrowings at December 31, 2000. The Company was in compliance with
the various covenants at December 31, 2000.
For the six months ended December 31, 2000 net cash of $13.3 million was
used in operating activities compared to $28.7 million used in operations for
the six months ended December 31, 1999. Cash in both periods was primarily used
to fund increases in inventory to meet increasing sales demands, partially
offset by decreases in accounts receivable and increases in accounts payable.
Cash used in investing activities of $3.0 million for the six months ended
December 31, 2000 was for capital expenditures. Cash used in investing
activities of $8.7 million for the six months ended December 31, 1999 included
$1.7 million for capital expenditures and $7.0 million for the purchase of the
Memphis distribution center.
Cash provided by financing activities for the quarter ended December 31,
2000 was $12.8 million, which included net borrowings on the revolving line of
credit of $7.3 million, borrowings from the August 2000 real estate loan of $4.3
million, and proceeds from stock option exercises of $1.2 million. Cash
provided by financing activities for the quarter ended December 31, 1999 was
$22.8 million, which included net borrowings on the revolving credit facility of
$22.2 million and proceeds from stock option exercises of $610,000.
The Company believes that cash flows from operations and its bank revolving
credit facility will be sufficient to meet its forecasted cash requirements for
at least the next year.
13
Item 3: Quantitative and Qualitative Disclosures
The Company is exposed to changes in financial market conditions in the
normal course of its business as a result of its selective use of bank debt as
well as transacting business in Canadian currency in connection with its
Canadian operations.
The Company is exposed to changes in interest rates primarily as a result
of its borrowing activities, which includes a revolving credit facility with a
bank used to maintain liquidity and fund the Company's business operations, and
a portion of its long term debt. The nature and amount of the Company's debt may
vary as a result of future business requirements, market conditions and other
factors. The definitive extent of the Company's interest rate risk is not
quantifiable or predictable because of the variability of future interest rates
and business financing requirements, but the Company does not believe such risk
is material. The Company does not currently use derivative instruments to adjust
its interest rate risk profile. A change of one percent in the interest rate
under the revolving credit facility and long term debt would have caused a
change in interest expense of approximately $24,000 for the six months ended
December 31, 1999 and approximately $88,000 for the six months ended December
31, 2000.
The Company is exposed to changes in foreign exchange rates in connection
with its Canadian operations. It is the Company's policy to enter into foreign
currency transactions only to the extent considered necessary to support its
Canadian operations. The amount of the Company's cash deposits denominated in
Canadian currency has not been, and is not expected to be, material.
Furthermore, the Company has no capital expenditure or other purchase
commitments denominated in foreign currency. The Company does not utilize
forward exchange contracts, currency options or other traditional hedging
vehicles to adjust the Company's foreign exchange rate risk profile. The Company
does not enter into foreign currency transactions for speculative purposes. A
change of 10% in the foreign exchange rates for Canadian dollars would have cost
the Company less than $20,000 for the six months ended December 31, 2000.
The Company does not utilize financial instruments for trading or other
speculative purposes, nor does it utilize leveraged financial instruments. On
the basis of the fair value of the Company's market sensitive instruments at
December 31, 2000, the Company does not consider the potential near-term losses
in future earnings, fair values and cash flows from reasonable possible near-
term changes in interest rates and exchange rates to be material.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Not applicable
Item 2. Changes in Securities. Not applicable
Item 3. Defaults Upon Senior Securities. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company's annual meeting of shareholders was held on December
7, 2000.
(b) The four directors listed in subsection (c) below were selected at
the meeting. The Company has no other directors whose term of
office continued after the meeting.
(c) (i) Election of Directors
Number of Shares
----------------
Nominees For Withheld
-------- --- --------
Michael L. Baur 4,744,068 11,770
Steven H. Owings 4,744,068 11,770
Steven R. Fischer 4,745,818 10,020
James G. Foody 4,745,818 10,020
(ii) Proposal to ratify the appointment of Deloitte & Touche LLP
as the Company's independent auditors for the fiscal year
ending June 30, 2001
Number of Shares
----------------
For 4,747,706
Against 2,019
Abstain 6,113
Item 5. Other information. Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 99.1. Cautionary Statements (pursuant to safe harbor under the
Private Securities Litigation Reform Act of 1995).
(b) Reports on Form 8-K
None
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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.
SCANSOURCE, INC.
/s/ Michael L. Baur
---------------------------
MICHAEL L. BAUR
Chief Executive Officer
/s/ Jeffery A. Bryson
---------------------------
JEFFERY A. BRYSON
Chief Financial Officer
Date: February 9, 2001
16