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, 2001 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) - -------------------------------------------------------------------------------- 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 March 31, 2001, 5,706,467 shares of the registrant's common stock, no par value, were outstanding.
SCANSOURCE, INC. INDEX TO FORM 10-Q March 31, 2001 <TABLE> <CAPTION> PART I. FINANCIAL INFORMATION Page No. -------- <S> <C> <C> Item 1. Financial Statements: 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 </TABLE> 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
PART 1. FINANCIAL INFORMATION Item 1. Financial Statements SCANSOURCE, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) <TABLE> <CAPTION> Assets June 30, 2000 (1) March 31, 2001 - ------ ----------------- -------------- <S> <C> <C> Current Assets: Cash $ 4,612 460 Trade receivables, net of allowance of $5,464 at June 30, 2000 and $6,704 at March 31, 2001 66,983 79,876 Other receivables 3,060 1,558 Inventories 101,654 143,037 Prepaid expenses and other assets 451 3,131 Deferred income taxes 8,632 9,037 -------- -------- Total current assets 185,392 237,099 -------- -------- Property and equipment, net 18,390 20,682 Intangible assets, net 1,635 1,510 Other assets 463 558 -------- -------- Total assets $205,880 $259,849 ======== ======== </TABLE> (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) <TABLE> <CAPTION> Liabilities and Shareholders' Equity June 30, 2000 (1) March 31, 2001 ------------------------------------ ----------------- -------------- <S> <C> <C> Current Liabilities: Current portion of long-term debt $ 26 $ 168 Trade accounts payable 98,627 136,284 Accrued expenses and other liabilities 6,195 7,925 -------- -------- Total current liabilities 104,848 144,377 Deferred income taxes - 81 Long-term debt 1,647 8,723 Revolving line of credit 24,919 18,932 -------- -------- Total liabilities 131,414 172,113 -------- -------- Shareholders' equity: Common stock, no par value; 10,000 shares authorized, 5,611 and 5,706 shares issued and outstanding at June 30, 2000 and March 31, 2001, respectively 42,140 43,449 Retained earnings 32,326 44,287 -------- -------- Total shareholders' equity 74,466 87,736 -------- -------- Total liabilities and shareholders' equity $205,880 $259,849 ======== ======== </TABLE> (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) <TABLE> <CAPTION> Quarter ended Nine months ended March 31 March 31 2000 2001 2000 2001 -------- -------- -------- -------- <S> <C> <C> <C> <C> Net sales $120,391 $155,237 $347,492 $457,712 Cost of goods sold 107,021 135,240 309,887 403,524 -------- -------- -------- -------- Gross profit 13,370 19,997 37,605 54,188 -------- -------- -------- -------- Selling, general and administrative expenses 8,040 12,387 23,133 33,056 Amortization of intangibles 34 32 101 125 -------- -------- -------- -------- Total operating expenses 8,074 12,419 23,234 33,181 -------- -------- -------- -------- Operating income 5,296 7,578 14,371 21,007 -------- -------- -------- -------- Other income (expense): Interest (expense), net (274) (801) (307) (1,759) Other income, net -- 3 -- 43 -------- -------- -------- -------- Net other (expense) (274) (798) (307) (1,716) -------- -------- -------- -------- Income before income taxes 5,022 6,780 14,064 19,291 Income tax provision 1,909 2,575 5,345 7,329 -------- -------- -------- -------- Net income $ 3,113 $ 4,205 $ 8,719 $ 11,962 ======== ======== ======== ======== Basic EPS Net income per share $0.56 $0.74 $1.57 $2.11 ======== ======== ======== ======== Weighted average shares outstanding 5,577 5,703 5,540 5,674 ======== ======== ======== ======== Diluted EPS Net income per share $0.51 $0.69 $1.46 $1.96 ======== ======== ======== ======== Weighted average shares outstanding 6,057 6,060 5,967 6,118 ======== ======== ======== ======== </TABLE> See notes to unaudited condensed consolidated financial statements. 5
SCANSOURCE, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Nine Months Ended March 31 2000 2001 -------- -------- (In thousands) <S> <C> <C> Cash flows from operating activities: $ 8,719 $ 11,962 Net income Adjustments to reconcile net income to net cash used in operating activities: Depreciation 1,666 3,082 Amortization of intangible assets 101 125 Deferred income tax benefit (3,144) (324) Provision for doubtful accounts (3,433) (1,359) Changes in operating assets and liabilities: Trade receivables (6,067) (11,534) Other receivables 417 1,502 Inventories (33,773) (41,383) Prepaid expenses and other assets 144 (2,680) Trade accounts payable 15,321 37,657 Accrued expenses and other liabilities 1,474 2,842 Income tax payable 90 (1,112) Other noncurrent assets (141) (95) -------- -------- Net cash used in operating activities (18,626) (1,317) -------- -------- Cash flows used in investing activities: Capital expenditures (4,082) (5,374) Purchase of building (6,990) --- -------- -------- Net cash used in investing activities (11,072) (5,374) -------- -------- Cash flows from financing activities: Net borrowings (payments) on revolving line of credit 13,953 (5,987) Net proceeds from stock option exercises 1,164 1,308 (Payments) borrowings on long-term debt, net (17) 7,218 -------- -------- Net cash provided by financing activities 15,100 2,539 -------- -------- Decrease in cash (14,598) (4,152) Cash at beginning of period 15,282 4,612 -------- -------- Cash at end of period $ 684 $ 460 ======== ======== </TABLE> 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 income statements. 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. 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: <TABLE> <CAPTION> Per Share Income Shares Amount ------ ------ ------ (in thousands) <S> <C> <C> <C> Three months ended March 31, 2001: Basic income per share $ 4,205 5,703 $0.74 ===== Effect of dilutive stock options 357 ------- ----- Diluted income per share $ 4,205 6,060 $0.69 ======= ===== ===== Three months ended March 31, 2000: Basic income per share $ 3,113 5,577 $0.56 ===== Effect of dilutive stock options 480 ------- ----- Diluted income per share $ 3,113 6,057 $0.51 ======= ===== ===== Nine months ended March 31, 2001: Basic income per share $11,962 5,674 $2.11 ===== Effect of dilutive stock options 444 ------- ----- Diluted income per share $11,962 6,118 $1.96 ======= ===== ===== Nine months ended March 31, 2000: Basic income per share $ 8,719 5,540 $1.57 ===== Effect of dilutive stock options 427 ------- ----- Diluted income per share $ 8,719 5,967 $1.46 ======= ===== ===== </TABLE> 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 March 31, 2001 was 8.62% and the outstanding balance was $18.9 million on a borrowing base that exceeded $50 million, leaving $31.1 million available for additional borrowings at March 31, 2001. The Company was in compliance with the various covenants at March 31, 2001. (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 March 31, 2001 was 7.29%. The Company was in compliance with the various covenants at March 31, 2001. (5) Segment Information 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 integrators of technology products that are geographically disbursed over North America in a pattern that mirrors population concentration. 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 9
SCANSOURCE, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS accounted for less than 8% and 5% of total Company sales in the third quarter of 2000 and 2001, 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 2000 restated to conform to the current organizational structure: <TABLE> <CAPTION> (In thousands, except percentages) Three months ended Nine months ended March 31 March 31 2000 2001 2000 2001 -------- -------- --------- -------- <S> <C> <C> <C> <C> <C> Net Sales Value-added distribution $105,890 88% $138,455 89% $313,117 90% $403,798 88% E-logistics 14,501 12% 16,782 11% 34,375 10% 53,914 12% -------- ---- -------- ---- -------- ---- -------- ---- $120,391 100% $155,237 100% $347,492 100% $457,712 100% ======== ==== ======== ==== ======== ==== ======== ==== Operating income Value-added distribution $ 11,699 11.0% $ 18,735 13.5% $ 33,976 10.9% $ 49,859 12.3% E-logistics 1,671 11.5% 1,262 7.5% 3,629 10.6% 4,329 8.0% -------- ---- -------- ---- -------- ---- -------- ---- Gross Profit 13,370 11.1% 19,997 12.9% 37,605 10.8% 54,188 11.8% Corporate operating and distribution center expenses 8,074 12,419 23,234 33,181 -------- -------- -------- -------- Operating income $ 5,296 $ 7,578 $ 14,371 $ 21,007 ======== ======== ======== ======== June 30, 2000 March 31, 2001 ------------- -------------- Assets Value-added distribution $148,778 $180,926 E-logistics 29,061 52,521 Corporate 28,041 26,402 -------- -------- $205,880 $259,849 ======== ======== </TABLE> 10
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations Results of Operations Net Sales. Net sales for the quarter ended March 31, 2001 increased 28.9% to $155.2 million from $120.4 million for the comparable prior year quarter. Net sales increased 31.7% to $457.7 million for the nine months ended March 31, 2001 from $347.5 million for the comparable prior year period. The Company is organized in two business units. Sales through value-added distribution increased 30.8% to $138.5 million for the quarter ended March 31, 2001 from $105.9 million for the comparable prior year quarter. E-logistics sales increased 15.7% to $16.8 million for the quarter ended March 31, 2001 from $14.5 million for the comparable prior year quarter. 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 March 31, 2001 increased 49.6% to $20.0 million from $13.4 million for the comparable prior year quarter. Gross profit increased 44.1% to $54.2 million for the nine months ended March 31, 2001 from $37.6 million for the comparable prior year period. Gross profit as a percentage of sales was 12.9% and 11.8%, respectively, for the quarter and nine months ended March 31, 2001, compared to 11.1% and 10.8%, respectively, for the comparable prior year periods. Gross margins from value-added distribution were 13.5% and 11.0% for the quarters ended March 31, 2001 and 2000, respectively. The increase in gross profit as a percentage of sales is the result of a change in order mix, a reevaluation of inventory reserves and some non-recurring rebates received in the third quarter. Gross margins for e- logistics were 7.5% and 11.5% for the quarters ended March 31, 2001 and 2000, respectively. The decrease in margins for 2001 was caused by a change in the mix of customers and changes in some programs formerly provided to customers in 2000. Operating Expenses. Operating expenses, which include selling, general and administrative expenses and amortization, for the quarter ended March 31, 2001 increased 53.8% to $12.4 million compared to $8.1 million for the comparable prior year period. Operating expenses for the nine months ended March 31, 2001 increased 42.8% to $33.2 million from $23.2 million for the comparable prior year period. Operating expenses as a percentage of sales were 8.0% and 7.2% , respectively, for the quarter and nine months ended March 31, 2001, compared to 6.7% for both 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. The Company also decided to make a discretionary profit sharing contribution to the 401(k) plan and increased its charitable contributions. 11
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations Operating Income. Operating income for the quarter ended March 31, 2001 increased 43.1% to $7.6 million from $5.3 million for the same period in 2000, driven largely by the increase in sales and improvement in gross profit as described above. Operating income increased 46.2% to $21.0 million for the nine months ended March 31, 2001 from $14.4 million for the comparable prior period. Operating income as a percentage of sales was 4.9% and 4.6%, respectively, for the quarter and nine months ended March 31, 2001, compared to 4.4% and 4.1%, respectively, for the comparable prior year periods. Other Income (Expense). Total other income (expense), net, consists of interest (expense), net, and other income, net. Net interest expense for the quarter ended March 31, 2001 was $801,000 resulting primarily from interest expense on the revolving credit facility and long-term debt of $1,032,000 offset by interest income of $231,000 for interest charged to customers. Net interest expense for the quarter ended March 31, 2000 was $274,000 resulting primarily from interest expense on the revolving credit facility and building loan. Income Taxes. Income tax expense was provided at an effective rate of 38% for both the three month and nine 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 35.1% to $4.2 million for the quarter ended March 31, 2001 from $3.1 million for the comparable prior year quarter. Net income for the nine months ended March 31, 2001 increased 37.2% to $12.0 million from $8.7 million for the comparable year period. Net income as a percentage of sales was 2.7% and 2.6%, respectively, for the quarter and nine months ended March 31, 2001 compared to 2.6% and 2.5%, respectively, for 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 exercise of stock options. 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 March 31, 2001. 12
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations 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 March 31, 2001 was 8.62% and the outstanding balance was $18.9 million on a borrowing base that exceeded $50 million, leaving $31.1 million available for additional borrowings at March 31, 2001. The Company was in compliance with the various covenants at March 31, 2001. For the nine months ended March 31, 2001, net cash of $1.3 million was used in operating activities compared to $18.6 million used in operations for the nine months ended March 31, 2000. The Company's increase in net income and an increase in accounts payable substantially funded the growth in inventory, and cash was principally used to fund the increase in accounts receivable for 2001. Cash in 2000 was primarily used to fund increases in inventory and receivables to meet increasing sales demands, partially offset by an increase in accounts payable. Cash used in investing activities of $5.4 million for the nine months ended March 31, 2001 was for capital expenditures. Cash used in investing activities of $11.1 million for the nine months ended March 31, 2000 included $4.1 million for capital expenditures and $7.0 million for the purchase of the Memphis distribution center. Cash provided by financing activities for the nine months ended March 31, 2001 was $2.5 million, which included net payments on the revolving line of credit of $6.0 million, borrowings from the August 2000 real estate loan of $7.2 million, and proceeds from stock option exercises of $1.3 million. Cash provided by financing activities for the quarter ended March 31, 2000 was $15.1 million, which included net borrowings on the revolving credit facility of $13.9 million and proceeds from stock option exercises of $1.2 million. The Company believes that cash flows from operations and borrowings under the 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 $63,000 for the nine months ended March 31, 2000 and approximately $263,000 for the nine months ended March 31, 2001. 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 $25,000 for the nine months ended March 31, 2001. 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 March 31, 2001, 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 and Use of Proceeds. Not applicable Item 3. Defaults Upon Senior Securities. Not applicable Item 4. Submission of Matters to a Vote of Security Holders. Not applicable 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 15
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: May 14, 2001 16