<PAGE>
Conformed
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 September 30, 1997
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 1-12842
SCANSOURCE, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
SOUTH CAROLINA 57-0965380
- -------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporated or organization)
6 LOGUE COURT, SUITE G
GREENVILLE, SC 29615
- ---------------------------------- -------------------------------------
(Address of principal executive (Zip Code)
offices)
(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)
</TABLE>
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 September 30, 1997, 3,250,183 shares of the registrant's common stock, no
par value, were outstanding.
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SCANSOURCE, INC.
INDEX
FORM 10-Q
September 30, 1997
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<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
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<S> <C>
Item 1. Financial Statements (Unaudited)..................... 2
Condensed Balance Sheets............................. 2
Condensed Income Statements.......................... 4
Condensed Statements of Cash Flows................... 5
Notes to Condensed Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 10
Item 2. Changes in Securities................................ 10
Item 3. Defaults Upon Senior Securities...................... 10
Item 4. Submission of Matters to a Vote of Security-Holders.. 10
Item 5. Other Information.................................... 10
Item 6. Exhibits and Reports on Form 8-K..................... 10
SIGNATURES............................................................... 11
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCANSOURCE, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1997
-------- -------------
(Note 1) (Note 1)
(Unaudited)
(In thousands)
<S> <C> <C>
Assets
------
Current assets:
Cash........................................... $
Receivables:
Trade, less allowance for doubtful accounts
$1,392,000 at September 30, 1997............... 11,385 15,646
Other.................................................. 732 912
------- -------
12,117 16,558
Inventories............................................ 20,724 18,405
Prepaid expenses and other............................. 300 296
Deferred tax asset..................................... 1,565 1,565
------- -------
Total current assets........................... 34,706 36,824
Property and equipment, net............................ 1,880 2,148
Intangible assets, net................................. 788 1,293
Note from officer...................................... 183 183
Deferred offering cost................................. 390 409
Other assets........................................... 341 341
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Total assets...................................... $38,288 41,198
======= =======
</TABLE>
See notes to condensed financial statements.
2
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SCANSOURCE, INC.
CONDENSED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1997
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(Note 1) (Note 1)
(Unaudited)
(In thousands)
<S> <C> <C>
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Trade accounts payable............................ $13,397 13,484
Accrued compensation cost......................... 207 373
Accrued expenses and other liabilities............ 664 1,367
Income tax payable................................ 257 386
------- -------
Total current liabilities........................ 14,525 15,610
Deferred tax liability............................ 47 47
Line of credit.................................... 5,391 6,339
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Total liabilities............................... 19,963 21,996
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Shareholders' equity:
Preferred stock, no par value; 3,000,000 shares
authorized, none issued and outstanding......... -- --
Common stock, no par value; 10,000,000 shares
authorized, 3,249,183 and 3,250,183 issued and
outstanding at June 30, 1997 and
September 30, 1997, respectively................ 12,307 12,312
Retained earnings................................. 6,018 6,890
------- -------
Total shareholders' equity...................... 18,325 19,202
------- -------
Total liabilities and shareholders' equity $ 38,288 41,198
======== =======
</TABLE>
See notes to condensed financial statements.
3
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SCANSOURCE, INC.
CONDENSED INCOME STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1997
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(In thousands except per share data)
<S> <C> <C>
Net sales............................................ $19,673 35,342
Cost of goods sold................................... 16,975 31,291
------- -------
Gross profit....................................... 2,698 4,051
Selling, general and administrative
expenses........................................... 1,668 2,491
Amortization of intangibles.......................... 20 20
Total operating expenses...................... 1,688 2,511
------- -------
Operating income................................... 1,010 1,540
Other income (expense):
Interest income (expense), net..................... (55) (103)
Other income (expense), net........................ (26) (30)
------- -------
Total other income (expense).................... (81) (133)
------- -------
Income before income taxes......................... 929 1,407
Income taxes......................................... 353 535
------- -------
Net income...................................... $ 576 872
======= =======
Net income per share................................. $ .17 .25
======= =======
Weighted average shares outstanding.................. 3,462 3,483
======= =======
</TABLE>
See notes to condensed financial statements.
4
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SCANSOURCE, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1997
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(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 576 872
Adjustments to reconcile net income to cash used
In operating activities
Depreciation......................................... 80 135
Amortization of intangible assets.................... 20 20
Changes in operating assets and liabilities:
Receivables.......................................... (402) (3,876)
Other receivables.................................... 37 (180)
Inventories.......................................... (4,980) 3,199
Prepaid expenses and other........................... (33) 4
Accounts payable..................................... 5,836 (325)
Accrued compensation................................. 57 166
Accrued expenses and other liabilities............... (51) (25)
Income tax payable................................... (386) 129
Other noncurrent assets.............................. (123) 0
------- -------
Net cash provided by operating activities.............. 631 119
Cash flows from investing activities:
Capital expenditures, net............................ (210) (353)
Purchase of ProCom................................... -- (700)
------- -------
Net cash used in investing activities.................. (210) (1,053)
Cash flows from financing activities:
Borrowings (payments) on line of credit.............. (421) 948
Proceeds from option exercises....................... -- 5
Deferred offering cost............................... -- (19)
------- -------
Net cash (used in) provided by financing activities.... (421) 934
Increase (decrease) in cash............................ -- --
Cash at beginning of period.............................. -- --
------- -------
Cash at end of period.................................... $ -- --
======= =======
</TABLE>
5
<PAGE>
SCANSOURCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The interim financial information included herein is unaudited. Certain
information and footnote disclosures normally included in the 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 annual report on Form 10-K for the period ended June 30,
1997. 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.
The balance sheet for June 30, 1997 has been derived from the audited balance
sheet for that date.
(2) SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition - The Company records revenue when products are shipped.
Inventories - Inventories consisting of point of sale and bar code equipment
are stated at the lower of cost (first-in, first-out method) or market.
(3) LINE OF CREDIT
In November 1996 the Company closed a line of credit agreement with a bank
which extends to October 1998 whereby the Company can borrow up to $15
million, based upon 80% of eligible accounts receivable and 40% of non-IBM
inventory at the 30 day LIBOR rate of interest plus a rate varying from 2.00%
to 2.65% tied to the Company's debt to net worth ratio ranging from 1:1 to
2:1. The effective interest rate was 7.81% at September 30, 1997 and the
outstanding balance on the line of credit was $6.3 million on a loan base
which exceeded $15 million, leaving $8.7 million available at September 30,
1997.
6
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NOTES TO CONDENSED FINANCIAL STATEMENTS
(4) PURCHASE OF PROCOM SUPPLY CORPORATION
On September 12, 1997 the Company acquired the assets and assumed the
liabilities of ProCom Supply Corporation (ProCom), as follows:
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<S> <C>
Accounts receivable............................... $ 385,000
Inventory......................................... 880,000
Fixed assets and other............................ 22,000
Goodwill.......................................... 525,000
-----------
1,812,000
-----------
Trade accounts payable............................ (412,000)
Other liabilities................................. (150,000)
Amount due to former ProCom owner................. (550,000)
-----------
(1,112,000)
Cash paid......................................... $ 700,000
===========
</TABLE>
The value of goodwill is based upon the customer base, telephony industry
knowledge, and established presence which ProCom had in the industry. The
amount due to former ProCom owner will be paid within six months, after the
collectibility of receivables and the marketability of inventory is
determined.
(5) SECONDARY OFFERING
In October 1997 the Company completed a public offering of 1,538,600 shares of
common stock at $18.25 per share. Proceeds to the Company, after approximately
$550,000 of offering expenses and a $1.095 per share underwriting discount,
was approximately $25.8 million. The Company used a portion of the offering
proceeds to pay off its line of credit, described in note 3 above.
7
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
NET SALES. Net sales for the quarter ended September 30, 1997 increased
79% to $35.3 million from $19.7 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 September 30, 1997
increased 52% to $4.1 million from $2.7 million for the comparable prior year
quarter. Gross profit as a percentage of sales for the quarter ended September
30, 1997 was 11.5% compared to 13.7% for the comparable prior year period. The
decrease in gross profit as a percentage of sales is the result of a change in
the mix of sales of more lower-margin products and the volume discounts provided
to resellers on large orders.
OPERATING EXPENSES. Operating expenses, which include selling, general and
administrative expenses and amortization, for the quarter ended September 30,
1997 increased 47% $2.5 million compared to $1.7 million for the comparable
prior year period. Operating expenses as a percentage of sales was 7.1% for the
quarter ended September 30, 1997, compared to 8.6% for the comparable prior year
period. Generally, lower gross margin sales require the Company to provide
fewer value-added services causing a corresponding decrease in operating
expenses. The general and administrative portion of operating expenses also
decreased as a percentage of sales due to efficiencies gained through increased
sales volume.
OPERATING INCOME. Operating income for the quarter ended September 30,
1997 increased 50% to $1.5 million from $1 million for the same period in 1996,
driven by the improvement in gross profit as described above. Operating income
as a percentage of sales was 4.4% for the quarter ended September 30, 1997
compared to 5.1% for the same period one year ago.
OTHER INCOME (EXPENSE). Total other income (expenses) consists of interest
income (expense), net, and other expense net. Net interest expense was $103,000
and $55,000 for the quarters ended September 30, 1997 and 1996, respectively,
representing interest paid on borrowings under the Company's line of credit.
INCOME TAXES. Tax expense was provided at a 38% effective rate for the
quarters ended September 30, 1997 and 1996, and represented the state and
federal tax expected to be due after annualizing income to the fiscal year end.
NET INCOME. The effect of improved operating income, net of higher
interest expense, resulted in net income increasing 51% to $872,000 for the
quarter ended September 30, 1997 from $576,000 for the year-earlier quarter.
8
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LIQUIDITY AND CAPITAL RESOURCES
The Company financed its initial operating requirements and growth through
private financings totaling $500,000. In March 1994, the Company completed an
initial public offering of units, which consisted of common stock and warrants,
which provided the Company with approximately $4.6 million. The Company also
received proceeds of approximately $6.3 million from common stock issued upon
the exercise of stock purchase warrants prior to their redemption date in
September 1995. In October 1997 the Company completed a secondary offering of
stock which provided the Company approximately $25.8 million for general
corporate purposes, including working capital and possible acquisitions.
In November 1996 the Company renegotiated a bank line of credit agreement
extending to October 31, 1998 whereby the Company can borrow up to $15 million,
based upon 80% of eligible accounts receivable and 40% of non-IBM inventory, at
the 30 day LIBOR rate of interest, plus a rate varying from 2.00% to 2.65% tied
to the Company's debt to net worth ratio ranging from 1:1 to 2:1. The revolving
credit is secured by accounts receivable and inventory. The outstanding balance
on the line of credit was $6.3 million on a borrowing base which exceeded $15
million, leaving $8.7 million available at September 30, 1997.
For the quarter ended September 30, 1997 net cash of $119,000 was provided
by operating activities compared to $631,000 for the quarter ended September 30,
1996. Cash provided by operations was primarily from a reduction in inventory
partially offset by growth in trade receivables.
Cash used in investing activities of $1.1 million for the quarter ended
September 30, 1997 included $700,000 for the purchase of ProCom Supply
Corporation and $353,000 for capital expenditures, including $170,000 for the
Company's computer conversion to a UNIX-based operating system. Cash used in
investing activities for the quarter ended September 30, 1996 was $200,000 for
capital expenditures.
Cash provided by financing activities for the quarters ended September 30,
1997 and 1996 was $934,000 and $421,000, respectively, which represented
primarily borrowings on the line of credit.
The Company's current ratios at September 30, 1997 and at June 30, 1997
were 2.36 and 2.39, respectively.
9
<PAGE>
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.
None
Item 5. OTHER INFORMATION.
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 27 Financial Data Schedule - Page 12
(b) Reports on Form 8-K
None
10
<PAGE>
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/ Steven H. Owings
------------------------------------------
STEVEN H. OWINGS
Chief Executive Officer
/s/ Jeffery A. Bryson
------------------------------------------
JEFFERY A. BRYSON
Chief Financial Officer
Date: November 14, 1997
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET & INCOME STATEMENT FOR PERIOD ENDED 09/30/97.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 15,646
<ALLOWANCES> 1,392
<INVENTORY> 18,405
<CURRENT-ASSETS> 36,824
<PP&E> 3,019
<DEPRECIATION> 871
<TOTAL-ASSETS> 41,198
<CURRENT-LIABILITIES> 15,610
<BONDS> 0
0
0
<COMMON> 12,312
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 41,198
<SALES> 35,342
<TOTAL-REVENUES> 35,342
<CGS> 31,291
<TOTAL-COSTS> 2,511
<OTHER-EXPENSES> 30
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103
<INCOME-PRETAX> 1,407
<INCOME-TAX> 535
<INCOME-CONTINUING> 872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 872
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
