-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H33quiQxlXSxgO3O3pU9DrOQNyzVpfBj/nwL/W3ykgKEJHdLtvxs23ME+g3qqhS8 BANkv+zFe9iLps59Rhb0Sg== 0000931763-97-002001.txt : 19971117 0000931763-97-002001.hdr.sgml : 19971117 ACCESSION NUMBER: 0000931763-97-002001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCANSOURCE INC CENTRAL INDEX KEY: 0000918965 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 570965380 STATE OF INCORPORATION: SC FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26926 FILM NUMBER: 97720856 BUSINESS ADDRESS: STREET 1: 6 LOGUE COURT STE G CITY: GREENVILLE STATE: SC ZIP: 29615 BUSINESS PHONE: 8032882432 MAIL ADDRESS: STREET 1: 6 LOGUE COURT STE G CITY: GREENVILLE STATE: SC ZIP: 29615 10-Q 1 FORM 10-Q 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)
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)
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. SCANSOURCE, INC. INDEX FORM 10-Q September 30, 1997
PART I. FINANCIAL INFORMATION Page No. -------- 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
1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SCANSOURCE, INC. CONDENSED BALANCE SHEETS
June 30, September 30, 1997 1997 -------- ------------- (Note 1) (Note 1) (Unaudited) (In thousands) 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 ----- ------- Total assets...................................... $38,288 41,198 ======= =======
See notes to condensed financial statements. 2 SCANSOURCE, INC. CONDENSED BALANCE SHEETS (Continued)
June 30, September 30, 1997 1997 -------- ------------- (Note 1) (Note 1) (Unaudited) (In thousands) 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 ------- ------- Total liabilities............................... 19,963 21,996 ------- ------- 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 ======== =======
See notes to condensed financial statements. 3 SCANSOURCE, INC. CONDENSED INCOME STATEMENTS (UNAUDITED)
Three Months Ended September 30, 1996 1997 ------- -------- (In thousands except per share data) 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 ======= =======
See notes to condensed financial statements. 4 SCANSOURCE, INC. STATEMENT OF CASH FLOWS
Three Months Ended September 30, 1996 1997 -------- -------- (In thousands) 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.................................... $ -- -- ======= =======
5 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 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: 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 ===========
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 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 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 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 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET & INCOME STATEMENT FOR PERIOD ENDED 09/30/97. 1,000 3-MOS JUN-30-1998 JUL-01-1997 SEP-30-1997 0 0 15,646 1,392 18,405 36,824 3,019 871 41,198 15,610 0 0 0 12,312 0 41,198 35,342 35,342 31,291 2,511 30 0 103 1,407 535 872 0 0 0 872 .25 .25
-----END PRIVACY-ENHANCED MESSAGE-----