-----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, RyDEvTnFW7e8Y2hMiGnRjZziX4+Q07wrny6tlRjyV5RLcX6UsbFskE648bL5wJrv T6IQqsmkFNPt1QLRBEJwMg== 0000931763-98-001393.txt : 19980518 0000931763-98-001393.hdr.sgml : 19980518 ACCESSION NUMBER: 0000931763-98-001393 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: 98622999 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 March 31, 1998 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 March 31, 1998, 5,343,527 shares of the registrant's common stock, no par value, were outstanding. SCANSOURCE, INC. INDEX FORM 10-Q March 31, 1998
PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Consolidated Financial Statements (Unaudited)................... 2 Condensed Consolidated Balance Sheets........................... 2 Condensed Consolidated Income Statements........................ 4 Consolidated Statements of Cash Flows........................... 5 Notes to Consolidated Financial Statements...................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................................ 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................... 10 Item 2. Changes in Securities and Use of Proceeds....................... 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 CONSOLIDATED BALANCE SHEETS
June 30, March 31, 1997 1998 -------- --------- (Note 1) (Note 1) (Unaudited) (In thousands) Assets ------- Current assets: Cash................................................... $ 429 1,466 Receivables: Trade, less allowance for doubtful accounts of $1,227,000 at June 30, 1997 and $1,793,000 at March 31, 1998....................... 11,864 21,277 Other.................................................. 732 1,332 ------- ------ 12,596 22,609 Inventories............................................ 21,786 38,947 Prepaid expenses and other............................. 300 459 Deferred tax asset..................................... 1,565 1,565 ------- ------ Total current assets............................... 36,676 65,046 ------ ------ Property and equipment, net............................. 1,890 2,997 Intangible assets, net.................................. 788 1,234 Deferred offering cost.................................. 390 0 Other assets............................................ 524 469 ----- ----- Total assets....................................... $40,268 69,746 ======= ======
See notes to consolidated financial statements. 2 SCANSOURCE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
June 30, March 31, Liabilities and Shareholders' Equity 1997 1998 - ------------------------------------ -------- ------ (Note 1) (Note 1) (Unaudited) (In thousands) Current liabilities: Trade accounts payable............................. $15,045 20,608 Accrued compensation cost.......................... 214 435 Accrued expenses and other liabilities............. 664 976 Income tax payable................................. 257 -- ------- ------ Total current liabilities......................... 16,180 22,019 Deferred tax liability............................. 47 47 Line of credit..................................... 5,391 -- ------- ------ Total liabilities................................ 21,618 22,066 ------- ------ 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 5,343,527 issued and outstanding at June 30, 1997 and March 31, 1998, respectively..................... 12,350 38,092 Retained earnings.................................. 6,300 9,588 ------- ------ Total shareholders' equity....................... 18,650 47,680 ------- ------ Total liabilities and shareholders' equity........ $40,268 69,746 ======= ======
See notes to consolidated financial statements. 3 SCANSOURCE, INC. CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
Quarter Ended Nine Months Ended March 31, March 31, 1997 1998 1997 1998 ---- ---- ---- ---- (In thousands except per share data) Net sales................................ $25,098 46,538 69,626 126,148 Cost of goods sold....................... 21,544 40,289 59,807 109,798 ------ ------ ------ ------- Gross profit........................... 3,554 6,249 9,819 16,350 Selling, general and administrative expenses............................... 2,311 4,329 6,314 11,038 Amortization of intangibles.............. 20 30 61 79 ----- ------ ------ ------- Total operating expenses................ 2,331 4,359 6,375 11,117 ----- ------ ------ ------- Operating income....................... 1,223 1,890 3,444 5,233 Other income (expense): Interest income (expense), net........ (164) 124 (334) 237 Acquisition expense................... -- (305) -- (335) Other income (expense), net........... (--) ( 15) (--) ( 21) ----- ------ ----- ------ Total other (expense).............. (164) (196) (334) (119) ----- ----- ----- ------ Income before income taxes............ 1,059 1,694 3,110 5,114 Income taxes............................. 376 563 1,121 1,826 ----- ----- ----- ------ Net income.......................... $ 683 1,131 1,989 3,288 ======= ===== ===== ====== Basic EPS Net income per share............... $ .20 .21 .57 .72 ======= ===== ===== ====== Weighted average shares outstanding 3,487 5,321 3,485 4,571 ======= ===== ===== ====== Diluted EPS Net income per share................ $ .18 .20 .54 .71 ======= ===== ===== ====== Weighted average shares outstanding 3,710 5,587 3,715 4,663 ======= ===== ===== =====
See notes to consolidated financial statements. 4 SCANSOURCE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended March 31, 1997 1998 ---- ---- (In thousands) Cash flows from operating activities: Net income $ 1,989 3,288 Adjustments to reconcile net income to cash used in operating activities: Depreciation 265 547 Amortization of intangible assets 62 79 Changes in operating assets and liabilities: Receivables (3,711) (8,075) Other receivables (73) (600) Inventories (6,047) (15,206) Prepaid expenses and other (448) (146) Accounts payable 7,848 3,567 Accrued compensation 182 221 Accrued expenses and other liabilities 155 (104) Income tax payable (540) (257) Other noncurrent assets (149) 55 ------- ------- Net cash used in operating activities (467) (16,631) Cash flows from investing activities: Capital expenditures, net (600) (1,530) Acquisition of business -- (1,100) ------- ------- Net cash used in investing activities (600) (2,630) Cash flows from financing activities: Proceeds from secondary offering -- 25,822 Borrowings (payments) on line of credit 1,513 (5,946) Net proceeds from option exercises 25 32 Deferred offering cost (378) 390 ------- ------- Net cash provided by financing activities 1,160 20,298 ------- ------- Increase in cash 93 1,037 Cash at beginning of period 102 429 ------- ------- Cash at end of period $ 195 1,466 ======= =======
See notes to consolidated financial statements. 5 SCANSOURCE, INC. NOTES TO 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 consolidated 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. All reported amounts, including the June 30, 1997 balance sheet and all income statement and cash flow amounts have been adjusted to reflect the pooling of The CTI Authority's financial position and operating results for those periods. 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 Revenue Recognition - The Company records revenue when products are shipped. Inventories - Inventories consisting of point of sale, bar code, and telephony equipment are stated at the lower of cost (first-in, first-out method) or market. (3) LINE OF CREDIT The Company has 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. All outstanding debt under the line of credit was repaid in October 1997 with proceeds from the sale of stock described in note 5, therefore the full $15 million line was available at March 31, 1998. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) ACQUISITIONS (a) THE CTI AUTHORITY In February 1998 the Company issued 238,830 shares of its common stock in exchange for all outstanding stock of The CTI Authority, Inc., a distributor of telephony products. The transaction has been accounted for as a pooling- of-interests combination, and, accordingly, the consolidated financial statements for the periods prior to the combination have been restated to include the accounts and results of The CTI Authority, Inc.. The results of operations previously reported by the separate enterprises and the combined amounts presented in the accompanying consolidated financial statements are summarized below.
Years ended June 30, Six months ended 1996 1997 December 31, 1998 ---- ---- ----------------- Net Sales ScanSource $55,670,000 93,922,000 74,572,000 The CTI Authority 713,000 5,916,000 5,038,000 ----------- ---------- ---------- Combined $56,383,000 99,838,000 79,610,000 =========== ========== ========== Net Income ScanSource $ 1,858,000 2,540,000 2,059,000 The CTI Authority 48,000 233,000 98,000 ----------- ---------- ---------- Combined $ 1,906,000 2,773,000 2,157,000 =========== ========= ==========
(b) In September 1997 and January 1998 the Company acquired two distributors of business telephones and point-of-sale equipment, respectively. The Company paid $1.1 million and issued 220,513 shares of its common stock in the two business combinations. (5) EQUITY TRANSACTIONS 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 $578,000 of offering expenses and a $1.095 per share underwriting discount, were 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. In January 1998 the Company issued 60,000 shares of its common stock in a cashless exercise by the holders of the remaining 42,000 units of the underwriters Unit Purchase Option. 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 March 31, 1998 increased 85.3% to $46.5 million from $25.1 million for the comparable prior year quarter. Net sales increased 81.2% to $126.1 million for the nine months ended March 31, 1998 from $69.6 million for the comparable prior year period. 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. Sales for all quarters presented were increased by the effects of pooling The CTI Authority's sales as described in note 4(a) of the consolidated financial statements. GROSS PROFIT. Gross profit for the quarter ended March 31, 1998 increased 72.2% to $6.2 million from $3.6 million for the comparable prior year quarter. Gross profit increased 67.3% to $16.4 million for the nine months ended March 31, 1998 from $9.8 million for the comparable prior year period. Gross profit as a percentage of sales for the quarter and nine months ended March 31, 1998 was 13.3% and 13.0%, respectively, compared to 14.3% and 14.1%, respectively, for the comparable prior year periods. 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 March 31, 1998 increased 91.3% to $4.4 million compared to $2.3 million for the comparable prior year period. Operating expenses for the nine months ended March 31, 1998 increased 73.4% to $11.1 million from $6.4 million for the comparable prior year period. Operating expenses as a percentage of sales was 9.5% and 8.8%, respectively, for the quarter and nine months ended March 31, 1998, compared to 9.2% for both of the comparable prior year periods. 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 for the nine months ended March 31, 1998 as a percentage of sales due to efficiencies gained through increased sales volume. Operating expenses as a percentage of sales for the quarter ended March 31, 1998 were higher than the prior year due to some duplicative costs resulting from the acquisitions. OPERATING INCOME. Operating income for the quarter ended March 31, 1998 increased 58.3% to $1.9 million from $1.2 million for the same period in 1997, driven by the improvement in gross profit as described above. Operating income increased 52.9% to $5.2 million for the nine months ended March 31, 1998 from $3.4 million for the comparable prior year period. Operating income as a percentage of sales was 4.1% for both the quarter and nine months ended March 31, 1998, compared to 4.8% and 4.9%, respectively, for the comparable prior year periods. OTHER INCOME (EXPENSE). Total other income (expense) consists of interest income (expense), acquisition expense, and other expense. Net interest income for the quarter and nine months ended March 31, 1998 was $124,000 and $237,000, respectively, representing earnings from 8 invested cash resulting from the Company's sale of stock in October 1997. Net interest expense for the quarter and nine months ended March 31, 1997 of $164,000 and $334,000, respectively, resulted from interest paid on borrowings under the Company's line of credit. Acquisition expense includes the nonreocurring costs associated with the Company's acquisition of The CTI Authority and other businesses. INCOME TAXES. Tax expense represents the state and federal tax expected to be due after annualizing income to the fiscal year end. Tax expense was provided at rates ranging from 33-36% reflecting the effects of the Company combining operating results with The CTI Authority which reduced the effective rate through March 1998. The tax rate for consolidated net income for the periods following March 1998 is expected to be 38%. NET INCOME. The effect of improved operating income and interest income resulted in net income increasing 61.8% to $1.1 million for the quarter ended March 31, 1998 from $680,000 for the year-earlier quarter. Net income for the nine months ended March 31, 1998 increased 65.0% to $3.3 from $2.0 million for the comparable prior year period. Net income as a percentage of sales was 2.4% and 2.6%, respectively, for the quarter and nine months ended March 31, 1998 compared to 2.8% and 2.9%, respectively, for the comparable prior year periods. 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. During the quarter ended March 31, 1998 the Company issued an aggregate of 459,343 shares of its common stock for acquisitions. The Company has 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. All outstanding debt under the line of credit was repaid in October 1997 with proceeds from the sale of stock; therefore the full $15 million line was available at March 31, 1998. For the nine months ended March 31, 1998 net cash of $16.7 million was used in operating activities compared to $467,000 for the nine months ended March 31, 1997. Cash used in operations was primarily from increases in receivables and inventory partially offset by growth in trade payables. The higher inventory and receivables for the period ended March 31, 1998 was the result of the Company's acquisition of inventory and accounts receivable from The CTI Authority, its stocking of a warehouse to serve the Canada market, and higher inventory to prepare for fourth 9 quarter sales opportunities. Cash used in investing activities of $2.6 million for the nine months ended March 31, 1998 included $1.1 million for a business acquisition and $1.5 million 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 nine months ended March 31, 1997 was $600,000 for capital expenditures. Cash provided by financing activities for the nine months ended March 31, 1998 and 1997 was $20.3 million and $1.2 million, respectively. For the period ended March 31, 1998 cash was provided primarily from the sale of $25.8 million of common stock in an October 1997 public offering from which $6.0 million of cash was used to pay down the outstanding balance under the Company's line of credit. For the prior year period, cash was provided by $1.5 million borrowed on the line of credit, offset by deferred offering costs. The Company's current ratios at March 31, 1998 and at June 30, 1997 were 2.95 and 2.27, respectively. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable 10 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. Not applicable Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Recent Sales of Unregistered Securities ---------------------------------------- During the three months ended March 31, 1998, the securities identified below were issued by the Company without registration under Securities Act of 1933 (the "1933 Act"). In addition to any exemption specifically identified below, in each case, all of the shares were issued pursuant to the exemption from registration contained in Section 4(2) of the 1933 Act and Rule 506 of Regulation D under the 1933 Act as a transaction, not involving a general solicitation, in which the purchaser was given or had access to detailed financial and other information with respect to the Company and possessed requisite financial sophistication. On January 9, 1998, the Company issued an aggregate of 220,513 shares of its common stock as consideration in connection with its acquisition of Kingtron Corporation d/b/a POS ProVisions (USA) and POS ProVisions, Ltd. (Canada). Of the aggregate shares issued, (a) 179,487 shares were issued to Bruce E. Bean and (b) 41,026 shares were issued to Greg S. Vance. The issuance of shares to Mr. Vance was also made pursuant to the exemption from registration contained in Regulation S promulgated under the 1933 Act as a securities transaction that occurred outside of the United States. On February 28, 1998, the Company issued 238,830 shares of its common stock as consideration in connection with its acquisition of The CTI Authority, Inc. Of the aggregate shares issued, 119,415 shares were issued to each of Sandra Rivera and Mike Stahl. 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. 11 Not applicable. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K The Company filed a report on Form 8-K on January 12, 1998 to announce in Items 5 and 9 the completion on January 9, 1998 of the Company's acquisition of POS ProVisions (USA) and POS ProVisions, Ltd. (Canada) and the issuance of 220,513 shares of the Company's common stock in connection with such acquisitions. The Company filed a report on Form 8-K on March 3,1998 to: (1) announce in item 5 it had signed a letter of intent to acquire TheCTI Authority, Inc., and (2) announce in item 5 the completion on February 28, 1998 of such acquisition by the issuance of 238,830 shares of the Company's common stock. 12 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: May 15, 1998 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET & INCOME STATEMENT FOR PERIOD ENDED 3/31/98. 1,000 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 1,466 0 21,277 1,793 38,947 65,046 4,280 1,283 64,746 22,019 0 0 0 38,092 0 69,746 126,148 126,148 109,798 11,117 79 0 0 5,114 1,826 3,288 0 0 0 3,288 .72 .71
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