10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the

Quarterly Period Ended September 30, 2009

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 incorporation or organization)	(I.R.S. Employer Identification No.)

6 Logue Court

Greenville, South Carolina, 29615

(Address of principal executive offices)

(864) 288-2432

(Registrant’s telephone number, including area code)

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post to such filed).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated filer  ¨

Non-accelerated filer (Do not check if a smaller reporting company)  ¨    Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at November 3, 2009
Common Stock, no par value per share	26,569,370 shares

SCANSOURCE, INC.

INDEX TO FORM 10-Q

September 30, 2009

			Page #
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of September 30, 2009 and June 30, 2009	4
		Condensed Consolidated Income Statements for the Quarters Ended September 30, 2009 and 2008	5
		Condensed Consolidated Statements of Shareholders’ Equity for the Quarter Ended September 30, 2009	6
		Condensed Consolidated Statements of Cash Flows for the Quarters Ended September 30, 2009 and 2008	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
	Item 4.	Controls and Procedures	23
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	24
	Item 1A.	Risk Factors	24
	Item 6.	Exhibits	25
SIGNATURES			26
EXHIBIT INDEX			27

2

FORWARD-LOOKING STATEMENTS

The forward-looking statements included in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” “Legal Proceedings,” and “Risk Factors,” sections and elsewhere herein, which reflect our best judgment based on factors currently known, involve risks and uncertainties. Words such as “expects,” “anticipates,” “believes,” “intends,” “plans,” “hopes,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Except as may be required by law, we expressly disclaim any obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors including, but not limited to, the factors discussed in such sections and, in particular, those set forth in the cautionary statements included in “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended June 30, 2009. The forward-looking information we have provided in this Form 10-Q pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except for share information)

	September 30, 2009		June 30, 2009 *
Assets
Current assets:
Cash and cash equivalents	$	87,825	$	127,664
Trade and notes receivable:
Trade, less allowance of $18,214 at September 30, 2009 and $16,883 at June 30, 2009		316,509		291,037
Other receivables		6,461		7,676
Inventories		269,695		216,829
Prepaid expenses and other assets		5,655		10,356
Deferred income taxes		8,758		8,735
Total current assets		694,903		662,297
Property and equipment, net		20,191		21,035
Goodwill		33,737		34,087
Other assets, including identifiable intangible assets		32,356		31,212
Total assets	$	781,187	$	748,631
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	—	$	—
Trade accounts payable		250,442		228,408
Accrued expenses and other liabilities		25,048		30,443
Income taxes payable		5,186		3,799
Total current liabilities		280,676		262,650
Long-term debt		30,429		30,429
Borrowings under revolving credit facility		—		—
Other long-term liabilities		11,516		10,106
Total liabilities		322,621		303,185
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, none issued		—		—
Common stock, no par value; 45,000,000 shares authorized, 26,569,370 and 26,565,870 shares issued and outstanding at September 30, 2009 and June 30, 2009, respectively		105,893		104,461
Retained earnings		348,757		337,822
Accumulated other comprehensive income		3,916		3,163
Total shareholders’ equity		458,566		445,446
Total liabilities and shareholders’ equity	$	781,187	$	748,631

* Derived from audited consolidated financial statements

See accompanying notes to condensed consolidated financial statements

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SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)

(in thousands, except per share data)

	Quarter ended September 30,
	2009			2008
Net sales	$	488,423		$	539,825
Cost of goods sold		437,005			484,323
Gross profit		51,418			55,502
Operating expenses:
Selling, general and administrative expenses		33,731			34,874
Operating income		17,687			20,628
Other expense (income):
Interest expense		366			579
Interest income		(263	)		(351	)
Other expense net		116			277
Total other expense		219			505
Income before income taxes		17,468			20,123
Provision for income taxes		6,533			7,693
Net income	$	10,935		$	12,430
Per share data:
Net income per common share, basic	$	0.41		$	0.47
Weighted-average shares outstanding, basic		26,567			26,364
Net income per common share, diluted	$	0.41		$	0.47
Weighted-average shares outstanding, diluted		26,821			26,611

See accompanying notes to condensed consolidated financial statements

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SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share data)

	Common Stock (Shares)	Common Stock (Amount)		Retained Earnings		Accumulated Other Comprehensive Income			Total
Balance at June 30, 2009	26,565,870	$	104,461	$	337,822	$	3,163		$	445,446
Comprehensive income:
Net income	—		—		10,935		—			10,935
Unrealized loss on hedged transaction, net of tax of $11	—		—		—		(19	)		(19	)
Foreign currency translation adjustment	—		—		—		772			772
Total comprehensive income										11,688
Exercise of stock options and shares issued under share based compensation plans	3,500		—		—		—			—
Share based compensation	—		1,269		—		—			1,269
Tax benefit of deductible compensation arising from exercise of stock options	—		163		—		—			163
Balance at September 30, 2009	26,569,370	$	105,893	$	348,757	$	3,916		$	458,566

See accompanying notes to condensed consolidated financial statements

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SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Quarter ended September 30,
	2009			2008
Cash flows from operating activities:
Net income	$	10,935		$	12,430
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		997			1,110
Amortization of intangible assets		470			665
Allowance for accounts and notes receivable		3,255			1,769
Share-based compensation and restricted stock		1,269			979
Deferred income taxes		(160	)		(472	)
Excess tax benefits from share-based payment arrangements		(163	)		(1,622	)
Changes in operating assets and liabilities:
Trade and notes receivable		(26,817	)		6,934
Other receivables		(205	)		1,899
Inventories		(51,549	)		(8,161	)
Prepaid expenses and other assets		4,698			(997	)
Other noncurrent assets		(1,421	)		(123	)
Trade accounts payable		21,217			17,363
Accrued expenses and other liabilities		(4,141	)		(6,180	)
Income taxes payable		1,514			5,402
Net cash (used in) provided by operating activities		(40,101	)		30,996
Cash flows used in investing activities:
Capital expenditures		(148	)		(2,234	)
Net proceeds from sale of property and equipment		—			612
Net cash used in investing activities		(148	)		(1,622	)
Cash flows from financing activities:
Decreases in short-term borrowings, net		—			(4,927	)
Payments on revolving credit, net of expenses		—			(26,141	)
Exercise of stock options		—			674
Excess tax benefits from share-based payment arrangements		163			1,622
Proceeds from issuance of long-term debt		—			793
Net cash provided by (used in) financing activities		163			(27,979	)
Effect of exchange rate changes on cash and cash equivalents		247			(411	)
(Decrease) increase in cash and cash equivalents		(39,839	)		984
Cash and cash equivalents at beginning of period		127,664			15,224
Cash and cash equivalents at end of period	$	87,825		$	16,208

See accompanying notes to condensed consolidated financial statements

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SCANSOURCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of ScanSource, Inc. (the “Company”) have been prepared by the Company’s management in accordance with U.S. generally accepted accounting principles for interim financial information and applicable rules and regulations of the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for annual financial statements. The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to present fairly the financial position as of September 30, 2009 and June 30, 2009, the results of operations for the quarters ended September 30, 2009 and 2008, and the statement of cash flows for the quarters ended September 30, 2009 and 2008. The results of operations for the quarters ended September 30, 2009 and 2008 are not necessarily indicative of the results to be expected for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

(2) Business Description

The Company is a leading wholesale distributor of specialty technology products, providing value-added distribution sales to resellers in the specialty technology markets. The Company has two geographic distribution segments: one serving North America from the Southaven, Mississippi distribution center, and an international segment currently serving Latin America (including Mexico) and Europe from distribution centers located in Florida and Mexico, and in Belgium and the United Kingdom, respectively. The North American distribution segment markets automatic identification and data capture (“AIDC”) and point-of-sale (“POS”) products through its ScanSource POS and Barcoding sales unit; voice, data and converged communications equipment through its Catalyst Telecom sales unit; video conferencing, telephony, and communications products through its ScanSource Communications unit; and electronic security products and wireless infrastructure products through its ScanSource Security Distribution unit. The international distribution segment markets AIDC, POS and Barcode through its ScanSource Latin American and European sales units, while communication products are marketed through its ScanSource Communications sales unit in Europe.

(3) Summary of Significant Accounting Policies

Except as described below, there have been no material changes to the Company’s significant accounting policies for the quarter ended September 30, 2009 from the information included in Note 2 of the Company’s Consolidated Financial Statements included in the Form 10-K for the fiscal year ended June 30, 2009. For a discussion of the Company’s significant accounting policies, please see the Company’s Annual Report filed in our Form 10-K for the fiscal year ended June 30, 2009.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Checks released, but not yet cleared, at the Company’s bank of $59.3 million and $45.6 million as of September 30, 2009 and June 30, 2009, respectively, are included in accounts payable.

Recent Accounting Pronouncements

FASB Accounting Standards Codification

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 105 (Prior authoritative literature: Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principle – a replacement of FASB Statement 162). ASC 105 replaces SFAS 162 and establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this pronouncement did have an impact to the Company’s financial statement disclosures, as all references to authoritative accounting literature have been referenced in accordance with the Codification.

Earnings Per Share

In June 2008, the FASB issued ASC 260 (Prior authoritative literature: FASB Staff Position (“FSP”) No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (“FSP 03-6-1”)). ASC 260 replaces FSP 03-6-1 and states that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and should be included in the computation of earnings per share using the two-class method outlined in SFAS No. 128, Earnings per Share. The two-class method is an earnings allocation formula that determines

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earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. ASC 260 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and requires that all prior period earnings per share data be adjusted retrospectively to conform to the provisions of the ASC. The adoption of these provisions did not have an impact on our Condensed Consolidated Financial Statements.

Business Combinations

In December 2007, the FASB issued FASB ASC 805-10 (Prior authoritative literature: SFAS 141 (R), Business Combinations, which replaces FASB Statement No. 141). FASB ASC 805-10 is effective for the Company April 1, 2009 and establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. FASB ASC 805-10 will change how business combinations are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. The adoption of FASB ASC 805-10 did not have an impact on the Company’s financial position and results of operations although it may have a material impact on accounting for business combinations in the future which cannot currently be determined.

In April 2009, the FASB issued FASB ASC 805-10-05 (Prior authoritative literature: FSP 141(R)-1 Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arises from Contingencies). For business combinations, the standard requires the acquirer to recognize at fair value an asset acquired or liability assumed from a contingency if the acquisition date fair value can be determined during the measurement period. FASB ASC 805-10-05 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with early adoption prohibited. The Company adopted these provisions at the beginning of the fiscal year July 1, 2009. FASB ASC 805-10-05 will be applied prospectively for acquisitions in fiscal 2010 or thereafter.

Fair Value Measurements

Effective July 1, 2009, the Company adopted the provisions of FASB ASC 820 for nonfinancial assets and liabilities which were previously deferred under the provisions of FASB ASC 820-10-65 (Prior authoritative literature: FSP FAS 157-2). The adoption did not have a significant impact on the Company’s Condensed Consolidated Financial Statements.

Variable Interest Entities

In June 2009, the FASB issued FASB ASC 810 (Prior authoritative literature: SFAS No. 167, Amendments to FASB Interpretation No. 46(R). ASC 810 amends FASB Interpretation No. 46(R), Variable Interest Entities for determining whether an entity is a variable interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. Under ASC 810, an enterprise has a controlling financial interest when it has a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. ASC 810 also requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance. ASC 810 also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities. ASC 810 is effective for annual and quarterly reporting periods that begin after November 15, 2009. The adoption of this standard on January 1, 2010 is not expected to have a material impact on the Company’s Condensed Consolidated Financial Statements.

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(4) Earnings Per Share

Basic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share are computed by dividing net income by the weighted-average number of common and potential common shares outstanding.

	Net Income		Shares	Per Share Amount
	(in thousands, except per share data)
Quarter ended September 30, 2009:
Income per common share, basic	$	10,935	26,567	$	0.41
Effect of dilutive stock options		—	254
Income per common share, diluted	$	10,935	26,821	$	0.41
Quarter ended September 30, 2008:
Income per common share, basic	$	12,430	26,364	$	0.47
Effect of dilutive stock options		—	247
Income per common share, diluted	$	12,430	26,611	$	0.47

For the quarter ended September 30, 2009 and 2008, there were 1,029,576 and 910,237 weighted average shares, respectively, excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

(5) Goodwill and Acquisitions

The changes in the carrying amount of goodwill for the quarter ended September 30, 2009, by operating segment, are as follows:

	North American Distribution Segment		International Distribution Segment			Total
	(in thousands)
Balance as of June 30, 2009	$	20,081	$	14,006		$	34,087
Goodwill acquired		—		—			—
Fluctuations in foreign currencies		—		(350	)		(350	)
Balance as of September 30, 2009	$	20,081	$	13,656		$	33,737

There was no acquisition activity during the quarter ended September 30, 2009. The change in goodwill from June 30, 2009 relates entirely to foreign exchange fluctuations.

Included within other assets described in the balance sheet are net identifiable intangible assets of $16.2 million and $16.7 million at September 30, 2009 and June 30, 2009, respectively. These amounts relate primarily to customer relationships and trade names associated with prior period acquisitions. The change in this amount from the prior period relates to amortization expense and to a lesser extent, foreign exchange fluctuations.

(6) Short Term Borrowings and Long Term Debt

Short-Term Borrowings

	September 30, 2009		June 30, 2009
	(in thousands)
Short-term borrowings	$	—	$	—

The Company has a €6.0 million secured revolving credit facility which bears interest at the 30 day Euro Interbank Offered Rate (“EURIBOR”) plus a spread of 0.50 per annum. At September 30, 2009 and at June 30, 2009, there were no outstanding borrowings against this facility. This facility is secured by the assets of our European operations and is guaranteed by ScanSource, Inc.

Revolving Credit Facility

	September 30, 2009		June 30, 2009
	(in thousands)
Revolving credit facility	$	—	$	—

On September 28, 2007, the Company entered into a $250 million multi-currency revolving credit facility with a syndicate of banks that matures on September 28, 2012. This revolving credit facility has a $50 million accordion feature that allows the Company to increase the availability to $300 million subject to obtaining commitments for the incremental capacity from existing or new lenders. The facility is guaranteed by the Company and certain of its subsidiaries and is secured by substantially all of the domestic assets of the Company and its domestic subsidiaries. The facility bears interest at a rate equal to a spread over the applicable London

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Interbank Offered Rate (“LIBOR”) or prime rate, as chosen by the Company. This spread is dependent on the Company’s ratio of funded debt to EBITDA (as defined in the credit facility) and ranges from 0.50% to 1.25% for LIBOR-based loans, and from 0.00% to 0.25% for prime rate-based loans. The spread in effect as of September 30, 2009 was 0.50% for LIBOR-based loans and 0.00% for prime rate-based loans. The agreement subjects the Company to certain financial covenants, including minimum fixed charge and leverage ratio covenants. The agreement also has certain restrictive covenants that, among other things, place limitations on the payment of cash dividends. In October 2009, it was determined that the Company was not in compliance with a specific intercompany loan covenant within the agreement since June 30, 2008. This default was due to a technical misunderstanding of the underlying legal agreement which was immediately waived and the agreement amended to allow for such transactions in the future. The Company determined that revisions to prior period financial statements were not necessary. There were no outstanding borrowings on this facility as of September 30, 2009 and June 30, 2009, leaving $250 million available for additional borrowings.

Long-Term Debt

	September 30, 2009		June 30, 2009
	(in thousands)
Industrial Development Revenue Bond, monthly payments of interest only, 1.11% variable interest rate at September 30, 2009 and maturing in fiscal 2033	$	5,429	$	5,429
Unsecured note payable to a bank, monthly payments of interest only, 0.91% variable interest rate at September 30, 2009 and maturing in fiscal 2013 (see Note 7)		25,000		25,000
		30,429		30,429
Less current portion		—		—
Long-term portion	$	30,429	$	30,429

On August 1, 2007, the Company entered into an agreement with the State of Mississippi in order to provide financing for the acquisition and installation of certain equipment to be utilized at the Company’s new Southaven, Mississippi distribution facility, through the issuance of an industrial development revenue bond. The bond matures on September 1, 2032 and accrues interest at the 30-day LIBOR rate plus a spread of 0.85%. The terms of the bond allow for payment of interest only for the first 10 years of the agreement, and then, starting on September 1, 2018 through 2032, principal and interest payments are due until the maturity date or the redemption of the bond. Due to cross-default provisions within the agreement, the Company was not in compliance with certain covenants as of September 30, 2009 and all other periods impacted by the non-compliance associated with the revolving credit facility agreement. Accordingly, the Company obtained a waiver from the bondholder and trustee on November 4, 2009, which cures this violation as of September 30, 2009 and any other prior periods.

On January 2, 2008, the Company entered into a $25 million promissory note with a third party lender. This note payable accrues interest on the unpaid balance at a rate per annum equal to the 30-day LIBOR plus 0.65% and matures on September 28, 2012. The terms of the note payable allow for payments to be due and payable in consecutive monthly payment terms of accrued interest only, commencing on January 31, 2008, and continuing on the last day of each month thereafter until the principal balance is fully re-paid. This note may be prepaid in whole or in part at any time without penalty. Under the terms of this agreement, the Company has agreed not to encumber its headquarters’ property, except as permitted by the lender. Due to cross-default provisions within this loan agreement, the Company was not in compliance with certain covenants as of September 30, 2009 and all other periods impacted by the non-compliance associated with the revolving credit facility agreement. Accordingly, the Company obtained a waiver from the lender on November 4, 2009, which cures this violation as of September 30, 2009 and any other prior periods.

(7) Derivatives and Hedging Activities

The Company’s results of operations could be materially impacted by significant changes in foreign currency exchange rates and interest rates. These risks and the management of these risks are discussed in greater detail below. In an effort to manage the exposure to these risks, the Company periodically enters into various derivative instruments. The Company’s accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments in accordance with generally accepted accounting principles in the United States. The Company records all derivatives on the balance sheet at fair value. Derivatives that are not designated as hedging instruments or the ineffective portions of cash flow hedges are adjusted to fair value through earnings in other income and expense.

Foreign Currency —the Company conducts a portion of its business internationally in a variety of foreign currencies. The exposure to market risk for changes in foreign currency exchange rates arises from foreign currency denominated assets and liabilities, and transactions arising from non-functional currency financing or trading activities. The Company’s objective is to preserve the economic value of non-functional currency denominated cash flows. The Company attempts to hedge transaction

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exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through forward contracts or other hedging instruments with third parties. At September 30, 2009, the Company had contracts outstanding with notional amounts of $43 million to exchange foreign currencies, including the US Dollar, Euro, British Pound, Canadian Dollar, and Mexican Peso. To date, the Company has chosen not to designate these derivatives as hedging instruments, and accordingly, these instruments are adjusted to fair value through earnings in other income and expense. Summarized financial information related to these derivative contracts and changes in the underlying value of the foreign currency exposures are as follows:

	Quarter ended September 30, 2009			Quarter ended September 30, 2008
Net foreign exchange derivative contract (losses) gains	$	(257	)	$	3,171
Foreign currency transactional and remeasurement losses, net of gains		38			(3,498	)
Net foreign currency transactional and remeasurement losses	$	(219	)	$	(327	)

Interest Rates— the Company’s earnings are also affected by changes in interest rates due to the impact those changes have on interest expense from floating rate debt instruments. To manage the exposure to interest rates, the Company may enter into interest rate swap hedges. In the prior fiscal year, the Company entered into an interest rate swap agreement to hedge the variability in future cash flows of interest payments related to the $25 million promissory note payable discussed in Note 6. Interest rate differentials paid or received under the swap agreement are recognized as adjustments to interest expense. To the extent the swap is effective in offsetting the variability of the hedged cash flows, changes in the fair value of the swap are not included in current earnings but are reported as other comprehensive income (loss). The fair value of the swap was a liability of $1.2 million as of September 30, 2009. To date, there has not been any ineffectiveness associated with this instrument, and there are no other swap agreements outstanding.

The components of the cash flow hedge included in accumulated other comprehensive income, net of income taxes, in the Condensed Consolidated Statement of Shareholders’ Equity for the quarters ended September 30, 2009 and 2008, are as follows:

	Quarter ended September 30, 2009			Quarter ended September 30, 2008
	(in thousands)
Net interest expense recognized as a result of interest rate swap	$	215		$	75
Unrealized loss in fair value of interest swap rates		(234	)	$	(165	)
Net decrease in accumulated other comprehensive income, net of tax	$	(19	)	$	(90	)

The Company has the following derivative instruments located on the Condensed Consolidated Balance Sheets and Income Statements, utilized for the risk management purposes detailed above:

	As of September 30, 2009
	Fair Value of Derivatives Designated as Hedge Instruments			Fair Value of Derivatives Not Designated as Hedge Instruments
Derivative assets (a):
Foreign exchange contracts	$	—		$	30
Derivative liabilities (b):
Foreign exchange contracts	$	—		$	(36	)
Interest rate swap agreement	$	(1,222	)	$	—

(a) All derivative assets are recorded as prepaid expense and other assets in the Condensed Consolidated Balance Sheet.

(b) All derivative liabilities are recorded as accrued expenses and other liabilities in the Condensed Consolidated Balance Sheet.

(8) Fair Value of Financial Instruments

The Company’s financial assets and liabilities measured at fair value are required to be grouped in one of three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:

• Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

• Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;

• Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

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The following table summarizes the valuation of the Company’s short-term investments and financial instruments by the above categories as of September 30, 2009:

	Total			Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
	(in thousands)
Deferred compensation plan investments (1)	$	7,413		$	7,413	$	—		$	—
Derivative instruments (2)
Forward foreign currency exchange contracts		(6	)		—		(6	)		—
Interest rate swap liability		(1,222	)		—		(1,222	)		—
Notes receivable		5,007			—		5,007			—
Total	$	11,192		$	7,413	$	3,779		$	—

(1) These investments are held in a rabbi trust and include mutual funds and cash equivalents for payment of certain non-qualified benefits for certain retired, terminated and active employees.

(2) See Note 7, “Derivatives and Hedging Activities”.

(9) Segment Information

The Company is a leading distributor of specialty technology products, providing value-added distribution sales to resellers in the specialty technology markets. The Company has two reporting segments, based on geographic location. The measure of segment profit is operating income, and the accounting policies of the segments are the same as those described in Note 2 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

North American Distribution

North American Distribution offers products for sale in four primary categories: (i) AIDC, POS and barcoding equipment sold by the ScanSource POS and Barcoding sales unit, (ii) voice, data and converged communications equipment sold by the Catalyst Telecom sales unit, (iii) video conferencing, telephony, and communications products sold by the ScanSource Communications unit, and (iv) electronic security products and wireless infrastructure products through the ScanSource Security Distribution sales unit. These products are sold to more than 14,000 resellers and integrators of technology products that are geographically disbursed over the United States and Canada in a pattern that mirrors population concentration. No single account represented more than 7% of the Company’s consolidated net sales for the quarters ended September 30, 2009 or 2008, respectively.

International Distribution

The international distribution segment sells to two geographic areas, Latin America (including Mexico) and Europe, and offers AIDC and POS equipment as well as communications products to more than 6,000 resellers and integrators of technology products. Of this segment’s customers, no single account represented more than 3% of the Company’s consolidated net sales during the fiscal quarters ended September 30, 2009 or 2008, respectively.

Inter-segment sales consist primarily of sales by the North American distribution segment to the international distribution segment. All inter-segment revenues and profits have been eliminated in the accompanying Condensed Consolidated Financial Statements.

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Selected financial information of each business segment is presented below:

	Quarter ended September 30,
	2009			2008
Sales:
North American distribution	$	403,677		$	453,299
International distribution		91,231			94,860
Less intersegment sales		(6,485	)		(8,334	)
	$	488,423		$	539,825
Depreciation and amortization:
North American distribution	$	1,259		$	1,438
International distribution		208			337
	$	1,467		$	1,775
Operating income:
North American distribution	$	14,931		$	17,725
International distribution		2,756			2,903
	$	17,687		$	20,628
Capital expenditures:
North American distribution	$	88		$	2,122
International distribution		60			112
	$	148		$	2,234
	September 30, 2009			June 30, 2009
Assets:
North American distribution	$	707,474		$	689,865
International distribution		73,713			58,766
	$	781,187		$	748,631

(10) Commitments and Contingencies

The Company and its subsidiaries are, from time to time, parties to lawsuits arising out of operations. Although there can be no assurance, based upon information known to the Company, the Company believes that any liability resulting from an adverse determination of such lawsuits would not have a material adverse effect on the Company’s financial condition or results of operations.

(11) Income Taxes

As of September 30, 2009 and June 30, 2009, the Company had approximately $2.3 million and $2.3 million of total gross unrecognized tax benefits including interest, respectively. Of this total, approximately $2.0 million and $2.0 million, respectively, represents the amount of unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate. The Company does not believe that the total amount of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date.

The Company conducts business globally and, as a result, one or more of its subsidiaries files income tax returns in the U.S. federal, various state, local and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in countries in which it operates. With few exceptions, the Company is no longer subject to state and local, or non-U.S. income tax examinations by tax authorities for the years before 2006.

The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. As of September 30, 2009, the Company had approximately $0.9 million accrued for interest and penalties, none of which was a current period expense.

Income taxes for the interim period presented has been included in the accompanying financial statements on the basis of an estimated annual effective tax rate. In addition to the amount of tax resulting from applying the estimated annual effective tax rate to pre-tax income, the Company includes certain items treated as discrete events to arrive at an estimated overall tax amount. There were no discrete items in the period.

The Company’s effective tax rate differs from the federal statutory rate of 35% primarily as a result of state income taxes.

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(12) Subsequent Events

Subsequent events have been evaluated through November 9, 2009, the date these financial statements were issued. Other than the matters discussed below, no other events required disclosure.

On October 30, 2009, the Company entered into an amendment and waiver to its $250 million revolving credit facility after it was determined that the Company was not in compliance with a specific intercompany loan covenant within the agreement since June 30, 2008. This default was due to a technical misunderstanding of the underlying legal agreement which was immediately waived and the agreement amended to allow for such transactions in the future.

On November 3, 2009, the Company entered into a definitive agreement to acquire substantially all of the assets of Algol Europe, GmbH, a German based, value-added distributor of voice, data, and video communications products. This acquisition will further expand the Company’s communications business internationally.

On November 4, 2009, the Company obtained a waiver from a third party lender associated with its’ $25 million promissory note payable, curing violations associated with cross-default provisions within the loan agreement as of September 30, 2009, and any other prior periods.

On November 4, 2009, the Company obtained waivers from the bondholder and trustee associated with its’ State of Mississippi industrial development revenue bond, curing violations associated with cross-default provisions within the bond agreement as of September 30, 2009 and any other prior periods.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

ScanSource, Inc. is a leading wholesale distributor of specialty technology products, providing value-added distribution sales to resellers in the specialty technology markets. The Company distributes more than 61,700 products worldwide. The Company has two geographic distribution segments: one serving North America from the Southaven, Mississippi distribution center, and an international segment currently serving Latin America (including Mexico) and Europe from distribution centers located in Florida and Mexico, and in Belgium and the United Kingdom, respectively. The North American distribution segment markets automatic identification and data capture (“AIDC”) and point-of-sale (“POS”) products through the ScanSource POS and Barcoding sales unit; voice, data and converged communications equipment through its Catalyst Telecom sales unit; video conferencing, telephony and communications products through its ScanSource Communications sales unit; and electronic security products and wireless infrastructure products through its ScanSource Security sales unit. The international distribution segment markets AIDC, POS and Barcode products through its ScanSource Latin America and European sales units, while communication products are marketed through its ScanSource Communications sales unit in Europe.

The Company was incorporated in December 1992 and is headquartered in Greenville, South Carolina. The Company serves North America from a single, centrally located distribution center located near the FedEx hub in Southaven, Mississippi. The single warehouse and strong management information system form the cornerstone of the Company’s cost-driven operational strategy. This strategy has been expanded to Latin America and Europe, with distribution centers located in Florida and Mexico, and in Belgium and the United Kingdom, respectively.

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Evaluating Financial Condition and Operating Performance

The Company’s management places a significant emphasis on operating income and return on invested capital (“ROIC”) in evaluating and monitoring the Company’s financial condition and operating performance. ROIC is used by the Company to assess its efficiency at allocating the capital under its control to generate returns. ROIC is computed by the Company as net income plus income taxes, interest expense, depreciation and amortization divided by invested capital, and then annualized.

The following table summarizes the Company’s annualized return on invested capital ratio for the quarter ended September 30, 2009 and 2008, respectively:

	Quarter ended September 30,
	2009		2008
Return on invested capital ratio, annualized	16.0	%	20.2	%

The discussion that follows this overview explains the decrease in ROIC from the comparative period shown above. The Company uses ROIC as a performance measurement because it believes that this metric best balances the Company’s operating results with its asset and liability management, excludes the results of capitalization decisions, is easily computed, communicated and understood and drives changes in shareholder value. The components of this calculation and a reconciliation to the Company’s financial statements is shown below:

Reconciliation of EBITDA to net income:

	Quarter Ended September 30,
	2009			2008
	(in thousands)
Net income	$	10,935		$	12,430
Plus: income taxes		6,533			7,693
Plus: interest expense		366			579
Plus: depreciation & amortization		1,467			1,775
EBITDA (numerator)	$	19,301		$	22,477
Invested capital calculations:
	2009			2008
	(in thousands)
Equity – beginning of the quarter	$	445,446		$	395,753
Equity – end of the quarter		458,566			406,703
Average equity		452,006			401,228
Average debt(1)		30,429			44,826
Invested capital (denominator)	$	482,435		$	446,054
Return on invested capital (annualized)		16.0	%		20.2	%

⁽¹⁾ Average debt is based upon average daily debt and is therefore not able to be represented in this format.

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Results of Operations

Net Sales

The following table summarizes our net sales results (net of inter-segment sales) for the quarters ended September 30, 2009 and 2008:

	Quarter ended September 30,
	2009		2008		$ Change			% Change
	(in thousands)
North American distribution	$	397,192	$	444,965	$	(47,773	)	(10.7	%)
International distribution		91,231		94,860		(3,629	)	(3.8	%)
Net sales	$	488,423	$	539,825	$	(51,402	)	(9.5	%)

On a comparative basis, consolidated worldwide net sales for the quarter ended September 30, 2009 decreased 9.5% to $488.4 million. The decrease in sales reflects weaker end-user demand which is the result of macro-economic challenges impacting both of our geographic operating segments during the current quarter. These economic challenges had not fully materialized in the prior year quarter, and therefore, our sales results were stronger in that quarter. However, the momentum in overall demand that the Company experienced late in the fourth quarter of fiscal year 2009 continued into the current quarter, and the Company experienced a 10.7% increase in consolidated revenues from that quarter. The sales results for the majority of the Company’s sales units and geographic segments reflect this overall trend.

North American Distribution

North American distribution sales include sales to technology resellers in the United States and Canada from our Southaven, Mississippi distribution center. For the quarter ended September 30, 2009, net sales decreased over the comparative prior year period by $47.7 million, or 10.7%.

The Company’s North American POS, bar-coding, and security product categories saw revenues decrease by 13.8% in comparison to the prior year quarter. As discussed previously, sales of substantially all of our major vendors and product lines were down and we saw fewer of the larger deals than in the prior year quarter. The exception to this trend was our security product lines, which experienced strong quarter over quarter and sequential sales growth through several big deals and new customers. Specifically, video surveillance and card printer product lines showed significant sales growth for this sales unit. In our POS & bar-coding product lines, the Company experienced a significantly more competitive environment since the quarter ended June 30, 2009. This resulted in a significant increase in the number of deals closed during the quarter with special pricing incentives designed to aggressively pursue market share. As a result, the Company was able to increase revenues in the majority of these product categories on a sequential basis.

The Company has two North American sales units that sell communications products to our customers – the Catalyst Telecom sales unit and the ScanSource Communications sales unit. The combined sales of these units were 6.8% lower in the current quarter versus the prior year quarter. Despite the quarter over quarter decrease in revenues, Catalyst Telecom continues to gain momentum and post strong sales results on a sequential quarter basis. In addition, Catalyst did experience some product shortages at the end of the quarter which delayed some orders into next quarter. In the ScanSource Communications sales unit, there were a number of big deals and strong results from our video and voice product lines which resulted in record revenues for the current quarter. Accordingly, ScanSource Communications experienced both sequential and quarter over quarter sales growth.

International Distribution

The international distribution segment includes sales to Latin America (including Mexico) and Europe from the ScanSource POS and Barcoding sales units and in Europe through the ScanSource Communications sales unit. For the quarter ended September 30, 2009, net sales for this segment decreased by $3.6 million, or 3.8%. On a constant exchange rate basis, the sales decrease was less than 1%. In all of our international geographies, sales continue to be lower on a year over year basis as both Europe and Latin America continue to recover from the economic recession and, to a lesser extent, currency devaluations in certain countries. However, on a sequential basis, we did see sales growth across the majority of our product categories. We attribute a portion of this growth to a number of large deals that were closed during the quarter in addition to a more aggressive pursuit of market share and channel shift.

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Gross Profit

The following tables summarize the Company’s gross profit for the quarter ended September 30, 2009 and 2008, respectively:

	Quarter ended September 30,									% of Sales September 30,
	2009		2008		$ Change			% Change		2009		2008
	(in thousands)
North American distribution	$	40,446	$	43,653	$	(3,207	)	(7.3	%)	10.2	%	9.8	%
International distribution		10,972		11,849		(877	)	(7.4	%)	12.0	%	12.5	%
Gross profit	$	51,418	$	55,502	$	(4,084	)	(7.4	%)	10.5	%	10.3	%

North American Distribution

Gross profit for the North American distribution segment decreased 7.3% or $3.2 million for the quarter ended September 30, 2009, as compared to the comparative prior year period. The decrease in gross profit is primarily the result of lower sales volume in all of our sales units, as previously discussed. Gross profit as a percentage of net sales for the North American distribution segment increased slightly to 10.2% for the quarter ended September 30, 2009, as there were significantly fewer larger deals in the current quarter and a more favorable mix of sales within our sales units, as compared to the prior year results. However, on a sequential basis, the Company is experiencing lower gross margins as a percentage of sales, as the Company pursues market share through more competitive pricing, especially in our POS & bar-coding sales unit.

International Distribution

In our international distribution segment, gross profit decreased by 7.4% or $0.9 million for the quarter ended September 30, 2009, as compared to the same period in the prior year. The decrease in gross margin percentage in Europe and Latin America from the comparative quarter reflects a more favorable customer and product mix in the prior year quarter. In addition, it also reflects a more competitive environment in which the Company is aggressively pursuing market share at the expense of lower gross margins.

Operating Expenses

The following table summarizes our operating expenses for the quarters ended September 30, 2009 and 2008, respectively:

	Quarter ended September 30,									% of Sales September 30,
	2009		2008		$ Change			% Change		2009		2008
	(in thousands)
Operating expenses	$	33,731	$	34,874	$	(1,143	)	(3.3	%)	6.9	%	6.5	%

Operating expenses decreased by 3.3%, or $1.1 million for the quarter ended September 30, 2009, as compared to the same period in the prior year. The decrease in operating expenditures for the current quarter is primarily attributable to our compensation programs which are variable in nature and declined in correlation with our sales volume and profitability. And to a lesser extent, we continue to benefit from various cost reduction initiatives implemented in the prior fiscal year in response to lower sales volumes.

Partially offsetting these expense reductions in the current quarter was a $1.5 million increase in bad debt expense over the prior year quarter. The increase in bad debt expense reflects the weakened financial profiles of certain of our customers and their end-users due to the prevailing economic conditions of the last 12 months. Accordingly, the credit needs and associated risks of these customers have also changed. The increase in bad debt expense reflects the adjustment of our allowance for doubtful accounts to capture the risks associated with this pool of customers.

Operating expenses as a percentage of sales increased to 6.9% for the quarter ended September 30, 2009, which was slightly higher than the comparative, prior year period. This increase is largely attributable to the increase in bad debt expense and an overall decline in sales volumes for our consolidated operations between the two periods.

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Operating Income

The following table summarizes our operating income for the quarters ended September 30, 2009 and 2008, respectively:

	Quarter ended September 30,									% of Sales September 30,
	2009		2008		$ Change			% Change		2009		2008
	(in thousands)
North American distribution	$	14,931	$	17,725	$	(2,794	)	(15.8	%)	3.8	%	4.0	%
International distribution		2,756		2,903		(147	)	(5.1	%)	3.0	%	3.1	%
	$	17,687	$	20,628	$	(2,941	)	(14.3	%)	3.6	%	3.8	%

Operating income decreased 14.3% or $2.9 million for the quarter ended September 30, 2009 to $17.7 million. The decrease in operating income for both segments is primarily attributable to lower sales volumes and related gross profit generated during the current quarter, as previously discussed.

Total Other Expense (Income)

The following table summarizes our total other expense (income) for the quarter ended September 30, 2009 and 2008, respectively:

	Quarter ended September 30,											% of Sales September 30,
	2009			2008			$ Change			% Change		2009		2008
	(in thousands)
Interest expense	$	366		$	579		$	(213	)	(36.8	%)	0.0	%	0.1	%
Interest income		(263	)		(351	)		88		(25.1	%)	0.0	%	-0.1	%
Net foreign exchange losses		219			327			(108	)	(33.0	%)	0.0	%	0.1	%
Other, net		(102	)		(50	)		(52	)	104.0	%	0.0	%	0.0	%
Total other expense, net	$	220		$	505		$	(285	)	(56.4	%)	0.0	%	0.1	%

Interest expense reflects interest paid on borrowings on the Company’s revolving credit facility and long-term debt. Interest expense for the quarter ended September 30, 2009 was $0.4 million. The decrease in interest expense is primarily the result of lower average debt balances between the respective periods, and, to a lesser extent, lower interest rates experienced between the comparative periods.

Interest income for the quarter ended September 30, 2009 was slightly lower than the comparative prior year periods. The Company generates interest income on longer-term interest bearing receivables, and, to a lesser extent, interest earned on cash and cash-equivalent balances on hand.

Net foreign exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign currency exchange contract gains and losses. Foreign exchange losses and gains are generated as the result of fluctuations in the value of the Euro versus the British Pound and the U.S. Dollar versus other currencies. While the Company utilizes foreign exchange contracts and debt in non-functional currencies to hedge foreign currency exposure, our foreign exchange policy prohibits us from entering into speculative transactions.

Provision for Income Taxes

Income tax expense was $6.5 million for the quarter ended September 30, 2009, reflecting an effective income tax rate of 37.4%. Income tax expense was $7.7 million for the quarter ended September 30, 2008, reflecting an effective income tax rate of 38.2%. The decrease in the effective tax rate in the current quarter is attributable to the Company receiving a favorable tax ruling in December 2008 from a state taxing jurisdiction that had the effect of decreasing our effective tax rate for subsequent periods.

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Net Income

The following table summarizes our net income for the quarters ended September 30, 2009 and 2008, respectively:

	Quarter ended September 30,										% of Sales September 30,
	2009		2008		$ Change			% Change		2009		2008
	(in thousands)
Net income	$	10,935	$	12,430	$	(1,495	)	(12.0	%)	2.2%		2.3	%

The decrease in net income for the current quarter is attributable to the changes in operations, as discussed above.

Liquidity and Capital Resources

The Company’s primary sources of liquidity are cash flow from operations, borrowings under the revolving credit facility, secured and unsecured borrowings, and borrowings under the subsidiary’s line of credit. The Company’s cash and cash equivalent balance totaled $87.8 million at September 30, 2009, compared to $127.7 million at June 30, 2009. The Company’s working capital increased to $414.2 million at September 30, 2009 from $399.6 million at June 30, 2009. The $14.6 million increase in working capital is primarily due to higher inventory and accounts receivable balances between the two periods, offset by lower cash balances. As of September 30, 2009, there is no outstanding balance on the Company’s revolving line of credit facility.

The number of days sales in receivables (DSO) was 58 at September 30, 2009, compared to 59 days at June 30, 2009 and 58 days at March 31, 2009.

Inventory turnover increased to 7.2 times in the current quarter versus 6.9 times in the comparative, prior year quarter. This increase is largely the function of lower average inventory balances.

Cash used in operating activities was approximately $40.1 million for the quarter ended September 30, 2009, compared to $31 million of cash provided by operating activities for the comparative prior year period. The $71 million swing in cash flow was driven primarily by the overall improvement in demand discussed previously. This resulted in a significant increase in accounts receivable and inventory balances during the current quarter. In addition, during the current quarter the Company took advantage of early payment discounts with one of our largest vendors which had the effect of accelerating approximately $40 million of cash payments to this vendor. While the Company’s cash reserves have increased over the past few quarters, these assets earn little return based on current interest rates. As a result, the Company has chosen to take advantage of favorable payment terms from certain vendors.

Cash used in investing activities for the quarter ended September 30, 2009 was $0.1 million, compared to $1.6 million used in the comparative prior quarter. For both periods, this reflects net capital expenditures purchased in the ordinary course of business.

In the current quarter, cash provided by financing activities amounted to $0.1 million, in comparison with cash used of $28 million in the comparative prior year quarter. In the current quarter, there was minimal activity in terms of financing activities. The Company did not have an outstanding balance on its revolving credit facility at any point during the quarter and the Company had cash on hand of $87.8 million at September 30, 2009. In contrast, in the comparative prior quarter, the Company was in the process of reducing its outstanding debt balances.

The Company has a revolving credit facility secured by the assets of its European operations and guaranteed by the Company. This facility was amended on May 14, 2008 to increase the borrowing limit to €6.0 million for the Company’s European operations. At September 30, 2009, there was no outstanding balance on this facility.

On January 2, 2008, the Company entered into a $25 million promissory note with a financial institution. This note payable accrues interest on the unpaid balance at a rate per annum equal to the 30 day LIBOR plus 0.65% and matures on September 28, 2012. The terms of the note payable allow for payments to be due and payable in consecutive monthly payment terms of accrued interest only, commencing on January 31, 2008, and continuing on the last day of each month thereafter until fully paid. In any event, all principal and accrued interest will be due and payable on September 28, 2012. The note may be prepaid in whole or in part at any time without penalty. The effective interest rate was 0.91% as of September 30, 2009. Due to cross-default provisions within this loan agreement, the Company was not in compliance with certain covenants as of September 30, 2009 and all other periods impacted by the non-compliance associated with the revolving credit facility agreement. Accordingly, the Company obtained a waiver from the lender on November 4, 2009, which cures this violation as of September 30, 2009 and any other prior periods.

21

On January 4, 2008, the Company entered into an interest rate swap with a notional amount of $25 million and designated this instrument as a cash flow hedge of our exposure to variability in future cash flows associated with this note payable. Under the terms of the swap, the Company pays a fixed rate of 3.65% plus a fixed spread of 0.65% on the $25 million notional amount and receives payments from a counterparty based on 30 day LIBOR plus a fixed spread of 0.65% for a term ending on September 28, 2011.

On September 28, 2007, the Company entered into a $250 million multi-currency revolving credit facility with a syndicate of banks that matures on September 28, 2012. The facility is guaranteed by the Company and certain of its subsidiaries and is secured by substantially all of the domestic assets of the Company and its domestic subsidiaries. The facility bears interest at a rate equal to a spread over the applicable LIBOR or prime rate, as chosen by the Company. This spread is dependent on the Company’s ratio of funded debt to EBITDA (as defined in the credit facility) and ranges from 0.50% to 1.25% for LIBOR-based loans, and from 0.00% to 0.25% for prime rate-based loans. The spread in effect as of September 30, 2009 was 0.50% for LIBOR-based loans and 0.00% for prime rate-based loans. There were no outstanding borrowings on this facility as of September 30, 2009. As a result, the Company had $250 million available for additional borrowings on this facility. This agreement subjects the Company to certain non-financial and financial covenants, including minimum fixed charge and leverage ratio covenants. On October 30, 2009, the Company entered into an amendment and waiver to its $250 million Revolving Credit Facility after it was determined that the Company was not in compliance with a specific intercompany loan covenant within the agreement since June 30, 2008. This default was due to a technical misunderstanding of the underlying legal agreement which was immediately waived and the agreement amended to allow for such transactions in the future.

On August 1, 2007, the Company entered into an agreement with the State of Mississippi in order to provide financing for the acquisition and installation of certain equipment to be utilized at the Company’s Southaven, Mississippi distribution facility, through the issuance of an industrial development revenue bond. The bond matures on September 1, 2032 and accrues interest at the 30-day LIBOR rate plus a spread of 0.85%. The terms of the bond allow for payment of interest only for the first 10 years of the agreement, and then, starting on September 1, 2018 through 2032, principal and interest payments are due until the maturity date or the redemption of the bond. The outstanding balance on this facility was $5.4 million as of September 30, 2009, and the effective interest rate was 1.11%. Due to cross-default provisions within the agreement, the Company was not in compliance with certain covenants as of September 30, 2009 and all other periods impacted by the non-compliance associated with the revolving credit facility agreement. Accordingly, the Company obtained a waiver from the bondholder and trustee on November 4, 2009, which cures this violation as of September 30, 2009, and any other prior periods.

The Company believes that its existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds under the Company’s credit agreements, will provide sufficient resources to meet the Company’s present and future working capital and cash requirements for at least the next twelve months.

Accounting Standards Recently Issued

See Note 3 to our Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s principal exposure to changes in financial market conditions in the normal course of its business is a result of its selective use of bank debt and transacting business in foreign currencies in connection with its foreign operations.

Interest Rate Risk

The Company is exposed to changes in interest rates primarily as a result of its borrowing activities, which include revolving credit facilities with a group of banks used to maintain liquidity and fund the Company’s business operations. The nature and amount of the Company’s debt may vary as a result of future business requirements, market conditions and other factors. A hypothetical 100 basis point increase or decrease in interest rates on borrowings on the Company’s revolving credit facility, variable rate long term debt and subsidiary line of credit for the quarter ended September 30, 2009 would have resulted in a less than $0.1 million increase or decrease, respectively, in pre-tax income for the period.

To mitigate the risk of interest rate fluctuations associated with the Company’s variable rate long-term debt, the Company has implemented an interest rate risk management strategy that incorporates the use of an interest rate swap designated as a cash flow hedge to minimize the significant unplanned fluctuations in earnings caused by interest rate volatility. The Company’s use of derivative instruments has the potential to expose the Company to certain market risks including the possibility of (1) the Company’s hedging activities not being as effective as anticipated in reducing the volatility of the Company’s cash flows, (2) the counterparty not performing its obligations under the applicable hedging arrangement, (3) the hedging arrangement being imperfect or ineffective, or (4) the terms of the swap or associated debt may change. The Company seeks to lessen such risks by having established a policy to identify, control, and manage market risks which may arise from changes in interest rates, as well as limiting its counterparties to major financial institutions.

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Foreign Currency Exchange Rate Risk

The Company is exposed to foreign currency risks that arise from its foreign operations in Canada, Mexico and Europe. These risks include the translation of local currency balances of foreign subsidiaries, inter-company loans with foreign subsidiaries and transactions denominated in non-functional currencies. These risks may change over time as business practices evolve and could have a material impact on the Company’s financial results in the future. In the normal course of business, foreign exchange risk is managed by using foreign currency forward contracts to hedge these exposures, as well as balance sheet netting of exposures. The Company’s Board of Directors has approved a foreign exchange hedging policy to minimize foreign currency exposure. The Company’s policy is to utilize financial instruments to reduce risks where internal netting cannot be effectively employed and not to enter into foreign currency derivative instruments for speculative or trading purposes. The Company monitors its risk associated with the volatility of certain foreign currencies against its functional currencies and enters into foreign exchange derivative contracts to minimize short-term currency risks on cash flows. These positions are based upon our forecasted purchases and sales denominated in certain foreign currencies. The Company continually evaluates foreign exchange risk and may enter into foreign exchange transactions in accordance with its policy. Actual variances from these forecasted transactions can adversely impact foreign exchange results. Foreign currency gains and losses are included in other expense (income).

The Company has elected not to designate its foreign currency contracts as hedging instruments, and therefore, the instruments are marked to market with changes in their values recorded in the Condensed Consolidated Income Statement each period. The underlying exposures are denominated primarily in British Pounds, Euros, Mexican Pesos and Canadian Dollars. At September 30, 2009, the fair value of the Company’s currency forward contracts outstanding was a net payable of less than $0.1 million. The Company does not utilize financial instruments for trading or other speculative purposes.

Item 4. Controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2009. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures are effective as of September 30, 2009. During the first quarter of fiscal 2010, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

23

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company and its subsidiaries are, from time to time, parties to lawsuits arising out of operations. Although there can be no assurance, based upon information known to the Company, the Company believes that any liability resulting from an adverse determination of such lawsuits would not have a material adverse effect on the Company’s financial condition or results of operations.

Item 1A. Risk Factors

In addition to the other information set forth in this report and in our other reports and statements that we file with the SEC, including our quarterly reports, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year-ended June 30, 2009, which could materially affect our business, financial condition or future operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially and adversely affect the Company’s business, financial condition, and/or operating results.

24

Item 6. Exhibits

Exhibits

Exhibit Number	Description
10.1	Amendment No. 1 to Credit Agreement and Waiver entered into as of October 30, 2009, among ScanSource, Inc., the Subsidiary Borrowers party hereto, J.P. Morgan Chase Bank, N.A. individually and as administrative agent and the other financial institutions signatory hereto.
10.2	Nonqualified Deferred Compensation Plan, as amended and restated, effective January 1, 2005.
31.1	Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

25

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
Date: November 9, 2009	Chief Executive Officer (Principal Executive Officer)

	/s/ Richard P. Cleys
	Richard P. Cleys
Date: November 9, 2009	Vice President and Chief Financial Officer (Principal Financial Officer)

26

EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q

Exhibit Number	Description
10.1	Amendment No. 1 to Credit Agreement and Waiver entered into as of October 30, 2009, among ScanSource, Inc., the Subsidiary Borrowers party hereto, J.P. Morgan Chase Bank, N.A. individually and as administrative agent and the other financial institutions signatory hereto.
10.2	Nonqualified Deferred Compensation Plan, as amended and restated, effective January 1, 2005.
31.1	Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

27

EX-10.1

Exhibit 10.1

AMENDMENT NO. 1 TO CREDIT AGREEMENT AND WAIVER

This Amendment and Waiver (this “Amendment”) is entered into as of October 30, 2009 by and among ScanSource, Inc., a South Carolina corporation (the “Borrower”), the Subsidiary Borrowers party hereto (together with the Borrower, the “Borrowers”), JPMorgan Chase Bank, N.A., individually and as administrative agent (the “Administrative Agent”), and the other financial institutions signatory hereto.

RECITALS

A.        The Borrower, the Administrative Agent and the Lenders are party to that certain credit agreement dated as of September 28, 2007 (the “Credit Agreement”). Unless otherwise specified herein, capitalized terms used in this Amendment shall have the meanings ascribed to them by the Credit Agreement.

B.        The Borrower, the Administrative Agent and the undersigned Lenders wish to amend the Credit Agreement and waive certain provisions thereof on the terms and conditions set forth below.

Now, therefore, in consideration of the mutual execution hereof and other good and valuable consideration, the parties hereto agree as follows:

1.        Amendment to Credit Agreement.   Upon the “Effective Date” (as defined below), the Credit Agreement shall be amended as follows:

(a)        Section 1.01 is amended by inserting (or, as applicable, amending and restating) the following definitions in appropriate alphabetical order to read as follows:

“Dutch Pledge Agreement” means the Pledge Agreement dated as of the First Amendment Effective Date made by certain of the Credit Parties with respect to Equity Interests of ScanSource Europe CV, as the same may be amended, restated, modified or supplemented from time to time.

“European Restructuring” means the series of transactions pursuant to which certain Foreign Subsidiaries of the Borrower will be recapitalized and reorganized under the ownership of ScanSource Europe CV, a limited partnership organized under the laws of the Netherlands, all as more fully described in the first through sixth paragraphs of the Borrower’s letter to the Administrative Agent dated October 22, 2009.

“First Amendment Effective Date” shall mean October 30, 2009.

“Pledge Agreements” means, collectively, the Pledge Agreement dated as of September 28, 2007 made by certain Credit Parties in favor of the Collateral Agent for the benefit of the Secured Creditors, the Dutch Pledge Agreement and each other document or instrument pursuant to which Equity Interests are pledged to the Collateral Agent for the benefit of the Secured Creditors pursuant hereto, in each case as the same may be amended, restated, modified or supplemented from time to time.

“SPRL Receivable” has the meaning set forth in Section 6.01(c).

“SPRL Receivable Amount” has the meaning set forth in Section 6.01(c).

(b)        Section 6.01 is amended by amending and restating clause (c) thereof to read as follows:

(c)        Indebtedness (i) of any Full Credit Party owing to any other Full Credit Party, (ii) of any Full Credit Party owing to any Subsidiary which is not a Full Credit Party, which Indebtedness is subordinated to the Obligations on terms reasonably satisfactory to the Administrative Agent, (iii) of a Subsidiary which is not a Credit Party to another Subsidiary which is not a Credit Party, (iv) of a foreign Subsidiary Borrower owing to any Subsidiary which is not a Credit Party, which Indebtedness is subordinated to the Obligations on terms reasonably satisfactory to the Administrative Agent, (v) of ScanSource Europe SPRL and ScanSource Europe Limited owed to the Borrower contributed by the Borrower to the capital of ScanSource Europe CV as a part of the European Restructuring in an aggregate principal amount of up to $45,000,000 (such actual amount being the “SPRL Receivable Amount” and such Indebtedness being the “SPRL Receivable”), (vi) of ScanSource Europe BV to ScanSource Europe CV in an aggregate principal amount of up to the SPRL Receivable Amount (such Indebtedness representing consideration for the transfer to ScanSource Europe CV of the SPRL Receivable) plus $5,000,000 (or such lesser cash amount as is contributed by the Borrower to ScanSource Europe CV after the First Amendment Effective Date), (vii) Indebtedness of any Subsidiary which is not a Full Credit Party owing to a Credit Party in an aggregate principal amount at any time outstanding not to exceed $35,000,000; and (viii) Indebtedness of Subsidiaries which are not Credit Parties owed to a Subsidiary Borrower which is not a Full Credit Party in an aggregate principal amount which at no time is in excess of the aggregate principal amount of Indebtedness of such Subsidiary Borrower which is then owing to Full Credit Parties and which is permitted by (and included in the computation of the amount permitted by) Section 6.01(c)(vii).

(c)        Section 6.04 is amended by adding a new clause (j) as follows and renumbering clause 6.04(k) as clause 6.04 (l):

(j)        the contribution of the SPRL Receivable and the Equity Interests of ScanSource Europe Limited by the Borrower to the capital of ScanSource Europe CV, the contribution of the Equity Interests of ScanSource Europe Limited by ScanSource Europe CV to ScanSource Europe BV and an additional

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debt or equity investment by the Borrower in ScanSource Europe CV not exceeding $5,000,000 in the aggregate; and

(d)        Section VIII is amended by adding the following sentence to the penultimate paragraph thereof:

Without limiting the foregoing, the Collateral Agent is authorized to enter into the Dutch Pledge Agreement and exercise its rights thereunder.

(e)        A new Section 9.18 is added reading as follows:

SECTION 9.18        Parallel Debt Provisions

(a)        For the purpose of ensuring and preserving the validity and enforceability of any of the security rights created under the Dutch Pledge Agreement, each of the Full Credit Parties hereby irrevocably and unconditionally undertakes to pay to the Collateral Agent an amount equal to the aggregate amount payable by such Credit Party in respect of its Secured Obligations as they may exist from time to time (each undertaking, a “Parallel Debt”). Each Parallel Debt will be payable in the currency of the relevant Secured Obligation. Each Parallel Debt of a Credit Party will become due and payable as and when one or more of the Secured Obligations of such Credit Party become due and payable.

(b)        Each of the parties hereto hereby acknowledges that: (i) each Parallel Debt constitutes an undertaking, obligation and liability of the applicable Credit Party to the Collateral Agent which is separate and independent from, and without prejudice to, the Secured Obligations; and (ii) each Parallel Debt represents the Collateral Agent’s own separate and independent claim to receive payment of that Parallel Debt from the relevant Credit Party, it being understood, in each case, that the amount which may become payable by a Credit Party as its Parallel Debt shall never exceed the total of the amounts which are payable under the Secured Obligations of such Credit Party.

(c)        For the avoidance of doubt, the Parties confirm that the claim of the Collateral Agent against a Credit Party in respect of a Parallel Debt and the claims of any one or more of the Secured Creditors against such Credit Party in respect of the Secured Obligations payable by such Credit Party to such Secured Creditors do not constitute common property (gemeenschap) within the meaning of article 3:166 of the Dutch Civil Code and that the provisions relating to common property shall not apply. If, however, it shall be held that the claim of the Collateral Agent and the claims of any one or more of the Secured Creditors do constitute common property and the provisions of common property do apply, the Lenders, the Administrative Agent and the Collateral Agent agree that this Agreement shall constitute the administration agreement (beheersregeling) within the meaning of article 3:168 of the Dutch Civil Code.

(d)        To the extent the Collateral Agent irrevocably receives any amount in payment of the Parallel Debt of a Credit Party, the Collateral Agent

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shall distribute that amount among the Secured Creditors that are creditors in respect of the corresponding Secured Obligations of such Credit Party (subject, if applicable, to Section 9.17). Upon irrevocable receipt by a Secured Creditor of any amount so distributed to it (a “Received Amount”), the Secured Obligations of the applicable Credit Party to such Secured Creditor shall be reduced by an amount (a “Deductible Amount”) equal to the Received Amount in the manner as if the Deductible Amount were received as a payment of the Secured Obligations on the date of receipt by such Secured Creditor of the Received Amount.

2.        Consent.   The Administrative Agent, the Collateral Agent and the Lenders hereby consent to the European Restructuring, including but not limited to (a) the transfer of the Equity Interests of ScanSource Europe Limited to ScanSource Europe CV as a part of the European Restructuring, (b) the investment by the Borrower of up to $50,000,000 in ScanSource Europe CV and the subsequent investment by ScanSource Europe CV of up to $5,000,000 in ScanSource Europe BV; provided that a portion of the investment by ScanSource in ScanSource Europe CV will consist of a contribution of the SPRL Receivable to the capital of ScanSource Europe CV; and (c) following the transfer of the Equity Interests of ScanSource Europe Limited to ScanSource Europe CV, the termination of the existence of ScanSource Europe Limited, whether by dissolution, liquidation, merger, amalgamation or other equivalent transaction. The Administrative Agent, the Collateral Agent and the Lenders hereby further agree that, concurrently with the transfer of the Equity Interests of ScanSource Europe Limited to ScanSource Europe CV, all Liens of the Collateral Agent upon the Equity Interests of ScanSource Europe Limited shall be automatically released.

3.        Waiver.   The Lenders hereby (a) waive any breach of Section 6.01 (Indebtedness), 6.03 (Asset Dispositions), 6.04 (Investments) or 6.07 (Transactions with Affiliates) of the Credit Agreement arising solely out of the European Restructuring and (b) waive any breach of Section 6.01 or 6.04 of the Credit Agreement arising out of the making of intercompany loans by the Borrower to ScanSource Europe Limited and ScanSource Europe, SPRL prior to the Effective Date at no time exceeding $60,000,000 in outstanding aggregate principal amount, of which $30,000,000 was outstanding as of September 30, 2009 and intercompany loans by ScanSource Europe, Limited to ScanSource Communications, Limited and ScanSource Europe SPRL prior to the date hereof at no time exceeding $25,000,000 in outstanding aggregate principal amount and (c) waive any Default or Event of Default which would not have arisen had such intercompany loans been permitted by the terms of the Credit Agreement as it originally came into effect on September 28, 2007. For the avoidance of doubt, Indebtedness and investments which are consented to or waived in this or the preceding Section which are incurred or made on or after the Effective Date must be permitted by Sections 6.01 and 6.04 of the Credit Agreement as amended hereby and are not to be deemed allowed in addition to the Indebtedness and investments permitted thereby.

4.        Joinder.   On the Effective Date the Collateral Agent shall be joined as a party to the Credit Agreement and shall have the rights and obligations of the Collateral Agent specified therein.

5.        Amendment to Security Agreement.   The Collateral Agent and the Credit Parties which are “Grantors” under the Security Agreement hereby agree that all references in

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Section 5.7 of the Security Agreement to “Pledged Collateral” shall hereafter be deemed references to all collateral which is pledged pursuant to the Pledge Agreement. The Lenders consent to such amendment.

6.        Amendment to Pledge Agreement.   The Collateral Agent and Credit Parties which are “Pledgors” under the Pledge Agreement dated as of September 28, 2007 agree that on the Effective Date the Pledge Agreement is amended as follows:

(a)        The following sentence is added at the conclusion of Section 26:

Notwithstanding the foregoing, on the First Amendment Effective Date certain of the Credit Parties and the Collateral Agent are entering into the Dutch Pledge Agreement to assure perfection of the Lien of such agreement. In the event of any conflict between the provisions of this Agreement and the provisions of the Dutch Pledge Agreement with respect the subject matter thereof, the terms of the Dutch Pledge Agreement shall govern.

7.        Notice.   Pursuant to Section 5.11(b) of the Credit Agreement the Borrower hereby gives notice that upon consummation of the European Restructuring ScanSource Europe CV will become a Material Foreign Subsidiary.

8.        Representations and Warranties of the Borrowers.   Each of the Borrowers represents and warrants that:

(a)        The execution, delivery and performance by each Borrower of this Amendment have been duly authorized by all necessary corporate action and that this Amendment is a legal, valid and binding obligation of each Borrower enforceable against such Borrower in accordance with its terms, except as the enforcement thereof may be subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally;

(b)        Each of the representations and warranties contained in the Credit Agreement (treating this Amendment and the Dutch Pledge Agreement as Credit Documents for purposes thereof) is true and correct in all material respects on and as of the date hereof as if made on the date hereof except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true on and as of such earlier date; and

(c)        After giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.

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9.        Effective Date.   This Amendment shall become effective upon the execution and delivery hereof by the Borrowers, the Administrative Agent and the Required Lenders (without respect to whether it has been executed and delivered by all the Lenders); provided that Sections 1, 2, 3, 4, 5 and 6 hereof shall not become effective until the time (the “Effective Date”) when the following additional conditions have also been satisfied:

(a)        Each of the Credit Parties has executed and delivered a reaffirmation of Guaranty and Security Documents in the form of Exhibit A hereto.

(b)        The Borrower shall have delivered to the Administrative Agent an executed Termination Letter in the form of Exhibit C to the Credit Agreement with respect to ScanSource Europe Limited.

(c)        ScanSource Europe Limited shall have repaid all Loans made to it and any other of its Obligations outstanding under the Credit Documents.

(d)        The Borrower shall have delivered to the Administrative Agent (i) a fully executed and effective pledge agreement under Dutch law (the “Dutch Pledge”) in form and substance satisfactory to the Administrative Agent providing for the pledge of 65% of the Equity Interests of ScanSource Europe, CV and (ii) such related opinions of US and Dutch counsel, certificates and documents as the Administrative Agent may reasonably request, all (with respect to both (i) and (ii)) in form and substance reasonably satisfactory to the Administrative Agent.

(e)        The Borrower shall have delivered to the Administrative Agent an addendum in the form of Exhibit B to the Pledge Agreement reflecting the pledge by the Borrower of 65% of the Equity Interests of ScanSource Europe CV.

(f)        The Borrower shall have paid any and all fees and expenses due and payable by it under the Credit Documents.

In the event the Effective Date has not occurred on or before November 30, 2009, Sections 1 and 2 hereof shall not become operative and shall be of no force or effect.

10.        Reference to and Effect Upon the Credit Agreement.

(a)        Except as specifically amended or waived above, the Credit Agreement and the other Credit Documents shall remain in full force and effect and are hereby ratified and confirmed.

(b)        The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Administrative Agent or any Lender under the Credit Agreement or any Credit Document, nor constitute a waiver of any provision of the Credit Agreement or any Credit Document, except as specifically set forth herein. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby.

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11.        Costs and Expenses.   The Borrowers hereby affirm their obligation under Section 9.03 of the Credit Agreement to reimburse the Administrative Agent for all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation, negotiation, execution and delivery of this Amendment, including but not limited to the reasonable fees, charges and disbursements of attorneys for the Administrative Agent with respect thereto.

12.        Governing Law.   This Agreement shall be construed in accordance with and governed by the law of the State of New York.

13.        Headings.   Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purposes.

14.        Counterparts.   This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed an original but all such counterparts shall constitute one and the same instrument.

[Signature pages follow]

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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and year first above written.

SCANSOURCE, INC.
By:	/s/ Richard P. Cleys
Its:	V.P. & Chief Financial Officer

NETPOINT INTERNATIONAL, INC.
By:	/s/ Richard P. Cleys
Its:	Director

SCANSOURCE EUROPE, SPRL
By:	/s/ Richard P. Cleys
Its:	Director

JPMORGAN CHASE BANK, N.A., individually and as Administrative Agent, Swingline Lender and Issuing Bank
By:	/s/ Patrick S. Thornton
Its:	Senior Vice President

HSBC BANK USA, NATIONAL ASSOCIATION
By:	/s/ Jaron R. Campbell
Name: Jaron R. Campbell
Title: Vice President

REGIONS BANK
By:	/s/ Kenneth M. Zeimetz
Name: Kenneth M. Zeimetz
Title: Senior Vice President

ROYAL BANK OF CANADA
By:	/s/ Dustin Craven
Name: Dustin Craven
Title: Attorney-in-Fact

WACHOVIA BANK, NATIONAL ASSOCIATION
By:	/s/ Lee R. Gray
Name: Lee R. Gray
Title: Senior Vice President

WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	/s/ Kathleen R. Reedy
Name: Kathleen R. Reedy
Title: Managing Director

EXHIBIT A

REAFFIRMATION OF GUARANTY AND SECURITY DOCUMENTS

Each of the undersigned acknowledges receipt of a copy of Amendment No. 1 (the “Amendment”) dated as of October 30, 2009 between ScanSource, Inc., a Delaware corporation (the “Borrower”) the Subsidiary Borrowers party thereto (together with the Borrower, the “Borrowers”), JPMorgan Chase Bank, N. A., individually and as administrative agent (the “Administrative Agent”), and the other financial institutions signatory thereto, of the Credit Agreement dated as of September 28, 2007 (the “Credit Agreement”) between the Borrowers, the Administrative Agent and the financial institutions party thereto, consents to such Amendment and each of the transactions referenced therein, and hereby reaffirms its obligations under each of the Parent Guaranty, the Subsidiary Guaranty, and each of the applicable Security Documents (each as defined in the Credit Agreement). Each of the undersigned which is a party to the Security Agreement agrees to be bound by Section 5 of the Amendment. Each of the undersigned which is a party to the Pledge Agreement dated as of September 22, 2007 agrees to be bound by Section 6 of the Amendment.

Dated as of October 30, 2009

SCANSOURCE, INC.
By:	/s/ Richard P. Cleys
	Richard P. Cleys Chief Financial Officer
PARTNER SERVICES, INC. SCANSOURCE SECURITY DISTRIBUTION, INC. NETPOINT INTERNATIONAL, INC. OUTSOURCING UNLIMITED, INC. SCANSOURCE COMMUNICATIONS, INC.
By:	/s/ Linda B. Davis
	Linda B. Davis Treasurer

8650 COMMERCE DRIVE, LLC SCANSOURCE PROPERTIES, LLC LOGUE COURT PROPERTIES, LLC
By:	ScanSource, Inc.
	its sole member
By:	/s/ Richard P. Cleys
	Richard P. Cleys Chief Financial Officer
4100 QUEST, LLC
By:	Partner Services, Inc.
	its sole member
By:	/s/ Linda B. Davis
	Linda B. Davis Treasurer
SCANSOURCE EUROPE LIMITED
By:	/s/ Richard P. Cleys
Its: Director

____________________

Reaffirmation to Guaranty

EX-10.2

Exhibit 10.2

SCANSOURCE, INC.

NONQUALIFIED DEFERRED COMPENSATION PLAN

As Amended and Restated Effective January 1, 2005

SECTION 1

Purpose and Administration

1.1. Name of Plan. ScanSource, Inc. (the “Company”) hereby adopts the ScanSource, Inc. Deferred Compensation Plan (the “Plan”), as set forth herein.

1.2. Effective Date of Amended and Restated Plan. The Plan was originally established effective July 1, 2004. This document sets forth the terms of the Plan as amended and restated effective January 1, 2005, to comply with the requirements of Code Section 409A.

1.3. Purpose. The Company has established the Plan primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees of the Participating Employers. The Plan is intended to be a top-hat plan as described in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and is intended to comply with Code Section 409A. The Company intends that the Plan (and each Trust under the Plan as described in Section 13.2) shall be treated as unfunded for tax purposes and for purposes of Title I of ERISA and the Code. The Plan is not intended to qualify under Code Section 401(a).

A Participating Employer’s obligations hereunder, if any, to a Participant (or to a Participant’s beneficiary) shall be unsecured and shall be a mere promise by the Participating Employer to make payments hereunder in the future. A Participant (and, if applicable, the Participant’s beneficiary) shall be treated as a general unsecured creditor of any Participating Employer.

1.4. Administration. The Plan shall be administered by the committee appointed by the Company’s Board of Directors.

(a) Authority. The Plan Administrative Committee shall have full authority and power to administer and construe the Plan, subject to applicable requirements of law. Without limiting the generality of the foregoing, the Plan Administrative Committee shall have the following powers and duties:

(i) To make and enforce such rules and regulations as it deems necessary or proper for the administration of the Plan;

(ii) To interpret the Plan and to decide all questions concerning the Plan;

(iii) To designate persons eligible to participate in the Plan, subject to the approval of the Board;

(iv) To determine the amount and the recipient of any payments to be made under the Plan;

(v) To designate and value any investments deemed held in the Accounts;

1

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

(vi) To appoint such agents, counsel, accountants, consultants and other persons as may be required to assist in administering the Plan; and

(vii) To make all other determinations and to take all other steps necessary or advisable for the administration of the Plan.

Subject to paragraph (b) below, all decisions made by the Plan Administrative Committee pursuant to the provisions of the Plan shall be made in its sole discretion and shall be final, conclusive, and binding upon all parties.

(b) Authority of Board of Directors. Notwithstanding anything in this Plan to the contrary, the Board shall have the power

(i) to review and approve the persons who will be eligible to participate in the Plan; and

(ii) to make determinations with respect to the participation and benefits of to any member of the Plan Administrative Committee who is a participant in the Plan.

(c) Delegation of Duties. The Plan Administrative Committee may delegate such of its duties and may engage such experts and other persons as it deems appropriate in connection with administering the Plan. The Plan Administrative Committee shall be entitled to rely conclusively upon, and shall be fully protected in any action taken by the Plan Administrative Committee, in good faith in reliance upon any opinions or reports furnished to it by any such experts or other persons.

(d) Expenses. All expenses incurred prior to the termination of the Plan that shall arise in connection with the administration of the Plan, including, without limitation, administrative expenses and compensation and other expenses and charges of any actuary, counsel, accountant, specialist, or other person who shall be employed by the Plan Administrative Committee in connection with the administration of the Plan shall be paid by the Participating Employers.

(e) Indemnification of Plan Administrative Committee. The Participating Employers agree to indemnify and to defend to the fullest extent permitted by law any person serving as a member of the Plan Administrative Committee, and each employee of a Participating Employer or any of their affiliated companies appointed by the Plan Administrative Committee to carry out duties under this Plan, against all liabilities, damages, costs and expenses (including attorneys’ fees and amounts paid in settlement of any claims approved by the Company) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith.

2

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

(f) Liability. To the extent permitted by law, neither the Plan Administrative Committee nor any other person shall incur any liability for any acts or for any failure to act except for liability arising out of such person’s own willful misconduct or willful breach of the Plan.

3

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 2

Definitions

For purposes of the Plan, the following words and phrases shall have the meanings set forth below, unless their context clearly requires a different meaning:

2.1. Account. “Deferred Compensation Account” means the bookkeeping account maintained for the Participant in accordance with Section 7.1 and which includes the following subaccounts:

(a) “In-Service Distribution Sub-Account(s)” means the Account(s) established under a Participant’s Account in connection with the Participant’s election of one or more scheduled In-Service Distribution Dates pursuant to Section 6.1.

(b) “Separation from Service Distribution Sub-Account” means the Account established under a Participant’s Account in connection with the Participant’s Separation from Service distribution pursuant to Section 6.2.

2.2. Affiliate. “Affiliate” means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Company and any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Company.

2.3. Board. “Board” means the Board of Directors of ScanSource, Inc.

2.4. Change in Control. “Change in Control” means (a) a change in the ownership of the Company as determined in accordance with Treasury Regulation section 1.409A-3(i)(5)(v), (b) a change in effective control of the Company as determined in accordance with Treasury Regulation section 1.409A-3(i)(5)(vi), or (c) a change in the ownership of a substantial portion of the assets of the Company as determined in accordance with Treasury Regulation section 1.409A-3(i)(5)(vii).

2.5. Code. “Code” means the Internal Revenue Code of 1986, as amended from time to time. Any reference to a section of the Code includes any comparable section or sections of any future legislation that amends, supplements or supersedes that section.

2.6. Company. “Company” means ScanSource, Inc. or any successor company that adopts this Plan.

2.7. Compensation. “Compensation” means such forms of compensation payable in cash as may be designated by the Plan Administrative Committee, from time to time, in its sole discretion, as eligible for deferral under this Plan. Compensation may include, but shall be not limited to, base salary, and any bonus compensation, payable to the Participant.

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

2.8. Compensation Deferrals. “Compensation Deferrals” means the amount of Compensation that a Participant elects to defer pursuant to Section 4.

2.9. Deferral Election. “Deferral Election” means an election made by a Participant pursuant to Section 4 to defer Compensation.

2.10. Discretionary Matching Contribution. “Discretionary Matching Contribution” means the contribution deemed credited to a Participant’s Account pursuant to Section 5.

2.11. Eligible Employee. “Eligible Employee” means an employee of a Participating Employer who has been designated pursuant to Section 3 as eligible to make contributions to the Plan.

2.12. ERISA. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time. Any reference to a section of ERISA includes any comparable section or sections of any future legislation that amends, supplements or supersedes that section.

2.13. In-Service Distribution Date. “In-Service Distribution Date” means the date selected by the Participant for commencement of a scheduled in-service distribution pursuant to Section 6.1.

2.14. Participant. “Participant” means an Employee who meets the eligibility criteria set forth in Section 3 and who has made a Deferral Election in accordance with the terms of the Plan.

2.15. Participating Employer. “Participating Employer” means ScanSource, Inc., and any of its participating Affiliates, or any successor companies.

2.16. Plan Administrative Committee. “Plan Administrative Committee” means the committee appointed by the Company’s Board of Directors to administer the Plan.

2.17. Plan Year. “Plan Year” means (a) with respect to the year in which the Plan first became effective, July 1, 2004 through December 31, 2004 and (b) beginning January 1, 2005, the calendar year.

2.18. Retirement Date. “Retirement Date” means

(a) Prior to January 1, 2009, the date on which a Participant separates from service after reaching age 65; and

(b) On and after January 1, 2009, the date on which a Participant separates from service after reaching 55 and completing at least 10 years of service as an employee of a Participating Employer.

2.19. ScanSource Controlled Group. “ScanSource Controlled Group” means the Company and its Affiliates.

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

2.20. Separation from Service or Separate from Service. A Participant will be considered to Separate from Service if he or she dies, retires, or otherwise has a termination of employment with the ScanSource Controlled Group, subject to the following:

(a) For this purpose, the employment relationship is treated as continuing intact while the individual is on military leave, sick leave, or other bona fide leave of absence (such as temporary employment by the government) if the period of such leave does not exceed six (6) months, or if longer, so long as the individual’s right to reemployment with the ScanSource Controlled Group is provided either by statute or by contract. If the period of leave exceeds six (6) months and the individual’s right to reemployment is not provided either by statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six-month period.

(b) The determination of whether a Participant has separated from service shall be determined based on the facts and circumstances in accordance with the rules set forth in Code Section 409A and the regulations thereunder.

2.21. Totally Disabled or Total Disability.

(a) Prior to January 1, 2005, a Participant shall be considered to be “Totally Disabled” or to have a “Total Disability” if he or she becomes entitled to receive disability benefits under a Participating Employer’s long-term disability insurance plan.

(b) On and after January 1, 2005, a Participant shall be considered to be “Total Disabled” if he or she meets one of the following requirements:

(i) The Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months.

(ii) The Participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of a Participating Employer.

(iii) The Participant is determined to be totally disabled by the Social Security Administration.

2.22. Valuation Date. “Valuation Date” means each business day the financial markets and Wachovia are open, unless the underlying investment requires a less frequent valuation.

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

2.23. Other Definitions. In addition to the terms defined in this Section 2, other terms are defined when first used in Sections of this Plan.

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 3

Eligibility and Participation

3.1. Eligible Employees. Only employees who are designated by the Plan Administrative Committee and approved by the Board shall be eligible to participate in the Plan. See Appendix B.

3.2. Participation.

(a) An Eligible Employee shall become a Participant in the Plan by (i) completing and submitting to the Company a Deferral Election in accordance with Section 4 below, and (ii) complying with such terms and conditions as the Board and/or the Plan Administrative Committee may from time to time establish for the implementation of the Plan, including, but not limited to, any condition the Board and/or the Plan Administrative Committee may deem necessary or appropriate for the Participating Employers to meet their obligations under the Plan.

(b) An employee shall only be a Participant eligible to have compensation deferred under this Plan only while he or she is employed by a Participating Employer and is designated as an Eligible Employee. If an employee subsequently ceases to be a designated Eligible Employee after becoming a Participant, he or she shall remain a Participant for the other purposes of the Plan to the extent of any existing Account balance subject to Section 14.1.

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 4

Compensation Deferrals

4.1. Election to Defer Compensation. An Eligible Employee may elect to defer receipt of Compensation as follows:

(a) General Rule. Except as otherwise provided in this Section, an election to defer receipt of Compensation for services to be performed during a calendar year must be made no later than the December 31 preceding the calendar year during which the Participant will perform services.

(b) Performance-Based Compensation. In the case of Compensation that qualifies as “performance-based compensation” for purposes of Code Section 409A, an election to defer receipt of such compensation must be made no later than the date that is six (6) months before the end of the performance period for such performance-based compensation.

(c) First Year of Eligibility. In the case of the first year in which an employee becomes eligible to participate in the Plan, an initial deferral election must be made not later than thirty (30) days after the date the employee becomes eligible to participate in the Plan. Such election shall apply only with respect to compensation paid for services to be performed subsequent to the election.

This paragraph will not apply to an Eligible Employee who is a participant in any other account balance deferred compensation plans maintained by any member of the ScanSource Controlled Group which is required to be aggregated with this Plan under Code Section 409A.

4.2. Amount of Compensation Deferral. A Participant may elect to defer receipt of a percentage of his or her Compensation payable for a Plan Year subject to the following rules:

(a) The maximum percentage Compensation that can be deferred for a Plan Year will be determined by the Plan Administrative Committee at least thirty (30) days prior to the beginning of the Plan Year.

(b) The amount of the deferral elected for the Plan Year cannot reduce the Participant’s cash compensation below the amount the Participating Employer determines necessary to satisfy applicable federal, state and local income and employment withholding taxes and any obligations to make benefit plan contributions.

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

4.3. Election of In-Service Distribution Date. A Participant may elect to have the total amount of Compensation Deferrals and Discretionary Matching Contributions credited to his or her Account for a particular Plan Year, and any earnings thereon, distributed at a designated date prior to his or her Separation from Service in accordance with Section 6.

4.4. Election of Form of Payment of Retirement Distribution. A Participant may elect whether payment of his or her Account will be made in a lump sum or installments following his or her Retirement Date in accordance with Section 6. Such election shall be made at the time the Participant first elects to participate in this Plan.

4.5. Election of Distribution Upon Change In Control. A Participant may elect to have his or her Account distributed immediately following a Change in Control. Such election shall be made at the time the Participant first elects to participate in this Plan. Any such election shall be irrevocable.

4.6. General Rules Applicable to Elections. Elections under this Article 4 shall be made in the form, manner, and in accordance with the notice requirements, prescribed by the Plan Administrative Committee. Except as otherwise provided in this Plan, the elections made by a Participant with respect to Compensation Deferrals for a calendar year shall become irrevocable as of the last date on which such election can be made for the calendar year pursuant to this Article 4.

4.7. Cancellation of Deferral Election.

(a) The Plan Administrative Committee may permit a Participant to cancel a Deferral Election during a calendar year if it determines either of the following circumstances has occurred:

(i) The Participant has an “unforeseeable emergency” as defined in Section 7.03 below or a hardship distribution (pursuant to Treasury Regulation §1.401(k)-1(d)(3)) from a 401(k) plan sponsored by a Participating Employer. If approved by the Plan Administrative Committee, such cancellation shall take effect as of the first payroll period next following approval by the Plan Administrative Committee.

(ii) The Participant incurs a disability. If approved by the Plan Administrative Committee, such cancellation such cancellation shall take effect no later than the end of the calendar year or the 15th day of the third month following the date Participant incurs a disability. Solely for purposes of this clause (ii), a disability refers to any medically determinable physical or mental impairment resulting in the Participant’s inability to perform the duties of his or her position or any substantially similar position, where such impairment can be expected to result in death or can be expected to last for a continuous period of not less than six months.

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

(b) If a Participant cancels a Deferral Election during a calendar year, he or she will not be permitted to make a new deferral election with respect to Compensation relating to services performed during the same calendar year.

4.8. Crediting of Compensation Deferrals.

(a) The amount of Compensation deferred by a Participant shall be credited to the Participant’s Account as of the Valuation Date coincident with or immediately following the date such Compensation would, but for the Participant’s Deferral Election, be payable to the Participant.

(b) The Compensation Deferrals, and the earnings thereon, credited to the Participant’s Compensation Deferral Account shall be immediately 100% vested and nonforfeitable at all times.

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 5

Discretionary Matching Contributions

5.1. Discretionary Matching Contribution.

(a) For any Plan Year, a Participating Employer may credit to the Deferred Compensation Account of any Participant employed by that Participating Employer with a Discretionary Matching Contribution in such amount as may be determined by the Participating Employer in its sole discretion at least thirty (30) days prior to the beginning of the Plan Year.

(b) The amount of the Discretionary Matching Contribution to be credited to a Participant’s Account for a Plan Year shall be equal to such dollar amount, such percentage of a Participant’s Compensation Deferrals, or any combination thereof, as may be determined by the Participating Employer in its sole discretion.

(c) Any Discretionary Matching Contribution will be credited to a Participant’s Account as of the Valuation Date specified by the Participating Employer.

5.2. Vesting of Discretionary Matching Contribution.

(a) Except as otherwise provide in paragraph (b) below and subject to Section 10, the Discretionary Matching Contribution credited to a Participant’s Account with respect to a particular Plan Year shall become vested in accordance with the following schedule:

Years of Service Completed Following Plan Year for which Contribution is Credited	Vested Percentage
Less than 3 Years of Service	0	%
3 Years of Service	50	%
4 Years of Service	75	%
5 or more Years of Service	100	%

A Participant will be credited with a Year of Service if

(i) he or she is actively employed by a Participating Employer for a continuous period of at least 6 full months during a Plan Year, or

(ii) he or she fails to meet the active employment requirement in clause (i) above solely as a result of an approved leave of absence.

(b) Notwithstanding the foregoing vesting schedule –

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

(i) Solely for purposes of determining the vesting of Discretionary Matching Contributions credited to a Participant’s Account with respect to the Plan Year ended December 31, 2005, the number of Years of Service completed by such Participant will be determined during the period beginning as of July 1, 2005.

(ii) The balance credited to a Participant’s Participating Employer Contribution Account shall be become fully vested if the Participant remains continuously employed by a Participating Employer or an Affiliate until his or her death, Total Disability, Retirement Date or the occurrence of a Change in Control.

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 6

Distribution Elections

Subject to the other terms contained in this Plan, a Participant may make the following distribution elections:

6.1. Election of Designated In-Service Distribution Date(s). The Participant may elect to have the total amount of Compensation Deferrals and vested Discretionary Matching Contributions credited to his or her Account for a particular Plan Year, and any earnings thereon, distributed in a lump sum at a specified date prior to his or her Separation from Service subject to the following rules:

(a) The specified in-service distribution date cannot be earlier than the end of the five (5) Plan Year period following the Plan Year for which such Compensation Deferrals and Discretionary Matching Contributions are credited to his or her Account.

(b) If a Participant fails to make an in-service distribution election with respect to Compensation Deferrals and Discretionary Matching Contributions for a calendar year, then such Compensation Deferrals or Discretionary Matching Contributions will be allocated to the Participant’s Separation from Service Distribution Sub-Account.

(c) Such election shall be made at the same time the Participant makes the Deferral Election in accordance with Section 4 for that Plan Year. Any such election shall be irrevocable.

(d) A separate In-Service Distribution Sub-Account will be established and maintained as part of the Participant’s Account for each In-Service Distribution Date elected by the Participant. Such Account shall be credited or charged with (i) the amounts of Compensation Deferrals and Discretionary Matching Contributions designated by the Participant to be distributed as of the In-Service Distribution Date, (ii) a portion of the income, gains, losses, and expenses of investments deemed held in the Participant’s Account as allocated based on the Compensation Deferrals and Discretionary Matching Contributions credited to such Sub-Account and (iii) distributions from such Sub-Account.

6.2. Election of Form of Payment Upon Separation from Service.

(a) Unless a Participant elects otherwise, the vested balance credited to his or her Separation from Service Distribution Sub-Account will be distributed in a single lump sum payment.

(b) A Participant may elect to have the vested balance credited to his or her Separation from Service Distribution Sub-Account distributed in substantially equal monthly installment payments for a period of 36, 48 or 60 months. Notwithstanding the foregoing, the installment payment option will become effective only if the Participant Separates from Service after his or her Retirement Date.

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

(c) Except as otherwise provided in Appendix A to this Plan, a Participant may change his or her retirement distribution election only in accordance with the following rules:

(i) Such election may not take effect until at least twelve (12) months after the date on which the election is made.

(ii) The new distribution date cannot be less than five (5) years from the date such payment otherwise would have been paid but for the new election.

(iii) Such election must be at least twelve (12) months prior to the date the first payment is scheduled to be paid.

(d) A separate Separation from Service Distribution Sub-Account will be established and maintained as part of the Participant’s Account. Such Account shall be credited or charged with (i) the amount of Compensation Deferrals and Discretionary Matching Contributions to be distributed following the Participant’s Separation from Service, (ii) a portion of the income, gains, losses, and expenses of investments deemed held in the Participant’s Account as allocated based on the Compensation Deferrals and Discretionary Matching Contributions credited to such Sub-Account and (iii) distributions from such Sub-Account.

6.3. Election of Distribution Upon Change in Control. A Participant may elect to have his or her Account distributed immediately following a Change in Control. Such election shall be made at the time the Participant first elects to participate in this Plan. Any such election shall be irrevocable.

6.4. General Rules. Elections under this Section 6 shall be made in the form, manner, and in accordance with the notice requirements prescribed by the Plan Administrative Committee. Except as otherwise provided in this Plan, if a Participant fails to make a distribution election under this Section 6, the balance credited to his or her Account will be distributed in a single lump sum payment following his or her Separation from Service date.

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 7

Deferred Compensation Accounts

7.1. Participant’s Accounts. The Company shall establish and maintain a separate memorandum account in the name of each Participant. Such account shall be credited or charged with (a) the Participant’s Compensation Deferrals, if any; (b) Discretionary Matching Contributions, if any; (c) income, gains, losses, and expenses of investments deemed held in such account; and (d) distributions from such account.

7.2. Investment of Accounts.

(a) The amount credited to a Participant’s Account shall be deemed to be invested and reinvested in mutual funds, stocks, bonds, securities, and any other assets or investment vehicles, as may be selected by the Plan Administrative Committee in its sole discretion; provided that in no event shall such Accounts be deemed to be invested in securities issued by the Company.

(b) A Participant may elect the manner in which his or her Account is deemed to be invested and reinvested among the deemed investment options selected by the Plan Administrative Committee. A Participant’s investment election shall remain in effect until the Participant properly files a change of election with the Plan Administrative Committee. In the event that any Participant fails to make an election with respect to the investment of all or a portion of the balance in his or her account at any time, the Participant shall be deemed to have elected that such balance be deemed to be invested in a money market (or equivalent) fund and such assets shall remain in such investment fund until such time as the Participant directs otherwise.

(c) A Participant’s investment direction (or any change in his or her investment direction) shall be made in the form, manner, and in accordance with the notice requirements, prescribed by the Plan Administrative Committee.

(d) A Participant, by electing to participate in this Plan, agrees on behalf of himself or herself and his or her designated beneficiaries, to assume all risk in connection with any increase or decrease in value of the investments which are deemed to be held in his or her account. Each Participant further agrees that the Plan Administrative Committee and the Participating Employer shall not in any way be held liable for any investment decisions or for the failure to make any investments by the Plan Administrative Committee.

16

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 8

Distribution Prior to Separation from Service

8.1. Distribution of In-Service Distribution Sub-Account(s).

(a) Commencement of Payment. Subject to paragraph (c), payment of a Participant’s In-Service Distribution Sub-Account will be paid in a lump sum distribution within the calendar month following the calendar month of the In-Service Distribution Date applicable to such Sub-Account.

(b) Amount of Payment. The amount of the lump sum payment will be equal to the value of the In-Service Distribution Account as of the last valuation date preceding the date of payment.

(c) Separation from Service Prior to In-Service Distribution Date. If the Participant Separates from Service prior to the commencement of distribution of an In-Service Distribution Sub-Account, then such In-Service Distribution Sub-Account shall be distributed at the same time and in the same manner as the Participant’s Separation from Service Distribution Sub-Account.

8.2. Financial Hardship. The Plan Administrative Committee, in its sole discretion, may permit a hardship payment to be made to a Participant at any time prior to Separation from Service in the event of an “unforeseeable emergency”. Withdrawals of amounts because of an unforeseeable emergency will be permitted to the extent reasonably needed to satisfy the emergency need.

(a) For purposes of this Section, an “unforeseeable emergency” is a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

(b) The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but, in any case, payment may not be made to the extent that such hardship is or may be relieved:

(i) Through reimbursement or compensation by insurance or otherwise;

(ii) By liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or

(iii) By cessation of Compensation Deferrals under the Plan.

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ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

8.3. Distribution Upon Change in Control. If a Participant has elected to receive distribution of his or her Account upon the occurrence of a Change in Control, the balance credited to the Participant’s Account, shall be distributed to the Participant in a single lump sum payment within 30 days after the Change in Control.

18

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 9

Distribution Following Separation from Service

9.1. Distribution from Separation from Service Distribution Sub-Account.

(a) Commencement of Payment. Payment of a Participant’s Separation from Service Distribution Sub-Account will commence as of the first calendar month following the calendar month of the Participant’s Separation from Service date.

Notwithstanding the foregoing, in no event shall payment to a Participant who is a “specified employee” within the meaning of Code Section 409A on his or her Separation from Service date, commence earlier than the first day following the end of the six (6) month period following such date.

(b) Form of Payment.

(i) Separation from Service Prior to Retirement Date. In the event that a Participant Separates from Service for any reason other than death or Total Disability prior to reaching his or her Retirement Date, then notwithstanding any election made under Section 7.02 above, the amount credited to the Participant’s Separation from Service Distribution Sub-Account will be distributed to the Participant in a single lump sum payment.

(ii) Separation from Service at or after Retirement Date. If a Participant Separates from Service at or after reaching his or her Retirement Date, his or her Separation from Service Distribution Sub-Account will be distributed to the Participant in accordance with his or her election of a lump sum payment or installment payments under Section 7.02 above.

(c) Amount of Payment.

(i) Lump Sum Amount. The amount of the lump sum payment will be equal to the value of the Separation from Service Distribution Account as of the last valuation date preceding the date of payment.

(ii) Installment Payments. Each annual installment payment shall be in the amount equal to (A) the value of the Separation from Service Distribution Sub-Account, as of the last valuation date preceding the date of payment, divided by (B) the number of installment payments not yet distributed.

Notwithstanding the foregoing, if the balance credited to the Participant’s Account as of his or her Separation from Service date does not exceed the applicable dollar limit on elective 401(k) plan deferrals then in effect under Code Section 402(g)(1)(B), then distribution will be made in a single lump sum payment within the calendar month following the calendar month of the Participant’s Separation from Service date.

19

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

9.2. Separation from Service Due to Total Disability. In the event that a Participant separates from service at any time by reason of becoming Totally Disabled, the balance credited to his or her Account will be distributed to the Participant in a single lump payment within the calendar month following the calendar month of the Participant’s Separation from Service date.

9.3. Death.

(a) In the event that a Participant’s employment is terminated by reason of his or her death, the balance credited to his or her Account will be distributed to the Participant’s designated beneficiary in a single lump payment within the calendar month following the calendar month of the Participant’s death.

(b) In the event a Participant dies after the commencement of installment payments, but prior to the completion of all such payments due and owing hereunder, the remaining balance credited to his or her Account will be distributed to the Participant’s designated beneficiary in a single lump payment within the calendar month following the calendar month in which the Plan Administrative Committee receives satisfactory proof of the Participant’s death.

9.4. Designated Beneficiary.

(a) The Participant may name a beneficiary or beneficiaries to receive the balance of the Participant’s Deferred Compensation Account in the event of the Participant’s death prior to the payment of the Participant’s entire Deferred Compensation Account. To be effective, any beneficiary designation must be filed in writing with the Plan Administrative Committee in accordance with rules and procedures adopted by the Plan Administrative Committee for that purpose.

(b) A Participant may revoke an existing beneficiary designation by filing another written beneficiary designation with the Plan Administrative Committee. The latest beneficiary designation received by the Plan Administrative Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Plan Administrative Committee prior to the Participant’s death.

(c) If no beneficiary is named by a Participant, or if the Participant survives all of the Participant’s named beneficiaries and does not designate another beneficiary, the Participant’s Deferred Compensation Account shall be paid in the following order of precedence:

(i) The Participant’s spouse;

20

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

(ii) The Participant’s children (including adopted children) per stirpes; or

(iii) The Participant’s estate.

21

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 10

Forfeiture of Benefits

10.1. Notwithstanding anything in this Plan to the contrary, if the Plan Administrative Committee, in its sole discretion, determines that

(a) the Participant’s employment with the Participating Employer has been terminated for Good Cause or,

(b) if at any time during which a Participant is entitled to receive payments under the Plan, the Participant has breached any of his or her post-employment obligations, including, but not limited to, any restrictive covenants or obligations under any agreement and general release,

then the Plan Administrative Committee may cause the Participant’s entire interest in benefits attributable to his or her Employer Contribution Account to be forfeited and discontinued, or may cause the Participant’s payments of benefits under the Plan to be limited or suspended for such other period the Plan Administrative Committee finds advisable under the circumstances, and may take any other action and seek any other relief the Plan Administrative Committee, in its sole discretion, deems appropriate.

10.2. “Good Cause” means the Participant’s fraud, dishonesty, or willful violation of any law or significant policy of the Participating Employer that is committed in connection with the Participant’s employment by or association with the Company or Affiliate. Whether a Participant has been terminated for Good Cause shall be determined by the Plan Administrative Committee.

Regardless of whether a Participant’s employment initially was considered to be terminated for any reason other than Good Cause, the Participant’s employment will be considered to have been terminated for Good Cause for purposes of this Plan if the Plan Administrative Committee subsequently determines that the Participant engaged in an act constituting Good Cause.

10.3. The decision of the Plan Administrative Committee shall be final. The omission or failure of the Plan Administrative Committee to exercise this right at any time shall not be deemed a waiver of its right to exercise such right in the future. The exercise of discretion will not create a precedent in any future cases.

22

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 11

Appeals Procedure

11.1. The Plan Administrative Committee shall approve or wholly or partially deny all claims for benefits under the Plan within a reasonable period of time after all required documentation has been furnished to the Plan Administrative Committee.

11.2. If a claim is wholly or partially denied, the Plan Administrative Committee shall provide the claimant with written notice setting forth the specific reasons for the denial, making reference to the pertinent provisions of the Plan or the Plan documents on which the denial is based; describe any additional material or information that should be received before the claim may be acted upon favorably, and explain why such material or information, if any, is needed; and inform the person making the claim of his or her right pursuant to this Section to request review of the decision by the Plan Administrative Committee.

11.3. A claimant shall have the right to request a review of the decision denying the claim. Such request must be made by filing a written application for review with the Plan Administrative Committee no later than sixty (60) days after receipt by the claimant of written notice of the denial of his or her claim. The claimant may review pertinent Plan documents and shall submit such written comments and other information which he or she wishes the Plan Administrative Committee to consider in connection with his or her claim.

11.4. The Plan Administrative Committee may hold any hearing or conduct any independent investigation which it deems necessary to render its decision on review. Such decision shall be made as soon as practicable after the Plan Administrative Committee receives the request for review. Written notice of the decision on review shall be promptly furnished to the claimant and shall include specific reasons for the decision.

11.5. For all purposes under the Plan, decisions on claims (where no review is requested) and decisions on review (where review is requested) shall be final, binding and conclusive on all interested persons.

23

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 12

Amendment or Termination of the Plan

12.1. The Plan Administrative Committee may, in its sole discretion, terminate, suspend or amend this Plan at any time or from time to time, in whole or in part, with respect to any Participants or beneficiaries whether or not payments have commenced to such Participants or beneficiaries. Notwithstanding the foregoing, no amendment, termination, or suspension of the Plan will affect a Participant’s right to receive amounts previously deferred under the Plan.

12.2. In the event the Plan is terminated and liquidated in accordance with the requirements described in Treasury Regulation section 1.409A-3(j)(4)(ix), the Plan Administrative Committee shall distribute the remaining amounts in Participants’ Accounts at such times and in such ways as the Plan Administrative Committee, in its sole discretion, may deem appropriate.

24

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 13

Unfunded Plan; Change in Control

13.1. Unfunded Plan. Nothing in this Plan shall be construed as giving any Participant, or his or her legal representative or designated beneficiary, any claim against any specific assets of the Company or any of its affiliated companies or as imposing any trustee relationship upon the Company or any of its affiliated companies in respect of the Participant. The Participating Employers shall not be required to segregate any assets in order to provide for the satisfaction of the obligations hereunder. Investments deemed held in the Accounts shall continue to be a part of the general funds of the applicable Participating Employers, and no individual or entity other than the Participating Employer shall have any interest whatsoever in such funds. If and to the extent that the Participant or his or her legal representative or designated beneficiary acquires a right to receive any payment pursuant to this Plan, such right shall be no greater than the right of an unsecured general creditor of the applicable Participating Employer.

13.2. Rabbi Trust. The Participating Employers shall establish a trust (or trusts) for the purpose of providing funds for the payment of the amounts credited to Participants under the Plan subject to the following rules:

(a) Such trust(s) shall be an irrevocable grantor trust containing provisions which are the same as, or are similar to, the provisions contained in the model “rabbi trust” set forth in Internal Revenue Service Revenue Procedure 92-64 (or any successor guidance issued by the IRS).

(b) The Participating Employers shall make contributions to the trust(s) equal to the amount of the Compensation Deferrals and Discretionary Matching Contributions as soon as practicable, but in no event later five (5) business days, following the date on which such contributions are credited to Participants’ Accounts.

(c) The Participating Employers shall pay all costs relating to the establishment and maintenance of the trust(s) and the investment of funds held in such trust(s).

13.3. Change in Control. In the event of a Change in Control, the Participating Employers shall, as soon as possible, but in no event later than five (5) business days following a Change in Control, make an irrevocable contribution to the trust(s) established pursuant to Section 13.2 in an amount that is sufficient to pay the total amount credited to all Accounts under the Plan as of the date of the Change in Control.

25

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

SECTION 14

Miscellaneous Provisions

14.1. Acceleration or Delay of Payments Permitted Under Code Section 409a.

(a) Acceleration of Payments. The Plan Administrative Committee may, its discretion, accelerate the payment of all or a portion of a Participant’s vested Account prior to the time specified in this Plan to the extent such acceleration is permitted by Treasury Regulation Section 1.409A-3(j)(4). Such permitted accelerations shall include payments to comply with domestic relations orders, payments to comply with conflicts of interest laws, payment of employment taxes, payment upon income inclusion under Code Section 409A, and/or such other circumstances as are permitted by the regulations.

(b) Delay of Payments. The Plan Administrative Committee may, in its discretion, delay the payment of all or a portion of a Participant’s Account in such circumstances as may be permitted under Code Section 409A.

14.2. Benefits Non-Assignable. Benefits under the Plan may not be anticipated, assigned or alienated, and will not be subject to claims of a Participant’s creditors by any process whatsoever, except as specifically provided in this Plan or by the Plan Administrative Committee in its sole discretion.

14.3. Right to Withhold Taxes. The Participating Employers shall have the right to withhold such amounts from any payment under this Plan as it determines necessary to fulfill any federal, state, or local wage or compensation withholding requirements.

14.4. No Right to Continued Employment. Neither the Plan, nor any action taken under the Plan, shall confer upon any Participant any right to continuance of employment by the Company or any of its affiliated companies nor shall it interfere in any way with the right of the Company or any of its affiliated companies to terminate any Participant’s employment at any time.

14.5. Mental or Physical Incompetency. If the Plan Administrative Committee determines that any person entitled to payments under the Plan is incompetent by reason of physical or mental disability, as established by a court of competent jurisdiction, the Plan Administrative Committee may cause all payments thereafter becoming due to such person to be made to any other person for his or her benefit, without responsibility to follow the application of amounts so paid. Payments made pursuant to this Section shall completely discharge the Plan Administrative Committee and the Participating Employer.

14.6. Unclaimed Benefit. Each Participant shall keep the Plan Administrative Committee informed in writing of his or her current address and the current address of his or her beneficiary. The Plan Administrative Committee shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Plan Administrative Committee within three (3) years after the date on which payment of the Participant’s Account may first be

26

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

made, payment may be made as though the Participant had died at the end of the three (3) year period. If, within one additional year after such three (3) year period has elapsed, or, within three years after the actual death of a Participant, the Plan Administrative Committee is unable to locate any designated beneficiary of the Participant, then the Participating Employer shall have no further obligation to pay any benefit hereunder to such Participant or beneficiary or any other person and such benefit shall be irrevocably forfeited.

14.7. Suspension of Payments. If any controversy, doubt or disagreement should arise as to the person to whom any distribution or payment should be made, the Plan Administrative Committee, in its discretion, may, without any liability whatsoever, retain the funds involved or the sum in question pending settlement or resolution to the Plan Administrative Committee’s satisfaction of the matter, or pending a final adjudication by a court of competent jurisdiction.

14.8. Governing Laws. The provisions of the Plan shall be construed, administered and enforced according to applicable Federal law and the laws of State of South Carolina.

14.9. Severability. The provisions of the Plan are severable. If any provision of the Plan is deemed legally or factually invalid or unenforceable to any extent or in any application, then the remainder of the provision and the Plan, except to such extent or in such application, shall not be affected, and each and every provision of the Plan shall be valid and enforceable to the fullest extent and in the broadest application permitted by law.

14.10. No Other Agreements or Understandings. This Plan represents the sole agreement between the Participating Employers and Participants concerning its subject matter, and it supersedes all prior agreements, arrangements, understandings, warranties, representations, and statements between or among the parties concerning its subject matter.

27

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

IN WITNESS WHEREOF, the Company has caused this Plan to be executed by it’s duly authorized officer on this 15th day of December, 2008.

SCANSOURCE, INC.
(the “Company”)
By:	Richard P. Cleys
Title:	V.P. & Chief Financial Officer

ATTEST:
By:	/s/ Amy Pharr
Title:	Sr. Manager, HR

28

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

APPENDIX A

Code Section 409A Transition Rules

1. Notwithstanding anything in the Plan to the contrary, a Participant who has made a deferral election with respect to Compensation earned or payable on or after January 1, 2005, may reduce or revoke any current deferral election prior to December 31, 2005 or such earlier date as may be specified by the Plan Administrative Committee.

2. Notwithstanding anything in the Plan to the contrary, a Participant may choose a new distribution date for the payment of his or her In-Service Distribution Sub-Account(s) and/or may make a new election with respect to the form of payment of the Account portion of his or her Separation from Service Sub-Account in accordance with the following rules:

(a) An election to change a time and form of payment of payment made on or after January 1, 2005 and on or before December 31, 2005 may apply only to amounts that would not otherwise be payable in 2005 and may not cause an amount to be paid in 2005 that would not otherwise be payable in 2005;

(b) An election to change a time and form of payment of payment made on or after January 1, 2006 and on or before December 31, 2006 may apply only to amounts that would not otherwise be payable in 2006 and may not cause an amount to be paid in 2006 that would not otherwise be payable in 2006;

(c) An election to change a time and form of payment of payment made on or after January 1, 2007 and on or before December 31, 2007 may apply only to amounts that would not otherwise be payable in 2007 and may not cause an amount to be paid in 2007 that would not otherwise be payable in 2007; and

(d) An election to change a time and form of payment of payment made on or after January 1, 2008 and on or before December 31, 2008 may apply only to amounts that would not otherwise be payable in 2008 and may not cause an amount to be paid in 2008 that would not otherwise be payable in 2008.

3. Any election pursuant to this Appendix shall be made in such form and manner as may be required by the Plan Administrative Committee.

29

ScanSource, Inc.

Deferred Compensation Plan

Amended and Restated effective 1/1/2005

EX-31.1

Exhibit 31.1

Certification Pursuant to Rule 13a-14(a) or 15d-14(a)

of the Exchange Act, as adopted Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, Michael L. Baur, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ScanSource, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael L. Baur

Michael L. Baur, Chief Executive Officer

(Principal Executive Officer)

Date: November 9, 2009

EX-31.2

Exhibit 31.2

Certification Pursuant to Rule 13a-14(a) or 15d-14(a)

of the Exchange Act, as adopted Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, Richard P. Cleys, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ScanSource, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Richard P. Cleys

Richard P. Cleys, Vice President and

Chief Financial Officer

(Principal Financial Officer)

Date: November 9, 2009

EX-32.1

Exhibit 32.1

Certification of the Chief Executive Officer of ScanSource, Inc.

Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to § 906

of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of ScanSource, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officer of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of §13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2009	/s/ Michael L. Baur
	Michael L. Baur, Chief Executive Officer (Principal Executive Officer)

This certification is being furnished solely to comply with the provisions of § 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the accompanying Report, including for purposes of Section 18 of the Exchange Act, or as a separate disclosure document. A signed original of this written certification required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written certification required by Section 906, has been provided to the Company and will be rendered by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification of the Chief Financial Officer of ScanSource, Inc.

Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to § 906

of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of ScanSource, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officer of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of §13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2009	/s/ Richard P. Cleys
	Richard P. Cleys, Vice President and Chief Financial Officer (Principal Financial Officer)

This certification is being furnished solely to comply with the provisions of § 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the accompanying Report, including for purposes of Section 18 of the Exchange Act, or as a separate disclosure document. A signed original of this written certification required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written certification required by Section 906, has been provided to the Company and will be rendered by the Company and furnished to the Securities and Exchange Commission or its staff upon request.