SCSC ScanSource Inc

ScanSource, Inc. (Nasdaq:SCSC), a leading international distributor of AIDC (automatic identification and data capture), point of sale, communications and electronic security products for the reseller market, today announced complete financial results for its first three quarters of fiscal year 2007. The Company reported GAAP net income of $12.5 million, $8.8 million and $10.1 million for the September, December and March fiscal 2007 quarters, respectively. Net income for the September, 2006 quarter increased 38% versus restated results for the September, 2005 quarter, while net income for the December, 2006 quarter declined 2% and net income for the March, 2007 quarter increased 12% versus the corresponding restated prior periods. When adjusted to exclude third party legal and accounting costs of the Special Committee�s review of the Company�s stock option grant practices, net income for the December 2006 quarter increased 32% and net income for the March 2007 quarter increased 32% versus the restated prior year quarters. �We are pleased with our financial results for the three quarters ended March 31, 2007,� said Mike Baur, President and CEO of ScanSource. �Our divisions have kept excellent focus on operating performance while we have completed our SEC filings.� Concurrently with this release, the Company is filing with the SEC an amended annual report on Form 10-K/A for the fiscal year ended June 30, 2006 and quarterly reports on Form 10-Q for the quarters ended September 30, 2006, December 31, 2006, and March 31, 2007. The Company has restated its financial results for prior periods as a result of a review of the Company�s stock option grant practices by a Special Committee, consisting solely of independent directors. As part of the restatement process, the Company reflected other audit adjustments in its restated results. The restatement changed previously reported fully diluted earnings per share by $.00, $.00 and a decrease of $.03 for the years ended 2006, 2005 and 2004 respectively, with a cumulative after tax reduction to net income over the period 1995 to 2006 of $5.3 million. See the filings noted above for more information concerning the Company�s restated results for fiscal 2006, as well as its results for the first three quarters of fiscal 2007. Selected financial results for each of the first three quarters of fiscal year 2007 are presented below: Current Year Prior Year (in millions) Quarter Ended Quarter Ended Increase % (restated) � 1st Quarter Fiscal 2007 Sept 30, 2006 Sept 30, 2005 Net Sales $496.2� $390.4� $106� 27% Operating Income 21.5� 14.9� 6.6� 45% Net Income 12.5� 9.0� 3.5� 38% Diluted Earnings per Share 0.48� 0.35� 0.13� 37% � 2nd Quarter Fiscal 2007 Dec 31, 2006 Dec 31, 2005 Net Sales $473.7� $408.5� $65� 16% Operating Income 15.9� 15.0� 0.9� 6% Net Income 8.8� 8.9� -0.1� -2% Diluted Earnings per Share 0.34� 0.34� 0� 0% � 3rd Quarter Fiscal 2007 March 31, 2007 March 31, 2006 Net Sales $492.7� $405.6� $87� 21% Operating Income 17.2� 14.4� 2.8� 19% Net Income 10.1� 9.0� 1.1� 12% Diluted Earnings per Share 0.38� 0.35� 0.03� 9% Included in operating income for the December and March quarters is third party legal and accounting costs related to the Special Committee�s review of $4.9 million and $3.0 million respectively. On October 26, 2006, the Company announced unaudited results for the first quarter of fiscal year 2007 that ended on September�30, 2006. However, the Company did not report results on Form 10Q. The announced results were impacted by the restatement. The impact on previously announced pre tax income was an increase of $1.4 million with a net income increase of $0.8 million resulting in a $.04 increase to fully diluted earnings per share. Company Conference Call Information ScanSource will conduct a conference call to discuss its amended financial results for fiscal year 2006 and financial results for the first, second, and third quarters of fiscal 2007,today at 11:00 AM eastern time live on the internet at www.scansource.com. Forecast for Next Quarter As previously announced, the Company�s revenue forecast for the fourth quarter of fiscal 2007 could range from $512 million to $532 million. Safe Harbor Statement This news release contains comments that are �forward looking� statements that involve risks and uncertainties; these statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Any number of important factors could cause actual results to differ materially from anticipated results. Results of the review of the Special Committee will have an impact on reported financial results for the fourth quarter, as well as previously reported results. For more information concerning factors that could cause actual results to differ from anticipated results, see the Company�s amended annual report on Form 10K/A filed with the Securities and Exchange Commission. About ScanSource ScanSource, Inc. is a leading international distributor of specialty technology products. The Company markets specialty technologies through five sales units: ScanSource [automatic identification and data capture (AIDC) and point-of-sale (POS) products]; Catalyst Telecom (Avaya communications products); Paracon (communications products); T2 Supply (video conferencing and telephone products); and ScanSource Security Distribution (electronic security products). The Company serves the North America marketplace and has an international segment, which sells AIDC and POS products in Latin America and Europe. Founded in 1992, the Company ranks #956 on the Fortune 1000. For more information, call the toll-free sales telephone number at 800.944.2432 or visit www.scansource.com. SCANSOURCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) � March 31, December 31, September 30, June 30, 2007� 2006� 2006� 2006 * (unaudited) (unaudited) (unaudited) (restated) Assets � Current Assets Cash and cash equivalents $ 3,036� $ 2,730� $ 3,130� $ 3,831� Trade & notes receivable, net 333,823� 317,672� 346,951� 300,240� Other receivables 8,020� 8,846� 6,738� 4,558� Inventories 291,332� 274,723� 246,905� 244,005� Prepaid expenses and other assets 3,012� 2,455� 2,202� 2,293� Deferred income taxes � 16,604� � 17,243� � 17,119� � 15,709� Total current assets 655,827� 623,669� 623,045� 570,636� � Property and equipment, net 25,767� 26,347� 26,174� 27,098� Goodwill 37,865� 37,835� 37,565� 14,404� Other assets, including identifiable intangible assets � 17,724� � 18,027� � 18,002� � 5,359� Total assets $ 737,183� $ 705,878� $ 704,786� $ 617,497� � Liabilities and Shareholders' Equity � Current Liabilities Current portion of long-term debt $ 230� $ 214� $ 223� $ 229� Short-term borrowings 3,019� 3,077� 3,736� -� Trade accounts payable 250,054� 286,306� 271,580� 271,519� Accrued expenses and other liabilities � 37,183� � 36,150� � 33,532� � 36,717� Total current liabilities 290,486� 325,747� 309,071� 308,465� � Long-term debt 17,239� 17,307� 17,352� 4,398� Borrowings under revolving credit facility 112,403� 57,970� 85,696� 27,558� Other long-term liabilities � 4,427� � 3,889� � 3,207� � 2,757� Total liabilities � 424,555� � 404,913� � 415,326� � 343,178� � Minority interest 512� 501� 488� 910� � Shareholders' Equity Common stock 82,794� 81,466� 79,912� 76,915� Retained earnings 223,200� 213,129� 204,338� 191,876� Accumulated other comprehensive income � 6,122� � 5,869� � 4,722� � 4,618� Total shareholders' equity � 312,116� � 300,464� � 288,972� � 273,409� Total liabilities and shareholders' equity $ 737,183� $ 705,878� $ 704,786� $ 617,497� � * Derived from audited financial statements at June 30, 2006. SCANSOURCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) (In thousands, except per share data) � Quarter ended March 31, Quarter ended December 31, Quarter ended September 30, � 2007� � 2006� � 2006� � 2005� � 2006� � 2005� (restated) (restated) (restated) � Net sales $ 492,678� $ 405,592� $ 473,734� $ 408,468� $ 496,230� $ 390,396� Cost of goods sold � 441,641� � 364,332� � 420,957� � 366,633� � 444,392� � 350,067� Gross profit � 51,037� � 41,260� � 52,777� � 41,835� � 51,838� � 40,329� � Selling, general and administrative expenses � 33,795� � 26,820� � 36,899� � 26,786� � 30,320� � 25,446� Operating income 17,242� 14,440� 15,878� 15,049� 21,518� 14,883� � Other expense (income): Interest expense 1,939� 633� 1,754� 455� 1,770� 511� Interest income (246) (243) (174) (155) (108) (149) Other (income) expense � 141� � (121) � (126) � (68) � (436) � 28� Other expense (income), net � 1,834� � 269� � 1,454� � 232� � 1,226� � 390� Income before income taxes and minority interest 15,408� 14,171� 14,424� 14,817� 20,292� 14,493� � Provision for income taxes � 5,326� � 5,150� � 5,620� � 5,824� � 7,798� � 5,421� Income before minority interest 10,082� 9,021� 8,804� 8,993� 12,494� 9,072� � Minority interest in income of consolidated subsidiaries, net of income taxes � 11� � 15� � 13� � 51� � 33� � 59� � Net income $ 10,071� $ 9,006� $ 8,791� $ 8,942� $ 12,461� $ 9,013� � Per share data: Net income per common share, basic $ 0.39� $ 0.35� $ 0.34� $ 0.35� $ 0.48� $ 0.36� � Weighted-average shares outstanding, basic � 25,770� � 25,555� � 25,749� � 25,402� � 25,729� � 25,333� � Net income per common share, assuming dilution $ 0.38� $ 0.35� $ 0.34� $ 0.34� $ 0.48� $ 0.35� � Weighted-average shares outstanding, assuming dilution � 26,194� � 26,101� � 26,236� � 25,994� � 26,213� � 25,883� SCANSOURCE, INC. AND SUBSIDIARIES RECONCILIATION OF NON GAAP INCOME (UNAUDITED) (In thousands, except per share data) � Quarter ended March 31, 2007 Quarter ended December 31, 2006 Special Special GAAP Committee Non-GAAP GAAP Committee Non-GAAP � � Costs � � � � Costs � � � Net sales $ 492,678� $ -� $ 492,678� $ 473,734� $ -� $ 473,734� Cost of goods sold � 441,641� � -� � 441,641� � 420,957� � -� � 420,957� Gross profit � 51,037� � -� � 51,037� � 52,777� � -� � 52,777� � Selling, general and administrative expenses � 33,795� � (3,000) � 30,795� � 36,899� � (4,900) � 31,999� Operating income 17,242� 3,000� 20,242� 15,878� 4,900� 20,778� � Other expense (income): Interest expense 1,939� -� 1,939� 1,754� -� 1,754� Interest income (246) -� (246) (174) -� (174) Other (income) expense � 141� � -� � 141� � (126) � -� � (126) Other expense (income), net � 1,834� � -� � 1,834� � 1,454� � -� � 1,454� Income before income taxes and minority interest 15,408� 3,000� 18,408� 14,424� 4,900� 19,324� � Provision for income taxes � 5,326� � 1,140� � 6,466� � 5,620� � 1,862� � 7,482� Income before minority interest 10,082� 1,860� 11,942� 8,804� 3,038� 11,842� � Minority interest in income of consolidated subsidiaries, net of income taxes � 11� � -� � 11� � 13� � -� � 13� � Net income $ 10,071� $ 1,860� $ 11,931� $ 8,791� $ 3,038� $ 11,829� � Increase(decrease) over prior year restated results 12% 32% -2% 32% � Per share data: Net income per common share, basic $ 0.39� $ 0.07� $ 0.46� $ 0.34� $ 0.12� $ 0.46� Weighted-average shares outstanding, basic � 25,770� � 25,770� � 25,749� � 25,749� � Net income per common share, assuming dilution $ 0.38� $ 0.07� $ 0.46� $ 0.34� $ 0.12� $ 0.45� Weighted-average shares outstanding, assuming dilution � 26,194� � 26,194� � 26,236� � 26,236� � The above schedule shows the impact on earnings had the Company not incurred the additional external costs related to the Special Committee. These amounts consist primarily of legal and accounting costs of third party providers. For internal operating measurements, the Company has excluded these costs. SCANSOURCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) � Nine months ended Six months ended Three months ended March 31, 2007 December 31, 2006 September 30, 2006 � Cash flows from operating activities: Net income $ 31,323� $ 21,252� $ 12,461� Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 3,808� 2,677� 1,394� Amortization of intangible assets 1,345� 896� 448� Allowance for accounts and notes receivable 7,017� 4,969� 2,591� Share-based compensation and restricted stock 2,884� 2,086� 1,116� Impairment of capitalized software 148� 148� 148� Deferred income tax (benefit) expense (1,346) (2,374) (2,375) Excess tax benefits from share-based payment arrangements (2,105) (2,105) (1,611) Minority interest in income of subsidiaries 57� 46� 33� Changes in operating assets and liabilities, net of acquisitions: Trade and notes receivable (27,853) (10,349) (39,219) Other receivables (2,795) (3,236) (1,371) Inventories (40,835) (24,773) 1,638� Prepaid expenses and other assets (699) (144) 99� Other noncurrent assets (1,092) (583) (68) Trade accounts payable (22,611) 14,014� 280� Accrued expenses and other liabilities 3,950� 2,447� (2,763) Income taxes payable � (411) � (346) � 1,355� � Net cash (used in) provided by operating activities � (49,215) � 4,625� � (25,844) � Cash flows used in investing activities: Capital expenditures (2,501) (1,959) (548) Cash paid for business acquisitions, net of cash acquired � (50,585) � (50,585) � (50,569) � Net cash used in investing activities � (53,086) � (52,544) � (51,117) � Cash flows from financing activities: Increases (decreases) in short-term borrowings, net 2,877� 2,980� 3,747� Advances (payments) on revolving credit, net 82,616� 28,386� 57,671� Exercise of stock options 970� 390� 269� Excess tax benefits from share-based payment arrangements 2,105� 2,105� 1,611� Advances (repayments) of long-term debt borrowings � 12,841� � 12,894� � 12,947� � Net cash provided by (used in) financing activities � 101,409� � 46,755� � 76,245� � Effect of exchange rate changes on cash and cash equivalents � 97� � 63� � 15� � (Decrease) Increase in cash and cash equivalents (795) (1,101) (701) � Cash and cash equivalents at beginning of period � 3,831� � 3,831� � 3,831� � Cash and cash equivalents at end of period $ 3,036� $ 2,730� $ 3,130� � See notes to condensed consolidated financial statements (unaudited).