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ScanSource Reports Second Quarter Results

Stocks in this article: SCSC

Non-GAAP Financial Information

In addition to disclosing results that are determined in accordance with United States Generally Accepted Accounting Principles (“GAAP”), the Company also discloses non-GAAP measures. To evaluate current period performance on a clearer and more consistent basis with prior periods, the Company discloses adjusted net income and adjusted diluted earnings per share, which exclude one-time costs associated with tax compliance and personnel replacement in the Company's local Belgian office. Management uses return on invested capital (“ROIC”), a non-GAAP measure, as a performance measurement because management believes that this metric best balances the Company's operating results with its asset and liability management. The Company's Board of Directors uses ROIC in evaluating management performance and setting management compensation. The Company also discloses the percentage change in net sales excluding the impact of foreign currency exchange rates to better assess the changes from prior periods.

Analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP. A reconciliation of the Company's non-GAAP financial information to GAAP is set forth in the following Supplemental Information table.

About ScanSource, Inc.

ScanSource, Inc. (NASDAQ: SCSC) is the leading international distributor of specialty technology products, operating from dedicated business units in North America, Latin America and Europe. ScanSource POS & Barcode delivers AIDC (automatic identification and data capture) and POS (point-of-sale) solutions; Catalyst Telecom and ScanSource Communications provide voice, video, data and converged communications equipment; ScanSource Security offers physical security solutions; and ScanSource Services Group delivers value-added support programs and services. Founded in 1992, the company ranks #760 on the Fortune 1000. For more information, call the toll-free sales telephone number at 800.944.2432 or visit www.scansourceinc.com.

ScanSource, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
   
December 31, 2012 June 30, 2012*
Assets
Current assets:
Cash and cash equivalents $ 31,455 $ 29,173
Accounts receivable, less allowance of 464,286 470,808
$29,840 at December 31, 2012
$27,349 at June 30, 2012
Inventories 474,713 475,479
Prepaid expenses and other current assets 42,540 41,846
Deferred income taxes 15,278   14,624  
Total current assets 1,028,272 1,031,930
Property and equipment, net 48,685 48,785
Goodwill 54,080 53,885
Other non-current assets, including identifiable intangible assets 72,486   67,206  
Total assets $ 1,203,523   $ 1,201,806  
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 544 $ 4,268
Accounts payable 353,108 419,683
Accrued expenses and other current liabilities 69,700 67,776
Current portion of contingent consideration 4,952 4,976
Income taxes payable 2,267   1,698  
Total current liabilities 430,571 498,401
Deferred income taxes 2,787
Long-term debt 5,429 5,429
Borrowings under revolving credit facility 21,808
Long-term portion of contingent consideration 8,138 11,677
Other long-term liabilities 37,830   33,988  
Total liabilities 506,563 549,495
Shareholders' equity:
Common stock 144,894 139,557
Retained earnings 568,443 534,445
Accumulated other comprehensive income (loss) (16,377 ) (21,691 )
Total shareholders' equity 696,960   652,311  
Total liabilities and shareholders' equity $ 1,203,523   $ 1,201,806  
* Derived from audited financial statements.
ScanSource, Inc. and Subsidiaries
Condensed Consolidated Income Statements (Unaudited)
(in thousands, except per share data)
       
Quarter ended

December 31,

Six months ended

December 31,

2012 2011 2012 2011
Net sales $ 747,716 $ 782,684 $ 1,481,320 $ 1,552,943
Cost of goods sold 673,365   702,845   1,332,930   1,394,013  
Gross profit 74,351 79,839 148,390 158,930
Operating expenses:
Selling, general and administrative expenses 49,393 48,474 96,454 95,043
Change in fair value of contingent consideration 533   (722 ) 1,296   172  
Operating income 24,425 32,087 50,640 63,715
Other expense (income):
Interest expense 130 749 254 1,236
Interest income (532 ) (1,002 ) (1,166 ) (1,452 )
Other, net 53   (374 ) 39   3,157  
Income before income taxes 24,774 32,714 51,513 60,774
Provision for income taxes 8,417   11,347   17,514   21,028  
Net income $ 16,357   $ 21,367   $ 33,999   $ 39,746  
Per share data:
Weighted-average shares outstanding, basic 27,713   27,244   27,665   27,191  
Net income per common share, basic $ 0.59   $ 0.78   $ 1.23   $ 1.46  
 
Weighted-average shares outstanding, diluted 27,958   27,674   27,928   27,604  
Net income per common share, diluted $ 0.59   $ 0.77   $ 1.22   $ 1.44  
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
   
Net Sales by Geographic Segment:
Non-GAAP
Quarter ended December 31, % Change
2012   2011 % Change Excluding FX (a)
North American (U.S. and Canada) $ 547,987 $ 562,923 (2.7 )% (2.7 )%
International 199,729   219,761   (9.1 )% (4.4 )%
Consolidated $ 747,716   $ 782,684   (4.5 )% (3.1 )%
 
Non-GAAP
Six months ended December 31, % Change
2012 2011 % Change Excluding FX (a)
North American (U.S. and Canada) $ 1,093,799 $ 1,136,395 (3.7 )% (3.7 )%
International 387,521   416,548   (7.0 )% 1.2 %
Consolidated $ 1,481,320   $ 1,552,943   (4.6 )% (2.4 )%
 
Notes:
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the quarter and six months ended December 31, 2012 into U.S. dollars using the weighted average foreign exchange rates for the quarter and six months ended December 31, 2011, respectively. International net sales excluding the translation impact of foreign currencies for the quarter and six months ended December 31, 2012, as adjusted, totaled $210.2 million and $421.6 million.
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands, except per share data)
 
Non-GAAP Financial Information:
Quarter ended December 31, 2012
Pre-Tax After-Tax   Diluted EPS
Net income (GAAP) $ 24,774 $ 16,357 $ 0.59
Adjustments:
Costs associated with Belgian tax compliance and personnel replacement costs, including related professional fees 2,121   1,400   0.05  
Adjusted net income (Non-GAAP) $ 26,895   $ 17,757   $ 0.64  
 
Quarter ended December 31,
2012 2011
Return on invested capital (ROIC), annualized (a) 15.2 % 19.3 %
 

Reconciliation of EBITDA to Net Income

Net income (GAAP) $ 16,357 $ 21,367
Plus: Income taxes 8,417 11,347
Plus: Interest expense 130 749
Plus: Depreciation and amortization 2,275   2,258  
EBITDA (numerator for ROIC) $ 27,179   $ 35,721  
 

Invested Capital Calculation

Equity - beginning of quarter $ 676,136 $ 597,658
Equity - end of quarter 696,960   616,103  
Average equity 686,548 606,881
Average funded debt (b) 23,850   128,805  
Invested capital (denominator for ROIC) $ 710,398   $ 735,686  
 
Notes:
(a) Calculated as net income plus interest expense, income taxes, depreciation and amortization (EBITDA), annualized and divided by invested capital for the period.
(b) Average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt.




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