ScanSource Reports Fourth Quarter and Full Year Results

  ScanSource Reports Fourth Quarter and Full Year Results

                     Fourth Quarter Non-GAAP EPS of $0.71

Business Wire

GREENVILLE, S.C. -- August 22, 2013

ScanSource, Inc. (NASDAQ:SCSC), the leading international value-added
distributor of specialty technology products, today announced complete
financial results for its fourth quarter and fiscal year ended June 30, 2013,
including non-cash impairment charges.

Quarter ended June 30, 2013:                 Fiscal Year ended June 30,
                                                2013:
                                                                 
Net sales               $712.7 million          Net sales        $2,877.0
                                                                 million
GAAP net loss           $(13.3)                 GAAP net income  $34.7 million
                        million
Adjusted net income^(1) $19.9 million           Adjusted net     $69.3 million
                                                income^(1)
GAAP diluted EPS        $(0.48) per             GAAP diluted EPS $1.24 per
                        share                                    share
Adjusted diluted        $0.71 per               Adjusted diluted $2.47 per
EPS^(1)                 share                   EPS^(1)          share
                                                                 
^(1) A reconciliation of non-GAAP financial information to GAAP financial
information is presented in the following Supplementary

Information table.

“We saw record quarterly sales in our North America Communications and
Security business units,” said Mike Baur, CEO, ScanSource, Inc. “The lack of
big deals in our POS & Barcode business units, however, led to lower than
expected fourth quarter sales. Despite lower sales, our return on invested
capital increased to 17.2%, excluding the impairment charges, driven by
highermargins, better working capital management, and our focus on
value-added growth.”

For the quarter ended June 30, 2013, net sales totaled $712.7 million. This
represents a 4.4% increase from the prior quarter's net sales of $683.0
million and a 5.5% decrease from net sales of $754.5 million for the quarter
ended June 30, 2012.

Operating loss for the quarter ended June 30, 2013 of $20.4 million included
pre-tax, non-cash impairment charges of $48.8 million. Excluding the non-cash
impairment charges, operating income was $28.4 million, comparable to $28.3
million for the prior year quarter.

Net loss for the quarter ended June 30, 2013 was $13.3 million, or $0.48 per
diluted share, compared with net income of $19.8 million, or $0.71 per diluted
share, for the prior year quarter. Excluding the non-cash impairment charges,
adjusted net income for the quarter ended June 30, 2013 totaled $19.9 million,
or $0.71 per diluted share.

Impairment charges

During the fourth quarter 2013, the Company recorded pre-tax, non-cash
impairment charges of $48.8 million, including $28.2 million for the
impairment of capitalized costs associated with the Enterprise Resource
Planning (“ERP”) project that the Company has been developing and $20.6
million for the impairment of goodwill.

In January 2013, the Company, through its wholly-owned subsidiary Partner
Services, Inc., filed a lawsuit against its former ERP software systems
integrator, Avanade, Inc. (“Avanade”). The lawsuit alleges, among other
things, fraud, tortious misrepresentation and breach of contract on the part
of Avanade in connection with its misconduct and performance failures on the
ERP project, and the Company is seeking recovery of damages.

The Company engaged a new systems integration partner, Tata Consultancy
Services (“TCS”), to replace Avanade. In March 2013, TCS presented an
integrated project plan that included the time and costs to complete the
project. This plan indicated that the effort remaining was going to approach
the $72 million upper end of the Company's previously-disclosed total project
cost range with no assurance that the system would be successful. In April
2013, the Company moved a significant number of its team members who were
working on the ERP project back into business roles and began evaluating
alternatives for next steps.

In the current quarter, the ERP team has been focused on working with
Microsoft Consulting on alternative options to facilitate completion of the
project. Additionally, the ERP team met with other software vendors for an
understanding of how their software would meet the needs of the Company. At
this time, there is not a viable plan to complete and use the software
development of the Microsoft Dynamics AX-based ERP project. The Company
believes that the incomplete ERP implementation by Avanade is of almost no
value. The Company believes that the ERP project impairment is in large part a
result of Avanade's cost overruns, time overruns and performance failures as
alleged in the Complaint. Based on the above factors, in connection with the
preparation and review of the financial statements for the quarter ended June
30, 2013, the Company reviewed the ERP project from an accounting impairment
perspective and determined that the ERP software project is impaired.

The Company is currently evaluating its alternatives for next steps in the
development of a new ERP system. Meanwhile, its legacy ERP systems continue to
run its business successfully.

The $20.6 million charge for the impairment of goodwill included $5.4 million
and $15.1 million related to its Europe Communications and Brazilian POS &
Barcode reporting units, respectively. The Company's purchase price for its
acquisition of CDC Brasil (now its Brazilian POS & Barcode unit) included an
earnout structure with five annual payments through 2015. Earnout payments
made to CDC Brasil shareholders have been lower than those forecasted and
assumed in the calculation of goodwill at the time of acquisition.

Change in Operating Segments

In June 2013, the Company announced a change in its management structure and
reporting segments to enhance its worldwide technology markets focus. As part
of this new structure, ScanSource has created two technology segments:
Worldwide Barcode & Security and Worldwide Communications & Services.
Historical results reflecting the new reporting segments for each quarter of
fiscal year 2013 are provided in the following Supplementary Information
tables.

Forecast for Next Quarter

The Company announced its current expectations for the first quarter of fiscal
2014. ScanSource expects that net sales for the quarter ending September 30,
2013 could range from $715 million to $735 million, and diluted earnings per
share could be in the range of $0.56 to $0.58 per share.

Webcast Details

ScanSource will present additional information about its financial results
outlook in a conference call with presentation slides today, August 22, 2013,
at 5:00 p.m. (ET). A webcast of the call and accompanying presentation slides
will be available for all interested parties and can be accessed at
www.scansourceinc.com (Investor Relations section). The webcast will be
available for replay for 60 days.

Safe Harbor Statement

This press 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 or forecasted results, including, but not limited to,
expanded operations in emerging markets, such as Brazil, that expose the
Company to greater political and economic volatility than its operations in
established markets; impairment charges, additional costs and delays in
connection with the Company's new ERP system and associated litigation; the
ability to forecast volatility in earnings resulting from the quarterly
revaluation of the Company's earnout obligation to the sellers of CDC; and
macroeconomic circumstances that could impact the business, such as currency
fluctuations, credit market conditions, and an economic downturn. For more
information concerning factors that could cause actual results to differ from
anticipated results, see the Company's prior Form 10Q's, and annual report on
Form 10-K for the year ended June 30, 2012 filed with the Securities and
Exchange Commission. Except as may be required by law, the Company expressly
disclaims any obligation to update these forward-looking statements to reflect
events or circumstances after the date of this press release or to reflect the
occurrence of unanticipated events.

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 certain non-GAAP financial measures, including net sales
excluding the translation impact of foreign currencies, adjusted net income
and adjusted EPS, and return on invested capital ("ROIC"). Non-GAAP financial
measures are used to better understand and evaluate performance, including
comparisons from period to period, as described below.

Net sales excluding the translation impact of foreign currencies: The Company
discusses the percentage change in net sales excluding the translation impact
from changes in foreign currency exchange rates between reporting periods.
This measure enhances comparability between periods to help analyze underlying
trends.

Adjusted net income and adjusted EPS: 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 charges associated with the ERP and goodwill impairments, and costs
associated with tax compliance and personnel replacement in the Company's
Belgian office. Management believes that these historical items are outside of
the Company's normal operating expenses. Adjusted net income and adjusted EPS
are useful in better assessing and understanding the Company's operating
performance, especially when comparing results with previous periods or
forecasting performance for future periods.

Return on invested capital ("ROIC"): Management uses ROIC as a performance
measurement to assess efficiency at allocating capital under the Company's
control to generate returns. Management believes this metric balances the
Company's operating results with asset and liability management, excludes the
results of capitalization decisions, is easily computed and understood, and is
considered to have a strong correlation with shareholder value creation. In
addition, the Company's Board of Directors uses ROIC in evaluating business
and management performance. Certain management incentive compensation targets
are set and measured relative to ROIC. Management adjusted the calculation of
ROIC to exclude the impact of ERP and goodwill impairment charges in addition
to costs associated with Belgian tax compliance and personnel replacement, to
provide a measure of the Company's profitability on a basis more comparable to
historical or future periods.

These non-GAAP financial measures have limitations as analytical tools, and
the non-GAAP financial measures that the Company reports may not be comparable
to similarly titled amounts reported by other companies. Analysis of results
and outlook on a non-GAAP basis should be considered in addition to, and not
in substitution for or as superior to, measurements of financial performance
prepared in accordance with GAAP. A reconciliation of the Company's non-GAAP
financial information to GAAP is set forth in the following Supplemental
Information tables.

About ScanSource, Inc.

ScanSource, Inc. (NASDAQ: SCSC) is the leading international distributor of
specialty technology products, focusing on point-of-sale (POS) and barcode,
communications and physical security solutions. ScanSource's teams provide
value-added services and operate from two technology segments, Worldwide
Barcode & Security and Worldwide Communications & Services. ScanSource is
committed to helping its reseller customers choose, configure, and deliver the
industry's best products across almost every vertical market in North America,
Latin America and Europe. Founded in 1992, the Company ranks #711 on the
Fortune 1000. For more information, visit www.scansourceinc.com.

ScanSource, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
                                                           
                                                June 30, 2013   June 30, 2012*
Assets
Current assets:
Cash and cash equivalents                       $ 148,164       $  29,173
Accounts receivable, less allowance of          435,028         458,341
$25,479 at June 30, 2013
$24,405 at June 30, 2012
Inventories                                     402,307         487,946
Prepaid expenses and other current assets       40,105          41,846
Deferred income taxes                           16,456         14,624       
Total current assets                            1,042,060       1,031,930
Property and equipment, net                     20,203          48,785
Goodwill                                        31,795          53,885
Other non-current assets, including             70,125         67,206       
identifiable intangible assets
Total assets                                    $ 1,164,183    $  1,201,806 
                                                                
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings                           $ —             $  4,268
Current portion of contingent                   3,732           4,976
consideration
Accounts payable                                362,271         419,683
Accrued expenses and other current              59,983          67,776
liabilities
Income taxes payable                            1,696          1,698        
Total current liabilities                       427,682         498,401
Deferred income taxes                           205             —
Long-term debt                                  5,429           5,429
Long-term portion of contingent                 8,813           11,677
consideration
Other long-term liabilities                     26,098         33,988       
Total liabilities                               468,227         549,495
Shareholders' equity:
Common stock                                    149,821         139,557
Retained earnings                               569,107         534,445
Accumulated other comprehensive income          (22,972     )   (21,691      )
(loss)
Total shareholders' equity                      695,956        652,311      
Total liabilities and shareholders'             $ 1,164,183    $  1,201,806 
equity
                                                                
*Derived from audited financial
statements at June 30, 2012.

ScanSource, Inc. and Subsidiaries
Condensed Consolidated Income Statements (Unaudited)
(in thousands, except per share data)
                                                                      
                   Quarter ended                       Year ended

                   June 30,                            June 30,
                   2013              2012*             2013                2012*
Net sales          $   712,678     $   754,470     $   2,876,964     $   3,015,296
Cost of goods      637,027          680,643          2,584,090          2,713,272       
sold
Gross profit       75,651            73,827            292,874             302,024
Operating
expenses:
Selling, general
and                46,824            46,634            191,216             188,388
administrative
expenses
Impairment
charges,           48,772            —                 48,772              —
including ERP
and goodwill
Change in fair
value of           447              (1,123        )   1,843              120             
contingent
consideration
Operating income   (20,392       )   28,316            51,043              113,516
(loss)
Other expense
(income):
Interest expense   419               150               775                 1,639
Interest income    (590          )   (653          )   (2,238          )   (2,886          )
Other, net         (554          )   188              (520            )   3,552           
Income (loss)
before income      (19,667       )   28,631            53,026              111,211
taxes
Provision for      (6,352        )   8,846            18,364             36,923          
income taxes
Net income         $   (13,315 )   $   19,785     $   34,662       $   74,288    
(loss)
Per share data:
Weighted-average
shares             27,922           27,579           27,774             27,362          
outstanding,
basic
Net income
(loss) per         $   (0.48   )   $   0.72       $   1.25         $   2.72      
common share,
basic
                                                                           
Weighted-average
shares             27,922           27,866           27,994             27,751          
outstanding,
diluted
Net income
(loss) per         $   (0.48   )   $   0.71       $   1.24         $   2.68      
common share,
diluted
                                                                           
*Derived from audited financial
statements at June 30, 2012.

ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
                                                                  
Net Sales by
Segment:
                                                                     Non-GAAP
                Quarter ended June 30,                               % Change
                2013               2012                % Change     Excluding
                                                                     FX^(a)
Worldwide
Barcode &       $  444,766          $  454,115          (2.1   )%    (2.0   )%
Security
Worldwide
Communications  267,912            300,355            (10.8  )%    (10.9  )%
& Services
Consolidated    $  712,678         $  754,470         (5.5   )%    (5.5   )%
                                                                     
                                                                     Non-GAAP
                Year ended June 30,                                  % Change
                2013                2012                % Change     Excluding
                                                                     FX^(a)
Worldwide
Barcode &       $  1,828,219        $  1,837,307        (0.5   )%    1.4    %
Security
Worldwide
Communications  1,048,745          1,177,989          (11.0  )%    (10.7  )%
& Services
Consolidated    $  2,876,964       $  3,015,296       (4.6   )%    (3.4   )%
                                                                     
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 year ended June 30, 2013 into
U.S. dollars using the weighted average foreign exchange rates

for the quarter and year ended June 30, 2012, respectively. Worldwide Barcode
& Security net sales excluding the translation impact of

foreign currencies for the quarter and year ended June 30, 2013, as adjusted,
totaled $445.1 million and $1,862.7 million, respectively.

Worldwide Communications & Services net sales excluding the translation impact
of foreign currencies for the quarter and year ended

June 30, 2013, as adjusted, totaled $267.6 million and $1,051.4 million,
respectively.
                                                                     
Net Sales by
Geography:
                                                                     Non-GAAP
                Quarter ended June 30,                               % Change
                2013                2012                % Change     Excluding
                                                                     FX^(a)
North America
(U.S. and       $  537,530          $  570,219          (5.7   )%    (5.7   )%
Canada)
International   175,148            184,251            (4.9   )%    (5.0   )%
Consolidated    $  712,678         $  754,470         (5.5   )%    (5.5   )%
                                                                     
                                                                     Non-GAAP
                Year ended June 30,                                  % Change
                2013                2012                % Change     Excluding
                                                                     FX^(a)
North America   $  2,139,723        $  2,236,459        (4.3   )%    (4.3   )%
International   737,241            778,837            (5.3   )%    (0.6   )%
Consolidated    $  2,876,964       $  3,015,296       (4.6   )%    (3.4   )%
                                                                     
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 year ended June 30, 2013 into
U.S. dollars using the weighted average foreign exchange rates

for the quarter and year ended June 30, 2012, respectively. International net
sales excluding the translation impact of foreign currencies for

the quarter and year ended June 30, 2013, as adjusted, totaled $175.1 million
and $774.4 million, respectively.

ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands, except per share data)
                                                   
Non-GAAP Financial Information:
                                      Quarter ended June 30, 2013
                                      Pre-Tax        Net Income
                                                                  Diluted EPS
                                      Income(Loss)   (Loss)
GAAP measure                          $  (19,667 )   $ (13,315 )   $  (0.48  )
Adjustments:
Impairment charges - ERP^(1)          28,210         18,015        0.64
Impairment charges - goodwill^(1)     20,562        15,201       0.54      
Non-GAAP measure^(1)                  $  29,105     $ 19,901     $  0.71   
^(1) Diluted EPS calculated using
28,099 weighted average diluted
shares outstanding.
                                                                   
                                      Year ended June 30, 2013
                                      Pre-Tax
                                                     Net Income    Diluted EPS
                                      Income
GAAP measure                          $  53,026      $ 34,662      $  1.24
Adjustments:
Costs associated with Belgian tax
compliance and personnel replacement
                                      2,121          1,400         0.05
costs, including related professional
fees
Impairment charges - ERP              28,210         18,015        0.64
Impairment charges - goodwill         20,562        15,201       0.54      
Non-GAAP measure                      $  103,919    $ 69,278     $  2.47   

ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands, except per share data)
                                                               
Non-GAAP
Financial
Information:
                Quarter ended June 30,              Year ended June 30,
                2013              2012              2013           2012
Return on
invested        17.2        %     18.1        %     16.0       %   17.2      %
capital (ROIC),
annualized ^(a)
                                                                   
Reconciliation
of Net Income
(Loss) to
EBITDA
Net income      $  (13,315  )     $  19,785         $  34,662      $ 74,288
(loss) (GAAP)
Plus: Income    (6,352      )     8,846             18,364         36,923
taxes
Plus: Interest  419               150               775            1,639
expense
Plus:
Depreciation    1,594            2,242            8,457         9,580     
and
amortization
EBITDA          (17,654     )     31,023            62,258         122,430
Adjustments:
Impairment
charges,
including ERP
and goodwill,   48,772           —                50,893        —         
and

Belgian costs
Adjusted EBITDA
(numerator for  $  31,118        $  31,023        $  113,151    $ 122,430 
ROIC)
(non-GAAP)
                                                                   
Invested
Capital
Calculation
Equity -
beginning of    $  709,912        $  642,450        $  652,311     $ 587,394
quarter/year
Equity - end of 695,956           652,311           695,956        652,311
quarter/year
Add:
Impairment
charges,
including ERP
and goodwill,   33,216           —                34,616        —         
and

Belgian costs,
net of tax
Average equity  719,542           647,381           691,442        619,853
Average funded  5,429            41,324           15,405        92,125    
debt ^(b)
Invested
capital
(denominator    $  724,971       $  688,705       $  706,847    $ 711,978 
for ROIC)
(non-GAAP)
                                                                   
                                                                   
Notes:
(a) Calculated as net income plus interest expense, income taxes, depreciation
and amortization (EBITDA), annualized and divided by

invested capital for the period. EBITDA excludes impairment charges, including
ERP & goodwill and costs associated with Belgian tax

compliance and personnel replacement costs, including related professional
fees.
(b) Average funded debt is calculated as the daily average amounts outstanding
on our short-term and long-term interest-bearing debt.

ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands, except per share data)
                                                             
Segment
Information:
                Quarter ended
                September 30,    December 31,    March 31,       June 30,

                2012             2012            2013            2013
Sales:
Worldwide
Barcode &       $  456,187       $ 489,075       $ 438,191       $ 444,766
Security
Worldwide
Communications  277,418         258,641        244,774        267,912     
& Services
                $  733,605      $ 747,716      $ 682,965      $ 712,678   
                                                                 
Depreciation
and
amortization:
Worldwide
Barcode &       $  1,488         $ 1,451         $ 1,456         $ 1,013
Security
Worldwide
Communications  826             824            818            581         
& Services
                $  2,314        $ 2,275        $ 2,274        $ 1,594     
                                                                 
Operating
income (loss):
Worldwide
Barcode &       $  12,625        $ 13,289        $ 10,413        $ (1,662    )
Security^(1)
Worldwide
Communications  13,590           11,136          10,382          9,480
& Services^(2)
Corporate^(3)   —               —              —              (28,210     )
                $  26,215       $ 24,425       $ 20,795       $ (20,392   )
                                                                 
Assets:
Worldwide
Barcode &       $  724,412       $ 755,276       $ 673,560       $ 609,939
Security
Worldwide
Communications  409,277          376,119         357,477         387,097
& Services
Corporate       74,401          72,128         127,402        167,147     
                $  1,208,090    $ 1,203,523    $ 1,158,439    $ 1,164,183 
                                                                 
Capital
expenditures:
Worldwide
Barcode &       $  120           $ 22            $ 181           $ 123
Security
Worldwide
Communications  320              346             211             96
& Services
Corporate       1,566           830            868            148         
                $  2,006        $ 1,198        $ 1,260        $ 367       
                                                                 
^(1) For the year ended June 30, 2013, the amount shown above includes a
non-cash charge of $15.1 million for the goodwill impairment in Brazil.

^(2) For the year ended June 30, 2013, the amount shown above includes a
non-cash charge of $5.4 million for the goodwill impairment in Europe.

^(3) For the year ended June 30, 2013, the amount shown above includes a
non-cash charge of $28.2 million for the impairment of our ERP project.

Contact:

ScanSource, Inc.
Charles A. Mathis, 864-286-4975
Senior Vice President and Chief Financial Officer
or
Mary M. Gentry, 864-286-4892
Treasurer and Director, Investor Relations
 
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