What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2022-02-08 · 141 added, 148 removed, 590 unchanged (33% of the section changed)

4 unchanged sentences

(In thousands, except share information)

December 31, 2021 June 30, 2021

March 31, 2022 June 30, 2021

Current assets:

Cash and cash equivalents $ 43,539 $ 62,718

Accounts receivable, less allowance of $ 17,393 at December 31, 2021

Accounts receivable, less allowance of $ 16,935 at March 31, 2022

and $ 19,341 at June 30, 2021

26 unchanged sentences

Common stock, no par value;

45,000,000 shares authorized, 25,657,545 and 25,499,465 shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively

45,000,000 shares authorized, 25,429,242 and 25,499,465 shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively

69,856 71,253

9 unchanged sentences

(In thousands, except per share data)

Quarter ended Six months ended

December 31, December 31,

Quarter ended Nine months ended

March 31, March 31,

2022 2021 2022 2021

10 unchanged sentences

Interest income ( 1,000 ) ( 745 ) ( 2,973 ) ( 1,756 )

Other expense, net 543 121 807 484

Other (income) expense, net ( 136 ) ( 302 ) 668 183

Income before income taxes 32,570 18,907 92,410 34,489

1 unchanged sentence

Net income from continuing operations 23,526 13,786 68,751 24,732

Net income (loss) from discontinued operations 100 ( 25,255 ) 100 ( 36,959 )

Net (loss) income from discontinued operations — ( 688 ) 100 ( 37,647 )

Net income (loss) $ 23,526 $ 13,098 $ 68,851 $ ( 12,915 )

13 unchanged sentences

(In thousands)

Quarter ended Six months ended

December 31, December 31,

Quarter ended Nine months ended

March 31, March 31,

2022 2021 2022 2021

27 unchanged sentences

Balance at December 31, 2021 25,657,545 $ 75,583 $ 803,396 $ ( 110,454 ) $ 768,525

Net income — — 23,526 — 23,526

Unrealized gain on hedged transaction, net of tax — — — 3,144 3,144

Foreign currency translation adjustment — — — 17,186 17,186

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 46,549 383 — — 383

Common stock repurchased ( 274,852 ) ( 8,886 ) — — ( 8,886 )

Share-based compensation — 2,776 — — 2,776

Balance at March 31, 2022 25,429,242 $ 69,856 $ 826,922 $ ( 90,124 ) $ 806,654

See accompanying notes to these condensed consolidated financial statements.

20 unchanged sentences

Balance at December 31, 2020 25,451,640 $ 65,924 $ 721,263 $ ( 105,048 ) $ 682,139

Net income — — 13,098 — 13,098

Unrealized gain on hedged transaction, net of tax — — — 1,582 1,582

Foreign currency translation adjustment — — — ( 9,216 ) ( 9,216 )

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 14,725 439 — — 439

Share-based compensation — 2,532 — — 2,532

Balance at March 31, 2021 25,466,365 $ 68,895 $ 734,361 $ ( 112,681 ) $ 690,575

See accompanying notes to these condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Six months ended

Nine months ended

Cash flows from operating activities:

23 unchanged sentences

Proceeds from the sale of discontinued operations 3,125 34,356

Net cash provided by investing activities of continuing operations 480 32,902

Net cash (used in) provided by investing activities of continuing operations ( 201 ) 32,073

Cash flows from financing activities of continuing operations:

30 unchanged sentences

ScanSource, Inc.

(together with its subsidiaries referred to as “the Company” or “ScanSource”) is a leading hybrid distributor connecting devices to the cloud and accelerating growth for partners across hardware, software, connectivity and cloud.

The Company brings technology solutions and services from the world’s leading suppliers of mobility and barcode, point-of-sale (POS), payments, physical security, unified communications and collaboration, telecom and cloud services to market.

3 unchanged sentences

Segment Changes

During the quarter ended September 30, 2021, the Company made changes to the segments to align technologies with its hybrid distribution strategy across hardware, software, connectivity and cloud.

The Company also renamed its operating segments to Specialty Technology Solutions and Modern Communications & Cloud.

The Company moved some North American business with communications and collaboration solutions to the Modern Communications & Cloud segment.

With this change, all of the Company's communications and collaboration business is in the Modern Communications & Cloud segment.

The Company has moved all of its communications and collaboration business to the Modern Communications & Cloud segment.

This technology alignment better represents the operating and financial performance information provided to the Company's chief operating decision maker.

2 unchanged sentences

See Note 10 - Segment Information for descriptions of the Company's segments.

The spread of COVID-19 has resulted in the implementation of numerous measures to contain the virus worldwide, such as travel bans and restrictions, quarantines, shelter-in-place orders, business shutdowns, and limitations of in-person gatherings.

The Company moved quickly to transition its employees, where possible, to a fully remote working environment.

The Company also deployed teams to monitor the evolving situation and recommend risk mitigation actions.

All of the Company's distribution facilities have remained open and operational throughout the pandemic.

The pandemic and containment measures have had an impact on the Company's suppliers' businesses and sales partners' businesses.

The negative impacts to net sales from the pandemic, including declines in customer demand and supply chain disruptions, began to recover throughout fiscal year 2021.

While the Company is unable to predict the ultimate impact that COVID-19 will have on its business, certain technologies have benefited from the widespread adoption of work-from-home, as well as the accelerated shift to digitize and automate processes.

The Company continues to incur higher employee related healthcare and prevention costs as a result of the pandemic.

For further discussion on the potential future impacts of COVID-19, see the Risk Factors presented in Part I, Item 1A in the Company's form 10-K for fiscal year 2021.

Basis of Presentation

3 unchanged sentences

GAAP for annual financial statements.

The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring and non-recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position at December 31, 2021 and June 30, 2021, the results of operations for the quarters and six months ended December 31, 2021 and 2020, the statements of comprehensive income for the quarters and six months ended December 31, 2021 and 2020, the statements of shareholders' equity for the quarters and six months ended December 31, 2021 and 2020 and the statements of cash flows for the six months ended December 31, 2021 and 2020.

The results of operations for the quarters and six months ended December 31, 2021 and 2020 are not necessarily indicative of the results to be expected for a full year.

The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring and non-recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position at March 31, 2022 and June 30, 2021, the results of operations for the quarters and nine months ended March 31, 2022 and 2021, the statements of comprehensive income for the quarters and nine months ended March 31, 2022 and 2021, the statements of shareholders' equity for the quarters and nine months ended March 31, 2022 and 2021 and the statements of cash flows for the nine months ended March 31, 2022 and 2021.

The results of operations for the quarters and nine months ended March 31, 2022 and 2021 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, 2021.

1 unchanged sentence

Summary of Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies for the six months ended December 31, 2021 from the policies described in the notes to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

There have been no material changes to the Company’s significant accounting policies for the nine months ended March 31, 2022 from the policies described in the notes to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

For a discussion of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

3 unchanged sentences

Due to the terms of the agreements governing these accounts, the Company generally does not have the right to offset outstanding checks written from these accounts against cash on hand, and the respective institutions are not legally obligated to honor the checks until sufficient funds are transferred to fund the checks.

As a result, checks released but not yet cleared from these accounts in the amounts of $ 18.5 million and $ 14.3 million are included in accounts payable on the condensed consolidated balance sheets at December 31, 2021 and June 30, 2021, respectively.

As a result, checks released but not yet cleared from these accounts in the amounts of $ 20.0 million and $ 14.3 million are included in accounts payable on the condensed consolidated balance sheets at March 31, 2022 and June 30, 2021, respectively.

Long-lived Assets

The Company presents depreciation expense and intangible amortization expense on the Condensed Consolidated Income Statements.

The Company's depreciation expense related to selling, general and administrative costs totaled $ 2.5 million and $ 5.4 million for the quarter and six months ended December 31, 2021 and $ 3.1 million and $ 6.5 million for the quarter and six months ended December 31, 2020.

Depreciation expense reported as part of cost of goods sold on the Condensed Consolidated Income Statements totaled $ 0.2 million and $ 0.5 million for the quarter and six months ended December 31, 2021 and $ 0.4 million and $ 0.9 million for the quarter and six months ended December 31, 2020.

The Company's depreciation expense related to selling, general and administrative costs totaled $ 2.6 million and $ 8.0 million for the quarter and nine months ended March 31, 2022 and $ 3.1 million and $ 9.6 million for the quarter and nine months ended March 31, 2021.

Depreciation expense reported as part of cost of goods sold on the Condensed Consolidated Income Statements totaled $ 0.2 million and $ 0.7 million for the quarter and nine months ended March 31, 2022 and $ 0.3 million and $ 1.2 million for the quarter and nine months ended March 31, 2021.

The Company's intangible amortization expense reported on the Condensed Consolidated Income Statements relates to selling, general and administrative costs, not the cost of selling goods.

Intangible amortization expense totaled $ 4.4 million and $ 9.0 million for the quarter and six months ended December 31, 2021 and $ 4.9 million and $ 9.7 million for the quarter and six months ended December 31, 2020.

Intangible amortization expense totaled $ 4.5 million and $ 13.4 million for the quarter and nine months ended March 31, 2022 and $ 4.9 million and $ 14.6 million for the quarter and nine months ended March 31, 2021.

Recent Accounting Pronouncements

4 unchanged sentences

Management determines the estimate of the allowance for doubtful accounts receivable by considering a number of factors, including:

(i) historical experience, (ii) aging of the accounts receivable, (iii) specific information obtained by the Company on the financial condition and the current creditworthiness of its customers, (iv) the current economic and country-specific

environment and (v) reasonable and supportable forecasts about collectability.

Expected credit losses are estimated on a pool basis when similar risk characteristics exist using an age-based reserve model.

1 unchanged sentence

Estimates of expected credit losses on trade receivables over the contractual life are recorded at inception.

The changes in the allowance for doubtful accounts for the six months ended December 31, 2021 are set forth in the table below.

The changes in the allowance for doubtful accounts for the nine months ended March 31, 2022 are set forth in the table below.

June 30, 2021 Amounts Charged to Expense Write-offs Other (1)

December 31, 2021

March 31, 2022

(in thousands)

Trade accounts and current notes receivable allowance $ 19,341 $ 156 $ ( 1,761 ) $ ( 801 ) $ 16,935

(1) "Other" amounts include recoveries and the effect of foreign currency fluctuations for the six months ended December 31, 2021.

(1) "Other" amounts include recoveries and the effect of foreign currency fluctuations for the nine months ended March 31, 2022.

(3) Revenue Recognition

The Company provides technology solutions and services from the world's leading suppliers of mobility and barcode, POS, payments, physical security, unified communications and collaboration, and telecom and cloud services.

The Company provides technology solutions and services from the world's leading suppliers of mobility, barcode, POS, payments, physical security, unified communications, collaboration, telecom and cloud services.

This includes hardware, related accessories and device configuration as well as software licenses, professional services and hardware support programs.

9 unchanged sentences

Principal versus Agent Considerations

The Company is the principal for sales of all hardware, certain software and services, including self-branded warranty programs.

The Company considers itself the principal in these transactions as it has control of the product or service before it is transferred to the customer.

When the Company provides self-branded warranty programs, it engages a third party, generally the original equipment manufacturer, to cover the fulfillment of any obligations arising from these contracts.

These revenues and associated third-party costs are amortized over the life of the contract on a straight-line basis.

The Company recognizes the previously described revenue and cost of goods sold on a gross basis.

The Company is the principal for sales of all hardware and certain software and services.

The Company considers itself the principal in those transactions where it has control of the product or service before it is transferred to the customer.

The Company recognizes the principal-associated revenue and cost of goods sold on a gross basis.

The Company is the agent for third-party service contracts, including product warranties and supplier-hosted software.

14 unchanged sentences

The following tables represent the Company's disaggregation of revenue:

Quarter ended December 31, 2021

Quarter ended March 31, 2022

Specialty Technology Solutions Modern Communications & Cloud Total

4 unchanged sentences

$ 503,072 $ 342,918 $ 845,990

Six months ended December 31, 2021

Nine months ended March 31, 2022

Specialty Technology Solutions Modern Communications & Cloud Total

4 unchanged sentences

$ 1,501,702 $ 1,065,950 $ 2,567,652

Quarter ended December 31, 2020

Quarter ended March 31, 2021

Specialty Technology Solutions Modern Communications & Cloud Total

4 unchanged sentences

$ 436,462 $ 293,411 $ 729,873

Six months ended December 31, 2020

Nine months ended March 31, 2021

Specialty Technology Solutions Modern Communications & Cloud Total

7 unchanged sentences

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

Quarter ended Six months ended

December 31, December 31,

Quarter ended Nine months ended

March 31, March 31,

2022 2021 2022 2021

1 unchanged sentence

Net income from continuing operations $ 23,526 $ 13,786 $ 68,751 $ 24,732

Net income (loss) from discontinued operations 100 ( 25,255 ) 100 ( 36,959 )

Net (loss) income from discontinued operations — ( 688 ) 100 ( 37,647 )

Net income (loss) $ 23,526 $ 13,098 $ 68,851 $ ( 12,915 )

8 unchanged sentences

Net income (loss) per common share, diluted $ 0.91 $ 0.51 $ 2.67 $ ( 0.51 )

For the quarters and six months ended December 31, 2021 weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 359,366 and 1,149,352 , respectively.

For the quarters and six months ended December 31, 2020, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 1,400,999 and 1,191,985 , respectively.

For the quarter and nine months ended March 31, 2022 weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 429,605 and 969,871 , respectively.

For the quarter and nine months ended March 31, 2021, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 1,532,961 and 1,285,153 , respectively.

(5) Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following:

December 31, 2021 June 30, 2021

March 31, 2022 June 30, 2021

(in thousands)

Foreign currency translation adjustment $ ( 90,281 ) $ ( 93,561 )

Unrealized loss on hedged transaction, net of tax ( 2,987 ) ( 4,572 )

Unrealized gain (loss) on hedged transaction, net of tax 157 ( 4,572 )

Accumulated other comprehensive loss $ ( 90,124 ) $ ( 98,133 )

The tax effect of amounts in comprehensive loss (income) reflect a tax expense or (benefit) as follows:

Quarter ended December 31, Six months ended December 31,

Quarter ended March 31, Nine months ended March 31,

2022 2021 2022 2021

(in thousands)

Tax expense (benefit) $ 517 $ ( 94 ) $ 800 $ 260

Tax expense $ 590 $ 1,088 $ 1,390 $ 1,348

(6) Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the six months ended December 31, 2021, by reporting segment, are set forth in the table below.

The changes in the carrying amount of goodwill for the nine months ended March 31, 2022, by reporting segment, are set forth in the table below.

Specialty Technology Solutions Modern Communications & Cloud Total

2 unchanged sentences

Foreign currency translation adjustment — ( 852 ) ( 852 )

Balance at December 31, 2021 $ 16,370 $ 200,385 $ 216,755

The following table shows changes in the amount recognized for net identifiable intangible assets for the six months ended December 31, 2021.

Balance at March 31, 2022 $ 16,370 $ 201,655 $ 218,025

The following table shows changes in the amount recognized for net identifiable intangible assets for the nine months ended March 31, 2022.

Net Identifiable Intangible Assets

3 unchanged sentences

Foreign currency translation adjustment ( 893 )

Balance at December 31, 2021 $ 95,045

Balance at March 31, 2022 $ 90,554

(7) Short-Term Borrowings and Long-Term Debt

The following table presents the Company’s debt at December 31, 2021 and June 30, 2021.

December 31, 2021 June 30, 2021

The following table presents the Company’s debt at March 31, 2022 and June 30, 2021.

March 31, 2022 June 30, 2021

(in thousands)

15 unchanged sentences

At the Company's option, U.S.

total debt less up to $ 15 million of unrestricted domestic cash ("Credit Facility Net Debt") to trailing four -quarter adjusted earnings before interest expense, taxes, depreciation and amortization ("Credit Facility EBITDA") (the "Leverage Ratio").

dollar loans under the Amended Credit Agreement, other than swingline loans, bear interest at a rate equal to a spread over LIBOR or the alternate base rate depending upon the Company's net leverage ratio, calculated as total debt less up to $ 15 million of unrestricted domestic cash ("Credit Facility Net Debt") to trailing four -quarter adjusted earnings before interest expense, taxes, depreciation and amortization ("Credit Facility EBITDA") (the "Leverage Ratio").

This spread ranges from 1.00 % to 1.75 % for LIBOR-based loans and 0.00 % to 0.75 % for alternate base rate loans.

Additionally, the Company is charged commitment fees ranging from 0.15 % to 0.30 %, depending upon the Leverage Ratio, on non-utilized borrowing availability, excluding swingline loans.

The Amended Credit Agreement provides for the substitution of a new interest rate benchmark upon the transition from LIBOR for U.S.

The Amended Credit Agreement provides for the substitution of a new

interest rate benchmark upon the transition from LIBOR for U.S.

dollar loans, subject to agreement between the Company and the administrative agent.

1 unchanged sentence

dollar loans, among other things.

During the six months ended December 31, 2021, the Company's borrowings under the credit facility were U.S.

During the nine months ended March 31, 2022, the Company's borrowings under the credit facility were U.S.

dollar loans.

The spread in effect as of December 31, 2021 was 1.25 % for LIBOR-based loans and 0.25 % for alternate base rate loans.

The commitment fee rate in effect at December 31, 2021 was 0.20 %.

The spread in effect as of March 31, 2022 was 1.25 % for LIBOR-based loans and 0.25 % for alternate base rate loans.

The commitment fee rate in effect at March 31, 2022 was 0.20 %.

The Amended Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants.

2 unchanged sentences

In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates.

The Company was in compliance with all covenants under the credit facility at December 31, 2021.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the six month period ended December 31, 2021 was $ 57.1 million.

Including borrowings for both continuing and discontinued operations, the average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the six months ended December 31, 2020 was $ 70.4 million.

There was $ 292.2 million and $ 350.0 million available for additional borrowings as of December 31, 2021 and June 30, 2021, respectively.

There were no letters of credit issued under the multi-currency revolving credit facility at December 31, 2021 or June 30, 2021.

The Company was in compliance with all covenants under the credit facility at March 31, 2022.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the nine month period ended March 31, 2022 was $ 60.0 million.

Including borrowings for both continuing and discontinued operations, the average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the nine months ended March 31, 2021 was $ 62.1 million.

There was $ 305.7 million and $ 350.0 million available for additional borrowings as of March 31, 2022 and June 30, 2021, respectively.

There were no letters of credit issued under the multi-currency revolving credit facility at March 31, 2022 or June 30, 2021.

Mississippi Revenue Bond

3 unchanged sentences

The agreement also provides the bondholder with a put option, exercisable only within 180 days of each fifth anniversary of the agreement, requiring the Company to pay back the bonds at 100 % of the principal amount outstanding.

At December 31, 2021, the Company was in compliance with all covenants under this bond.

The interest rates at December 31, 2021 and June 30, 2021 were 0.95 % and 0.94 %, respectively.

At March 31, 2022, the Company was in compliance with all covenants under this bond.

The interest rates at March 31, 2022 and June 30, 2021 were 1.08 % and 0.94 %, respectively.

Debt Issuance Costs

At December 31, 2021, net debt issuance costs associated with the credit facility and bond totaled $ 1.0 million and are being amortized through the maturity date of each respective debt instrument.

At March 31, 2022, net debt issuance costs associated with the credit facility and bond totaled $ 0.9 million and are being amortized through the maturity date of each respective debt instrument.

(8) Derivatives and Hedging Activities

8 unchanged sentences

dollar, Brazilian real, euro, British pound and Canadian dollar.

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of $ 30.6 million and $ 27.9 million for the exchange of foreign currencies at December 31, 2021 and June 30, 2021, respectively.

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of $ 35.8 million and $ 27.9 million for the exchange of foreign currencies at March 31, 2022 and June 30, 2021, respectively.

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 included in the Condensed Consolidated Income Statements for the quarters and six months ended December 31, 2021 and 2020 are as follows:

Quarter ended Six months ended

December 31, December 31,

Summarized financial information related to these derivative contracts and changes in the underlying value of the foreign currency exposures included in the Condensed Consolidated Income Statements for the quarters and nine months ended March 31, 2022 and 2021 are as follows:

Quarter ended Nine months ended

March 31, March 31,

2022 2021 2022 2021

(in thousands)

Net foreign exchange derivative contract (gains) losses $ ( 523 ) $ 1,818 $ ( 2,175 ) $ 1,913

Net foreign exchange derivative contract losses (gains) $ 3,464 $ ( 1,061 ) $ 1,289 $ 852

Net foreign currency transactional and re-measurement (gains) losses ( 3,206 ) 1,020 ( 66 ) ( 74 )

Net foreign currency exchange losses $ 480 $ 381 $ 966 $ 819

Net foreign currency exchange losses (gains) $ 258 $ ( 41 ) $ 1,223 $ 778

Net foreign currency exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign currency exchange contract gains and losses and are included in other income and expense.

9 unchanged sentences

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).

There was no ineffective portion to be recorded as an adjustment to earnings for the quarters ended December 31, 2021 and 2020.

The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive Income for the quarters and six months ended December 31, 2021 and 2020, are as follows:

Quarter ended Six months ended

December 31, December 31,

There was no ineffective portion to be recorded as an adjustment to earnings for the quarters ended March 31, 2022 and 2021.

The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive Income for the quarters and nine months ended March 31, 2022 and 2021, are as follows:

Quarter ended Nine months ended

March 31, March 31,

2022 2021 2022 2021

1 unchanged sentence

Net interest expense recognized as a result of interest rate swap $ 532 $ 557 $ 1,689 $ 1,682

Unrealized gain (loss) in fair value of interest rate swap 999 135 983 ( 268 )

Unrealized gain in fair value of interest rate swap 3,675 1,549 4,658 1,281

Net increase in accumulated other comprehensive income 4,207 2,106 6,347 2,963

1 unchanged sentence

Net increase in accumulated other comprehensive income, net of tax $ 3,145 $ 1,582 $ 4,728 $ 2,209

The Company used the following derivative instruments at December 31, 2021 and June 30, 2021, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:

December 31, 2021 June 30, 2021

The Company used the following derivative instruments at March 31, 2022 and June 30, 2021, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:

March 31, 2022 June 30, 2021

Balance Sheet Location Fair Value of

5 unchanged sentences

Derivative assets:

Foreign exchange contracts Prepaid expenses and other current assets $ — $ 33 $ — $ —

Foreign currency hedge Prepaid expenses and other current assets $ — $ — $ 187 $ —

Interest rate swap agreement Other non-current assets $ 196 $ — $ — $ —

Derivative liabilities:

10 unchanged sentences

The carrying value of debt is considered to approximate fair value, as the Company’s debt instruments are indexed to a variable rate using the market approach (Level 2).

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis at December 31, 2021:

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis at March 31, 2022:

(Level 1) Significant

2 unchanged sentences

Deferred compensation plan investments, current and non-current portion $ 28,587 $ 28,587 $ — $ —

Forward foreign currency exchange contracts 33 — 33 —

Interest rate swap agreement 196 — 196 —

Total assets at fair value $ 28,816 $ 28,587 $ 229 $ —

Deferred compensation plan investments, current and non-current portion $ 28,495 $ 28,495 $ — $ —

Forward foreign currency exchange contracts 55 — 55 —

Foreign currency hedge 185 — 185 —

Interest rate swap agreement 4,054 — 4,054 —

Total liabilities at fair value $ 28,680 $ 28,495 $ 185 $ —

20 unchanged sentences

Subsequent changes in the fair value of the contingent consideration liabilities are recorded to the change in fair value of contingent consideration line item in the Condensed Consolidated Income Statements.

The table below provides a summary of the changes in fair value of the Company's contingent considerations for the Intelisys earnout, which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarter and six months ended December 31, 2020.

Quarter ended December 31, 2020 Six months ended December 31, 2020

Quarter ended March 31, 2021 Nine months ended March 31, 2021

Modern Communications & Cloud

11 unchanged sentences

The final earnout payment due to the former owners of Intelisys was paid in October 2020.

The company recognized $ 0.5 million in expense from the change in fair value of the contingent consideration in the Condensed Consolidated Income Statement for the six months ended December 31, 2020.

The Company recognized $ 0.5 million in expense from the change in fair value of the contingent consideration in the Condensed Consolidated Income Statement for the nine months ended March 31, 2021.

The change in fair value was due to the recurring amortization of the unrecognized fair value discount.

16 unchanged sentences

Selected financial information for each business segment is presented below:

Quarter ended Six months ended

December 31, December 31,

Quarter ended Nine months ended

March 31, March 31,

2022 2021 2022 2021

16 unchanged sentences

$ 32,917 $ 19,436 $ 94,742 $ 38,201

$ 31,498 $ 17,130 $ 61,826 $ 18,764

Capital expenditures:

7 unchanged sentences

$ 845,990 $ 729,873 $ 2,567,652 $ 2,298,111

(1) For the quarter and six months ended December 31, 2021, the amounts shown above include divestiture costs.

For the quarter and six months ended December 31, 2020, the amounts shown above include restructuring and divestiture costs.

December 31, 2021 June 30, 2021

March 31, 2022 June 30, 2021

(in thousands)

14 unchanged sentences

Finance leases are recorded as property and equipment, net , accrued expenses and other current liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets.

The gross amount of the balances recorded related to finance leases is immaterial to the financial statements at December 31, 2021 and June 30, 2021.

The gross amount of the balances recorded related to finance leases is immaterial to the financial statements at March 31, 2022 and June 30, 2021.

Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the net present value of future minimum lease payments over the lease term.

5 unchanged sentences

Further, the Company has elected the practical expedient to recognize all lease and non-lease components as a single lease component, where applicable.

The following table presents amounts recorded on the Condensed Consolidated Balance Sheet related to operating leases at December 31, 2021 and June 30, 2021:

December 31, 2021 June 30, 2021

The following table presents amounts recorded on the Condensed Consolidated Balance Sheet related to operating leases at March 31, 2022 and June 30, 2021:

March 31, 2022 June 30, 2021

Operating leases Balance Sheet location (in thousands)

2 unchanged sentences

Long-term operating lease liabilities Other long-term liabilities $ 14,591 $ 16,550

The following table presents amounts recorded in operating lease expense as part of selling general and administrative expenses on the Condensed Consolidated Income Statements during the quarters and six months ended December 31, 2021 and 2020.

Operating lease costs contain immaterial amounts of short-term lease costs for leases with an initial term of 12 months or less.

Quarter ended December 31, Six months ended December 31,

Quarter ended March 31, Nine months ended March 31,

2022 2021 2022 2021

3 unchanged sentences

$ 1,683 $ 1,574 $ 4,843 $ 4,844

Supplemental cash flow information related to the Company's operating leases for the six months ended December 31, 2021 and 2020 are presented in the table below:

Six months ended

Supplemental cash flow information related to the Company's operating leases for the nine months ended March 31, 2022 and 2021 are presented in the table below:

Nine months ended

(in thousands)

1 unchanged sentence

Right-of-use assets obtained in exchange for lease obligations 2,313 —

The weighted-average remaining lease term and discount rate at December 31, 2021 are presented in the table below:

December 31, 2021

The weighted-average remaining lease term and discount rate at March 31, 2022 are presented in the table below:

March 31, 2022

Weighted-average remaining lease term 4.52 years

Weighted-average discount rate 4.09 %

The following table presents the maturities of the Company's operating lease liabilities at December 31, 2021:

The following table presents the maturities of the Company's operating lease liabilities at March 31, 2022:

Operating leases

7 unchanged sentences

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, results of operations or cash flows.

The spread of COVID-19 since December 2019 has resulted in the implementation of numerous measures to contain the virus worldwide, such as travel bans and restrictions, quarantines, shelter-in-place orders, business shutdowns, and limitations of in-person gatherings.

The pandemic and these containment measures have had a substantial impact on businesses around the world and on global, regional and national economies.

The Company is unable at this time to predict the ultimate impact that COVID-19 will have on its business due to the inability to predict the duration or magnitude of the virus' impact.

During the Company's due diligence for the Network1 acquisition, several pre-acquisition contingencies were identified regarding various Brazilian federal and state tax exposures.

The Company recorded indemnification receivables that are reported gross of the pre-acquisition contingency liabilities as the funds were escrowed as part of the acquisition.

The amount available after the impact of foreign currency translation for future pre-acquisition contingency settlements or to be released to the sellers was $ 3.7 million and $ 4.0 million, at December 31, 2021 and June 30, 2021, respectively.

The table below summarizes the balances and line item presentation of Network1's pre-acquisition contingencies and corresponding indemnification receivables in the Company's Condensed Consolidated Balance Sheets at December 31, 2021 and June 30, 2021:

December 31, 2021 June 30, 2021

The amount available after the impact of foreign currency translation for future pre-acquisition contingency settlements or to be released to the sellers was $ 4.4 million and $ 4.0 million, at March 31, 2022 and June 30, 2021, respectively.

March 31, 2022 June 30, 2021

(in thousands)

3 unchanged sentences

Other long-term liabilities $ 4,221 $ 3,998

The decrease in pre-acquisition contingencies and corresponding indemnification receivables is due to a slight decrease in the foreign exchange rate of the Brazilian real against the US dollar.

(13) Restructuring

2 unchanged sentences

The Company also initiated the closure of its Canpango business, its Salesforce implementation and consulting business.

There had been limited adoption by the Company's partner community of the services Canpango offers.

There had been limited adoption by the Company's

partner community of the services Canpango offers.

These actions include entering into severance and termination agreements with employees, legal fees to execute the reduction in force and costs associated with lease terminations.

There were no restructuring or severance costs incurred during the quarter and six months ended December 31, 2021.

The following table presents the restructuring and severance costs incurred for the quarter and six months ended December 31, 2020:

Quarter ended December 31, 2020 Six months ended December 31, 2020

There were no restructuring or severance costs incurred during the quarter and nine months ended March 31, 2022.

The following table presents the restructuring and severance costs incurred for the quarter and nine months ended March 31, 2021:

Quarter ended March 31, 2021 Nine months ended March 31, 2021

(in thousands)

4 unchanged sentences

Accrued restructuring and severance costs are included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets.

The following table represents activity for the six months ended December 31, 2021:

The following table represents activity for the nine months ended March 31, 2022:

Accrued Expenses

3 unchanged sentences

Cash payments ( 1,146 )

Balance at December 31, 2021

The remaining balance as of December 31, 2021 of $ 0.3 million, primarily related to Corporate, is expected to be paid through the third quarter of fiscal year 2022.

Balance at March 31, 2022

The remaining balance as of March 31, 2022 of less than $ 0.1 million is expected to be paid through the fourth quarter of fiscal year 2022.

(14) Income Taxes

Income taxes for the quarters and six months ended December 31, 2021 and 2020 have been included in the accompanying condensed consolidated financial statements using an estimated annual effective tax rate.

Income taxes for the quarters and nine months ended March 31, 2022 and 2021 have been included in the accompanying condensed consolidated financial statements using an estimated annual effective tax rate.

In addition to 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 provision.

During the quarters and six months ended December 31, 2021, a discrete net tax benefit of $ 0.9 million was recorded, which is attributable to excess tax benefits on stock compensation and a notional interest deduction on the net equity of the Company's Brazilian subsidiary.

The Company’s effective tax rate of 23.9 % and 24.4 % for the quarter and six months ended December 31, 2021, respectively, differs from the current federal statutory rate of 21% primarily as a result of income derived from tax jurisdictions with varying income tax rates, nondeductible expenses and state income taxes.

The Company's effective tax rate was 29.7 % and 29.8 % for the quarter and six months ended December 31, 2020, respectively.

As of the quarter ended December 31, 2021, the Company is not permanently reinvested with respect to all earnings generated by foreign operations.

The Company has determined that there is no material deferred tax liability related to federal, state and withholding tax related to undistributed earnings.

During the quarter ended December 31, 2021, foreign subsidiaries repatriated

cash of $ 17.4 million to the United States.

There were no material discrete items during the quarter ended March 31, 2022.

During the nine months ended March 31, 2022, a discrete net tax benefit of $ 0.9 million was recorded, which is attributable to excess tax benefits on stock compensation and a notional interest deduction on the net equity of the Company's Brazilian subsidiary.

The Company’s effective tax rate of 27.8 % and 25.6 % for the quarter and nine months ended March 31, 2022, respectively, differs from the current federal statutory rate of 21% primarily as a result of income derived from tax jurisdictions with varying income tax rates, nondeductible expenses and state income taxes.

The Company's effective tax rate was 27.1 % and 28.3 % for the quarter and nine months ended March 31, 2021, respectively.

As of the quarter ended March 31, 2022, the Company is not permanently reinvested with respect to all earnings generated by foreign operations.

The Company has determined that there is no material deferred tax liability for federal, state and withholding tax related to undistributed earnings.

During the nine months ended March 31, 2022, foreign subsidiaries repatriated cash of $ 17.4 million to the United States.

There is no certainty to the timing of any future distributions of such earnings to the U.S.

in whole or in part.

The Company had approximately $ 1.2 million and $ 1.1 million of total gross unrecognized tax benefits at December 31, 2021 and June 30, 2021, respectively.

Of this total at December 31, 2021, approximately $ 0.9 million represents the amount of unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate.

The Company had approximately $ 1.2 million and $ 1.1 million of total gross unrecognized tax benefits at March 31, 2022 and June 30, 2021, respectively.

Of this total at March 31, 2022, approximately $ 0.9 million 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’s policy is to recognize interest and penalties related to income tax matters in income tax expense.

At December 31, 2021 and June 30, 2021, the Company had approximately $ 1.1 million accrued for interest and penalties.

At March 31, 2022 and June 30, 2021, the Company had approximately $ 1.2 million and $ 1.1 million, respectively, accrued for interest and penalties.

The Company conducts business globally and one or more of its subsidiaries files income tax returns in the U.S.

10 unchanged sentences

As this loss was determined not to be attributable to any individual components in the Divestitures' net assets, it was reflected as a valuation allowance against the total assets of the Divestitures.

During the quarter ended September 30, 2020, the Company recorded an additional pre-tax loss on disposal group of $ 10.7 million.

This additional loss was attributable primarily to a reduction in the net proceeds expected to be realized at closing for the Divestitures.

During the nine months ended March 31, 2021, the Company recorded an additional pre-tax loss on disposal group of $ 34.5 million, which was primarily attributable to a reduction in the net proceeds realized at closing for the Divestitures.

During the quarter ended December 31, 2021, the Company received the second and final payment for its businesses in Latin America, outside of Brazil, related to working capital adjustments and in accordance with the Share Purchase Agreement between Intcomex and the Company.

5 unchanged sentences

Total cash received for the sale of divestitures was $ 37.5 million.

Major components of net (income) loss from discontinued operations for the quarters and six months ended December 31, 2021 and 2020 were as follows:

Quarter ended December 31, 2021 Quarter ended December 31, 2020 Six months ended December 31, 2021 Six months ended December 31, 2020

Major components of net loss (income) from discontinued operations for the quarters and nine months ended March 31, 2022 and 2021 were as follows:

Quarter ended March 31, 2022 Quarter ended March 31, 2021 Nine months ended March 31, 2022 Nine months ended March 31, 2021

(in thousands)

5 unchanged sentences

Interest expense, net — — — 394

(Gain) loss on disposal group ( 100 ) 23,122 ( 100 ) 33,808

Other (income) expense, net — ( 181 ) — 310

Income (loss) from discontinued operations before taxes 100 ( 25,242 ) 100 ( 36,942 )

Loss (gain) on disposal group — 688 ( 100 ) 34,496

Other expense, net — — — 310

(Loss) income from discontinued operations before taxes — ( 688 ) 100 ( 37,630 )

Income tax expense — — — 17

Net income (loss) from discontinued operations $ 100 $ ( 25,255 ) $ 100 $ ( 36,959 )

There were no assets or liabilities classified as held-for-sale in the accompanying consolidated balance sheets at December 31, 2021 and June 30, 2021.

There were no significant non-cash items in the cash flows from discontinued operations for the six months ended December 31, 2021.

Significant non-cash operating items and capital expenditures reflected in the cash flows from discontinued operations for the six months ended December 31, 2020 were as follows:

Six months ended December 31, 2020

Net (loss) income from discontinued operations $ — $ ( 688 ) $ 100 $ ( 37,647 )

There were no assets or liabilities classified as held-for-sale in the accompanying consolidated balance sheets at March 31, 2022 and June 30, 2021.

There were no cash flows from discontinued operations for the nine months ended March 31, 2022.

Significant non-cash operating items and capital expenditures reflected in the cash flows from discontinued operations for the nine months ended March 31, 2021 were as follows:

Nine months ended March 31, 2021

(in thousands)

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements