What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-08-23 compared with 2021-08-24 · 291 added, 401 removed, 1197 unchanged (37% of the section changed)

2 unchanged sentences

Financial Statements

Report of Grant Thornton LLP Independent Registered Public Accounting Firm

Report Report of Grant Thornton LLP Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

Report of Grant Thornton LLP Independent Registered Public Accounting Firm (PCAOB ID:

Report of Grant Thornton LLP Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

Consolidated Balance Sheets

25 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Supplier incentives

As described in Note 1 to the consolidated financial statements, the Company has incentive agreements with many of its suppliers.

Supplier rebates can be in the form of instant rebates or achievement-based rebates.

Instant rebate programs reduce the Company’s inventory cost so that the Company can reduce the ultimate sales price to the customer or provide additional margin to the Company.

Achievement-based rebates are earned by achieving certain sales or purchase targets on a periodic basis.

We identified supplier incentives as a critical audit matter.

We identified supplier incentives as a critical audit matter due to the large volume of transactions subject to rebates that are earned under varying contract terms, and the related estimates made by management.

The Company determines whether, among other items, all qualifying sales and purchases are considered in calculating the rebates and cash receipts or credit memos received are appropriately applied.

The determination of achievement-based rebates requires management to make estimates about future purchases and sales.

For both instant and achievement-based rebates, there is a risk that the rebates are not accounted for consistent with the terms of the current contracts, which requires a high degree of auditor judgment in designing and executing audit procedures to respond to this risk.

Index to Financial Statements

Our audit procedures related to the supplier incentives included the following, among others.

We confirmed a sample of outstanding balances of supplier rebates receivable.

For unreturned confirmations, we vouched the related balances to subsequent cash receipts or credit memos received by the Company or obtained the underlying vendor agreements.

Using those agreements, we recalculated the receivable based on the stated terms and evaluated the Company’s estimates to determine whether the rebate thresholds were met.

We verified the completeness and accuracy of the underlying sales or purchases data used by management in determining whether they qualified for rebates during the period.

In addition, we analyzed the rebates receivable collection history to evaluate the overall collectability of the supplier rebates receivable balance.

We also tested the design and operating effectiveness of controls relating to supplier incentives including, among others, the Company’s controls over processing new incentive agreements, specifically related to the appropriate recognition of reductions to cost of goods sold for instant rebates and the appropriate amortization of inventory valuation adjustments to cost of goods sold for achievement-based rebates.

Critical audit matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Grant Thornton LLP

43 unchanged sentences

Prepaid expenses and other current assets 141,562 117,860

Current assets held for sale — 181,231

Total current assets 1,523,805 1,219,643

9 unchanged sentences

Accrued expenses and other current liabilities 88,455 87,790

Current portion of contingent consideration — 46,334

Income taxes payable 34 2,501

Current portion of long-term debt 11,598 7,843

Current liabilities held for sale — 128,022

Total current liabilities 814,264 732,939

35 unchanged sentences

Interest income ( 4,333 ) ( 3,097 ) ( 5,826 )

Other expense (income), net 116 411 ( 247 )

Other expense, net 1,354 116 411

Income (loss) before income taxes 118,623 57,535 ( 71,776 )

1 unchanged sentence

Net income (loss) from continuing operations 88,698 45,389 ( 79,227 )

Net loss from discontinued operations ( 34,594 ) ( 113,427 ) ( 7,262 )

Net income (loss) from discontinued operations 100 ( 34,594 ) ( 113,427 )

Net income (loss) $ 88,798 $ 10,795 $ ( 192,654 )

33 unchanged sentences

Balance at June 30, 2019 25,408,397 $ 64,287 $ 939,930 $ ( 90,088 ) $ 914,129

Net income — — 57,597 — 57,597

Net loss — — ( 192,654 ) — ( 192,654 )

Unrealized loss on hedged transaction, net of tax — — — ( 4,646 ) ( 4,646 )

4 unchanged sentences

Balance at June 30, 2020 25,361,298 63,765 747,276 ( 132,795 ) 678,246

Net loss — — ( 192,654 ) — ( 192,654 )

Unrealized loss on hedged transaction, net of tax — — — ( 4,646 ) ( 4,646 )

Net income — — 10,795 — 10,795

Unrealized gain on hedged transaction, net of tax — — — 2,249 2,249

Foreign currency translation adjustment — — — 20,778 20,778

Realized foreign currency loss from discontinued operations — — — 11,635 11,635

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 138,167 ( 585 ) — — ( 585 )

Common stock repurchased ( 168,068 ) ( 5,432 ) — — ( 5,432 )

Share-based compensation — 8,073 — — 8,073

3 unchanged sentences

Foreign currency translation adjustment — — — ( 12,338 ) ( 12,338 )

Realized foreign currency loss from discontinued operations — — — 11,635 11,635

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 238,080 ( 450 ) — — ( 450 )

Common stock repurchased ( 550,194 ) ( 18,203 ) — — ( 18,203 )

Share-based compensation — 11,697 — — 11,697

10 unchanged sentences

Net income (loss) $ 88,798 $ 10,795 $ ( 192,654 )

Net loss from discontinued operations ( 34,594 ) ( 113,427 ) ( 7,262 )

Net income (loss) from discontinued operations 100 ( 34,594 ) ( 113,427 )

Net income (loss) from continuing operations 88,698 45,389 ( 79,227 )

Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:

Adjustments to reconcile net income to net cash (used in) provided by operating activities of continuing operations:

Depreciation and amortization 29,884 33,507 35,328

15 unchanged sentences

Income taxes payable ( 2,252 ) ( 3,679 ) ( 441 )

Net cash provided by operating activities of continuing operations 116,767 182,033 16,032

Net cash (used in) provided by operating activities of continuing operations ( 124,354 ) 116,767 182,033

Cash flows from investing activities of continuing operations:

2 unchanged sentences

Cash received for business disposal 3,125 34,356 —

Net cash provided by (used in) investing activities of continuing operations 31,993 ( 55,308 ) ( 37,958 )

Net cash (used in) provided by investing activities of continuing operations ( 3,724 ) 31,993 ( 55,308 )

Cash flows from financing activities of continuing operations:

1 unchanged sentence

Repayments on revolving credit, net of expenses ( 2,030,569 ) ( 1,949,392 ) ( 2,190,595 )

Borrowings on long-term debt, net ( 7,839 ) ( 4,085 ) 149,670

Repayments on long-term debt, net ( 7,843 ) ( 7,839 ) ( 4,085 )

Repayments of finance lease obligations ( 1,238 ) ( 1,294 ) ( 1,765 )

Debt issuance costs — — ( 1,096 )

Contingent consideration payments — ( 41,393 ) ( 35,482 )

2 unchanged sentences

Repurchase of common stock ( 18,203 ) — ( 6,078 )

Net cash (used in) provided by financing activities of continuing operations ( 118,824 ) ( 152,686 ) 31,314

Net cash provided by (used in) financing activities of continuing operations 108,106 ( 118,824 ) ( 152,686 )

Index to Financial Statements

1 unchanged sentence

Cash flows from discontinued operations:

Net cash flows provided by (used in) operating activities of discontinued operations 24,173 44,238 ( 43,159 )

Net cash flows provided by operating activities of discontinued operations — 24,173 44,238

Net cash flows used in investing activities of discontinued operations — ( 58 ) ( 77 )

Net cash flows (used in) provided by financing activities of discontinued operations ( 29,494 ) ( 3,921 ) 32,917

Net cash flows (used in) financing activities of discontinued operations — ( 29,494 ) ( 3,921 )

Net cash flows (used in) provided by discontinued operations — ( 5,379 ) 40,240

Effect of exchange rate changes on cash and cash equivalents ( 4,759 ) 3,706 ( 3,642 )

Increase (decrease) in cash and cash equivalents 28,263 10,637 ( 1,712 )

(Decrease) increase in cash and cash equivalents ( 24,731 ) 28,263 10,637

Cash and cash equivalents at beginning of period 62,718 34,455 23,818

14 unchanged sentences

ScanSource, Inc.

(together with its subsidiaries referred to as “the Company” or “ScanSource”) is at the center of the solution delivery channel, connecting businesses and providing technology solutions.

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

(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 as a Service ("SaaS"), 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.

The Company operates in the United States, Canada, Brazil and the UK.

During the quarter ended December 31, 2020, the Company completed the divestitures of its products distribution business in the UK, Europe, and Latin America, outside of Brazil (the "Divestitures").

See Note 19 - Discontinued Operations for more information regarding the Divestitures.

The Company's two operating segments, Worldwide Barcode, Networking & Security and Worldwide Communications & Services, are based on product, customer, and service type.

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

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

The Company is following guidance from authorities and health officials, including implementing travel restrictions and requiring employees to adhere physical distancing protocols.

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

The pandemic and these containment measures have had an impact on our business, suppliers' businesses and sales partners' businesses.

The negative impacts to net sales from the pandemic, including declines in customer demand and supply chain disruptions, were most pronounced during the fourth quarter of fiscal year 2020, and have since recovered throughout fiscal year 2021.

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

We are also incurring higher employee related healthcare and prevention costs as a result of the pandemic.

The Company has made adjustments, including implementing an annualized expense reduction plan in fiscal year 2021.

For further discussion on the potential future impacts of COVID-19, see the Risk Factors presented in Part I, Item 1A.

The Company's two operating segments, Specialty Technology Solutions and Modern Communications & Cloud, are based on technology.

Segment Changes

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.

The Company has reclassified certain prior-year amounts in the segment results to conform with current year presentation.

These reclassifications had no effect on the condensed consolidated financial results.

See Note 17 - Segment Information for descriptions of the Company's segments.

Basis of Presentation

1 unchanged sentence

All inter-company accounts and transactions have been eliminated.

The Company has reclassified certain prior year amounts for the results of discontinued operations to conform to the current year presentation.

Unless otherwise indicated, amounts provided in these Notes pertain to continuing operations only.

4 unchanged sentences

Use of Estimates

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates, including those related to the allowance for uncollectible accounts receivable, contingent consideration, asset impairments, inventory reserves, purchase price allocations, goodwill and intangibles, and supplier incentives.

On an ongoing basis, management evaluates its estimates, including those related to the allowance for uncollectible accounts receivable, asset impairments, inventory reserves, purchase price allocations, goodwill and intangibles and supplier incentives.

Management bases its estimates on assumptions that management believes to be reasonable under the circumstances, the results of which form a basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources.

2 unchanged sentences

The following accounting policies relate to the more significant judgments and estimates used in the preparation of the Consolidated Financial Statements:

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

(a) Allowances for Trade and Notes Receivable

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(d) Goodwill and Intangible Asset Fair Value

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

The Company estimates the fair value of its goodwill reporting units, as well as its finite lived intangible assets primarily based on the income approach utilizing the discounted cash flow method.

4 unchanged sentences

Achievement-based supplier rebates are earned by achieving certain sales or purchase targets on a periodic basis.

The Company determines whether, among other items, all qualifying sales and purchases are considered in calculating the rebates and cash receipts or credit memos received are appropriately applied.

The Company determines whether, among other

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

items, all qualifying sales and purchases are considered in calculating the rebates and cash receipts or credit memos received are appropriately applied.

The determination of achievement-based rebates requires management to make assumptions about future purchases and sales.

5 unchanged sentences

As a result, checks released but not yet cleared from these accounts in the amounts of $ 18.0 million and $ 14.3 million are classified as accounts payable as of June 30, 2022 and 2021, respectively.

The Company maintains its cash with various financial institutions globally that are monitored regularly for credit quality, although it may hold amounts in excess of Federal Deposit Insurance Corporation ("FDIC") or other insured limits.

Cash and cash equivalents held outside of the United States for continuing operations totaled $ 35.0 million and $ 52.1 million as of June 30, 2022 and 2021, respectively.

3 unchanged sentences

In certain cases, the Company will accept tangible assets as collateral to increase the trade credit of its customers.

Sales to individual customers were less than 10% of the Company’s net sales for fiscal years 2021, 2020 and 2019.

Sales to any one customer were less than 10% of the Company’s net sales for fiscal years 2022, 2021 and 2020.

In the event that the Company does not collect payment on accounts receivable within the established trade terms for certain customers, the Company may establish arrangements for longer-term financing.

5 unchanged sentences

The Company does not use derivative financial instruments for trading or speculative purposes.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

The Company’s exposure to changes in foreign currency exchange rates results from foreign currency denominated assets and liabilities, purchasing and selling internationally in several foreign currencies and from intercompany loans with foreign subsidiaries, including subsidiaries included in discontinued operations.

The Company’s objective is to preserve the economic value of non-functional currency denominated cash flows.

7 unchanged sentences

The Company's earnings are affected by changes in interest rates due to the impact those changes have on interest expense from floating rate debt instruments.

To manage the exposure, the Company has an interest rate swap agreement and has designated this instrument as a hedge of the cash flows on certain variable rate debt.

To manage the exposure, the Company has an interest rate swap agreement and has designated

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

this instrument as a hedge of the cash flows on certain variable rate debt.

To the extent the derivative instrument was effective in offsetting the variability of the hedged cash flows, changes in the fair value of the derivative instrument were not included in current earnings, but were reported as other comprehensive income (loss).

14 unchanged sentences

Suppliers generally require that the Company use the suppliers' cooperative advertising allowances for advertising or other marketing programs.

Incentives received from suppliers for specifically identified incremental cooperative advertising programs are recorded as adjustments to selling, general and administrative expenses.

Incentives received from suppliers for specifically identified incremental cooperative advertising programs are recorded as adjustments to net sales.

ASC 606, Revenue from Contracts with Customers addresses accounting for consideration payable to a customer, which the Company interprets and applies as the customer (i.e., the Company) receiving advertising funds from a supplier.

1 unchanged sentence

Such funds are recognized as a reduction of the cost of goods sold when the related inventory is sold.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

The Company records unrestricted volume rebates received as a reduction of inventory and reduces the cost of goods sold when the related inventory is sold.

8 unchanged sentences

The Company sells products from many suppliers;

however, sales of products supplied by Cisco and Zebra each constituted more than 10 % of the Company's net sales for the year ended June 30, 2021, 2020, and 2019.

however, sales of products supplied by Cisco and Zebra each constituted more than 10 % of the Company's net sales for the years ended June 30, 2022, 2021 and 2020.

Product Warranty

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

The Company’s suppliers generally provide a warranty on the products provided by the Company and allow the Company to return defective products, including those that have been returned to the Company by its customers.

18 unchanged sentences

Goodwill testing utilizes an impairment analysis, whereby the Company compares the carrying value of each identified reporting unit to its fair value.

The Company's goodwill reporting units align directly with its operating segments, Worldwide Barcode, Networking & Security and Worldwide Communications & Services.

The Company's goodwill reporting units align directly with its operating segments, Specialty Technology Solutions and Modern Communications & Cloud.

The fair values of the reporting units are estimated using the net present value of discounted cash flows generated by each reporting unit.

Considerable judgment is necessary in estimating future cash flows, discount rates and other factors affecting the estimated fair value of the reporting units, including operating and

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

macroeconomic factors.

Considerable judgment is necessary in estimating future cash flows, discount rates and other factors affecting the estimated fair value of the reporting units, including operating and macroeconomic factors.

Historical financial information, internal plans and projections and industry information are used in making such estimates.

9 unchanged sentences

The WACC is intended to represent a rate of return that would be expected by a market participant in each respective geography.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

• Operating income:

The Company utilized historical and expected revenue growth rates, gross margins and operating expense percentages, as well as the expected impact of COVID-19 and the Company's annualized expense reduction plan, which varied based on the projections of each reporting unit being evaluated.

• Other cash flow adjustments:

• Cash flows from working capital changes:

The Company utilized a projected cash flow impact pertaining to depreciation, capital expenditures and expected changes in working capital as each of its goodwill reporting units grow.

No goodwill impairment charges were recognized for the fiscal years ended June 30, 2022 and 2021 .

Goodwill impairment charges totaled $ 119.0 million for the Worldwide Barcode, Networking and Security segment reporting units for the fiscal year ended June 30, 2020 and are included in the impairment charges line item in the Consolidated Income Statements .

Goodwill impairment charges totaled $ 119.0 million for the fiscal year ended June 30, 2020 and are included in the impairment charges line item in the Consolidated Income Statements .

See Note 8 - Goodwill and Other Identifiable Intangible Assets for more information regarding goodwill and the results of our testing.

13 unchanged sentences

Fair Value of Financial Instruments

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties.

2 unchanged sentences

Liability for Contingent Consideration

In addition to the initial cash consideration paid to former shareholders of Intelisys and Network1, the Company agreed to make additional earnout payments based on future results through a specified date based on a multiple of the subsidiary’s pro forma earnings as defined in the respective purchase agreements.

Future payments are to be paid in the functional currency of the acquired entity.

In addition to the initial cash consideration paid to former shareholders of Intelisys, the Company agreed to make additional earnout payments based on future results through a specified date based on a multiple of the subsidiary’s pro forma earnings as defined in the respective purchase agreements.

The Company paid the final earnout payment to the former shareholders of Intelisys during fiscal year 2021.

The Company also paid the final earnout payment to the former shareholders of Network1 during fiscal year 2019.

Contingencies

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As facts concerning contingencies become known, management reassesses its position and makes appropriate adjustments to the financial statements.

Estimates that are particularly sensitive to future changes include tax, legal and other regulatory matters, which are subject to change as events evolve and as additional information becomes available during the administrative and litigation process.

Estimates that are particularly sensitive to future changes include

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

tax, legal and other regulatory matters, which are subject to change as events evolve and as additional information becomes available during the administrative and litigation process.

Revenue Recognition

8 unchanged sentences

The Company delivers products to customers in several ways, including:

(i) shipment from the Company's warehouse, (ii) drop-shipment directly from the supplier, or (iii) electronic delivery for software licenses.

(i) shipment from a Company warehouse, (ii) drop-shipment directly from the supplier, or (iii) electronic delivery for software licenses.

For more detailed disclosures on the Company's revenue recognition policies, see Note 3 - Revenue Recognition .

5 unchanged sentences

The currency effects of translating the financial statements of the Company’s foreign entities that operate in their local currency are included in the cumulative currency translation adjustment component of accumulated other comprehensive income or loss.

The Company's continuing operations functional currencies include U.S.

dollars, Brazilian reais, British pounds, and Canadian dollars.

The Company's functional currencies include U.S.

dollars, Brazilian reais, British pounds, euros and Canadian dollars.

The assets and liabilities of these foreign entities are translated into U.S.

5 unchanged sentences

Deferred income taxes reflect tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts.

In accordance with

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

ASC 740, Accounting for Income Taxes, valuation allowances are provided against deferred tax assets when it is more likely than not that an asset will not be realized .

In accordance with ASC 740, Accounting for Income Taxes, valuation allowances are provided against deferred tax assets when it is more likely than not that an asset will not be realized .

Additionally, the Company maintains reserves for uncertain tax provisions.

See Note 14 - Income Taxes for further discussion and the impact of the Tax Cut and Jobs Act (the "Tax Act") enacted by the U.S.

government on December 22, 2017.

See Note 14 - Income Taxes for further discussion.

Share-Based Payments

3 unchanged sentences

Since this compensation cost is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

ASU 2016-09 allows companies to elect an accounting policy either to continue to estimate the total number of awards for which the requisite service period will not be rendered or to account for forfeitures when they occur.

The Company has elected to maintain its current accounting policy, estimate the total number of awards expected to be forfeited at the time of grant and revise such estimates, if necessary, in subsequent periods if actual forfeitures differ.

ASU 2016-09 allows companies to elect an accounting policy to estimate the total number of awards for which the requisite service period will not be rendered or to account for forfeitures when they occur.

The Company estimates the total number of awards expected to be forfeited at the time of grant and revise such estimates, if necessary, in subsequent periods if actual forfeitures differ.

The Company has elected to expense grants of awards with graded vesting on a straight-line basis over the requisite service period for each separately vesting portion of the award.

Common stock repurchases

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

Repurchases of common stock are accounted for at cost, which includes brokerage fees, and are included as a component of shareholder's equity on the Consolidated Balance Sheets.

11 unchanged sentences

The Company adopted the standard on July 1, 2019 and applied it at the beginning of the period of adoption.

Therefore, upon adoption, financial information and disclosures are not updated for comparative reporting periods under the new standard.

Additionally, the Company has elected the transition package of practical expedients upon adoption which, among other things, allows an entity to not reassess the historical lease classification.

Upon adoption, the Company recognized right-of-use assets and corresponding lease liabilities for both operating and finance leases of approximately $ 37 million on the Condensed Consolidated Balance Sheets.

The adoption of this standard was not material to the Company's Condensed Consolidated Income Statements.

2 unchanged sentences

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326:

Financial Instruments - Credit Losses, which provides

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

supplemental guidance and clarification to ASU 2016-13 and must be adopted concurrently .

Financial Instruments - Credit Losses, which provides supplemental guidance and clarification to ASU 2016-13 and must be adopted concurrently .

The pronouncement revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded.

1 unchanged sentence

See Note 2 - Trade Accounts and Notes Receivable for disclosures related to the adoption of ASU 2016-13.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC Topic 820) Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.

The pronouncement eliminates, modifies and adds disclosure requirements for fair value measurements.

This guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted.

The Company adopted this standard effective July 1, 2020, and it had no impact on the Company's consolidated financial statements.

The Company has reviewed other newly issued accounting pronouncements and concluded that they are either not applicable to its business or that no material effect is expected on its consolidated financial statements as a result of future adoption.

12 unchanged sentences

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

The changes in the allowance for doubtful accounts for the fiscal years ended June 30, 2021, June 30, 2020 and June 30, 2019 are set forth in the tables below.

The changes in the allowance for doubtful accounts for the fiscal years ended June 30, 2022, 2021 and 2020 are set forth in the tables below.

Description Balance at

1 unchanged sentence

Expense Write-offs Other (1)

(in thousands)

Allowance for bad debt:

Year ended June 30, 2020

$ 27,521 1,621 ( 5,176 ) ( 2,060 ) $ 21,906

Trade and current note receivable allowance $ 21,906

Year ended June 30, 2021

$ 21,906 338 ( 4,556 ) 1,653 $ 19,341

Trade and current note receivable allowance $ 19,341

Year ended June 30, 2022

$ 19,341 1,514 ( 1,751 ) ( 2,298 ) $ 16,806

Trade and current note receivable allowance $ 16,806

6 unchanged sentences

(3) Revenue Recognition

The Company provides technology solutions and services from the 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.

1 unchanged sentence

Principal versus Agent Considerations

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

2 unchanged sentences

Because the Company acts as an agent, revenue is recognized net of cost at the time of sale.

Related to the Company’s Intelisys business, the Company acts as a master agent connecting independent sales partners with service providers or suppliers who offer telecom and cloud services to end-customers.

Intelisys’ sales partners earn commission payments from those service providers or suppliers on end-customer sales.

Intelisys provides commission processing services to sales partners, earning a percentage of the commission stream.

Because the Company acts as an agent, revenue is recognized on a net basis.

The Intelisys business operates under an agency model.

Variable Considerations

For certain transactions, products are sold with a right of return, and the Company may also provide other rebates or incentives, which are accounted for as variable consideration.

The Company estimates returns allowance based on historical experience and reduces revenue accordingly.

The Company estimates the amount of variable consideration for rebates and incentives by using the expected value to be given to the customer and reduces the revenue by those estimated amounts.

These estimates are reviewed and updated as necessary at the end of each reporting period.

The Company estimates returns allowance based on historical experience and reduces revenue accordingly.

Contract Balances

6 unchanged sentences

• Shipping costs - The Company accounts for certain shipping and handling activities as fulfillment costs and expenses them as incurred.

• Significant financing components - The Company has elected not to adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will generally be one year or less.

• Sales tax and other related taxes - Sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue.

Disaggregation of Revenue

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

Index to Financial Statements

3 unchanged sentences

June 30, 2022

when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will generally be one year or less.

• Sales tax and other related taxes - Sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue.

Disaggregation of Revenue

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

Fiscal year ended June 30, 2022

Specialty Technology Solutions Modern Communications & Cloud Total

Revenue by product/service type:

(in thousands)

Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total

Revenue by product/service:

Technology solutions $ 2,175,141 $ 910,722 $ 3,085,863

Intelisys — 64,943 64,943

Hardware, software and cloud (excluding Intelisys) $ 2,082,321 $ 1,373,342 $ 3,455,663

Intelisys connectivity and cloud — 74,272 74,272

$ 2,082,321 $ 1,447,614 $ 3,529,935

Fiscal year ended June 30, 2021

Specialty Technology Solutions Modern Communications & Cloud Total

Revenue by product/service type:

(in thousands)

Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total

Revenue by product/service:

Technology solutions $ 2,093,217 $ 897,096 $ 2,990,313

Intelisys — 57,421 57,421

Hardware, software and cloud (excluding Intelisys) $ 1,815,933 $ 1,269,930 $ 3,085,863

Intelisys connectivity and cloud — 64,943 64,943

$ 1,815,933 $ 1,334,873 $ 3,150,806

Fiscal year ended June 30, 2020

Specialty Technology Solutions Modern Communications & Cloud Total

Revenue by product/service type:

(in thousands)

Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total

Revenue by product/service:

Technology solutions $ 2,141,896 $ 1,058,176 $ 3,200,072

Intelisys — 49,727 49,727

Hardware, software and cloud (excluding Intelisys) $ 1,580,441 $ 1,409,872 $ 2,990,313

Intelisys connectivity and cloud — 57,421 57,421

$ 1,580,441 $ 1,467,293 $ 3,047,734

11 unchanged sentences

Net income (loss) from continuing operations $ 88,698 $ 45,389 $ ( 79,227 )

Net loss from discontinued operations ( 34,594 ) ( 113,427 ) ( 7,262 )

Net income (loss) from discontinued operations 100 ( 34,594 ) ( 113,427 )

Net income (loss) $ 88,798 $ 10,795 $ ( 192,654 )

31 unchanged sentences

Depreciation expense recorded as cost of goods sold in the accompanying Consolidated Income Statements was $ 1.0 million, $ 1.5 million and $ 2.3 million for the fiscal years ended June 30, 2022, 2021 and 2020, respectively.

(6) Other Assets and Liabilities, Current

(6) Other Assets and Liabilities, Current and Noncurrent

The table below details prepaid expenses and other current assets.

37 unchanged sentences

The impact of this acquisition was not material to the consolidated financial statements.

The Company recognized $ 0.3 million for each of the fiscal years ended June 30, 2020 and 2019 in acquisition-related costs included in selling, general and administrative expenses on the Condensed Consolidated Income Statements in connection with this acquisition.

This acquisition is included in the Worldwide Communications & Services segment.

The Company recognized $ 0.3 million for the fiscal year ended June 30, 2020 in acquisition-related costs included in selling, general and administrative expenses on the Condensed Consolidated Income Statements in connection with this acquisition.

This acquisition is included in the Modern Communications & Cloud segment.

Index to Financial Statements

5 unchanged sentences

In accordance with ASC 350, Intangibles - Goodwill and Other Intangible Assets , the Company performs its annual goodwill impairment test during the fourth quarter of each fiscal year, or whenever indicators of impairment are present.

The reporting units utilized for goodwill impairment tests align directly with our operating segments, Worldwide Barcode, Networking & Security and Worldwide Communications & Services.

The reporting units utilized for goodwill impairment tests align directly with our operating segments, Specialty Technology Solutions and Modern Communications & Cloud.

The testing includes the determination of each reporting unit's fair value using a discounted cash flows model compared to each reporting unit's carrying value.

1 unchanged sentence

During fiscal years ended June 30, 2022 and 2021, no impairment charges related to goodwill were recorded.

For the fiscal year ended June 30, 2020, the Company's projected growth and operating margins were impacted by the worldwide economic hardships created by COVID-19 and as such recognized a goodwill impairment charge of $ 119.0 million for our Worldwide, Barcode, Networking and Security reporting unit, which is recorded to the impairment charges line item in the Consolidated Income Statements.

For the fiscal year ended June 30, 2020, the Company's projected growth and operating margins were impacted by the worldwide economic hardships created by COVID-19 and as such recognized a goodwill impairment charge of $ 119.0 million, which is recorded to the impairment charges line item in the Consolidated Income Statements.

Changes in the carrying amount of goodwill for the years ended June 30, 2022 and 2021, by reportable segment, are set forth in the table below.

Additions to goodwill for fiscal year 2020 are due to the recent acquisitions.

Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total

Specialty Technology Solutions Modern Communications & Cloud Total

(in thousands)

Balance at June 30, 2020 $ 16,370 $ 197,918 $ 214,288

Additions — 30,445 30,445

Goodwill impairment charges ( 119,037 ) — ( 119,037 )

Unrealized loss on foreign currency translation ( 558 ) ( 7,277 ) ( 7,835 )

Balance at June 30, 2020 $ 16,370 $ 197,918 $ 214,288

Unrealized gain on foreign currency translation — 4,589 4,589

Balance at June 30, 2021 $ 16,370 $ 202,507 $ 218,877

Unrealized loss on foreign currency translation — ( 4,442 ) ( 4,442 )

Balance at June 30, 2022 $ 16,370 $ 198,065 $ 214,435

The following table shows the Company’s identifiable intangible assets as of June 30, 2022 and 2021, respectively.

13 unchanged sentences

Total intangibles $ 197,106 $ 112,679 $ 84,427 $ 200,572 $ 95,712 $ 104,860

During fiscal year 2020, the Company acquired customer relationships, trade names and developed technology related to the acquisition of intY.

Also during fiscal year 2020, the Company recorded $ 1.4 million in impairment charges in customer relationships, trade names and non-compete agreements related to the acquisition of Canpango.

During fiscal year 2020, the Company recorded $ 1.4 million in impairment charges in customer relationships, trade names and non-compete agreements related to the acquisition of Canpango.

This charge is included in the impairment charges line item in the Consolidated Income Statements.

The Company also disposed of fully amortized trade names and non-compete agreements from prior acquisitions.

No impairment charges were recognized in fiscal years ended June 30, 2021 and June 30, 2019.

No impairment charges were recognized in fiscal years ended June 30, 2022 and 2021.

The weighted-average amortization period for all intangible assets was approximately 10 years for the fiscal years ended June 30, 2022, 2021 and 2020.

Amortization expense for continuing operations for the years ended June 30, 2022, 2021 and 2020 was $ 17.9 million, $ 19.5 million and $ 20.0 million, respectively, all of which relates to selling, general and administrative costs, not the cost of selling goods, and has been presented as such in the accompanying Consolidated Income Statements.

Index to Financial Statements

3 unchanged sentences

June 30, 2022

The weighted-average amortization period for all intangible assets was approximately 10 years for the year ended June 30, 2021, compared to 10 years for the year ended June 30, 2020 and 9 years for the year ended June 30, 2019.

Amortization expense for continuing operations for the years ended June 30, 2021, 2020 and 2019 was $ 19.5 million, $ 20.0 million and $ 17.9 million, respectively, all of which relates to selling, general and administrative costs, not the cost of selling goods, and has been presented as such in the accompanying Consolidated Income Statements.

Estimated future amortization expense is as follows:

10 unchanged sentences

Senior secured term loan facility, net of current portion 120,000 131,250

Borrowings under revolving credit facility (a)

Borrowings under revolving credit facility 135,839 —

Total debt $ 271,170 $ 143,174

(a) Borrowing under the revolving credit facility classified as held for sale in the Consolidated Balance Sheets for our discontinued operations totaled $ 24.7 million for the fiscal year ended June 30, 2020.

Credit Facility

1 unchanged sentence

On April 30, 2019, the Company amended this credit facility to expand the borrowing capacity and extend its maturity to April 30, 2024.

On December 23, 2021, the Company entered into an amendment to the Amended Credit Agreement which, among other things, replaced LIBOR as the benchmark rate for non-U.S.

Dollar loans and provided for an interpolated rate for 7-day LIBOR for U.S.

Dollar loans.

The Amended Credit Agreement includes (i) a five-year $ 350 million multi-currency senior secured revolving credit facility and (ii) a five-year $ 150 million senior secured term loan facility.

1 unchanged sentence

The Amended Credit Agreement allows for the issuance of up to $ 50 million for letters of credit, subject to obtaining additional credit commitments from the lenders participating in the increase.

The Company incurred debt issuance costs of $ 1.1 million in connection with the amendments to the Amended Credit Agreement on April 30, 2019.

These costs were capitalized to other non-current assets on the Consolidated Balance Sheets and added to the unamortized debt issuance costs from the previous credit facility.

Borrowings under the Amended Credit Agreement are secured by substantially all of the domestic assets of the Company and a pledge of up to 65 % of capital stock or other equity interest in certain foreign subsidiaries determined to be either material or a subsidiary borrower as defined in the Amended Credit Agreement.

Under the terms of the revolving credit facility, the payment of cash dividends is restricted.

At the Company's option, loans denominated in U.S.

dollars under the Amended Credit Agreement, other than swingline loans, bear interest at a rate equal to a spread over the LIBOR or 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

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

Index to Financial Statements

3 unchanged sentences

June 30, 2022

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

Under the terms of the revolving credit facility, the payment of cash dividends is restricted.

The spread in effect as of June 30, 2022 was 1.25 % for LIBOR-based loans and 0.25 % for alternate base rate loans.

5 unchanged sentences

The Company was in compliance with all covenants under the Amended Credit Agreement as of June 30, 2022.

Including borrowings for both continuing and discontinued operations, the average daily balance on the revolving credit facility, excluding the term loan facility, during the fiscal years ended June 30, 2021 and 2020 was $ 54.6 million and $ 235.4 million, respectively.

Taking into consideration outstanding borrowings on the multi-currency revolving credit facility for both continuing and discontinued operations, there was $ 350.0 million and $ 257.3 million available for additional borrowings as of June 30, 2021 and 2020, respectively.

At June 30, 2021, based upon the Leverage Ratio calculations, there was $ 281.6 million available for additional borrowings.

There were no letters of credit issued under the multi-currency revolving credit facility as of June 30, 2021.

There were letters of credit issued of $ 0.3 million as of June 30, 2020.

The average daily balance on the revolving credit facility, excluding the term loan facility, was $ 69.0 million during the fiscal year ended June 30, 2022.

Including borrowings for both continuing and discontinued operations, the average daily balance on the revolving credit facility was $ 54.6 million for the fiscal year ended June 30, 2021.

There was $ 214.2 million and $ 350.0 million available for additional borrowings as of June 30, 2022 and 2021, respectively.

There were no letters of credit issued under the multi-currency revolving credit facility as of June 30, 2022 and 2021.

Mississippi Revenue Bond

4 unchanged sentences

As of June 30, 2022, the Company was in compliance with all covenants under this bond.

The interest rate at June 30, 2021 and 2020 was 0.94 % and 1.03 %, respectively.

The interest rates at June 30, 2022 and 2021 were 1.97 % and 0.94 %, respectively.

Scheduled maturities of the Company’s short-term borrowings, revolving credit facility from continuing operations and long-term debt at June 30, 2022 are as follows:

3 unchanged sentences

2024 135,839 120,000 352

2024 — 120,000 352

Thereafter — — 2,297

1 unchanged sentence

Debt Issuance Costs

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

As of June 30, 2022, net debt issuance costs associated with the credit facility and bonds totaled $ 0.8 million and are being amortized on a straight-line basis through the maturity date of each respective debt instrument.

3 unchanged sentences

The Company’s accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments in accordance with U.S.

The Company records all derivatives on the consolidated balance sheet at fair value.

The Company records all derivatives on the consolidated

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

balance sheet at fair value.

Derivatives that are not designated as hedging instruments or the ineffective portions of cash flow hedges are adjusted to fair value through earnings in other income and expense.

2 unchanged sentences

These contracts will periodically hedge the exchange of various currencies, including the U.S.

dollar, Brazilian real, British pound and Canadian dollar for continuing operations.

dollar, Brazilian real, British pound, euro and Canadian dollar for continuing operations.

S ee Note 1- Business and Summary of Significant Accounting Policies for more information regarding the Company's policy on derivative financial instruments.

5 unchanged sentences

(in thousands)

Net foreign exchange derivative contract losses (gains) $ 3,462 $ ( 3,975 ) $ 235

Net foreign currency transactional and re-measurement (gains) losses ( 2,617 ) 4,500 400

Net foreign exchange derivative contract (gains) losses $ ( 304 ) $ 3,462 $ ( 3,975 )

Net foreign currency transactional and re-measurement losses (gains) 2,382 ( 2,617 ) 4,500

Net foreign currency losses $ 2,078 $ 845 $ 525

19 unchanged sentences

(in thousands)

Net interest expense (income) recognized as a result of interest rate swap $ 2,250 $ 799 $ ( 233 )

Net interest expense recognized as a result of interest rate swap $ 2,088 $ 2,250 $ 799

Unrealized gain (loss) in fair value of interest swap rates 5,748 731 ( 6,900 )

Net increase in accumulated other comprehensive income (loss) 2,981 ( 6,101 ) ( 4,392 )

Net increase (decrease) in accumulated other comprehensive income (loss) 7,836 2,981 ( 6,101 )

Income tax effect ( 2,003 ) ( 732 ) 1,455

8 unchanged sentences

Derivative assets:

Foreign currency hedge Other current assets $ 187 $ —

Interest rate swap agreement Other current assets $ 1,686 $ —

Derivative liabilities:

Foreign exchange contracts Accrued expenses and other current liabilities $ — $ 5

Interest rate swap agreement Other current liabilities $ 6,280 $ —

Foreign currency hedge Other current liabilities $ 93 $ —

The Company has the following derivative instruments located on the Consolidated Balance Sheets as of June 30, 2021, utilized for the risk management purposes detailed above:

5 unchanged sentences

(in thousands)

Derivative assets:

Foreign currency hedge Other current assets $ 187 $ —

Derivative liabilities:

3 unchanged sentences

Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Under this guidance, the Company is required to classify certain assets and liabilities based on the fair value hierarchy, which groups fair value-measured assets and liabilities based upon the following levels of inputs:

Under this guidance, the Company is required to

Index to Financial Statements

3 unchanged sentences

June 30, 2022

classify certain assets and liabilities based on the fair value hierarchy, which groups fair value-measured assets and liabilities based upon the following levels of inputs:

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

2 unchanged sentences

supported by little or no market activity).

The assets and liabilities maintained by the Company that are required to be measured at fair value on a recurring basis include deferred compensation plan investments, forward foreign currency exchange contracts, interest rate swap agreements and contingent consideration owed to the previous owners of Intelisys.

The assets and liabilities maintained by the Company that are required to be measured at fair value on a recurring basis include deferred compensation plan investments, forward foreign currency exchange contracts, foreign currency hedge agreements, interest rate swap agreements and contingent consideration owed to the previous owners of Intelisys.

The carrying value of debt listed in Note 8 - Short-Term Borrowings and Long Term 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 criteria).

4 unchanged sentences

Deferred compensation plan investments, current and non-current portion $ 25,178 $ 25,178 $ — $ —

Foreign currency hedge 187 — 187 —

Interest rate swap agreement 1,686 — 1,686 —

Total assets at fair value $ 26,864 $ 25,178 $ 1,686 $ —

1 unchanged sentence

Forward foreign currency exchange contracts 5 — 5 —

Interest rate swap agreement 6,280 — 6,280 —

Foreign currency hedge 93 — 93 —

Total liabilities at fair value $ 25,276 $ 25,178 $ 98 $ —

9 unchanged sentences

Deferred compensation plan investments, current and non-current portion $ 31,168 $ 31,168 $ — $ —

Foreign currency hedge 187 — 187 —

Total assets at fair value $ 31,355 $ 31,168 $ 187 $ —

2 unchanged sentences

Interest rate swap agreement 6,280 — 6,280 —

Liability for contingent consideration, current and non-current 46,334 — — 46,334

Total liabilities at fair value $ 37,453 $ 31,168 $ 6,285 $ —

5 unchanged sentences

See Note 10 - Derivatives and Hedging Activities .

The Company recorded contingent consideration liabilities at the acquisition date of Network1 and Intelisys representing the amounts payable to former shareholders, as outlined under the terms of the applicable purchase agreements, based upon the achievement of a projected earnings measure, net of specific pro forma adjustments.

Network1 and Intelisys are part of the Company's Worldwide Communications & Services segment.

The current and non-current portions of these obligations are reported separately on the Consolidated Balance Sheets.

The fair value of the contingent considerations (Level 3) are determined using a form of a probability weighted discounted cash flow model.

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 Consolidated Income Statements.

Fluctuations due to foreign currency translation are captured in other comprehensive income through the changes in foreign currency translation adjustments line item as seen in Note 18 - Accumulated Other Comprehensive (Loss) Income .

The Company recorded contingent consideration liabilities at the acquisition date of Intelisys representing the amounts payable to former shareholders, as outlined under the terms of the purchase agreement, based upon the achievement of a projected earnings measure, net of specific pro forma adjustments.

Intelisys is part of the Company's Modern Communications & Cloud segment.

The fair value of the contingent considerations (Level 3) is determined using a form of a probability weighted discounted cash flow model.

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 fiscal year ended June 30, 2021.

The final earnout payment due to former shareholders of Intelisys was paid during the fiscal year ended June 30, 2021.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

Worldwide Communications & Services Segment

Modern Communications & Cloud

(in thousands)

3 unchanged sentences

Fair value at end of period $ —

The table below provides a summary of the changes in fair value of the Company's contingent consideration for the Network1 and Intelisys earnouts for the fiscal year ended June 30, 2020.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

Worldwide Communications & Services Segment

(in thousands)

Fair value at beginning of period $ 77,925

Payments ( 38,532 )

Change in fair value 6,941

Fair value at end of period $ 46,334

The fair values of amounts owed are recorded in the current portion of contingent consideration and the long-term portion of contingent consideration in the Company's Consolidated Balance Sheets.

In accordance with ASC 805, the Company will revalue the contingent consideration liability at each reporting date through the last payment, with changes in the fair value of the contingent consideration reflected in the change in fair value of contingent consideration line item on the Company's Consolidated Income Statement that is included in the calculation of operating income.

The fair value of the contingent consideration liability associated with future earnout payments is based on several factors, including:

The fair values of amounts owed were recorded in the current portion of contingent consideration and the long-term portion of contingent consideration in the Company's Consolidated Balance Sheets.

In accordance with ASC 805, the Company revalued the contingent consideration liability at each reporting date through the last payment, with changes in the fair value of the contingent consideration reflected in the change in fair value of contingent consideration line item on the Company's Consolidated Income Statement that is included in the calculation of operating income.

The fair value of the contingent consideration liability that was associated with future earnout payments was based on several factors, including:

• estimated future results, net of pro forma adjustments set forth in the purchase agreements;

1 unchanged sentence

• a discount rate reflective of the Company's creditworthiness and market risk premium associated with the United States market.

A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration.

Valuation techniques and significant observable inputs used in recurring Level 3 fair value measurements for our contingent consideration liabilities as of June 30, 2021 and 2020 were as follows.

The measurement period for the Intelisys earnout ended on June 30, 2020.

Reporting Period Valuation Technique Significant Unobservable Inputs Weighted Average Rates (a)

June 30, 2020 Discounted cash flow Weighted average cost of capital 3.0 %

(a) Weighted average rates identified for each significant unobservable input relate to the valuation of the Intelisys contingent consideration.

Since the earnout period for Intelisys closed on June 30, 2020 the weighted average cost of capital represents the cost the debt.

There is no EBITDA growth to report in the current year.

The final earnout payment was paid to the former shareholders of Intelisys during the fiscal year ended June 30, 2021.

1 unchanged sentence

The change in fair value for the fiscal year is due to the recurring amortization of the unrecognized fair value discount.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

The fair value of the liability for the contingent consideration related to Intelisys recognized at June 30, 2020 was $ 46.3 million, all of which is classified as current.

The expense from the change in fair value of the contingent consideration recognized in the Condensed Consolidated Income Statements totaled $ 6.9 million for the fiscal year ended June 30, 2020.

The change in fair value for the fiscal year was primarily driven by the recurring amortization of the unrecognized fair value discount and a reduction in the discount rate.

The final earnout payment was paid to the former shareholders of Network1 during the fiscal year ended June 30, 2019.

The change in fair value of the contingent consideration for the fiscal year ended June 30, 2019 recognized in the Condensed Consolidated Income Statements contributed a loss of $ 2.5 million for agreed upon adjustments in the final payments.

(12) Share-Based Compensation

1 unchanged sentence

The Company has awards outstanding from two share-based compensation plans (the 2013 Long-Term Incentive Plan and the 2021 Long-Term Incentive Plan).

The 2021 Long-Term Incentive Plan was approved at the annual meeting of the shareholders on January 27, 2022.

The 2021 Plan permits the grant of any or all of the following types of awards to grantees:

stock options, including non-qualified options and ISOs;

restricted stock ("RSA");

deferred stock and restricted stock units ("RSU");

performance units ("PU") and performance shares;

dividend equivalents;

and other stock-based awards.

Eligible grantees include employees, officers, non-employee consultants and non-employee directors of the Company and its affiliates.

Awards are currently only being granted under the 2021 Long-Term Incentive Plan.

1 unchanged sentence

All of the Company’s share-based compensation plans are shareholder approved, and it is the Company’s belief that such awards align the interests of its employees and directors with those of its shareholders.

Under the plans, the Company is authorized to award officers, employees, consultants and non-employee members of the Board of Directors various share-based payment awards, including options to purchase common stock and restricted stock.

Restricted stock can be in the form of a restricted stock award ("RSA"), restricted stock unit ("RSU") or a performance unit ("PU").

An RSA is common stock that is subject to risk of forfeiture or other restrictions that lapse upon satisfaction of specified conditions.

An RSU represents the right to receive shares of common stock in the future with the right to future delivery of the shares subject to risk of forfeiture or other restrictions that lapse upon satisfaction of specified conditions.

A PU represents the right to receive shares of common stock in the future contingent on performance against predetermined objectives over a specified performance period.

The Company accounts for its share-based compensation awards in accordance with ASC 718, Stock Compensation, which requires all share-based compensation to be recognized in the income statement based on fair value and applies to all awards granted, modified, canceled or repurchased after the effective date.

8 unchanged sentences

Stock Options

During the fiscal year ended June 30, 2021, the Company granted stock options for 640,782 shares.

The Company did no t grant stock options during the fiscal year ended June 30, 2020.

Stock options granted in fiscal year ended June 30, 2021 and 2019 vest annually over 3 years and have a 10 -year contractual life.

These options were granted with an exercise price that is no less than 100 % of the fair market value of the underlying shares on the date of the grant.

The fair value of each option (for purposes of calculation of share-based compensation) was estimated on the date of grant using the Black-Scholes-Merton option pricing formula that uses assumptions determined at the date of grant.

Use of this option pricing model requires the input of subjective assumptions.

These assumptions include estimating the length of time employees will retain their vested stock options before exercising them ("expected term"), the estimated volatility of the Company's common stock price over the expected term ("expected volatility") and the number of options that will ultimately not complete

Index to Financial Statements

3 unchanged sentences

June 30, 2022

their vesting requirements ("forfeitures").

The Company did not grant stock options during the fiscal year ended June 30, 2022 or June 30, 2020.

The Company granted stock options for 640,782 shares during the fiscal year ended June 30, 2021 that vest annually over 3 years and have a 10 -year contractual life.

These options were granted with an exercise price that is no less than 100 % of the fair market value of the underlying shares on the date of the grant.

Use of this option pricing model requires the input of subjective assumptions.

Changes in the subjective assumptions can materially affect the estimate of the fair value of share-based compensation and, consequently, the related amount recognized in the Consolidated Income Statements.

The Company used the following weighted-average assumptions for the options granted in fiscal years ended June 30, 2021 and 2019:

The Company used the following weighted-average assumptions for the options granted in fiscal year ended June 30, 2021:

Fiscal Year Ended June 30,

Expected term 5 years 4 years

Expected term 5 years

Expected volatility 42.78 %

20 unchanged sentences

This amount will change as the market price per share changes.

The aggregate intrinsic value of options exercised during the fiscal years ended June 30, 2021, 2020 and 2019 was less than $ 0.1 million, $ 0.2 million and $ 0.4 million, respectively.

A summary of the status of the Company’s shares subject to unvested options is presented below:

The aggregate intrinsic value of options exercised during the fiscal years ended June 30, 2022, 2021 and 2020 was $ 0.6 million, less than $ 0.1 million and $ 0.2 million, respectively.

Index to Financial Statements

3 unchanged sentences

June 30, 2022

A summary of the status of the Company’s shares subject to unvested options is presented below:

Fiscal Year Ended June 30, 2022

29 unchanged sentences

During the fiscal year ended June 30, 2022, the Company granted 381,204 shares of restricted stock to employees and non-employee directors, all of which were issued in the form of RSUs:

Fiscal Year Ended June 30, 2021

granted Date granted Grant date

fair value Vesting period

Certain employees based on performance 224,409 November 12, 2020 $ 24.26 Annually over 3 years

Certain employees based on performance 123,636 November 19, 2020 $ 24.68 Annually over 3 years

Certain employee based upon hire 27,482 March 1, 2021 $ 29.11 Annually over 3 years

Non-Employee Directors

Certain Directors 43,700 November 19, 2020 $ 24.68 6 months

A summary of the status of the Company’s outstanding restricted stock is presented below:

Index to Financial Statements

4 unchanged sentences

Fiscal Year Ended June 30, 2022

granted Date granted Grant date

fair value Vesting period

Certain employees based on performance 255,438 August 27, 2021 $ 36.05 Annually over 4 years

Certain employees based on performance 36,927 August 27, 2021 $ 36.05 Annually over 3 years

Certain employees based on performance 36,931 August 27, 2021 $ 41.26 Annually over 3 years

Certain employees based upon hire 8,671 September 1, 2021 $ 34.60 Annually over 4 years

Certain employees based on performance 3,041 December 1, 2021 $ 30.46 Annually over 4 years

Certain employees based on performance 3,020 March 1, 2022 $ 35.51 Annually over 4 years

Certain employees based on performance 1,294 June 1, 2022 $ 38.73 Annually over 4 years

Certain employees based on hire 2,582 June 1, 2022 $ 38.73 Annually over 4 years

Non-Employee Directors

Certain Directors 33,300 August 27, 2021 $ 36.05 6 months

A summary of the status of the Company’s outstanding restricted stock is presented below:

Fiscal Year Ended June 30, 2022

Shares Weighted-Average

8 unchanged sentences

(13) Employee Benefit Plans

The Company maintains defined contribution plans that cover all employees located in the United States that meet certain eligibility requirements and provides a matching contribution equal to one-half of each participant’s contribution, up to a maximum matching contribution per participant of $ 800 .

The Company maintains defined contribution plans that cover all employees located in the United States that meet certain eligibility requirements and provides a matching contribution equal to 50% of each participant’s contribution, up to a maximum of 6 % of the participant's eligible compensation.

Employer contributions are vested based upon tenure over a five-year period.

3 unchanged sentences

Matching contributions $ 2,929 $ 1,262 $ 1,214

Discretionary contributions — — 1,536

Total contributions $ 1,262 $ 1,214 $ 2,798

Internationally, the Company contributes to either plans required by local governments or to various employee annuity plans.

2 unchanged sentences

(14) Income Taxes

In the fourth quarter of the fiscal year ended June 30, 2021, following a review of its operations, liquidity and funding, tax implications of cash repatriation and investment opportunities, the Company determined that the ability to access the earnings of foreign earnings that were previously indefinitely reinvested could provide greater investment returns and meet other working capital needs if available to repatriate to the U.S.

Accordingly, in the quarter ended June 30, 2021, the Company withdrew the permanent reinvestment assertion only with respect to all earnings generated by foreign operations.

As a result of this change in the permanent reinvestment assertion, the Company considered recording a deferred tax liability related to federal, state and withholding tax and determined that no liability should be recorded.

There is no certainty as to the timing of the distribution of such earnings to the U.S.

in whole or in part.

Income tax expense (benefit) consists of:

Index to Financial Statements

3 unchanged sentences

June 30, 2022

As of fiscal year ended June 30, 2022, the Company maintains the ability to access the earnings of foreign subsidiaries.

The Company considered recording a deferred tax liability related to federal, state and withholding tax and determined that no liability should be recorded.

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

in whole or in part.

Income tax expense (benefit) consists of:

Fiscal Year Ended June 30,

28 unchanged sentences

Losses on dispositions — ( 2,897 ) —

Global intangible low taxed income (GILTI) tax

Global intangible low taxed income tax

630 ( 45 ) ( 128 )

1 unchanged sentence

Nontaxable income ( 2,050 ) ( 1,628 ) —

Tax Reform transition tax — — ( 827 )

Notional interest deduction on net equity ( 780 ) ( 568 ) —

Other jurisdictions impact of rate change on deferred taxes — — ( 20 )

Other 1,993 ( 1,451 ) 2,619

Provision for income taxes $ 29,925 $ 12,146 $ 7,451

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:

Index to Financial Statements

3 unchanged sentences

June 30, 2022

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:

(in thousands)

5 unchanged sentences

Tax credits 6,410 7,138

Timing of amortization deduction from goodwill — 12,516

Deferred compensation 6,548 7,893

18 unchanged sentences

Worldwide pretax earnings $ 118,623 $ 57,535 $ ( 71,776 )

As of June 30, 2022, the Company will maintain the ability to access the earnings of foreign subsidiaries.

The Company considered recording a deferred tax liability related to federal, state and withholding tax and determined that no liability should be recorded.

There is no certainty as to the timing of the distribution of such earnings to the U.S.

in whole or in part.

As of June 30, 2022, there were (i) gross net operating loss carryforwards of approximately $ 1.4 million for U.S.

6 unchanged sentences

The Company maintains a valuation allowance of $ 0.3 million for U.S.

federal income tax purposes, $ 7.6 million for capital loss carryforwards, $ 0.3 million for foreign net operating losses, a less than $ 0.2 million valuation allowance for state net operating losses, a $ 4.9 million valuation allowance for withholding tax credits, a $ 0.1 million valuation allowance for foreign tax credits, and $ 0.3 million valuation allowance for state income tax credits, where it was determined that, in accordance with ASC 740, it is more likely than not that they cannot be utilized.

The Company adopted ASU 2016-09 during fiscal year 2018 which required the Company to recognize excess tax benefits and tax deficiencies as income tax expense or benefit for stock award settlements that were previously recognized as additional paid-in-capital.

As a result of these changes, the Company recognized net tax expense of $ 1.1 million for the fiscal year ended June 30, 2021, and less than $ 0.1 million for the fiscal years ended June 30, 2020 and 2019.

federal income tax purposes, $ 7.9 million for capital loss carryforwards, $ 0.2 million for foreign net operating losses, a less than $ 0.1 million valuation allowance for state net operating losses, a $ 4.3 million valuation allowance for withholding tax credits, a $ 0.1 million valuation allowance for foreign tax credits, and a $ 0.3 million valuation allowance for state income tax credits, where it was determined that, in accordance with ASC 740, it is more likely than not that they cannot be utilized.

Index to Financial Statements

3 unchanged sentences

June 30, 2022

The Company adopted ASU 2016-09 during fiscal year 2018 which required the Company to recognize excess tax benefits and tax deficiencies as income tax expense or benefit for stock award settlements.

The Company recognized net tax benefit of $ 0.3 million for the fiscal year ended June 30, 2022, net tax expense of $ 1.1 million for the fiscal year ended June 30, 2021 and net tax expense of less than $ 0.1 million for the fiscal year ended June 30, 2020.

As of June 30, 2022, the Company had gross unrecognized tax benefits of $ 1.1 million, $ 0.8 million of which, if recognized, would affect the effective tax rate.

11 unchanged sentences

Ending Balance $ 1,065 $ 1,121 $ 1,156

A Supplemental Law in Brazil affirms that Brazilian state-provided benefits are not subject to income tax.

The Company recorded, discrete to the June 30, 2021 quarter, an income tax benefit of $ 2.8 million related to the confirmation of the recovery of state-provided tax benefits.

Discrete to the June 30, 2021 quarter, the Company recorded a tax ben efit of $ 2.1 million for tax exempt income related to nonrecurring cancellation of indebtedness in a subsidiary.

The Company conducts business globally and, as a result, one or more of its subsidiaries files income tax returns in the United States federal, various state, local and foreign jurisdictions.

14 unchanged sentences

Operating lease expense is recognized on a straight-line basis over the lease term.

Variable lease payments not based on a rate or index, such as costs for common area maintenance, are

Variable lease payments not based on a rate or index, such as costs for common area maintenance, are expensed as incurred.

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

Index to Financial Statements

3 unchanged sentences

June 30, 2022

expensed as incurred.

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 June 30, 2022 and 2021:

7 unchanged sentences

Fiscal year ended June 30,

2022 2021 2020

(in thousands)

2 unchanged sentences

$ 6,447 $ 6,324 $ 7,620

Supplemental cash flow information related to the Company's operating leases for the fiscal year ended June 30, 2021 are presented in the table below:

Supplemental cash flow information related to the Company's operating leases for the fiscal year ended June 30, 2022, 2021 and 2020 are presented in the table below:

Fiscal year ended June 30,

2022 2021 2020

(in thousands)

1 unchanged sentence

Right-of-use assets obtained in exchange for lease obligations 2,313 — 1,672

The weighted-average remaining lease term and discount rate at June 30, 2021 are presented in the table below:

June 30, 2021

The weighted-average remaining lease term and discount rate at June 30, 2022 and 2021 are presented in the table below:

June 30, 2022 June 30, 2021

Weighted-average remaining lease term 4.37 5.22

17 unchanged sentences

The Company or its subsidiaries are, from time to time, parties to lawsuits arising out of operations.

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

Capital Projects

The Company expects total capital expenditures to range from $ 5.0 million to $ 8.0 million during fiscal year 2022 primarily for rental equipment investments, IT investments and facility improvements.

The Company expects total capital expenditures to range from $ 6.5 million to $ 8.5 million during fiscal year 2023 primarily for IT investments and facility improvements.

Pre-Acquisition Contingencies

1 unchanged sentence

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.

There were no deposits into, or releases from the escrow account during the fiscal year ended June 30, 2022.

There were no deposits into the escrow account and $ 1.1 million was released from the escrow account during the fiscal year ended June 30, 2021.

There were no deposits into, or releases from the escrow account for the fiscal year ended June 30, 2020.

The amount available after the impact of foreign currency translation, as of June 30, 2022 and 2021, for future pre-acquisition contingency settlements or to be released to the sellers was $ 4.1 million and $ 4.0 million, respectively.

11 unchanged sentences

Other long-term liabilities $ 3,818 $ 3,998

The net decline in the value of pre-acquisition contingencies for Network1 is primarily due to the expiration of the statute of limitations for identified pre-acquisition contingencies.

The amount of reasonably possible undiscounted pre-acquisition contingencies as of June 30, 2022 is estimated to range from $ 3.8 million to $ 15.5 million at this time, of which all exposures are indemnifiable under the share purchase agreement.

6 unchanged sentences

The Company is a leading provider of technology products and solutions to customers in specialty technology markets.

The Company has two reportable segments, based on product, customer and service type.

Worldwide Barcode, Networking & Security Segment

The Worldwide Barcode, Networking & Security segment includes a portfolio of solutions primarily for enterprise mobile computing, data capture, barcode printing, POS, payments, networking, electronic physical security, cyber security and other technologies.

We have business operations within this segment in the United States, Canada and Brazil.

We see adjacencies among these technologies in helping our customers develop solutions.

Data capture and POS solutions interface with computer systems used to automate the collection, processing and communication of information for commercial and industrial applications, including retail sales, distribution, shipping, inventory control, materials handling, warehouse management and health care applications.

Electronic physical security products include identification, access control, video surveillance, intrusion-related and wireless and networking infrastructure products.

Worldwide Communications & Services Segment

The Worldwide Communications & Services segment includes a portfolio of solutions primarily for communications technologies and services and includes our Intelisys and intY businesses.

We have business operations within this segment in the United States, Canada, Brazil and the UK.

These offerings include voice, video conferencing, wireless, data networking, cable, unified communications and collaboration, cloud and technology services.

As these solutions come together on IP networks, new opportunities are created to move into adjacent solutions for all vertical markets, such as education, healthcare and government.

The Company has two reportable segments, based on technology.

Specialty Technology Solutions Segment

The Specialty Technology Solutions segment includes the Company’s business in mobility and barcode, POS, payments, security and networking technologies.

Mobility and barcode solutions include mobile computing, barcode scanners and imagers, radio frequency identification devices, barcode printing and services.

POS and payments solutions include POS systems, integrated POS software platforms, self-service kiosks including self-checkout, payment terminals and mobile payment devices.

Security solutions include video surveillance and analytics, video management software and access control.

Networking solutions include switching, routing and wireless products and software.

The Company has business operations within this segment in the United States, Canada and Brazil.

Modern Communications & Cloud Segment

The Modern Communications & Cloud segment includes the Company’s business in communications and collaboration, connectivity and cloud services.

Communications and collaboration solutions, delivered in the cloud, on-premise or hybrid, include voice, video, integration of communication platforms and contact center solutions.

The Intelisys connectivity and cloud marketplace offers telecom, cable, Unified Communications as a Service (“UCaaS”), Contact Center as a Service (“CCaaS”), Infrastructure as a Service, Software-Defined Wide-Area Network and other cloud services.

This segment includes SaaS and subscription services, which the Company offers using digital tools and platforms.

The Company has business operations within this segment in the United States, Canada, Brazil and the UK.

Index to Financial Statements

7 unchanged sentences

(in thousands)

Worldwide Barcode, Networking & Security $ 2,175,141 $ 2,093,217 $ 2,141,896

Worldwide Communications & Services 975,665 954,517 1,107,903

Specialty Technology Solutions $ 2,082,321 $ 1,815,933 $ 1,580,441

Modern Communications & Cloud 1,447,614 1,334,873 1,467,293

$ 3,529,935 $ 3,150,806 $ 3,047,734

Depreciation and amortization:

Worldwide Barcode, Networking & Security $ 15,557 $ 16,910 $ 17,274

Worldwide Communications & Services 14,923 15,239 12,891

Specialty Technology Solutions $ 11,754 $ 13,193 $ 14,453

Modern Communications & Cloud 15,110 17,287 17,696

Corporate 3,020 3,027 3,179

1 unchanged sentence

Change in fair value of contingent consideration:

Worldwide Barcode, Networking & Security $ — $ — $ —

Worldwide Communications & Services 516 6,941 15,200

Specialty Technology Solutions $ — $ — $ —

Modern Communications & Cloud — 516 6,941

$ — $ 516 $ 6,941

Operating income:

Worldwide Barcode, Networking & Security $ 28,402 $ ( 83,515 ) $ 57,019

Worldwide Communications & Services 44,715 22,548 38,933

Specialty Technology Solutions $ 66,686 $ 29,566 $ ( 67,706 )

Modern Communications & Cloud 55,511 43,551 6,739

Corporate (1)

2 unchanged sentences

Capital expenditures:

Worldwide Barcode, Networking & Security $ 1,251 $ 3,632 $ 3,660

Worldwide Communications & Services 1,098 2,755 2,133

Specialty Technology Solutions $ ( 1,667 ) $ ( 1,282 ) $ ( 3,171 )

Modern Communications & Cloud ( 5,182 ) ( 1,067 ) ( 3,216 )

Corporate — ( 14 ) —

5 unchanged sentences

$ 3,529,935 $ 3,150,806 $ 3,047,734

(1) For the year ended June 30, 2022, the amounts shown above include divestiture costs.

For the year ended June 30, 2021, the amounts shown above include acquisition, divestiture, and restructuring costs.

For the year ended June 30, 2020, the amounts shown above include acquisition and divestiture costs.

For the year ended June 30, 2019, the amounts shown above include acquisition costs.

Index to Financial Statements

5 unchanged sentences

(in thousands)

Worldwide Barcode, Networking & Security $ 858,215 $ 875,882

Worldwide Communications & Services 786,241 757,148

Specialty Technology Solutions $ 1,030,538 $ 775,704

Modern Communications & Cloud 906,890 868,752

Corporate — 27,228

16 unchanged sentences

(in thousands)

Tax expense (benefit) $ 2,084 $ 1,025 $ ( 1,117 )

Tax expense $ 1,741 $ 2,084 $ 1,025

(19) Discontinued Operations

On August 20, 2019, the Company announced plans to divest the product distribution businesses in Europe, the UK, Mexico, Colombia, Chile, Peru and the Miami-based export operations, as these businesses have been performing below management's expectations.

The Company will continue to operate its digital business in these countries.

Management determined that the Company did not have sufficient scale in these markets to maximize our value-added model for product distribution, leading us to focus and invest in our higher-growth, higher margin businesses.

Results from the Divestitures were included within each of our reportable segments;

Worldwide Barcode, Networking & Security segment and Worldwide Communications & Services segment.

During the quarter ended June 30, 2020, the Company recorded a pre-tax loss on sale classification of $ 88.9 million to reduce the carrying value of the Divestitures to its estimate of fair value (the net proceeds received at closing), less estimated costs to sell.

On August 20, 2019, the Company announced plans to divest the product distribution businesses in Europe, the UK, Mexico, Colombia, Chile, Peru and the Miami-based export operations, (the "Divestitures"), as these businesses were performing below management's expectations.

The Company continues to operate its digital business in these countries.

Management determined that the Company did not have sufficient scale in these markets to maximize the value-added model for product distribution, leading the Company to focus and invest in its higher-growth, higher margin businesses.

Results from the Divestitures were included within each reportable segment:

Specialty Technology Solutions and Modern Communications & Cloud.

The Company finalized the sale of the Latin America businesses on October 30, 2020.

The Company also finalized the sale of the Europe and UK businesses on November 12, 2020.

During the fiscal year ended June 30, 2020, the Company recorded a pre-tax loss on sale classification of $ 88.9 million to reduce the carrying value of the Divestitures to its estimate of fair value (the net proceeds received at closing), less estimated costs to sell.

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 fiscal year ended June 30, 2021, the Company recorded an additional pre-tax loss on disposal group of $ 34.6 million.

This loss includes the realization of cumulative translation adjustments of $ 11.6 million for the fiscal year ended June 30, 2021.

Additional losses for the fiscal year ended June 30, 2021 are primarily attributable to a reduction in the net proceeds received for the Divestitures.

During the fiscal year ended June 30, 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

Index to Financial Statements

3 unchanged sentences

June 30, 2022

The Company finalized the sale of the Latin America businesses, outside of Brazil, on October 30, 2020.

The Company also finalized the sale of the Europe and the UK business on November 12, 2020.

Total cash received for the sale of divestitures was $ 34.4 million.

Company received the second and final payment of $ 3.1 million 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.

The receipt of payment resulted in a gain on disposal group of $ 0.1 million.

Cash received for the sale of the Divestitures totaled $ 3.1 million and $ 34.4 million for the fiscal years ended June 30, 2022 and 2021, respectively.

Major components of net loss from discontinued operations for the years ended June 30, 2022, 2021 and 2020 were as follows:

11 unchanged sentences

Interest expense, net — 394 1,399

Loss on held for sale classification 34,597 88,923 —

(Income) loss on held for sale classification ( 100 ) 34,597 88,923

Other expense, net — 310 1,124

Loss from discontinued operations before taxes ( 37,731 ) ( 113,024 ) ( 5,729 )

Income (loss) from discontinued operations before taxes 100 ( 37,731 ) ( 113,024 )

Income tax (benefit) expense — ( 3,137 ) 403

Net loss from discontinued operations $ ( 34,594 ) $ ( 113,427 ) $ ( 7,262 )

For fiscal year ended June 30, 2020, the Company allocated goodwill to discontinued operations based on relative fair value of the discontinued operations compared to the consolidated reporting units and impaired such goodwill totaling $ 1.0 million for the Worldwide Barcode, Networking & Security segment and $ 7.5 million for the Worldwide Communications & Services segment.

Identifiable intangible assets, including customer relationships and distributor agreements, were impaired for discontinued operations totaling $ 5.2 million for fiscal year ended June 30, 2020.

Net income (loss) from discontinued operations $ 100 $ ( 34,594 ) $ ( 113,427 )

For fiscal year ended June 30, 2020, the Company allocated goodwill to discontinued operations based on relative fair value of the discontinued operations compared to the consolidated reporting units and impaired such goodwill totaling $ 1.0 million for the Specialty Technology Solutions segment and $ 7.5 million for the Modern Communications & Cloud segment.

Identifiable intangible assets, including customer relationships and distributor agreements, were also impaired, totaling $ 5.2 million for fiscal year ended June 30, 2020.

The impairment charges are included in net loss from discontinued operations in the Consolidated Income Statements.

The major classes of assets and liabilities classified as held-for-sale in the accompanying consolidated balance sheets, were as follows as of June 30, 2021 and 2020:

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2021

June 30, 2021 June 30, 2020

(in thousands)

Current assets:

Cash and cash equivalents $ — $ 4,970

Accounts receivable, net — 117,200

Inventories, net — 106,779

Prepaid expenses and other current assets — 23,808

Total current assets — 252,757

Property and equipment, net — 1,833

Identifiable intangible assets, net — —

Deferred income taxes — 9,349

Other non-current assets — 6,215

Total assets, before valuation allowance — 270,154

valuation allowance — ( 88,923 )

Total assets, net of valuation allowance (1)

$ — $ 181,231

Current liabilities:

Accounts payable $ — $ 56,098

Accrued expenses and other current liabilities — 14,815

Other taxes payable — 20,378

Short-term borrowings — 3,524

Income tax payable — 1,085

Total current liabilities — 95,900

Borrowings under revolving credit facility — 24,704

Other long-term liabilities — 7,418

Total liabilities (1)

$ — $ 128,022

(1) Total assets and liabilities of discontinued operations are classified in current assets and liabilities, respectively, in the Company's consolidated balance sheet as of June 30, 2020.

The discontinued operations were disposed of during the quarter ended December 31, 2020.

Significant non-cash operating items and capital expenditures reflected in the cash flows from discontinued operations for the fiscal years ended June 30, 2022, 2021 and 2020 were as follows:

7 unchanged sentences

(20) Restructuring

In July 2020, as part of a strategic review of organizational structure and operations, the Company announced a global cost reduction and restructuring program.

These actions were designed to better align the cost structure for the wholesale distribution

Index to Financial Statements

3 unchanged sentences

June 30, 2022

In July 2020, as part of a strategic review of organizational structure and operations, the Company announced a global cost reduction and restructuring program.

These actions were designed to better align the cost structure for the wholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic.

business with lower sales volumes as a result of the COVID-19 pandemic.

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

There has 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.

These actions included 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 fiscal years ended June 30, 2022 or 2020.

The following table presents the restructuring and severance costs incurred for the fiscal year ended June 30, 2021:

3 unchanged sentences

Total restructuring and other charges $ 9,258

For the fiscal year ended June 30, 2021, all restructuring costs are recognized in the Corporate reporting unit and have not been allocated to the Worldwide Communications & Services or Worldwide Barcode, Networking & Security segment.

The Company incurred restructuring charges in the prior year that were immaterial to the condensed consolidated financial statements and unrelated to the program described above.

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

For the fiscal year ended June 30, 2021, all restructuring costs are recognized in the Corporate reporting unit and have not been allocated to the Modern Communications & Cloud or Specialty Technology Solutions segment.

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

The following table represents activity for the fiscal year ended June 30, 2022:

5 unchanged sentences

Balance at June 30, 2022 $ —

The remaining balance as of June 30, 2021 of $ 1.2 million , primarily related to Corporate, is expected to be paid through the first quarter of fiscal year 2022.

(21) Subsequent Events

Share Repurchases

In August 2021, our Board of Directors authorized a $ 100 million share repurchase program.

The authorization does not have any time limit.

Index to Financial Statements

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-K

Item 8. Financial Statements and Supplementary Data