What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-08-22 compared with 2022-08-23 · 233 added, 345 removed, 1143 unchanged (34% of the section changed)

49 unchanged sentences

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting (“Management’s report”).

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

73 unchanged sentences

Restructuring and other charges — — 9,258

Impairment charges — — 120,470

Change in fair value of contingent consideration — — 516

Operating income (loss) 122,167 61,483 ( 64,967 )

Operating income 135,886 122,167 61,483

Interest expense 19,786 6,523 6,929

1 unchanged sentence

Other expense, net 1,664 1,354 116

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

Income before income taxes 121,850 118,623 57,535

Provision for income taxes 33,758 29,925 12,146

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

Net income from continuing operations 88,092 88,698 45,389

Net income (loss) from discontinued operations 1,717 100 ( 34,594 )

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

Net income $ 89,809 $ 88,798 $ 10,795

Per share data:

Net income (loss) from continuing operations per common share, basic $ 3.48 $ 1.79 $ ( 3.12 )

Net loss from discontinued operations per common share, basic — ( 1.36 ) ( 4.47 )

Net income (loss) per common share, basic $ 3.48 $ 0.42 $ ( 7.59 )

Net income from continuing operations per common share, basic $ 3.50 $ 3.48 $ 1.79

Net income (loss) from discontinued operations per common share, basic 0.07 — ( 1.36 )

Net income per common share, basic $ 3.57 $ 3.48 $ 0.42

Weighted-average shares outstanding, basic 25,142 25,504 25,423

Net income (loss) from continuing operations per common share, diluted $ 3.44 $ 1.78 $ ( 3.12 )

Net loss from discontinued operations per common share, diluted — ( 1.36 ) ( 4.47 )

Net income (loss) per common share, diluted $ 3.45 $ 0.42 $ ( 7.59 )

Net income from continuing operations per common share, diluted $ 3.47 $ 3.44 $ 1.78

Net income (loss) from discontinued operations per common share, diluted 0.07 — ( 1.36 )

Net income per common share, diluted $ 3.54 $ 3.45 $ 0.42

Weighted-average shares outstanding, diluted 25,362 25,758 25,518

7 unchanged sentences

2023 2022 2021

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

Unrealized gain (loss) on hedged transaction, net of tax 5,833 2,249 ( 4,646 )

Net income $ 89,809 $ 88,798 $ 10,795

Unrealized gain on hedged transaction, net of tax 2,254 5,833 2,249

Foreign currency translation adjustment 12,763 ( 12,338 ) 20,778

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

Comprehensive income (loss) $ 82,293 $ 45,457 $ ( 235,361 )

Comprehensive income $ 104,826 $ 82,293 $ 45,457

See accompanying notes to these consolidated financial statements.

10 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

16 unchanged sentences

Cash flows from operating activities:

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

Net income $ 89,809 $ 88,798 $ 10,795

Net income (loss) from discontinued operations 1,717 100 ( 34,594 )

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

Net income from continuing operations 88,092 88,698 45,389

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

3 unchanged sentences

Share-based compensation 11,219 11,663 8,039

Impairment charges — — 120,470

Deferred income taxes ( 1,496 ) 5,737 2,916

13 unchanged sentences

Capital expenditures ( 9,979 ) ( 6,849 ) ( 2,363 )

Cash paid for business acquisitions, net of cash acquired — — ( 48,921 )

Cash received for business disposal 1,717 3,125 34,356

3 unchanged sentences

Repayments on revolving credit, net of expenses ( 2,456,025 ) ( 2,030,569 ) ( 1,949,392 )

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

Debt issuance costs ( 1,407 ) — —

Borrowings (repayments) on long-term debt, net 15,590 ( 7,843 ) ( 7,839 )

Repayments of finance lease obligations ( 589 ) ( 1,238 ) ( 1,294 )

10 unchanged sentences

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

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

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

Effect of exchange rate changes on cash and cash equivalents 2,691 ( 4,759 ) 3,706

17 unchanged sentences

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

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

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.

The Company's two operating segments, Specialty Technology Solutions and Modern Communications & Cloud, are based on technology type and are generally related to technology devices and communication, connectivity and cloud services, respectively.

Cybersecurity Incident

On May 14, 2023, the Company discovered it was subject to a cybersecurity attack perpetrated by unauthorized third parties that affected its IT systems.

Upon detection, the Company took immediate steps to address the incident, engaged third-party experts, and notified law enforcement.

The Company has cyber insurance and is working with its insurance carriers on claims to recover costs incurred.

On May 26, 2023, the Company substantially recovered its operations and completed the restoration of its pertinent IT systems.

The Company has taken actions to strengthen its existing IT security infrastructure and continues to implement additional measures to prevent unauthorized access to, or manipulation of, its systems and data.

Basis of Presentation

38 unchanged sentences

Management uses judgment to (i) identify the acquired assets and liabilities assumed, (ii) estimate the fair value of these assets, (iii) estimate the useful life of the assets and (iv) assess the appropriate method for recognizing depreciation or amortization expense over the assets' useful life.

See Note 7 - Acquisitions for further discussion of the Company's business combinations.

(d) Goodwill and Intangible Asset Fair Value

5 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

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

Index to Financial Statements

3 unchanged sentences

June 30, 2023

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

received are appropriately applied.

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

6 unchanged sentences

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 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.

Cash and cash equivalents held outside of the United States totaled $ 31.0 million and $ 35.0 million as of June 30, 2023 and 2022, respectively.

Concentration of Credit Risk

20 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

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 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

Index to Financial Statements

3 unchanged sentences

June 30, 2023

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).

current earnings, but were reported as other comprehensive income (loss).

There was no ineffective portion recorded as an adjustment to earnings for the years ended June 30, 2023, 2022 and 2021.

29 unchanged sentences

Product Warranty

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.

In three of its product lines, the Company offers a self-branded warranty program, in which management has determined that the Company is the primary

Index to Financial Statements

3 unchanged sentences

June 30, 2023

In three of its product lines, the Company offers a self-branded warranty program, in which management has determined that the Company is the primary obligor.

The Company purchases contracts from unrelated third parties, generally the original equipment manufacturers, to fulfill any obligation to service or replace defective product claimed on these warranty programs.

30 unchanged sentences

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

• Operating income:

The Company utilized historical and expected revenue growth rates, gross margins and operating expense percentages, which varied based on the projections of each reporting unit being evaluated.

Index to Financial Statements

3 unchanged sentences

June 30, 2023

• 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.

• Cash flows from working capital changes:

1 unchanged sentence

No goodwill impairment charges were recognized for the fiscal years ended June 30, 2023, 2022 and 2021 .

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

10 unchanged sentences

No intangible asset or other long-lived asset impairment charges were recognized for the fiscal years ended June 30, 2023, 2022 and 2021.

Intangible asset impairment charges totaled $ 1.4 million for our continuing operations for the fiscal year ended June 30, 2020 and are included in the impairment charges line item in the Consolidated Income Statements .

See Note 7 - Goodwill and Other Identifiable Intangible Assets for more information regarding intangible asset impairment charges.

3 unchanged sentences

For additional information related to the fair value of derivatives, please see Note 10 - Fair Value of Financial Instruments .

Liability for Contingent Consideration

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.

Contingencies

1 unchanged sentence

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

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.

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.

Revenue Recognition

10 unchanged sentences

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

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

Advertising Costs

5 unchanged sentences

The Company's functional currencies include U.S.

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

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

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

17 unchanged sentences

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.

3 unchanged sentences

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842) requiring lessees to reflect most leases on their balance sheets and recognize expenses on their income statements in a manner similar to current guidance.

Under the new guidance, lessees are required to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

The asset is measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee's initial direct costs.

For leases with a lease term of 12 months or less, as long as the lease does not include options to purchase the underlying assets, lessees can elect not to recognize a lease liability and right-of-use asset.

Under the new guidance, lessor accounting is largely unchanged, and the accounting for sale and leaseback transactions is simplified.

This ASU was effective for the Company beginning in the first quarter of fiscal 2020.

Entities are required to use the modified retrospective approach of adoption, with the option of applying the requirements of the standard either (1) retrospectively to each prior comparative reporting period presented or (2) retrospectively at the beginning of the period of adoption.

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

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

See Note 15 - Leases for additional lease disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326).

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

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.

The Company adopted this standard effective July 1, 2020, and it did not have a material impact on the Company's consolidated financial statements.

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

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.

Index to Financial Statements

3 unchanged sentences

June 30, 2023

The Company has reviewed 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.

(2) Trade Accounts and Notes Receivable, Net

11 unchanged sentences

(in thousands)

Allowance for bad debt:

Allowance for doubtful accounts:

Year ended June 30, 2021

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

Trade and current note receivable allowance $ 21,906

Year ended June 30, 2022

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

Trade and current note receivable allowance $ 19,341

Year ended June 30, 2023

$ 16,806 2,785 ( 2,062 ) ( 2,049 ) $ 15,480

Trade and current note receivable allowance $ 16,806

(1) "Other" amounts include recoveries and the effect of foreign currency fluctuations for the fiscal years ended June 30, 2023, 2022 and 2021, respectively.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

(3) Revenue Recognition

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.

The Company provides technology solutions and services from the world's leading suppliers of mobility, barcode, POS, payments, networking, 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.

5 unchanged sentences

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

These service contracts are sold separately from the products, and the Company often serves as the agent for the contract on behalf of the original equipment manufacturer.

These service contracts are sold separately from the products, and the Company often serves as the agent for the

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

contract on behalf of the original equipment manufacturer.

The Company's responsibility is to arrange for the provision of the specified service by the original equipment manufacturer, and the Company does not control the specified service before it is transferred to the customer.

18 unchanged sentences

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

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

Fiscal year ended June 30, 2023

5 unchanged sentences

$ 2,331,030 $ 1,456,691 $ 3,787,721

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

Fiscal year ended June 30, 2022

12 unchanged sentences

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

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

(4) Earnings per Share

4 unchanged sentences

(in thousands, except per share data)

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

Net income from continuing operations $ 88,092 $ 88,698 $ 45,389

Net income (loss) from discontinued operations 1,717 100 ( 34,594 )

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

Net income $ 89,809 $ 88,798 $ 10,795

Weighted-average shares, basic 25,142 25,504 25,423

1 unchanged sentence

Weighted-average shares, diluted 25,362 25,758 25,518

25,758 25,518 25,378

Net income (loss) from continuing operations per common share, basic $ 3.48 $ 1.79 $ ( 3.12 )

Net loss from discontinued operations per common share, basic — ( 1.36 ) ( 4.47 )

Net income (loss) per common share, basic $ 3.48 $ 0.42 $ ( 7.59 )

Net income (loss) from continuing operations per common share, diluted $ 3.44 $ 1.78 $ ( 3.12 )

Net loss from discontinued operations per common share, diluted — ( 1.36 ) ( 4.47 )

Net income (loss) per common share, diluted $ 3.45 $ 0.42 $ ( 7.59 )

(1) The Company calculates weighted average shares of common stock in accordance with ASC 260, Earnings per Share .

The Company's diluted weighted average shares for the year ended June 30, 2020 are the same as basic weighted average shares due to net loss from continuing operations.

For the years ended June 30, 2022, 2021 and 2020, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would have been antidilutive were 926,286 , 1,297,214 and 1,040,226 , respectively.

(5) Property and Equipment

Property and equipment is comprised of the following:

Net income from continuing operations per common share, basic $ 3.50 $ 3.48 $ 1.79

Net income (loss) from discontinued operations per common share, basic 0.07 — ( 1.36 )

Net income per common share, basic $ 3.57 $ 3.48 $ 0.42

Net income from continuing operations per common share, diluted $ 3.47 $ 3.44 $ 1.78

Net income (loss) from discontinued operations per common share, diluted 0.07 — ( 1.36 )

Net income per common share, diluted $ 3.54 $ 3.45 $ 0.42

Index to Financial Statements

3 unchanged sentences

June 30, 2023

For the years ended June 30, 2023, 2022 and 2021, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would have been antidilutive were 1,135,984 , 926,286 and 1,297,214 , respectively.

(5) Property and Equipment

Property and equipment is comprised of the following:

(in thousands)

19 unchanged sentences

The table below details accrued expenses and other current liabilities.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

(in thousands)

7 unchanged sentences

$ 78,893 $ 88,455

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

The table below details other long-term liabilities.

(in thousands)

Long-term deferred warranty revenue $ 4,706 $ 2,958

Long-term deferred compensation liability 22,558 26,229

Interest rate swap — 6,280

Long-term income taxes payable 5,269 5,971

Long-term operating lease liability 13,085 16,550

Other long-term liabilities 8,302 10,281

$ 53,920 $ 68,269

(7) Acquisitions

On July 1, 2019, the Company acquired all of the outstanding shares of intY and its CASCADE cloud services distribution platform.

The purchase price of this acquisition, net of cash acquired, was approximately $ 48.9 million.

The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction date.

Intangible assets acquired include trade names, customer relationships, and developed technology.

Goodwill recognized on this acquisition is not deductible for tax purposes.

See Note 8 - Goodwill and Other Identifiable Intangible Assets for the amounts of goodwill and intangible assets recog nized in connection with this acquisition.

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

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

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

(7) Goodwill and Other Identifiable Intangible Assets

4 unchanged sentences

During fiscal years ended June 30, 2023, 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, which is recorded to the impairment charges line item in the Consolidated Income Statements.

The fair value of the Specialty Technology Solutions and Modern Communications & Cloud reporting units exceeded its carrying value by 2 % and 13 %, respectively, as of the annual goodwill impairment testing date.

Changes in the carrying amount of goodwill for the years ended June 30, 2023 and 2022, by reportable segment, are set forth in the table below.

2 unchanged sentences

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

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

Unrealized gain on foreign currency translation — 2,271 2,271

Balance at June 30, 2023 $ 16,370 $ 200,336 $ 216,706

The following table shows the Company’s identifiable intangible assets as of June 30, 2023 and 2022, respectively.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

June 30, 2023 June 30, 2022

12 unchanged sentences

Total intangibles $ 198,793 $ 130,298 $ 68,495 $ 197,106 $ 112,679 $ 84,427

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.

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, 2023, 2022 and 2021.

Amortization expense for continuing operations for the years ended June 30, 2023, 2022 and 2021 was $ 16.7 million, $ 17.9 million and $ 19.5 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

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

Estimated future amortization expense is as follows:

13 unchanged sentences

Credit Facility

The Company has a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks.

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.

Pursuant to an “accordion feature,” the Company may increase its borrowings up to an additional $ 250 million for a total of up to $ 750 million, subject to obtaining additional credit commitments from the lenders participating in the increase.

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.

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 Ratio").

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

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

The Amended Credit Agreement provides for the substitution of a new interest rate benchmark upon the transition from LIBOR, subject to agreement between the Company and the administrative agent.

Index to Financial Statements

3 unchanged sentences

June 30, 2023

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

The Company has a multi-currency senior secured credit facility (as amended, the "Amended Credit Agreement") with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (collectively the "Lenders").

On September 28, 2022, the Company amended and restated the Amended Credit Agreement, which includes (i) a five-year , $ 350 million multicurrency senior secured revolving credit facility and (ii) a five-year $ 150 million senior secured term loan facility.

The Amended Credit Agreement extended the credit facility maturity date to September 28, 2027.

In addition, pursuant to an “accordion feature,” the Company may increase its borrowings up to an additional $ 250 million, subject to obtaining additional credit commitments from the lenders participating in the increase.

The Amended Credit Agreement allows for the issuance of up to $ 50 million for letters of credit.

Borrowings under the Amended Credit Agreement are guaranteed by substantially all of the domestic assets of the Company and its domestic subsidiaries.

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

The Company incurred debt issuance costs of $ 1.4 million in connection with the amendment and restatement of the Amended Credit Agreement.

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

Loans denominated in U.S.

dollars, other than swingline loans, bear interest at a rate per annum equal to, at the Company’s option, (i) the adjusted term Secured Overnight Financing Rate ("SOFR") or adjusted daily simple SOFR plus an additional margin ranging from 1.00 % to 1.75 % depending upon the Company’s ratio of (A) total consolidated debt less up to $ 30 million of unrestricted domestic cash to (B) trailing four-quarter consolidated EBITDA measured as of the end of the most recent year or quarter, as applicable, for which financial statements have been delivered to the Lenders (the “leverage ratio”);

or (ii) the alternate base rate plus an additional margin ranging from 0 % to 0.75 %, depending upon the Company’s leverage ratio, plus, if applicable, certain mandatory costs.

All swingline loans denominated in U.S.

dollars bear interest based upon the adjusted daily simple SOFR plus an additional margin ranging from 1.00 % to 1.75 % depending upon the Company's leverage ratio, or such other rate as the Company and the applicable swingline lender may agree.

The adjusted term SOFR and adjusted daily simple SOFR include a fixed credit adjustment of 0.10 % over the applicable SOFR reference rate.

Loans denominated in foreign currencies bear interest at a rate per annum equal to the applicable benchmark rate set forth in the Amended Credit Agreement plus an additional margin ranging from 1.00 % to 1.75 %, depending upon the Company’s leverage ratio plus, if applicable, certain mandatory costs.

During the fiscal year ended June 30, 2023, the Company's borrowings under the credit facility were U.S.

dollar loans.

The spread in effect as of June 30, 2023 was 1.50 %, plus a 0.10 % credit spread adjustment for SOFR-based loans and 0.50 % for alternate base rate loans.

The commitment fee rate in effect as of June 30, 2023 was 0.25 %.

4 unchanged sentences

The Company was in compliance with all covenants under the Amended Credit Agreement as of June 30, 2023.

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.

The average daily balance outstanding on the revolving credit facility, excluding the term loan facility, was $ 223.5 million and $ 69.0 million during the fiscal year ended June 30, 2023 and 2022, respectively.

There was $ 171.0 million and $ 214.2 million available for additional borrowings as of June 30, 2023 and 2022, respectively.

2 unchanged sentences

On August 1, 2007, the Company entered into an agreement with the State of Mississippi in order to provide financing for the acquisition and installation of certain equipment to be utilized at the Company’s Southaven, Mississippi facility through the issuance of an industrial development revenue bond.

The bond matures on September 1, 2032 and accrues interest at a rate equal to 30-day LIBOR plus a spread of 0.85 %.

The bond matures on September 1, 2032 and accrues interest at a rate equal to one-month term SOFR plus 0.10 % plus the applicable margin of 0.85 %.

The terms of the bond allow for payment of interest only for the first 10 years of the agreement and then, starting on September 1, 2018 through 2032, principal and interest payments are due until the maturity date or the redemption of the bond.

2 unchanged sentences

The interest rates at June 30, 2023 and 2022 were 6.11 % and 1.97 %, 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:

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

Scheduled maturities of the Company’s short-term borrowings, revolving credit facility and long-term debt at June 30, 2023 are as follows:

Revolving Credit Facility Term Loan Facility Mississippi Bond

2 unchanged sentences

2025 — 7,500 357

2026 — 7,500 361

2027 — 10,313 366

2028 178,980 115,312 371

Thereafter — — 1,926

6 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

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

balance sheet at fair value.

The Company records all derivatives on the consolidated 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, euro and Canadian dollar for continuing operations.

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

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 (gains) losses $ ( 304 ) $ 3,462 $ ( 3,975 )

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

Net foreign exchange derivative contract losses (gains) $ 3,928 $ ( 304 ) $ 3,462

Net foreign currency transactional and re-measurement (gains) losses ( 1,760 ) 2,382 ( 2,617 )

Net foreign currency losses $ 2,168 $ 2,078 $ 845

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

Foreign exchange gains and losses are generated as the result of fluctuations in the value of the U.S.

dollar versus the Brazilian real and other currencies versus the U.S.

Foreign exchange

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

gains and losses are generated as the result of fluctuations in the value of the U.S.

dollar versus the Brazilian real, the U.S.

dollar versus the euro, the British pound versus the euro, and the Canadian dollar versus the U.S.

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

The Company manages its exposure to changes in interest rates by using interest rate swaps to hedge this exposure and to achieve a desired proportion of fixed versus floating rate debt.

The Company entered into an interest rate swap agreement, which was subsequently settled, and entered into a new amended agreement on April 30, 2019.

On April 30, 2019, the Company entered into an interest rate swap agreement to lock into a fixed LIBOR interest rate, which was amended on September 28, 2022, to change the reference rate from LIBOR to SOFR.

The swap agreement has a notional amount of $ 100.0 million, with a $ 50.0 million tranche scheduled to mature on April 30, 2024 and a $ 50.0 million tranche scheduled to mature April 30, 2026.

This swap agreement is designated as a cash flow hedge to hedge the variable rate interest payments on the revolving credit facility.

On March 31, 2023, the Company entered into an interest rate swap agreement to lock into a fixed SOFR interest rate with a notional amount of $ 25 million and a maturity date of March 31, 2028.

These interest rate swap agreements are designated as a cash flow hedge to hedge the variable rate interest payments on the revolving credit facility.

Interest rate differentials paid or received under the swap agreement are recognized as adjustments to interest expense.

2 unchanged sentences

The components of the cash flow hedge included in accumulated other comprehensive (loss) income, net of income taxes, in the Consolidated Statements of Shareholders’ Equity, are as follows:

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

Fiscal Year Ended June 30,

1 unchanged sentence

(in thousands)

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

Net interest (income) expense recognized as a result of interest rate swap $ ( 1,553 ) $ 2,088 $ 2,250

Unrealized gain in fair value of interest swap rates 4,554 5,748 731

Net increase in accumulated other comprehensive income (loss) 3,001 7,836 2,981

Income tax effect 747 2,003 732

Net increase (decrease) in accumulated other comprehensive income, net of tax $ 5,833 $ 2,249 $ ( 4,646 )

Net increase in accumulated other comprehensive income, net of tax $ 2,254 $ 5,833 $ 2,249

The Company has the following derivative instruments for continuing operations located on the Consolidated Balance Sheets as of June 30, 2023, utilized for the risk management purposes detailed above:

6 unchanged sentences

Derivative assets:

Foreign exchange contracts Prepaid expenses and other current assets $ — $ 1

Interest rate swap agreement Other current assets $ 4,687 $ —

Derivative liabilities:

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

Foreign currency hedge Other current liabilities $ 93 $ —

Foreign currency hedge Other current assets $ 100 $ —

The Company has the following derivative instruments located on the Consolidated Balance Sheets as of June 30, 2022, utilized for the risk management purposes detailed above:

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

June 30, 2022

Balance Sheet Location Fair Value of Derivatives

4 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 $ —

(10) Fair Value of Financial Instruments

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

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

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:

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:

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

5 unchanged sentences

The following table summarizes the valuation of the Company's remaining assets and liabilities measured at fair value on a recurring basis as of June 30, 2023:

(Level 1) Significant

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

(Level 1) Significant

1 unchanged sentence

Deferred compensation plan investments, current and non-current portion $ 28,209 $ 28,209 $ —

Forward foreign currency exchange contracts 1 — 1

Interest rate swap agreement 4,687 — 4,687

Foreign currency hedge 100 — 100

Total assets at fair value $ 32,997 $ 28,209 $ 4,788

Deferred compensation plan investments, current and non-current portion $ 28,229 $ 28,229 $ —

Forward foreign currency exchange contracts 5 — 5 —

Foreign currency hedge 93 — 93 —

Total liabilities at fair value $ 28,229 $ 28,229 $ —

The following table presents assets and liabilities measured at fair value on a recurring basis as of June 30, 2022:

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

(Level 1) Significant

(Level 2) Significant

(in thousands)

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

5 unchanged sentences

See Note 9 - Derivatives and Hedging Activities .

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.

June 30, 2021

Modern Communications & Cloud

(in thousands)

Fair value at beginning of period $ 46,334

Payments ( 46,850 )

Change in fair value 516

Fair value at end of period $ —

(11) Share-Based Compensation

Share-Based Compensation Plans

Index to Financial Statements

3 unchanged sentences

June 30, 2023

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;

• the probability of achieving these results;

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

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

The expense from the change in fair value of the contingent consideration recognized in the Condensed Consolidated Income Statement totaled $ 0.5 million for the fiscal year ended June 30, 2021.

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

(12) Share-Based Compensation

Share-Based Compensation Plans

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

24 unchanged sentences

Stock Options

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

The Company did not grant stock options during the fiscal year ended June 30, 2023 or June 30, 2022.

6 unchanged sentences

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

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

Fiscal Year Ended June 30,

22 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, 2022, 2021 and 2020 was $ 0.6 million, less than $ 0.1 million and $ 0.2 million, respectively.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

The aggregate intrinsic value of options exercised during the fiscal years ended June 30, 2023, 2022 and 2021 was $ 0.2 million, $ 0.6 million and less than $ 0.1 million, respectively.

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

7 unchanged sentences

As of June 30, 2023, there was approximately $ 0.6 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans in the form of stock options.

This cost is expected to be recognized over a weighted-average period of 0.88 years.

This cost is expected to be recognized

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

over a weighted-average period of 0.38 years.

The total fair value of options vested during the fiscal years ended June 30, 2023, 2022 and 2021 is $ 1.6 million, $ 1.9 million and $ 0.3 million, respectively.

20 unchanged sentences

During the fiscal year ended June 30, 2023, the Company granted 518,987 shares of restricted stock to employees and non-employee directors, all of which were issued in the form of RSUs:

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

Fiscal Year Ended June 30, 2023

4 unchanged sentences

Certain employees based on performance 58,323 August 26, 2022 $ 27.92 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 815 December 1, 2022 $ 30.70 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 13,067 June 1, 2023 $ 28.70 Annually over 4 years

10 unchanged sentences

Outstanding, end of year 889,910 $ 30.43

As of June 30, 2022, there was approximately $ 15.3 million of unrecognized compensation cost related to unvested restricted stock awards and restricted stock units granted, which is expected to be recognized over a weighted-average period of 1.28 years.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

As of June 30, 2023, there was approximately $ 18.4 million of unrecognized compensation cost related to unvested performance units and restricted stock units granted, which is expected to be recognized over a weighted-average period of 1.31 years.

The Company withheld 79,537 shares for income taxes during the fiscal year ended June 30, 2023.

10 unchanged sentences

(13) Income Taxes

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

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

As of the fiscal year ended June 30, 2023, 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.

16 unchanged sentences

Federal income tax expense for the fiscal years ended June 30, 2023, June 30, 2022 and June 30, 2021 with the applicable statutory rate of 21%.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

Fiscal Year Ended June 30,

9 unchanged sentences

Stock compensation 37 ( 121 ) 1,094

Capitalized acquisition costs — — 59

Disallowed interest — — 86

Earnings from foreign subsidiaries 957 928 124

Net favorable recovery — — ( 6,517 )

Losses on dispositions — — ( 2,897 )

1 unchanged sentence

1,551 630 ( 45 )

Non-deductible goodwill impairment — — 20,180

Nontaxable income ( 3,189 ) ( 2,050 ) ( 1,628 )

2 unchanged sentences

Provision for income taxes $ 33,758 $ 29,925 $ 12,146

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

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:

20 unchanged sentences

The components of pretax earnings are as follows:

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

Fiscal Year Ended June 30,

4 unchanged sentences

Worldwide pretax earnings $ 121,850 $ 118,623 $ 57,535

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, 2023, there were (i) gross net operating loss carryforwards of approximately $ 1.3 million for U.S.

6 unchanged sentences

The Company maintains a valuation allowance of $ 0.1 million for U.S.

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

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

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.

federal net operating losses, $ 7.3 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 $ 5.1 million valuation allowance for withholding tax credits, a $ 1.0 million valuation allowance for foreign tax credits, and a $ 0.6 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 recognizes excess tax benefits and tax deficiencies as income tax expense or benefit for stock award settlements in accordance with ASU 2016-09.

The Company recognized net tax benefit of less than $ 0.1 million for the fiscal year ended June 30, 2023, net tax benefit of $ 0.3 million for the fiscal year ended June 30, 2022 and net tax expense of $ 1.1 million for the fiscal year ended June 30, 2021.

As of June 30, 2023, the Company had gross unrecognized tax benefits of $ 1.2 million, $ 0.9 million of which, if recognized, would affect the effective tax rate.

This reflects a decrease of less than $ 0.1 million on a gross basis over the prior fiscal year.

This reflects an increase of less than $ 0.1 million on a gross basis over the prior fiscal year.

The Company does not expect that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

9 unchanged sentences

Ending Balance $ 1,172 $ 1,065 $ 1,121

A court ruling issued in Brazil in June 2023 confirmed that Brazilian state-provided tax benefits are not subject to income tax.

The Company recorded, discrete to the June 30, 2023 quarter, an income tax benefit of $ 2.2 million related to the confirmation of the recovery of state-provided tax benefits.

Subsequent to the 2023 fiscal year-end, the IRS issued Notice 2023-55 which provides taxpayers with Brazilian subsidiaries temporary relief from the final foreign tax credit regulations.

This Notice will apply to the Company’s fiscal year ended June 30, 2023 and the resulting tax benefit of approximately $ 1.5 million will be recognized as a discrete item in the first quarter of the June 30, 2024 fiscal year.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

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.

16 unchanged sentences

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

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

The following table presents amounts recorded on the Condensed Consolidated Balance Sheet related to operating leases at June 30, 2023 and 2022:

12 unchanged sentences

$ 6,684 $ 6,447 $ 6,324

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:

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

Supplemental cash flow information related to the Company's operating leases for the fiscal years ended June 30, 2023, 2022 and 2021 are presented in the table below:

Fiscal year ended June 30,

8 unchanged sentences

The following table presents the maturities of the Company's operating lease liabilities at June 30, 2023:

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

Operating leases

(in thousands)

Thereafter 649

Total future payments 14,761

9 unchanged sentences

The Company expects total capital expenditures to range from $ 6.0 million to $ 8.0 million during fiscal year 2024 primarily for IT investments and facility improvements.

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2023

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 $ 1.2 million was released from the escrow account during the fiscal year ended June 30, 2023.

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

The amount available after the impact of foreign currency translation, as of June 30, 2023 and 2022, for future pre-acquisition contingency settlements or to be released to the sellers was $ 3.4 million and $ 4.1 million, respectively.

The table below summarizes the balances and line item presentation of Network1's pre-acquisition contingencies and corresponding indemnification receivables in the Company's consolidated balance sheet:

Index to Financial Statements

SCANSOURCE, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

June 30, 2022

June 30, 2023 June 30, 2022

11 unchanged sentences

(16) Segment Information

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 technology.

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

The Company has two reportable segments, based on technology type.

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.

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

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

45 unchanged sentences

$ 3,787,721 $ 3,529,935 $ 3,150,806

(1) For the year ended June 30, 2023, the amounts shown above include cyberattack restoration costs.

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, 2021, the amounts shown above include acquisition, divestiture, and restructuring.

Index to Financial Statements

30 unchanged sentences

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.

Results from the Divestitures were included within each reportable segment, which includes the Specialty Technology Solutions and Modern Communications & Cloud segments.

The Company signed an agreement on July 23, 2020 with Intcomex for its businesses located in Latin America, outside of Brazil.

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 $ 34.5 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

Total cash received for the sale of the Divestitures was $ 39.2 million.

During the fiscal year ended June 30, 2021, the Company recorded a 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.

The Company received cash for the sale of Divestitures totaling $ 34.4 million during the fiscal year ended June 30, 2021.

Index to Financial Statements

3 unchanged sentences

June 30, 2023

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.

During the fiscal year ended June 30, 2022, the Company received a second 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.

During the fiscal year ended June 30, 2023, the Company received a third payment related to a tax settlement of $ 1.7 million for its businesses in Latin America, outside of Brazil.

The receipt of payment resulted in a gain on disposal group of $ 1.7 million.

Major components of net loss from discontinued operations for the years ended June 30, 2023, 2022 and 2021 were as follows:

6 unchanged sentences

Selling, general and administrative expenses — — 17,291

Depreciation expense — — 975

Intangible amortization expense — — 1,403

Impairment charges — — 13,747

Operating loss — — ( 2,430 )

Interest expense, net — — 394

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

(Gain) loss on held for sale classification ( 1,717 ) ( 100 ) 34,597

Other expense, net — — 310

2 unchanged sentences

Net income (loss) from discontinued operations $ 1,717 $ 100 $ ( 34,594 )

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.

Significant non-cash operating items and capital expenditures reflected in the cash flows from discontinued operations for the fiscal years ended June 30, 2023, 2022 and 2021 were as follows:

3 unchanged sentences

Loss on held for sale classification $ — $ — $ 34,597

Impairment charges — — 13,747

Depreciation and amortization — — 2,378

Capital expenditures — — ( 58 )

1 unchanged sentence

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

The Company also closed its Canpango business, a Salesforce implementation and consulting business.

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

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, 2023 or 2022.

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

Index to Financial Statements

3 unchanged sentences

June 30, 2023

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 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:

Fiscal year ended June 30, 2021

3 unchanged sentences

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:

Accrued Expenses

(in thousands)

Balance at July 1, 2021 $ 1,199

Charged to expense —

Cash payments ( 1,199 )

Balance at June 30, 2022 $ —

There were no accrued restructuring and severance costs as of June 30, 2023.

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