UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________________________
FORM 10-K
  _______________________________________________

☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended June 30, 20192020


OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____

Commission File Number: 000-26926
 _______________________________________________
scsc-20200630_g1.jpg
ScanSource, Inc.
South Carolina
(State of incorporation)

57-0965380
(I.R.S. Employer
Identification No.)

6 Logue Court
Greenville,, South Carolina29615
(864) (864) 288-2432
 _______________________________________________ 

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, no par valueSCSCNASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None.
  _______________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☒  Yes    ☐  No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ☐  Yes    ☒  No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically on its corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   ��☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer

(Do not check if a smaller reporting company)
☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ☐ Yes    ☒  No
The aggregate market value of the voting common stock of the Registrant held by non-affiliates of the Registrant at December 31, 2018 was $877,604,886, as2019 was $25,417,550, as computed by reference to the closing price of such stock on such date.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding at August 16, 201926, 2020
Common Stock, no par value per share25,241,11525,361,298 shares
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has incorporated by reference into Part III of this report certain portions of either an amendment to this Form 10-K or its proxy statement for its 20202021 Annual Meeting of Shareholders, which are expected to be filed within 120 days after the end of the registrant’s fiscal year ended June 30, 20192020.
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FORWARD-LOOKING STATEMENTS

The forward-looking statements included in the "Business," "Risk Factors," "Legal Proceedings," "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and "Quantitative and Qualitative Disclosures About Market Risk" sections and elsewhere herein. Words such as "expects," "anticipates," "believes," "intends," "plans," "hopes," "forecasts," "seeks," "estimates," "goals," "projects," "strategy," "future," "likely," "may," "should," and variations of such words and similar expressions generally identify such forward-looking statements. Any forward-looking statement made by us in this Form 10-K is based only on information currently available to us and speaks only as of the date on which it is made. Except as may be required by law, we expressly disclaim any obligation to update these forward-looking statements to reflect events or circumstances after the date of this Annual Report on Form 10-K, except as required by law. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors including, but not limited to, changes in interest and exchange rates and regulatory regimes impacting our overseas operations, the failure of acquisitions to meet our expectations, the failure to manage and implement our organic growth strategy, credit risks involving our larger customers and suppliers, termination of our relationship with key suppliers or a significant modification of the terms under which we operate with a key supplier, the decline in demand for the products and services that we provide, reduced prices for the products and services that we provide due both to competitor and customer actions, the impact of the COVID-19 pandemic on our operations and financial condition, the timing and terms of our planned divestitures and the other factors set forth in "Risk Factors" contained herein.



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PART I

ITEM 1. Business.

ScanSource, Inc. (together with its subsidiaries referred to as “the Company” or “ScanSource” or “we”) is at the center of the technology solution delivery channel, connecting businesses and providing solutions for their complex needs. Using a channel sales model, we provide technology solutions and services from the world’s leading suppliers of mobility and barcode, point-of-sale (POS), payments, barcode, physical security, unified communications and collaboration, telecom and cloud services to our customers.
Our customers are businesses of all sizes that sell to end-customers across many industries. Our customer channels include value-added resellers (“VARs”), salessale partners or agents, independent sales organizations (“ISOs”) and independent software vendors (“ISVs”). These customer channels provide us with multiple routes-to-market. We align our teams, tools and processes around all of our customers to help them grow through reducing their costs, creating efficiencies and generating end-customer demand for business solutions. We enable our customers to create, deliver and manage solutions for end-customers across almost every vertical market in the United States, Canada, Brazil, additional Latin AmericanAmerica countries, the United Kingdom ("UK") and Europe.
On August 20, 2019, the Company announced plans to divest our product distribution businesses in Europe, the UK, Mexico, Colombia, Chile, Peru and our Miami-based export operations (the "Divestitures") 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 to in these markets to maximize our value-added model for physical product distribution, leading us to focus and invest in our higher margin businesses. The Divestitures have been classified as held for sale and reported as discontinued operations within this Form 10-K. Unless otherwise indicated, descriptions of our business and amounts reported in this Form 10-K pertain to continuing operations only.
ScanSource was incorporated in South Carolina in 1992 and serves approximately 38,00030,000 customers. Net sales for fiscal year ending June 30, 20192020 totaled $3.9$3.0 billion. Our common stock trades on the NASDAQ Global SelectSelect Market under the symbol “SCSC.”
Strategy
We rely on a channel sales model to offer hardware, software, services and connectivity from technology suppliers to our sales partners (resellers, agents, ISOs, ISVs) to solve end-customer needs. While we do not manufacture products, we provide technology solutions and services from leading technology suppliers. Our solutions may include a combination of offerings from multiple suppliers or access to additional services, such as custom configuration, key injection, integration support, custom development and other services, to deliver solutions. We also offer the flexibility of on-premise, cloud or hybrid solutions for theirsales partners' end-customers.
As a trusted adviser to our sales partners, we provide more complete solutions through a better understanding of end-customer needs. In addition, we drive growth through enhancing our sales partners' capabilities to provide hardware, software, services recurring revenue, including connectivity, cloud services and connectivity solutionssoftware as a service ("SaaS") to meet these needs. Our teams deliver value-added support programs and services, including education and training, assessments, provisioning, implementation, custom development and marketing, designed to help our sales partners' develop new technology practices and reach new end-customers and deliver new solutions to their current customers.
Part of our strategy is to expand in higher margin and adjacent markets to help our sales partners offer more products and services while building recurring revenue opportunities. In fiscal 2020, we acquired intY and its CASCADE cloud services distribution platform. With intY’sthe CASCADE solution, we are providing our sales partners with another route to market to enable key strategic cloud services. In fiscal 2019, we acquired Canpango, a global Salesforce implementation and professional services business with deep knowledge of customer relationship management ("CRM") and integration with telecom systems. With Canpango, we added capabilities to help our sales partners sell customer experience (CX) solutions, where CRM integrates with other communications offerings. In fiscal 2018, we acquired POS Portal, a leading provider of payments devices and services primarily to the small and medium-sized (“SMB”) business segment. POS Portal added to our offerings industry-leading services and capabilities in serving the U.S. payments channel. In fiscal 2017, we acquired Intelisys, an industry-leading technology services provider (also called a master agent) of business telecommunications and cloud services. Using a master agent business model, Intelisys acts as an intermediary connecting sales partners with service providers and suppliers who offer services to end-customers. Intelisys’ sales partners earn commission payments from those service providers or suppliers on end-customer sales, typically multi-year contracts. Intelisys earns a percentage of the commission streams, building more predictable, recurring revenues. Net sales reported for Intelisys reflect net commissions, which is the commissions on supplier billings after payment of commission earned to Intelisys’ sales partners. Since our Intelisys business is a services model, the working capital requirements are very low and require no inventories.
1

Index to Financial Statements



Value Proposition
Our customer channels and supplier relationships serve as competitive advantages. From our position in the center of the solution delivery channel, we provide robust value to both our sales partners and our suppliers. We make it easier for our sales partners and suppliers to deliver leading technology solutions that drive business outcomes for end-customers.
Value proposition for our customers/sales partners:
•Understand end-customer needs
•Provide more complete technology solutions

1

Offer market and technology solutions expertise
•Offer training, education and marketing services
•Provide custom configuration, services, platforms and digital tools
•Deliver technical support
•Enable opportunities in emerging technologies
•Reduce working capital requirements
•Offer flexible financing solutions
•Increased ability to navigate supplier programs

Value proposition for our suppliers:
•Provide access to emerging, diverse and established customer channels and routes to market
•Create scale and efficiency
•Serve small- and medium-sized businesses more efficiently
•Deliver more complete technology solutions
•Provide market insights
•Offer expertise and technical support
•Manage channel credit
•Create demand

Financial Strength
Our consolidated balance sheet reflects financial strength. Our strong balance sheet and cash generated from our business provide us with the ability to execute our capital allocation plan, which includes organic growth and strategic acquisitions and share repurchases.acquisitions. We have the financial flexibility to invest in our business and in future growth.
Business Segments

We segment our business into two technology-focused areas that each operate in the U.S.,United States, Canada, Brazil additional Latin American countries, and Europe:the UK:
•Worldwide Barcode, Networking & Security; and
•Worldwide Communications & Services.

Worldwide Barcode, Networking & Security Segment

The Worldwide Barcode, Networking & Security portfolio of solutions includes enterprise mobile computing, data capture, barcode printing, POS, payments, networking, electronic physical security, cyber security and other technologies. There are adjacencies among these technologies to develop and deliver solutions for our customers. These solutions include data capture and POS solutions that interface with computer systems 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.
The Worldwide Barcode, Networking & Security segment includes the fiscal 2016 acquisition of KBZ, which specializes in video conferencing, services, and cloud, and the fiscal 2018 acquisition of POS Portal.
Worldwide Communications & Services Segment

The Worldwide Communications & Services portfolio of solutions includes communications technologies and services for voice, video conferencing, wireless, data networking, cyber security, cable, unified communications and collaboration, cloud
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Index to Financial Statements


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 Worldwide Communications & Services segment includes the fiscal 2015 acquisition of Network1, a leading value-added distributor of communications technologies, infrastructure solutions, digital networks and cyber security in Latin America, the fiscal 2017 acquisition of Intelisys, the fiscal 2019 acquisitions of Canpango and RPM, a business process software developer, and the fiscal 2020 acquisition of intY.

2

Customers

Our customers, or sales partners, are businesses of all sizes that sell to end-customers across industries ranging from manufacturing, warehouse and distribution, retail and e-commerce, hospitality, transportation and logistics, government, education and health care, among others. Our customers provide us with multiple routes-to-market through various channels, including: VARs, agents, ISOs, and ISVs. No single customer accounted for more than 5%6% of our total net sales for the fiscal year ended June 30, 2019.2020.
VARs
Within VARs, our customers include specialty technology VARs, direct marketers, IT system integrators, network integrators, service providers, managed service providers and cloud service providers. Specialty technology VARs focus on one or more technologies, providing specialized knowledge and expertise for technology solutions, such as tailored software or integrated hardware. Direct marketers provide a very broad range of technology brands to business, government, education and healthcare markets. IT system integrators and network integrators develop computer and networking solutions for end-customers’ IT needs. Service providers, managed service providers and cloud service providers deliver advanced multi-discipline services with customized solutions that bundle data, collaboration, cloud, network and digital telecommunication services for end-customers' needs.
Agents
Agents focus on selling telecommunications and cloud services to end-customers, advising about various services, technologies and cost alternatives to help them make informed choices. Agents typically earn monthly commissions on multi-year contract sales as they build their recurring revenue business.
Independent Sales Organizations
ISOs focus on selling credit card processing and finding new merchant customers for credit card member banks. They offer on-going customer service and support and look to bundle hardware, software and processing services.
Independent Software Vendors
ISVs develop software, apps and integrated solutions. They generally focus on cloud solutions and sell or certify bundled hardware, software and service solutions.
Suppliers
We provide products and services from approximately 550 500 suppliers, including 8x8, ACC Business, AT&T, Aruba/HPE, Axis, AudioCodes, Avaya, Barco, Bematech, Bosch, CenturyLink/Level 3,CenturyLink, Cisco, Comcast Business, Datalogic, Dell, Dialogic, Elo, Epson, Exacq, Extreme, Fortinet, Hanwha, HID, Honeywell, HP/Aruba, IBM,HID, Ingenico, Jabra, Lifesize,March Networks, Masergy, Microsoft, Milestone, Mitel, NCR, NICE inContact, Oracle, Panasonic, Pioneer, Plantronics/Polycom (Poly),Poly, RingCentral, Ruckus, Samsung, Sony, Spectralink, Spectrum, Star Micronics, Toshiba Global Commerce Solutions, TPx, Ubiquiti, Verifone, Verizon, Windstream, YealinkZebra Technologies and Zebra Technologies.Zoom. We also offer customers significant choices in cloud services through our Intelisys business, and our intY cloud services distribution platform, including offerings in contact center, infrastructure and unified communications, security, and Microsoft offerings.communications.
We provide products and services from many of our key suppliers in all of our geographic markets; however, certain suppliers only allow distribution to specific geographies. We typically purchase products directly from the supplier and our supplier agreements generally do not restrict us from selling similar or competitive products or services. We have the flexibility to terminate or curtail sales of one product line in favor of another due to technological change, pricing considerations, product availability, customer demand or supplier distribution policies.
Products from two suppliers, Cisco and Zebra, each constituted more than 10% of our net sales for the fiscal year ended June 30, 2019.2020.
•We have two non-exclusive agreements with Cisco. One agreement covers the distribution of Cisco products in the United States and has a two year term; and oneterm. The other agreement covers distribution of products in Brazil and has a two year term. Each of these agreements must be renewed by written agreement. Either party may terminate the agreement upon 30 days' notice to the other party.

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Index to Financial Statements



•We have twothree non-exclusive agreements with Zebra.Zebra for our continuing operations. One agreement covers sales of Zebra Enterprise Visibility & Mobility (“EVM”) products in North and South America and Brazil, while the other agreement coverstwo agreements cover sales of Zebra Asset Intelligence & Tracking (“AIT”) products in Europe, the Middle EastNorth America and Africa ("EMEA").Brazil respectively. The Zebra agreements each have a one year term that automatically renews for additional one year terms, and eitherterms. Either party may terminate the EVM agreement upon 30 days' notice to the other party. Either party may terminate the AIT agreement for North America upon 60 days’ notice to the other party. Either party may terminate the AIT agreement for Brazil upon 90 days’ notice to the other party.

3


In addition to the agreements mentioned above, we have written agreements with almost all of our other suppliers. These agreements generally include the following terms:

•Non-exclusive distribution rights to resell products and related services in geographical areas (vendor(supplier agreements often include territorial restrictions that limit the countries in which we can sell their products and services).
•Short-term periods, subject to periodic renewal, and provide for termination by either party without cause upon 30 to 120 days' notice.
•Stock rotation rights, which give us the ability, subject to limitations, to return for credit or exchange a portion of the items purchased.
•Price protection provisions, which enables us to take a credit for declines in inventory value resulting from the vendor'ssupplier's price reductions.

Along with our inventory management policies and practices, these stock rotation rights and price protection provisions are designed to reduce our risk of loss due to slow-moving inventory, vendorsupplier price reductions, product updates and obsolescence.
We participate in various rebate, cash discount and cooperative marketing programs offered by our suppliers to support expenses associated with selling and marketing the suppliers' products and services. These rebates and purchase discounts are largely influenced by sales volumes and are subject to change.
Our suppliers generally warrant their products we sell and allow returns of defective products, including those returned to us by our customers. For threecertain of our product offerings, we offer a self-branded warranty program. We purchase contracts from unrelated third parties, generally the original equipment manufacturers, to fulfill our obligations to service or replace defective product claimed on these warranty programs. To maintain customer relations, we also facilitate returns of defective products from our customers by accepting for exchange, with our prior approval, most defective products within 30 days of invoicing. In addition, local laws may in some cases impose warranty obligations on the Company.
Offerings and Markets
WeFor our continuing operations, we currently market over 100,000 products from approximately 550500 hardware, software and service suppliers to approximately 38,00030,000 customers. We sell products and services to the U.S.United States and Canada from our facilities located in Mississippi, California and Kentucky; into Brazil and other parts of Latin America principally from facilities located in Florida, Mexico, Brazil, Colombiawithin Brazil. We provide digital products and Chile; and into Europe principallyservices from facilities located in Belgium, France and the United Kingdom.our CASCADE platform. See "Risk Factors," for a discussion of the risks related to our foreign operations. We also have drop-shipment arrangements with some of our suppliers, which allow us to offer products to customers without taking physical delivery at our facilities. These drop-shipment arrangements represent approximately 17%19% of fiscal year 20192020 net sales.

Our offerings to our customers include hardware, software, services and connectivity across premise, hybrid and cloud environments. With our CASCADE platform, we also offer customers SaaS and subscription services from leading technology suppliers, including the flexibility of on-premise, cloud and hybrid solutions.suppliers. We believe that sales partners want to offer end-customers complete technology solutions that solve real business needsend-user challenges and drive businessdeliver positive outcomes. We align our teams, tools, and processes to help our sales partners grow by providing more complete solutions through a better understanding of end-customers’ need.end-customer needs. We mayare able to provide a combination of offerings from multiple suppliers or give our sales partners access to a number of additional services, such asincluding configuration, key injection, integration support and others to deliver solutions.
We provide our sales partners and suppliers an array of pre-sale business tools and value-added services, including market and technology solution expertise, education and training, product configuration tools, technical support, logistics and channel financial services. These services allow our sales partners to gain knowledge and experience on marketing, negotiation and selling, to improve customer service, to profitably grow their business and be more cost effective. Our business is enhanced by
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Index to Financial Statements


our ability and our willingness to provide the extra level of services that keeps both our sales partners and our suppliers satisfied.
We bringoffer technology solutions and services that include the following offerings:
•
POS: We provide POS solutions for retail, grocery and hospitality environments to efficiently manage in-store sales and operations. POS solutions include computer-based terminals, tablets, monitors, payment processing solutions, receipt printers, pole displays, cash drawers, keyboards, peripheral equipment and fully integrated processing units. These solutions may include self-service checkout, kiosks and products that attach to the POS network in the store, including network access points, routers and digital signage.

following:

•Mobility and Barcode: We offer automatic identification and data capture (“AIDC”) technology that incorporates the capabilities for electronic identification and data processing without the need for manual input. These solutions consists of a wide range of products that include portable data collection terminals, wireless products, bar code label printers and scanners. As AIDC technology has become more pervasive, applications have evolved from traditional uses, such as inventory control, materials handling, distribution, shipping and warehouse management, to more advanced applications, such as health care.

4•POS: We provide POS solutions for retail, grocery and hospitality environments to efficiently manage in-store sales and operations. POS solutions include computer-based terminals, tablets, monitors, payment processing solutions, receipt printers, pole displays, cash drawers, keyboards, peripheral equipment and fully integrated processing units. These solutions may include self-service checkout, kiosks and products that attach to the POS network in the store, including network access points, routers and digital signage.

Table•Payments: We offer payment terminals, comprehensive key injection services, reseller partner branding, extensive key libraries, ability to provide point-to-point encryption (“P2PE”), and redundant key injection facilities. We have the resources to deliver secure payment devices that are preconfigured and ready for use. In addition, we partner with ISVs to deliver to merchants integrated tablet POS solution hardware that a merchant may purchase outright or “as a service,” and which includes merchant hardware support and next-day replacement of Contentstablets, terminals and peripherals.

Index•Physical Security: We provide electronic physical security solutions that include identification, access control, video surveillance and intrusion-related products and networking infrastructure. Physical security products are used every day across every vertical market to Financial Statementsprotect lives, property and information. These technology solutions require specialized knowledge to deploy effectively, and we offer in-depth training and education to our sales partners to enable them to maintain the appropriate skill levels.


•Unified Communications and Collaboration: We provide unified communications and collaboration capabilities, such as voice, video, audio conferencing, web conferencing and messaging. These offerings combine voice, data, fax and speech technologies with computers, telecommunications and the internet to deliver communications solutions on-premise, from the cloud and as a hybrid. Software and hardware products include IP-based telephony platforms, Voice over Internet Protocol ("VoIP") systems, private branch exchanges (“PBXs”), call center applications, video conferencing, desk phones and other endpoints. Cloud-delivered services, such as unified communications, contact center and video conferencing, enable end-customers to consume and pay for communications services typically on a monthly subscription basis.

•
Payments
•Cloud and Telecom Services: We offer business communications services, including voice, data, access, cable collaboration, wireless and cloud. We focus on empowering and educating sales partners so they can advise end-customers in making informed choices about services, technology and cost savings. With the CASCADE cloud services distribution platform, we offer sales partners another way to grow their recurring revenue practices. CASCADE takes the friction out of acquiring, provisioning and managing SaaS offerings. We have contracts with more than 150 of the world’s leading telecom carriers and cloud services providers.

: We offer payment terminals, comprehensive key injection services, reseller partner branding, extensive key libraries, ability to provide point-to-point encryption (“P2PE”), and redundant key injection facilities. We have the resources to deliver secure payment devices that are preconfigured and ready for use. In addition, we partner with ISVs to deliver to merchants integrated tablet POS solution hardware that a merchant may purchase outright or “as a service,” and which includes merchant hardware support and next-day replacement of tablets, terminals and peripherals.

•
Barcode: We offer automatic identification and data capture (“AIDC”) technology that incorporates the capabilities for electronic identification and data processing without the need for manual input. These solutions consists of a wide range of products that include portable data collection terminals, wireless products, bar code label printers and scanners. As AIDC technology has become more pervasive, applications have evolved from traditional uses, such as inventory control, materials handling, distribution, shipping and warehouse management, to more advanced applications, such as health care.

•
Physical Security: We provide electronic physical security solutions that include identification, access control, video surveillance and intrusion-related products and networking infrastructure. Physical security products are used every day across every vertical market to protect lives, property and information. These technology solutions require specialized knowledge to deploy effectively, and we offer in-depth training and education to our sales partners to enable them to maintain the appropriate skill levels.

•
Unified Communications and Collaboration: We provide unified communications and collaboration capabilities, such as voice, video, audio conferencing, web conferencing and messaging. These offerings combine voice, data, fax and speech technologies with computers, telecommunications and the internet to deliver communications solutions on-premise, from the cloud and as a hybrid. Software and hardware products include IP-based telephony platforms, Voice over Internet Protocol ("VoIP") systems, private branch exchanges (“PBXs”), call center applications, video conferencing, desk phones and other endpoints. Cloud-delivered services, such as unified communications, contact center and video conferencing, enable end-customers to consume and pay for communications services typically on a monthly subscription basis.

•
Cloud and Telecom Services: We offer business communications services, including voice, data, access, cable collaboration, wireless and cloud. We focus on empowering and educating sales partners so they can advise end-customers in making informed choices about services, technology and cost savings. With the CASCADE cloud services platform, we offer sales partners another way to grow their recurring revenue practices. CASCADE takes the friction out of acquiring, provisioning and managing XaaS offerings. We have contracts with more than 150 of the world’s leading telecom carriers and cloud services providers.

Our People
The strength of our Company is our people, working together to help our customers grow their businesses. As of June 30, 2019,Within our continuing operations, we had more than 2,700have approximately 2,200 employees, of which approximately 1,6001,500 are in the United States and 1,100700 are located internationally in Canada, Brazil other parts of Latin America and Europe.the UK. Within our discontinued operations, we have approximately 400 employees. We have no organized labor or trade unions in the United States. We considerpride ourselves on our relationsstrong relationships with our employeesemployees.
Competition
5

Index to be good.Financial Statements
Competition

We believe we are a leader in the specialty markets we serve. The market for technology products and solutions is highly competitive, both in the United States and internationally. Competitive factors include price, product availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability, ability to tailor specific solutions to customer needs, quality and breadth of product lines and services, and availability of technical and product information.
Our competitors include local, regional, national and international distributors, as well as suppliers that sell directly to resellers and to end-customers. In addition, our competitors include master resellers that sell to franchisees, third-party dealers and end-customers. Certain current and potential competitors have greater financial, technical, marketing and other resources than we have and may be able to respond more quickly to new or emerging technologies and changes in customer requirements. Certain smaller, regional competitors, who are specialty two-tier or mixed model master resellers, may also be able to respond more quickly to new or emerging technologies and local or regional changes in customer requirements from the specialized market focus. Competition has increased over the last several years as broad line and other value-added distributors have entered into the specialty technology markets. Such competition could also result in price reductions, reduced margins and loss of market share.

5

In our Worldwide Barcode, Networking & Security segment, we compete with broad-line distributors, such as Ingram Micro, Synnex and Tech Data in most geographic areas, and more specialized security distributors, such as ADI and Anixter. Additionally, we also compete against other smaller, more specialized AIDC and POS distributors, such as Azerty, BlueStar, Jarltech and Nimax.BlueStar. In our Worldwide Communications & Services segment, we compete against broad-line distributors, such as Ingram Micro, Synnex and Tech Data, and more specialized distributors, such as Jenne and Westcon.Jenne. Additionally, for Intelisys' technology services, we also compete against other smaller, master agents, such as Avant and Telarus. For our intY business, we compete against other small developers of cloud software and services platforms such as CloudBlue and Pax8. As we seek to expand our business into other areas closely related to our offerings, we may encounter increased competition from current competitors and/or from new competitors, some of which may be our current sales partners.
Sales
Our sales department consists of inside and field sales representatives located in the United States, Canada Brazil, Chile, Colombia, Mexico, Peru, Belgium, France, Germany, the United Kingdom, the Netherlands, Poland and Spain.Brazil. The majority of our sales partners are assigned to a dedicated sales representative or team whose main focus is developing customer relationships and providing the sales partners with the solutions to meet their end-customer’s needs. Our sales teams are advocates for and trusted advisers to our sales partners. Sales teams are often responsible for developing technical expertise within broad product markets, recruiting sales partners, creating demand, negotiating pricing and reviewing overall product and service requirements of our sales partners. Our sales representatives receive comprehensive training with respect to the technical characteristics of suppliers’ products, supplemented by frequent product and service seminars conducted by vendorsupplier representatives and bi-weekly meetings among product, marketing and sales managers.
Our sales teams also provide sales partners with online ordering, API, EDI and other information systems, allowing salesales partners to easily gain access to product specifications, availability, and customized pricing, as well as the ability to place and follow the status of orders.
Marketing
We market our technology solutions and services through a range of digital and print channels, including online product catalogs customized for our North American Brazilian, other Latin American and EuropeanBrazilian markets; social media; search engine optimization and marketing; content marketing; content automation; e-commerce; email direct marketing, among others. Our marketing practices are tailored to fit the specific needs of our sales partners and suppliers - ensuring we help our partners create, deliver and manage solutions for end-customers across our vertical markets. Our comprehensive marketing efforts include sales promotions, advertisements, management of sales leads, trade show design and event management, advertorials, content creation, partner events, and training and certification courses with leading suppliers in an effort to recruit prospective sales partners.
Operations
Information Technology Systems
Starting in 2015, we rolled-out a new, global SAP information system designed to replace the current existing systems. This new system is currently operating in the U.S. and Canada, excluding Intelisys, POS Portal and RPM; in Europe, excluding intY; and Latin America, excluding Brazil. Our information systems are scalable and capable of supporting numerous operational functions including purchasing, receiving, order processing, shipping, inventory management and accounting. Our sales partners and employees rely on our information systems for on-line, real-time information on pricing, inventory availability and reservation and order status. Our warehouse operations use bar code technology for receiving and shipping and automated systems for freight processing and shipment tracking, each of which is integrated with our multiple information systems. The customer service and technical support departments employ systems for documentation and faster processing of sales partner inquiries. To ensure that adequate inventory levels are maintained, our buyers depend on the system’s purchasing and receiving functions to track inventory on a perpetual basis.
6

Index to Financial Statements


Warehouse and Shipping Strategy
We operate a 741,000 square foot distribution center in Southaven, Mississippi, which is located near the FedEx hub facility in Memphis, Tennessee, and serves primarily all ofserves North America. We also acquired warehouses in California and Kentucky through our POS Portal acquisition. Our European operations utilize a limited number of distribution centers located in Belgium, France and the United Kingdom. Warehousesprincipal warehouses for our Brazil and other Latin American operations are located in Florida, Mexico, Brazil, Colombiathe Brazilian states of Paraná, Espírito Santo and Chile.Santa Catarina. Our objective is to ship all orders on the same day, using technology to expedite shipments and minimize shipping errors. We offer reduced freight rates and flexible delivery options to minimize a sales partner’s need for inventory.

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Financial Services
Our sales terms compete within our specific geographic areas to facilitateinclude trade credit, various third-party financing options, which include leasing, flooring and other secured financing for qualified sales partners. These sales terms allow us to compete within our specific geographic areas to facilitate our growth plans. We believe this policy reducesthese options reduce the sales partner’s need to establish multiple credit relationships.
Trade and Service Marks
We conduct our business under the trade names "ScanSource POS and Barcode," "ScanSource Catalyst," "ScanSource Communications," "ScanSource Services," "ScanSource Networking and Security," "ScanSource KBZ," "ScanSource Europe," "ScanSource Europe Communications," "ScanSource Latin America," "ScanSource de Mexico," "ScanSource Brasil," "ScanSource Imago," "Network1, a ScanSource company," "Intelisys," "POS Portal," "Canpango," "RPM Software, a ScanSource company" and "intY, a ScanSource company."
Certain of our tradenames, trademarks and service marks are registered, or are in the process of being registered, in the United States or various other countries. We have been issued registrations for many of our marks including, among others, "ScanSource," "Catalyst Telecom," and "Network1" in countries in our principal markets. Even though our marks are not registered in every country where we conduct business, in many cases we have acquired rights in those marks because of our continued use of them. These marks do not have value assigned to them and have a designated indefinite life. We do not believe that our operations are dependent upon any of our marks. We also sell products and provide services under various third-party tradenames, trademarks and service marks, some of which we reference in this report, and these tradenames, trademarks, and service marks are the property of their respective owners.
Additional Information

Our principal internet address is www.scansource.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this annual report. We provide our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and all amendments to those reports, free of charge on www.scansource.com, as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission ("SEC").

ITEM 1A.Risk Factors.
ITEM 1A. Risk Factors.

The following are certain risks that could affect our business, financial position and results of operations. These risks include those related to our continuing operations, as well as our discontinued operations. These risks should be considered in connection with evaluating an investment in our company and, in particular, the forward-looking statements contained in this Report because these risks could cause the actual results to differ materially from those suggested by the forward-looking statements. Additionally, there are other risks which could impact us that we may not describe, because we currently do not perceive them to be material or because they are presently unknown. If any of these risks develops into actual events, our business, financial condition or results of operations could be negatively affected, the market price of our common stock could decline and you may lose all or part of your investment in our common stock. We expressly disclaim any obligation to update or revise any risk factors, whether as a result of new information, future events or otherwise, except as required by law.

International operationsCOVID-19 - Our international operations expose usCOVID-19 is expected to risks thathave a significant and adverse impact upon our business.

In early March 2020, the World Health Organization characterized COVID-19 as a pandemic. The rapid 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 and business shutdowns. The pandemic and these containment measures have had, and are different from, and possibly greater than, the risks we are exposedexpected to domestically.

We currentlycontinue to have, significant facilities outside the United States, and a substantial portionimpact on our business, suppliers' businesses and sales partners' businesses. We are unable at this time to predict the ultimate impact that COVID-19 will have on our business due to
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Index to Financial Statements


the inability to predict the duration or magnitude of the virus' impacts. However, we have experienced decreased revenue and increased employee-related healthcare and prevention costs. Our revenues could further decrease significantly if our suppliers are not able to supply us products in a timely manner, our distribution centers may not be able to maintain staffing levels and therefore shipments, and our cash flows could suffer. Overall, we expect COVID-19 to adversely impact our results of operations for at least the next two quarters if not longer, while we have had, and will likely continue to make, adjustments to our operating practices as appropriate, it is unlikely that these measures will be sufficient to fully offset the adverse impacts.

To the extent the COVID-19 pandemic continues, the mitigation efforts and the resulting economic impact adversely affect many aspects of our revenue is derived from our international operations. These operations are subject to a varietybusiness. COVID-19 may also have the effect of risks that are different from the risks that we face domestically or are similar risks but with potentially greater exposure. These risks include:

Fluctuations of foreign currency and exchange rates, which can impact sales, costsheightening many of the goods we sellother risk factors disclosed herein, such as those relating to our growth strategies, credit exposure, liquidity and the reportingcapital resources, people, volatility of stock price and economic weakness.

Economic weakness - Economic weakness and geopolitical uncertainty could adversely affect our results and assetsprospects.

Our financial results, operations and prospects depend significantly on our financial statements;
Changes in international trade laws, trade agreements, or trading relationships affecting our import and export activities, including export license requirements, restrictions on the export of certain technology and tariff changes, or the imposition of new or increased trade sanctions;
Difficulties in collecting accounts receivable and longer collection periods;
Changes in, or expiration of, various foreign incentives that provide economic benefits to us;
Labor laws or practices that impact our ability and costs to hire, retain and discharge employees;
Difficulties in staffing and managing operations in foreign countries;

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Changes in the interpretation and enforcement of laws (in particular related to items such as duty and taxation), and laws related to data privacy such as GDPR and other similar privacy laws that impact our IT systems and processes;
Globalworldwide economic and geopolitical conditions, the demand for our products and services, and the financial market instability related to the U.K.’s referendum withdrawal from the E.U., as well as instability from the possibility of withdrawal of other E.U. member states:
Potential political and economic instability and changes in governments;
Compliance with foreign and domestic import and export regulations and anti-corruption laws, including the Iran Threat Reduction and Syria Human Rights Act of 2012, U.S. Foreign Corrupt Practices Act, U.K. Bribery Act, and similar laws of other jurisdictions, governing our business activities outside the United States, the violation of which could result in severe penalties, including monetary fines, criminal proceedings and suspension of export or import privileges; and
Terrorist or military actions that result in destruction or seizure of our assets or suspension or disruption of our operations or thosecondition of our customers suppliers or service providers.

We currently transact businessand suppliers. Economic weakness and geopolitical uncertainty have in the U.K., where we also have officespast resulted, and a distribution center, andmay result in key E.U. markets. A majority of U.K. voters voted for the U.K. to exit the E.U. (“Brexit”). Negotiations have commenced to determine the future, terms of the U.K.’s relationship with the E.U., including the terms of trade between the U.K.in reduced demand for products resulting in decreased sales, margins and the E.U.earnings. Economic weakness and the rest of the world. The effects of Brexit will depend on any agreements the U.K. makes to retain access to E.U. markets either during a transitional period or more permanently. The measures could potentially disrupt the markets we serve and the tax jurisdictions in which we operate and adversely change tax benefits or liabilities in these or other jurisdictions. Changes resulting from these measures, including access to free trade agreements, tariffs and customs and currency fluctuations andgeopolitical uncertainty may causealso lead us to lose customers, suppliers and employees and adversely affect our financial condition.

We have substantial operations in Brazilimpair assets, including goodwill, intangible assets and other Latin American countries and face risks related to these countries' complex tax, labor, trade compliance and consumer protection laws and regulations. Additionally, developing markets such as Brazil, Chile, Colombia, Mexico and Peru have greater political volatility and vulnerability to infrastructure and labor disruptions, are more likely to experience market and interest rate fluctuations and may have higher inflation. In addition, doing business in these countries poses additional challenges, such as finding and retaining qualified employees, particularly management-level employees, navigating underdeveloped infrastructure and identifying and retaining qualified suppliers, resellers, agents and service providers, among other risks. Furthermore, in developing markets it may be common for others to engage in business practices prohibited by laws and regulations applicable to us, such as the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act,long-lived assets, take restructuring actions or similar local anti-bribery laws. Our commitment to legal compliance could put us at a competitive disadvantage, and any lapses in our compliance could subject us to civil and criminal penalties that could materially and adversely affect our financial condition and results of operations.
In addition, competition in developing markets is increasing. Our success in integrating our Brazilian operations is important to our growth strategy. If we cannot successfully increase our business, our product sales, financial condition and results of operations could be adversely affected. As recently announced, we plan to exit our business in all Latin American countries (with the exception of Brazil). Before we exit, we are still subject to all risk associated with operating in those countries.
Acquisitions - Our growth strategy includes acquisitions of companies that complement or expand our existing business. Acquisitions involve unique risks and uncertainties.

We have acquired, and expect to continue to acquire, companies that complement or expand our existing business in the United States and internationally, and some of these acquisitions may be in business lines where we have little, if any, experience. Acquisitions entail a number of risks, including that the acquired company will not perform as expected and that we will be responsible for unexpected costs or liabilities. In addition, increases in the size and complexity of our business may place a significant strain on our management, operations, technical performance, financial resources and internal financial control and reporting functions, and there are no assurances that we will be able to manage the acquisition process or newly acquired companies effectively. It is not always possible to conduct an assessment of an acquired business’s internal control over financial reporting in the period between the consummation date and the date of management’s assessment. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harmadjust our operating resultsstrategy and reduce expenses in response to decreased sales or cause us to fail to meet our reporting obligations under Section 404 of the Sarbanes-Oxley Act of 2002.
Our personnel, systems, procedures and controls may not be adequate to effectively manage our future operations, especially as we employ personnel in multiple domestic and international locations.margins. We may not be able to hire, train, retainadequately adjust our cost structure in a timely fashion, which may adversely impact our profitability. Uncertainty about economic conditions may increase foreign currency volatility in markets in which we transact business, which may negatively impact our results. Economic weakness and geopolitical uncertainty also make it more difficult for us to manage inventory levels and/or collect customer receivables, which may result in provisions to create reserves, write-offs, reduced access to liquidity and higher financing costs.

The economic weakness brought about by COVID-19 may result in prolonged recession, which has the personnel requiredpotential to addressdisproportionately impact our growth. Failurebusiness depending on which sectors of the economy and which geographies are most impacted.

Divestitures - There is no guarantee we will sell our Divestitures on favorable terms or at all.

In August 2019, we announced plans to divest our operations in Latin America, outside of Brazil, and our products distribution operations located in Europe and the UK. The sales process has taken longer than anticipated and there can be no guarantee that we will complete any sale of these businesses, or that the terms of the sale will be favorable. We have agreed to sell the Latin America business, outside of Brazil, to Intcomex. The Latin America transaction is expected to close on or around September 30, 2020 and is subject to customary closing conditions. We have identified potential buyers for our Europe business, however any sale is subject to further negotiation, completion of due diligence, execution of a definitive purchase agreement and certain divestitures are conditioned by regulatory approvals. A failure to complete these transactions in a timely fashion and on favorable terms would negatively impact our financial condition. In addition, our failure to effectively managecomplete a sale transaction could result in significant expenses to wind-down our acquisition opportunities could damage our reputation, limit our future growth,operations and adversely affect our business operations and financial condition, including our results of operations, cash flows and operating results.stock price may be adversely impacted.

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Organic growth strategies - If we fail to effectively manage and implement our operating strategies, we may experience a negative effect on our business and financial results.

A significant component of our growth strategy is to expand our channels. Expansion ofchannels and expand our existing products and services in our existing channels and entry into new channelschannels. These efforts may divert our resources and systems, require additional resources that might not be available (or available on acceptable terms), result in new or more intense competition, require longer implementation times or greater expenditures than anticipated and otherwise fail to achieve timely desired results, if at all. If we are unable to increase our sales and earnings by expanding our product and service offerings in a cost effective manner, our results may suffer.
Our ability to successfully manage our organic growth will require continued enhancement of our operational, managerial and financial resources, controls, and model. Our failure to effectively manage our organic growth could have an adverse effect on our business, financial condition and results of operations.
As recently announced, we have initiated a plan to sellWe are in the process of divesting our operations in additional Latin American countries, (with the exceptionoutside of Brazil)Brazil, and our distribution operations in Europe, (with the exceptionas well as winding down our Canpango business. Reorienting our business and redeploying capital to focus on
8

Index to Financial Statements


higher margin opportunities in our digitalUnited States, Canadian and Brazilian businesses including the acquisitions of intY, Canpango, and Intelisys Global). We may face administrative and regulatory hurdles in the process, the sale process may be longer than anticipated, we may not find a buyerare designed to lead to longer-term value creation for the operations and we may incur significant expenses in connection with the wind-down of our operations in excess of our estimates.shareholders. If we are not successful in exiting our operations in those countries in a cost-effective manner, our revenues, results of operations and financial condition may be adversely impacted. Reorienting our business and redeployingIf we fail to effectively reinvest capital to focus on higher margin opportunities in our United States, Canadiancontinuing operations and Brazilian businesses are designed to lead to longer-term value creation forexecute on our shareholders.

anticipated next phase of growth our financial results could be negatively impacted.
Credit exposure - We have credit exposure to our customers. Any adverse trends or significant adverse incidents in their businesses could cause us to suffer credit losses.
As is customary in our industry, we extend credit to our customers, and most of our sales are on open accounts. As we grow and compete for business, our typical payment terms tend to be longer, and therefore may increase our credit risk.
While we evaluate our customers' qualifications for credit and monitor our extensions of credit, and in some instances purchase credit insurance, these efforts cannot prevent all credit losses and any credit losses negatively impact our performance. In addition, for financial reporting purposes, we estimate future credit losses and establish reserves. To the extent that our credit losses exceed those reserves, our financial performance will be negatively impacted beyond what is expected. If there is deterioration in the collectability of our receivables, or if we are unable to collect under credit insurance policies, or if we fail to take other actions to adequately mitigate such credit risk, our earnings, cash flows and our ability to utilize receivable-based financing could deteriorate.
In addition, extending credit to international customers involves additional risks. It is often more difficult to evaluate credit risk with a customer or obtain credit protections in our international operations. Also, credit cycles and collection periods are typically longer in our international operations. As a result of these factors and other challenges in extending credit to international customers, we generally face greater credit risk from international sales compared to domestic sales.
As we implement our plan to sell our operations in additional Latin American countries (with the exceptionoutside of Brazil)Brazil and in Europe, (withwith the exception of our digital businesses, including the acquisitions of intY, Canpango, and Intelisys Global), we may face a heightened risk of credit losses in those geographies that could negatively impact our performance.

As customers continue to face the negative economic impacts of COVID-19, we may face heightened credit losses not otherwise experienced before the pandemic.

International operations - Our international operations expose us to risks that are different from, and possibly greater than, the risks we are exposed to domestically.

We currently have significant facilities outside the United States, and a substantial portion of our revenue is derived from our international operations. These operations are subject to a variety of risks that are different from the risks that we face domestically or are similar risks but with potentially greater exposure. These risks include:

•Disproportionate negative impact from COVID-19 in a foreign location;
•Fluctuations of foreign currency and exchange rates, which can impact sales, costs of the goods we sell and the reporting of our results and assets on our financial statements;
•Changes in international trade laws, trade agreements, or trading relationships affecting our import and export activities, including export license requirements, restrictions on the export of certain technology and tariff changes, or the imposition of new or increased trade sanctions;
•Difficulties in collecting accounts receivable and longer collection periods;
•Changes in, or expiration of, various foreign incentives that provide economic benefits to us;
•Labor laws or practices that impact our ability and costs to hire, retain and discharge employees;
•Difficulties in staffing and managing operations in foreign countries;
•Changes in the interpretation and enforcement of laws (in particular related to items such as duty and taxation), and laws related to data privacy such as GDPR and other similar privacy laws that impact our IT systems and processes;
•Global economic and financial market instability related to the U.K.’s referendum withdrawal from the E.U., as well as instability from the possibility of withdrawal of other E.U. member states:
•Potential political and economic instability and changes in governments;
•Compliance with foreign and domestic import and export regulations and anti-corruption laws, including the Iran Threat Reduction and Syria Human Rights Act of 2012, U.S. Foreign Corrupt Practices Act, U.K. Bribery Act, and similar laws of other jurisdictions, governing our business activities outside the United States, the violation of which
9

Index to Financial Statements


could result in severe penalties, including monetary fines, criminal proceedings and suspension of export or import privileges; and
•Terrorist or military actions that result in destruction or seizure of our assets or suspension or disruption of our operations or those of our customers, suppliers or service providers.

We currently transact business in the UK, where we also have offices and a distribution center, and in key E.U. markets. The UK has formally exited the E.U. (“Brexit”) and is in a transition period until the end of 2020. Negotiations are ongoing to determine the future terms of the UK’s relationship with the E.U., including the terms of trade between the UK and the E.U. and the rest of the world. The effects of Brexit will depend on any agreements the UK makes to retain access to E.U. markets either during a transitional period or more permanently. The measures could potentially disrupt the markets we serve and the tax jurisdictions in which we operate and adversely change tax benefits or liabilities in these or other jurisdictions. Changes resulting from these measures, including access to free trade agreements, tariffs and customs and currency fluctuations may cause us to lose customers, suppliers and employees and adversely affect our financial condition.

We have substantial operations in Brazil and face risks related to these countries' complex tax, labor, trade compliance and consumer protection laws and regulations. Additionally, developing markets such as Brazil have greater political volatility and vulnerability to infrastructure and labor disruptions, are more likely to experience market and interest rate fluctuations and may have higher inflation. In addition, doing business in these countries poses additional challenges, such as finding and retaining qualified employees, particularly management-level employees, navigating underdeveloped infrastructure and identifying and retaining qualified suppliers, resellers, agents and service providers, among other risks. Furthermore, in developing markets it may be common for others to engage in business practices prohibited by laws and regulations applicable to us, such as the U.S. Foreign Corrupt Practices Act, UK Bribery Act, or similar local anti-bribery laws. Our commitment to legal compliance could put us at a competitive disadvantage, and any lapses in our compliance could subject us to civil and criminal penalties that could materially and adversely affect our financial condition and results of operations.
In addition, competition in developing markets is increasing. If we cannot successfully increase our business, our product sales, financial condition and results of operations could be adversely affected. As we plan to exit our products distribution business in Latin America, outside of Brazil and Europe, our presence in international countries will substantially decrease upon completion of that exit. Before we exit, we are still subject to all risks associated with operating in those countries.
Cyber security risk - Our reputation and business may be harmed from cyber security risk and we may be subject to legal claims if there is loss, disclosure or misappropriation of or access to our customers' or our business partners' or our own information or other breaches of our information security.
We make extensive use of online services and centralized data processing, including through third-party service providers. The secure maintenance and transmission of customer information is a critical element of our operations. Our information technology and other systems that maintain and transmit customer or employee information or those of service providers or business partners may be compromised by a malicious third-party penetration of our network security, or that of a third-party service provider or business partner, or impacted by advertent or inadvertent actions or inactions by our employees, or those of a third-party service provider or business partner. With constant changes in the security landscape, experienced computer programmers and hackers may be able to penetrate our network security, or that of our third-party service providers, and misappropriate or compromise our confidential information, create system disruptions, or cause shutdowns. As a result, our customers' information may be lost, disclosed, accessed or taken without our customers' consent.

We are subject to laws and regulations relating to customer privacy and the protection of personal information. Any such loss, disclosure or misappropriation of, or access to, customers' or business partners' information or our information or other breach of such information security can result in legal claims or legal proceedings, including regulatory investigations and actions, may have a serious impact on our reputation and may adversely affect our businesses, operating results and financial condition.
IT Systems - Our ability to manage our business and monitor results is highly dependent upon information and communication systems. A failure of these systems could disrupt our business.
We are highly dependent upon a variety of computer and telecommunication systems to operate our business, including our enterprise resource planning systems. As we are dependent upon our ability to gather and promptly transmit accurate information to key decision makers, our business, results of operations and financial condition may be adversely affected if our information systems do not allow us to transmit accurate information, even for a short period of time. Failure to properly or
10

Index to Financial Statements


adequately address these issues could impact our ability to perform necessary business operations, which could adversely affect our reputation, competitive position, business, financial condition and results of operations.
In addition, the information systems of companies we acquire may not meet our standards or we may not be able to successfully convert them to provide acceptable information on a timely and cost-effective basis. Furthermore, we must attract and retain qualified people to operate our systems, expand and improve them, integrate new programs effectively with our existing programs and convert to new systems efficiently when required. Any disruption to our business due to such issues, or an increase in our costs to cover these issues, could have an adverse effect on our financial results and operations.
Our customers rely on our electronic ordering and information systems as a source for product information, including availability and pricing. There can be no assurance that our systems will not fail or experience disruptions, and any significant failure or disruption of these systems could prevent us from making sales, ordering and delivering products and otherwise conducting our business. Many of our customers use our website to check product availability, see their customized pricing and place orders. While our website has not experienced any material disruptions or security breakdowns, it may in the future and any disruptions could harm our relationship with our suppliers, customers and other business partners. Any material disruption of our website or the Internet in general could impair our order processing or prevent our suppliers and customers from accessing information and cause us to lose business.
People - If we cannot continue to hire and retain high quality employees, our business and financial results may be negatively affected.

Our operating results could be adversely affected by increased competition for employees, higher employee turnover or increased compensation and benefit costs. Our employees are important to our success and we are dependent in part on our ability to retain the services of our employees in key roles. We have built our business on a set of core values, and we attempt to hire and retain employees who are committed to these values and our culture of providing exceptional service to our customers and suppliers. In order to compete and to continue to grow, we must attract, retain and motivate employees, including those in executive, senior management, sales, marketing, logistics, technical support and other operating positions.
Many of our employees work in small teams to provide specific services to customers and suppliers. They are trained to develop their knowledge of products, services, programs and practices and customer business needs, as well as to enhance the skills required to provide exceptional service and to manage our business. As they gain experience and develop their knowledge and skills, our employees become highly desired by other businesses. Therefore, to retain our employees, we have to provide a satisfying work environment and competitive compensation and benefits.
We recently announced actions to address the business impacts of the COVID-19 pandemic and prepare for the next phase of growth. These actions include an approximate $30 million expense reduction plan, which includes a workforce reduction in North America, excluding the Intelisys business. These actions are designed to better align the cost structure for our wholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic. As part of the plan, we will continue to invest in our higher growth agency business, Intelisys. Customer relationships and operational performance could be negatively impacted by the recent workforce reduction if such reduction was excessive or if roles are eliminated or not replaced.
Customers - We operate in a highly competitive environment and good customer relations are critical to our success. There can be no assurance that we will be able to retain and expand our customer relationships or acquire new customers.

Meeting our customers' needs quickly and fairly is critical to our business success. Transactions with our customers generally are performed on a purchase order basis rather than under long term supply agreements. Therefore, our customers readily can choose to purchase from other sources. From time to time, we experience shortages in availability of some products from suppliers, and this impacts customers' decisions regarding whether to make purchases from us. Anything that negatively influences customer relations can also negatively impact our operating results.
Customer consolidation also may lead to changes in the nature and terms of relationships with our customers. The loss or deterioration of a major customer relationship could adversely affect our business, financial condition and results of operations. COVID-19's widespread negative economic impacts could result in some of our customers shuttering their businesses, thus negatively impacting our revenues.
Suppliers - Changes to supply agreement terms or lack of product availability from our suppliers could adversely affect our operating margins, revenues or the level of capital required to fund our operations.
11

Index to Financial Statements


A significant percentage of our net sales relates to products we purchase from relatively few suppliers, including Cisco and Zebra. As a result of such concentration risk, terminations of supply or services agreements or a change in terms or conditions of sale from one or more of our key suppliers could adversely affect our operating margins, revenues or the level of capital required to fund our operations. Our suppliers have the ability to make adverse changes in their sales terms and conditions, such as reducing the level of purchase discounts and rebates they make available to us. We have no guaranteed price or delivery agreements with our suppliers. In certain product categories, limited price protection or return rights offered by our suppliers may have a bearing on the amount of product we are willing to stock. Our inability to pass through to our customers the impact of these changes, as well as if we fail to develop or maintain systems to manage ongoing supplier programs, could cause us to record inventory write-downs or other losses and could have significant negative impact on our gross margins.
We receive purchase discounts and rebates from some suppliers based on various factors, including goals for quantitative and qualitative sales or purchase volume and customer related metrics. Certain purchase discounts and rebates may affect gross margins. Many purchase discounts from suppliers are based on percentage increases in sales of products. Our operating results could be

9

adversely impacted if these rebates or discounts are reduced or eliminated or if our suppliers significantly increase the complexity of their refund procedures and thus increase costs for us to obtain such rebates.
Our ability to obtain particular products or product lines in the required quantities and our ability to fulfill customer orders on a timely basis is critical to our success. Our suppliers have experienced product supply shortages from time to time due to the inability of certain of their suppliers to supply products on a timely basis. In addition, our dependence on a limited number of suppliers leaves us vulnerable to having an inadequate supply of required products, price increases, late deliveries and poor product quality.  As a result, we have experienced, and may in the future continue to experience, short-term shortages of specific products or be unable to purchase our desired volume of products. Suppliers that currently distribute their products through us, may decide to shift to or substantially increase their existing distribution with other distributors, their own dealer networks, or directly to resellers or end-customers. Suppliers have, from time to time, made efforts to reduce the number of distributors with which they do business. This could result in more intense competition as distributors strive to secure distribution rights with these suppliers, which could have an adverse impact on our operating results. We cannot provide any assurances that suppliers will maintain an adequate supply of products to fulfill all of our customer orders on a timely basis. Our reputation, sales and profitability may suffer if suppliers are not able to provide us with an adequate supply of products to fulfill our customer orders on a timely basis or if we cannot otherwise obtain particular products or a product lines.
Increasingly, our suppliers are combining and merging, leaving us with fewer alternative sources. Supplier consolidation may also lead to changes in the nature and terms of relationships with our suppliers. Any loss or deterioration of a major supplier relationship could adversely affect our business, financial condition and results of operations.
CustomersLiquidity and capital resources - We operate in a highly competitive environmentMarket factors and good customer relations are critical to our success. There can be no assurance that we will be able to retain and expand our customer relationships or acquire new customers.

Meeting our customers' needs quickly and fairly is critical to our business success. Transactions with our customers generally are performed on a purchase order basis rather than under long term supply agreements. Therefore, our customers readily can choose to purchase from other sources. From time to time, we experience shortages inperformance may increase the cost and availability of some productscapital. Additional capital may not be available to us on acceptable terms to fund our working capital needs and growth.
Our business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by trade creditors. We have an increased demand for capital when our business is expanding, including through acquisitions and organic growth. Changes in payment terms with either suppliers or customers could also increase our capital requirements. We have historically relied upon cash generated from suppliers,operations, borrowings under our revolving credit facility and this impacts customers' decisions regarding whethersecured and unsecured borrowings to make purchases from us. Anything that negatively influences customer relations also can negatively impactsatisfy our operating results.
Customer consolidation alsocapital needs and to finance growth. While we believe our existing sources of liquidity will provide sufficient resources to meet our current working capital and cash requirements, if we require an increase in capital to meet our future business needs or if we are unable to comply with covenants under our borrowings, such capital may leadnot be available to changesus on terms acceptable to us, or at all. We have a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (the “Amended Credit Agreement”). The Amended Credit Agreement includes customary representations, warranties, and affirmative and negative covenants, including financial covenants. Specifically, our Leverage Ratio must be less than or equal to 3.50 to 1.00 at all times. In addition, our Interest Coverage Ratio (as such term is defined in the nature and termsAmended Credit Agreement) must be at least 3.00:1.00 as of relationships with our customers. The loss or deteriorationthe end of each fiscal quarter. In the event of a major customer relationshipdefault, customary remedies are available to the lenders, including acceleration and increased interest rates.

In addition, the cost of borrowings under our existing sources of capital and any potential new sources of capital as a result of variable interest rates and the transition away from LIBOR may increase, which could adversely affecthave an adverse effect on our business, financial conditioncondition. Changes in how lenders rate our credit worthiness, as well as macroeconomic factors such as an economic downturn and resultsglobal economic instability may restrict our ability to raise capital in adequate amounts or on terms acceptable to us, and the failure to do so could harm our ability to operate our business.

12

Index to Financial Statements


In addition, our cash and cash equivalents are deposited with various financial institutions located in the various countries in which we operate. We endeavor to monitor these financial institutions regularly for credit quality; however, we are exposed to risk of loss on such funds or we may experience significant disruptions in our liquidity needs if one or more of these financial institutions were to suffer bankruptcy or similar restructuring.

Competition - We experience intense competition in all of our markets. This competition could result in reduced margins and loss of our market share.

Our markets are fiercely competitive. We compete on the basis of price, product and service availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability and terms, ability to tailor solutions to the needs of our customers, quality and breadth of product line and services, and availability of technical and product information. Our competitors include local, regional, national and international distributors as well as hardware and service suppliers that sell directly to resellers and to end-customers. In addition, we compete with resellers and master resellersagents that sell to franchisees, third partythird-party dealers and end-customers. Certain of our current and potential competitors have greater financial, technical, marketing and other resources than we have and may be able to respond more quickly to new or emerging technologies and changes in customer requirements. Certain smaller, regional competitors, that are specialty two-tier or mixed model master resellers, may be able to respond more quickly to new or emerging technologies and changes in customer requirements in their regions. Competition has increased for our sales units as broad line and other value-added distributors have entered into the specialty technology markets. Such competition could result in price reductions, reduced margins and loss of our market share.
As a result of intense price competition in our industry, our gross margins and our operating profit margins historically have been narrow, and we expect them to continue to be narrow in the future. To remain competitive, we may be forced to offer more credit or extended payment terms to our customers. This could result in an increase in our need for capital, increase our financing costs, increase our bad debt expenses and have an adverse impact on our results of operations. We may lose market share, or reduce our prices in response to the action of our competitors and thereby experience a reduction in our gross margins, or that we will remain in any geographical market where we do not believe we can earn appropriate margins. We expect continued intense competition as current competitors expand their operations and new competitors enter the market. Our inability to compete successfully against current and future competitors could cause our revenue and earnings to decline.
Liquidity and capital resources - Market factors may increase the cost and availability of capital. Additional capital may not be available to us on acceptable terms to fund our working capital needs and growth.


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Our business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by trade creditors. We have an increased demand for capital when our business is expanding, including through acquisitions and organic growth. Changes in payment terms with either suppliers or customers could also increase our capital requirements. We have historically relied upon cash generated from operations, borrowings under our revolving credit facility and secured and unsecured borrowings to satisfy our capital needs and to finance growth. While we believe our existing sources of liquidity will provide sufficient resources to meet our current working capital and cash requirements, if we require an increase in capital to meet our future business needs or if we are unable to comply with covenants under our borrowings, such capital may not be available to us on terms acceptable to us, or at all. The Amended Credit Agreement includes customary representations, warranties, and affirmative and negative covenants, including financial covenants. Specifically, our Leverage Ratio must be less than or equal to 3.50 to 1.00 at all times. In addition, our Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement) must be at least 3.00:1.00 as of the end of each fiscal quarter. In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates.

In addition, the cost of borrowings under our existing sources of capital and any potential new sources of capital as a result of variable interest rates and the transition away from LIBOR may increase, which could have an adverse effect on our financial condition. Changes in how lenders rate our credit worthiness, as well as macroeconomic factors such as an economic downturn and global economic instability may restrict our ability to raise capital in adequate amounts or on terms acceptable to us, and the failure to do so could harm our ability to operate our business.

In addition, our cash and cash equivalents are deposited with various financial institutions located in the various countries in which we operate. We endeavor to monitor these financial institutions regularly for credit quality; however, we are exposed to risk of loss on such funds or we may experience significant disruptions in our liquidity needs if one or more of these financial institutions were to suffer bankruptcy or similar restructuring.

Inventory - The value of our inventory may be adversely affected by market and other factors.

Our business, like that of other distributors, is subject to the risk that the value of our inventory will be adversely affected by price reductions by manufacturers, by technological changes affecting the usefulness or desirability of our products or by foreign currency fluctuations. Most of our supplier agreements and most manufacturers’ policies have some price protection and stock rotation opportunities with respect to slow-moving or obsolete inventory items. However, these protections are limited in scope and do not protect against all declines in inventory value, excess inventory, or product obsolescence, and in some instances we may not be able to fulfill all necessary conditions or successfully manage such price protection or stock rotation opportunities. In addition, these protections are not always reflected in supplier agreements and their application in a particular situation is dependent upon negotiations with our suppliers. As a result, occasionally we are required to write down the value of excess and obsolete inventory, and should any of these write-downs occur at a significant level, they could have an adverse effect on our business, financial condition or results of operations.
People - If we cannot continue to hire and retain high quality employees, our business and financial results may be negatively affected.
Our operating results could be adversely affected by increased competition for employees, higher employee turnover or increased salary and benefit costs. Our employees are important to our success and we are dependent in part on our ability to retain the services of our key management, sales, IT, operational, finance and administrative personnel. We have built our business on a set of core values, and we attempt to hire and retain employees who are committed to these values and our culture of providing exceptional service to our customers and suppliers. In order to compete and to continue to grow, we must attract, retain and motivate employees, including those in executive, senior management, sales, marketing, logistics, technical support and other operating positions.
Many of our employees work in small teams to provide specific services to customers and suppliers. They are trained to develop their knowledge of products, services, programs and practices and customer business needs, as well as to enhance the skills required to provide exceptional service and to manage our business. As they gain experience and develop their knowledge and skills, our employees become highly desired by other businesses. Therefore, to retain our employees, we have to provide a satisfying work environment and competitive compensation and benefits.
Disruptive technology - We may not be able to respond and adapt to rapid technological changes, evolving industry standards or changing customer needs or requirements, and thus may become less competitive.

The market for our products and services is subject to rapid technological change, evolving industry standards and changes in customer demand, which can contribute to the decline in value or obsolescence of inventory. Although most of our suppliers

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provide us with certain protections from the loss in value of inventory (such as price protection and certain rights of return), we cannot be sure that such protections will fully compensate for any loss in value, or that the suppliers will choose to, or be able to, honor such agreements.
Our ability and our supplier's ability to anticipate and react quickly to new technology trends and customer requirements is crucial to our overall success, financial condition and results of operations. If our suppliers fail to evolve their product and service offerings, or if we fail to evolve our product and service offerings or engage with desirable suppliers in time to respond to, and remain ahead of, new technological developments, it would adversely affect our ability to retain or increase market share and revenues. New technologies may emerge that quickly surpass the capabilities of the products we currently hold in inventory or have access to sell through our existing supplier network, and our customers may no longer view our product offerings as desirable or necessary, which could result in a reduction in our market share and ability to obtain sufficient profit margins. Some of our competitors and our suppliers’ competitors may be better at adapting to disruptive technology or entering new markets. Our future success depends, in part, on our ability to adapt and manage our product offerings to meet customer needs at prices that our customers are willing to pay.
IT Systems - Our ability to manage our business and monitor results is highly dependent upon information and communication systems. A failure of these systems could disrupt our business.

We are highly dependent upon a variety of computer and telecommunication systems to operate our business, including our enterprise resource planning ("ERP") systems. As we are dependent upon our ability to gather and promptly transmit accurate information to key decision makers, our business, results of operations and financial condition may be adversely affected if our information systems do not allow us to transmit accurate information, even for a short period of time. Failure to properly or adequately address these issues could impact our ability to perform necessary business operations, which could adversely affect our reputation, competitive position, business, financial condition and results of operations.
In addition, the information systems of companies we acquire may not meet our standards or we may not be able to successfully convert them to provide acceptable information on a timely and cost-effective basis. Furthermore, we must attract and retain qualified people to operate our systems, expand and improve them, integrate new programs effectively with our existing programs and convert to new systems efficiently when required. Any disruption to our business due to such issues, or an increase in our costs to cover these issues that is greater than what we have anticipated, could have an adverse effect on our financial results and operations.
Our customers rely on our electronic ordering and information systems as a source for product information, including availability and pricing. There can be no assurance that our systems will not fail or experience disruptions, and any significant failure or disruption of these systems could prevent us from making sales, ordering and delivering products and otherwise conducting our business. Many of our customers use our website to check real-time product availability, see their customized pricing and place orders. While our website has not experienced any material disruptions or security breakdowns, it may in the future and any disruptions could harm our relationship with our suppliers, customers and other business partners. Any material disruption of our website or the Internet in general could impair our order processing or prevent our suppliers and customers from accessing information and cause us to lose business.
Cyber security risk - Our reputation and business may be harmed from cyber security risk and we may be subject to legal claims if there is loss, disclosure or misappropriation of or access to our customers' or our business partners' or our own information or other breaches of our information security.

We make extensive use of online services and centralized data processing, including through third-party service providers. The secure maintenance and transmission of customer information is a critical element of our operations. Our information technology and other systems that maintain and transmit customer or employee information or those of service providers or business partners may be compromised by a malicious third-party penetration of our network security, or that of a third-party service provider or business partner, or impacted by advertent or inadvertent actions or inactions by our employees, or those of a third-party service provider or business partner. With constant changes in the security landscape, experienced computer programmers and hackers may be able to penetrate our network security, or that of our third-party service providers, and misappropriate or compromise our confidential information, create system disruptions, or cause shutdowns. As a result, our customers' information may be lost, disclosed, accessed or taken without our customers' consent.

We are subject to laws and regulations relating to customer privacy and the protection of personal information. Any such loss, disclosure or misappropriation of, or access to, customers' or business partners' information or our information or other breach of such information security can result in legal claims or legal proceedings, including regulatory investigations and actions, may have a serious impact on our reputation and may adversely affect our businesses, operating results and financial condition.

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Fair value measurement of contingent consideration, goodwill and other intangible assets - Changes in the fair value of the assets and liabilities measured at fair value could have a significant effect on our reported earnings.

We have structured several of our acquisitions with upfront payments and additional earnout payments. In accordance with ASC 805, Business Combinations, a liability for the contingent consideration driven by an earn-out must be recorded at the onset of the purchase and must be revalued at every reporting period. Changes in the fair value of the liability are recorded as an adjustment to operating income. These changes can occur due to changes in estimated future financial results, the probabilities of achieving these results, the discount rate reflective of our creditworthiness and the market risk premium associated with the relevant market. Both gains and losses can occur due to changes in these fair value estimates, thus increasing volatility of our earnings.
We have substantial goodwill. On at least an annual basis, we are required to assess our goodwill and other intangible assets, including but not limited to customer relationships, trademarks, and trade names, for impairment. This includes continuously monitoring events and circumstances that could trigger an impairment test outside of our annual impairment testing date in the fourth quarter of each year. Testing goodwill and other intangibles for impairment requires the use of significant estimates and other inputs outside of our control. If the carrying value of goodwill in any of our goodwill reporting units or other intangible assets is determined to exceed their respective fair values, we may be required to record significant impairment charges. In addition, our decision to dispose of certain of our operations may require us to recognize an impairment to the carrying value of goodwill and other intangible assets attendant to those operations. We are still evaluatingrecognized significant goodwill and intangible asset impairment in the potential impacts of winding-down these operations.fiscal year ended June 30, 2020. Any declines resulting in a goodwill impairment or long-lived asset impairment may result in material non-cash charges to our earnings. Impairment charges would also reduce our consolidated shareholders' equity and increase our debt-to-total-capitalization ratio, which could negatively impact our credit rating and access to the public debt and equity markets.
Economic weaknessDisruptive technology - Economic weakness and geopolitical uncertainty could adversely affect our results and prospects.

Our financial results, operations and prospects depend significantly on worldwide economic and geopolitical conditions, the demand for our products and services, and the financial condition of our customers and suppliers. Economic weakness and geopolitical uncertainty have in the past resulted, and may result in the future, in reduced demand for products resulting in decreased sales, margins and earnings. Economic weakness and geopolitical uncertainty may also lead us to impair assets, including goodwill, intangible assets and other long-lived assets, take restructuring actions or adjust our operating strategy and reduce expenses in response to decreased sales or margins. We may not be able to adequately adjustrespond and adapt to rapid technological changes, evolving industry standards or changing customer needs or requirements, and thus may become less competitive.
The market for some of our cost structureproducts and services is subject to rapid technological change, evolving industry standards and changes in customer demand, which can contribute to the decline in value or obsolescence of inventory. Although most of our
13

Index to Financial Statements


suppliers provide us with certain protections from the loss in value of inventory (such as price protection and certain return rights), we cannot be sure that such protections will fully compensate for any loss in value, or that the suppliers will choose to, or be able to, honor such agreements.
Our ability and our supplier's ability to anticipate and react quickly to new technology trends and customer requirements is crucial to our overall success, financial condition and results of operations. If our suppliers fail to evolve their product and service offerings, or if we fail to evolve our product and service offerings or engage with desirable suppliers in time to respond to, and remain ahead of, new technological developments, it would adversely affect our ability to retain or increase market share and revenues. New technologies may emerge that quickly surpass the capabilities of the products we currently hold in inventory or have access to sell through our existing supplier network, and our customers may no longer view our product offerings as desirable or necessary, which could result in a timely fashion, whichreduction in our market share and ability to obtain sufficient profit margins. Some of our competitors and our suppliers’ competitors may be better at adapting to disruptive technology or entering new markets. Our future success depends, in part, on our ability to adapt and manage our product and service offerings to meet customer needs at prices that our customers are willing to pay.
Acquisitions - Our growth strategy includes acquisitions of companies that complement or expand our existing business. Acquisitions involve unique risks and uncertainties.
We have acquired, and may continue to acquire, companies that complement or expand our existing business in the United States and internationally, and some of these acquisitions may be in business lines where we have little, if any, experience. Acquisitions entail a number of risks, including that the acquired company will not perform as expected and that we will be responsible for unexpected costs or liabilities. In addition, increases in the size and complexity of our business may place a significant strain on our management, operations, technical performance, financial resources and internal financial control and reporting functions, and there are no assurances that we will be able to manage the acquisition process or newly acquired companies effectively. It is not always possible to conduct an assessment of an acquired business’s internal control over financial reporting in the period between the consummation date and the date of management’s assessment. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations under Section 404 of the Sarbanes-Oxley Act of 2002.
Our personnel, systems, procedures and controls may not be adequate to effectively manage our future operations, especially as we employ personnel in multiple domestic and international locations. We may not be able to hire, train, retain and manage the personnel required to address our growth. Failure to effectively manage our acquisition opportunities could damage our reputation, limit our future growth, and adversely impactaffect our profitability. Uncertainty about economic conditionsbusiness, financial condition and operating results.
Inventory - The value of our inventory may increasebe adversely affected by market and other factors.

Our business, like that of other distributors, is subject to the risk that the value of our inventory will be adversely affected by price reductions by manufacturers, by technological changes affecting the usefulness or desirability of our products or by foreign currency volatilityfluctuations. Most of our supplier agreements and most manufacturers’ policies have some price protection and stock rotation opportunities with respect to slow-moving or obsolete inventory items. However, these protections are limited in marketsscope and do not protect against all declines in whichinventory value, excess inventory, or product obsolescence, and in some instances we transactmay not be able to fulfill all necessary conditions or successfully manage such price protection or stock rotation opportunities. In addition, these protections are not always reflected in supplier agreements and their application in a particular situation is dependent upon negotiations with our suppliers. As a result, occasionally we are required to write down the value of excess and obsolete inventory, and should any of these write-downs occur at a significant level, they could have an adverse effect on our business, which may negatively impact our results. Economic weakness and geopolitical uncertainty also make it more difficult for us to manage inventory levels and/financial condition or collect customer receivables, which may result in provisions to create reserves, write-offs, reduced access to liquidity and higher financing costs.results of operations.

Foreign currency - Our international operations expose us to fluctuations in foreign currency exchange rates that could adversely affect our results of operations.
We transact sales, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar. Volatility in foreign exchange rates increase our risk of loss related to products and services purchased in a currency other than the currency in which those products and services are sold. We maintain policies to reduce our net exposure to foreign currency exchange rate fluctuations through the use of derivative financial instruments, however there can be no assurance that fluctuations in foreign currency exchange rates will not materially affect our financial results. Because our consolidated financial statements are presented in U.S. dollars, we must translate our financial statements into U.S. dollars at exchange rates in effect during each reporting period. Therefore, increases or decreases in the exchanges rates between the U.S. dollar and
14

Index to Financial Statements


other currencies we transact in may positively or negatively affect our results of operations. In addition, unexpected and dramatic changes in foreign currency exchange rates may negatively affect our earnings from those markets.

Quarterly fluctuations - Our net sales and operating results are dependent on a number of factors. Our net sales will fluctuate from quarter to quarter, and these fluctuations may cause volatility in our stock price.

Our net sales and operating results may fluctuate quarterly and, as a result our performance in one period may vary significantly from our performance in the preceding quarter, and may differ significantly from our forecast of performance from quarter to quarter. The impact of these variances may cause volatility in our stock price. Additionally, any past financial performance should not be considered an indicator of future performance, and investors should not use historical trends to anticipate results or trends in the future as our operating results may fluctuate significantly quarter to quarter. The results of any quarterly period are not indicative of results to be expected for a full fiscal year.

Centralized functions - We have centralized a number of functions to provide efficient support to our business. As a result, a loss or reduction of use of one of our locations would have an adverse effect on our business operations and financial results.

In order to be as efficient as possible, we centralize a number of critical functions. For instance, we currently distribute products to the majority of North America from a single warehouse. Similarly, for the primary business operations, we utilize a single information system based in the United States for the majority of our North American, Latin American and European operations, while our Brazilian operations have separate systems. While we have backup systems and business continuity plans, any significant or lengthy interruption of our ability to provide these centralized functions as a result of natural disasters, security breaches or otherwise would significantly impair our ability to continue normal business operations. In addition, the centralization of these functions increases our exposure to local risks, such as the availability of qualified employees and the lessening of competition for critical services, such as freight and communications.

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Reliance on third parties - We are dependent on third parties for some services, including the delivery of a majority of our products, logistics and warehousing. Changes in shipping terms or the failure or inability of our third-party shippers to perform could have an adverse impact on our business and results of operations.

We rely on third parties to perform certain services for our business and for our customers, which, if not performed by these third parties in accordance with the terms of the arrangement, could result in significant disruptions or costs to our organization, including monetary damages and an adverse effect on our customer relationships.

In particular, we are dependent upon major shipping companies, including FedEx and UPS, for the shipment of our products to and from our centralized warehouses. Changes in shipping terms, or the inability of these third-party shippers to perform effectively, could affect our responsiveness to our customers. From time to time, we have experienced significant increases in shipping costs due to increases in fuel costs. Increases in our shipping costs may adversely affect our financial results if we are unable to pass on these higher costs to our customers.
In Europe, Brazil and other Latin American countries, we use third parties to provide warehousing and logistics services in order to provide cost-effective operations and scale in certain regions. The failure or inability of one or more of these third parties to deliver products from suppliers to us, or products from us to our customers, for any reason could disrupt our business and harm our reputation and operating results. We work closely with our third-party logistics and warehousing providers to anticipate issues, and also review public information regarding their financial health. However, issues may not be identified timely,quickly, which may lead to lack of or poor execution of services, loss or litigation. Additionally, deterioration of the financial condition of our logistical and warehousing providers could result in delayed responsiveness or delivery failure, which would ultimately affect our responsiveness to our customers and thus may adversely affect our business, operations and financial performance.
Increased government regulation - We may be subject to additional costs and subject to fines and penalties because certain governmental entities are end-customers of products that we sell.

Certain of our customers sell our products to government entities, which requires us to comply with additional laws, regulations and contractual requirements relating to how we conduct business. In complying with such laws, regulations, and other requirements, we may incur additional costs. In addition, non-compliance with such laws, regulations, and other requirements also may expose us to fines and penalties, including contractual damages or the loss of certain contracts or business. We also
15

Index to Financial Statements


may be subject to increased scrutiny and investigation into our business practices, which may increase operating costs and increase legal liability, as well as expose us to additional reputational risk.
Failure to comply with environmental regulations - We are subject to various environmental regulations, and failing to comply with any requirements may adversely affect our business operations or financial results.

We are subject to various federal, state, local and foreign laws and regulations addressing environmental and other impacts from product disposal, use of hazardous materials in products, recycling of products at the end of their useful life and other related matters. Compliance with these environmental laws may have a material adverse effect on our business. These laws include the Restriction of Hazardous Substances Directive, ("RoHS"), RoHS Directive 2011/65/EU ("RoHS 2") and the European Union Waste Electrical and Electronic Equipment Directive ("WEEE") as enacted by individual European Union countries and other similar legislation adopted in North America. These directives can make companies involved in the production or distribution of electrical goods, including computers and printers, responsible for collection, recycling, treatment and disposal of recovered products. In addition, these directives and similar legislation can have an impact on the types and design of products we are able to sell in jurisdictions that have adopted such restrictions. While we strive to ensure we are in compliance with all applicable regulations, certain of these regulations impose strict liability. Additionally, we may be held responsible for the prior activities of entities that we have acquired or will acquire in the future. Failure to comply with these regulations could result in substantial costs, fines and civil or criminal sanctions, as well as third party claims for property damage or personal injury. Further, environmental laws may become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violation, which could adversely affect our business, financial condition and results of operations.

Quarterly fluctuations - Our net sales and operating results are dependent on a number of factors. Our net sales will fluctuate from quarter to quarter, and these fluctuations may cause volatility in our stock price.

Our net sales and operating results may fluctuate quarterly and, as a result our performance in one period may vary significantly from our performance in the preceding quarter, and may differ significantly from our forecast of performance from quarter to quarter. The impact of these variances may cause volatility in our stock price. Additionally, any past financial performance should not be considered an indicator of future performance, and investors should not use historical trends to anticipate results or trends

14

in the future as our operating results may fluctuate significantly quarter to quarter. The results of any quarterly period are not indicative of results to be expected for a full fiscal year.

Volatility of Stock Price - The trading price of our common stock fluctuates.

The stock market as a whole and the trading prices of companies in the wholesale electronics industrywith smaller capitalization have been volatile. This broad market and industry volatility could significantly reduce the price of our common stock at any time, without regard to our own operating performance. This volatility may affect the price at which you could sell your common stock. Our stock price is likely to continue to be volatile and subject to price and volume fluctuations in response to market and other factors; variations in our quarterly operating results from our expectations or those of securities analysts or investors; downward revisions in securities analysts’ estimates; and announcement by us or our competitors of significant acquisitions, transactions, partnerships, joint ventures or capital commitments.

A material decline in the price of our common stock may result in the assertion of certain claims against us, and/or the commencement of inquiries and/or investigations against us. A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital, if needed, and the inability for you to obtain a favorable price at which you could sell your shares.
Litigation - We routinely are involved in litigation that can be costly and lead to adverse results.

In the ordinary course of our business, we are involved in a wide range of disputes, some of which result in litigation. We are routinely involved in litigation related to commercial disputes surrounding our business activities, intellectual property disputes, employment disputes and accounts receivable collection activity. In addition, as a public company with a large shareholder base, we are susceptible to class-action lawsuits and other litigation resulting from disclosures that we make (or do not make) and our other activities. Litigation is expensive to bring and defend, and the outcome of litigation can be adverse and significant. Not all adverse outcomes can be anticipated, and applicable accounting rules do not always require or permit the establishment of a reserve until a final result has occurred or becomes probable and estimable. In some instances we are insured or indemnified for the potential losses; in other instances we are not. An uninsured, under insured or non-indemnified adverse outcome in significant litigation could have an adverse effect on our business, financial condition and results of operations. We can make no assurances that we will ultimately be successful in our defense of any of these disputes. See Item 3. "Legal Proceedings" for further discussion of our material legal matters.

ITEM 1B. Unresolved Staff Comments.

Not applicable.

ITEM 2.Properties.
ITEM 2. Properties.
16

Index to Financial Statements


Our fixed assets include office space and warehouses. Our principal locations and/or properties for our continuing operations as of June 30, 2019,2020, were as follows:

15

LocationApproximate Square FootageType of InterestDescription of Use
United States
Greenville, SC180,000OwnedHeadquarters - Principal Executive and Sales Offices
Greenville, SC45,000LeasedSales and Administration Offices
Southaven, MS741,000LeasedWarehouse
Sacramento, CA41,000LeasedSales and Administration Offices and Warehouse
Louisville, KY22,000LeasedWarehouse
LocationInternationalApproximate Square FootageType of InterestDescription of Use
United States
Greenville, SC180,000OwnedHeadquarters - Principal Executive and Sales Offices
Southaven, MS741,000LeasedWarehouse
Miami, FL29,000LeasedSales Office and Warehouse
Sacramento, CA41,000LeasedSales and Administration Offices and Warehouse
Louisville, KY22,000LeasedWarehouse
International
Mexico City, Mexico25,000LeasedWarehouse
Brussels, Belgium28,000LeasedSales and Administration Offices
Sao Jose does Pinhais, Paraná, Brazil24,000LeasedSales Office and Warehouse
Serra, Espírito Santo, Brazil31,000LeasedSales Office and Warehouse
Itajai, Santa Catarina, Brazil164,000LeasedSales Office and Warehouse
Of the 180,000 owned square footage in Greenville, South Carolina approximately 40,000 square feet is subleased to an unrelated third party. Our primary North American distribution operations are located in Southaven, Mississippi. We utilize the logistical services of various third party warehouses in the United States and internationally. We also lease various additional sales offices and warehouse spaces, each approximately 20,000 square feet or less throughout the United States and international locations.
Management believes our office and warehouse facilities are adequate to support our operations at their current levels and for the foreseeable future.

ITEM 3. Legal Proceedings.

The Company and our subsidiaries are, from time to time, parties to lawsuits arising out of operations. Although there can be no assurance, based upon information known to us, we believe that any liability resulting from an adverse determination of such lawsuits would not have a material adverse effect on our financial condition or results of operations.

ITEM 4. Mine Safety Disclosures.

Not applicable.
16
17

Index to Financial Statements



Not applicable.

17

PART II
ITEM 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is quoted on the NASDAQ Global Select Market under the symbol "SCSC." As of August 22, 2019,26, 2020, there were approximately 600680 holders of record of our common stock.

Stock Performance Chart
The following stock performance graph compares cumulative total shareholder return on our common stock over a five-year period with the Nasdaq Market Index and with the Standard Industrial Classification ("SIC") Code Index (SIC Code 5045 – Wholesale Computers and Peripheral Equipment and Software) for the same period. Total shareholder return represents stock price changes and assumes the reinvestment of dividends. The graph assumes the investment of $100 on June 30, 2014.2015.

201520162017201820192020
ScanSource, Inc.$100 $98 $106 $106 $86 $63 
NASDAQ Composite$100 $98 $126 $156 $168 $213 
SIC Code 5045 – Computers & Peripheral Equipment$100 $118 $153 $139 $130 $149 


scsc-20200630_g2.jpg

18

Index to Financial Statements


 2014 2015 2016 2017 2018 2019
ScanSource, Inc.$100
 $100
 $97
 $106
 $106
 $86
NASDAQ Composite$100
 $114
 $113
 $144
 $178
 $192
SIC Code 5045 – Computers & Peripheral Equipment$100
 $95
 $114
 $152
 $133
 $139


scsctotalreturngraph2019.jpg
Unregistered Sales of Equity Securities and Use of Proceeds

OnIn August 29, 2016, we announced ourthe Board of Directors' ("BOD") authorization to repurchase shares up toauthorized a three-year $120 million of our common stock for up to three years. During the year ended June 30, 2017, we repurchased 544,643 shares for $20.3 million under theshare repurchase program. The share repurchase program expired in August 2019. No share repurchases occurred under the BOD authorization for the year ended June 30, 2018. During the year ended June 30, 2019, we repurchased 323,832 shares for $10.1 million under the program. The following information describesDuring the Company's stock repurchasesquarter ended September 30, 2019, we repurchased 168,068 shares for $5.4 million under the program during the fourth quarter of fiscal year 2019.before it expired. There werewas no stock repurchases related toshare-repurchase activity, including shares withheld from employees for employees stock-basedstock based awards, in order to satisfy required tax withholding obligations duringfor the fourth quarter of the fiscal year 2019.ended June 30, 2020.


18
19

Index to Financial Statements



PeriodTotal number of shares purchasedAverage price paid per shareTotal number of shares purchased as part of the publicly announced plan or programApproximate dollar value of shares that may yet be purchased under the plan or program
April 1, 2019 through April 30, 2019—
$—
—
$99,356,839
May 1, 2019 through May 31, 2019117,472
30.97
—
95,718,282
June 1, 2019 through June 30, 2019196,973
31.39
—
89,535,486
Total314,445
$31.23
—
$89,535,486



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ITEM 6. Selected Financial Data.

The selected financial data below should be read in conjunction with "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. The following statement of income data and balance sheet data were derived from our Consolidated Financial Statements.

FIVE YEAR FINANCIAL SUMMARY
 Fiscal Year Ended June 30,
 20202019201820172016
 (in thousands, except per share data)
Statement of income data:
Net sales$3,047,734 $3,249,799 $3,164,709 $2,963,366 $2,886,938 
Cost of goods sold2,692,165 2,856,996 2,795,403 2,649,364 2,608,261 
Gross profit355,569 392,803 369,306 314,002 278,677 
Selling, general and administrative expenses260,139 252,948 232,291 203,545 182,133 
Depreciation expense13,033 12,028 12,286 8,322 5,955 
Intangible amortization expense19,953 17,893 18,680 13,522 7,491 
Impairment charges120,470 — — — — 
Change in fair value of contingent consideration6,941 15,200 37,043 6,279 415 
Operating (loss) income(64,967)94,734 69,006 82,334 82,683 
Interest expense12,224 13,162 9,121 3,010 1,912 
Interest income(5,826)(1,818)(3,710)(5,359)(3,383)
Other (income) expense, net411 (247)546 (11,388)999 
(Loss) Income before income taxes(71,776)83,637 63,049 96,071 83,155 
Provision for income taxes7,451 18,778 27,593 31,760 30,176 
Net (loss) income from continuing operations(79,227)64,859 35,456 64,311 52,979 
Net (loss) income from discontinued operations(113,427)(7,262)(2,303)4,935 10,640 
Net (loss) income$(192,654)$57,597 $33,153 $69,246 $63,619 
Per share data:
Net (loss) income from continuing operations per common share, basic(3.12)2.53 1.39 2.55 2.00 
Net (loss) income from discontinued operations per common share, basic(4.47)(0.28)(0.09)0.19 0.40 
Net (loss) income per common share, basic$(7.59)$2.25 $1.30 $2.74 $2.40 
Weighted-average shares outstanding, basic25,378 25,642 25,522 25,318 26,472 
Net (loss) income from continuing operations per common share, diluted(3.12)2.52 1.38 2.52 1.98 
Net (loss) income from discontinued operations per common share, diluted(4.47)(0.28)(0.09)0.19 0.40 
Net (loss) income per common share, diluted$(7.59)$2.24 $1.29 $2.71 $2.38 
Weighted-average shares outstanding, diluted25,378 25,734 25,624 25,515 26,687 
 Fiscal Year Ended June 30,
 2019 2018 2017 2016 2015
 (in thousands, except per share data)
Statement of income data:         
Net sales$3,873,111
 $3,846,260
 $3,568,186
 $3,540,226
 $3,218,626
Cost of goods sold3,420,539
 3,410,135
 3,184,590
 3,184,786
 2,891,536
Gross profit452,572
 436,125
 383,596
 355,440
 327,090
Selling, general and administrative expenses314,521
 297,475
 265,178
 240,115
 210,985
Depreciation expense13,155
 13,311
 9,444
 7,326
 5,356
Intangible amortization expense19,732
 20,657
 15,524
 9,828
 6,641
Change in fair value of contingent consideration15,200
 37,043
 5,211
 1,294
 2,667
Operating income89,964
 67,639
 88,239
 96,877
 101,441
Interest expense13,382
 9,149
 3,215
 2,124
 1,797
Interest income(1,843) (3,713) (5,329) (3,448) (2,638)
Other (income) expense, net517
 1,278
 (11,142) 2,191
 2,376
Income before income taxes77,908
 60,925
 101,495
 96,010
 99,906
Provision for income taxes20,311
 27,772
 32,249
 32,391
 34,487
Net income$57,597
 $33,153
 $69,246
 $63,619
 $65,419
Net income per common share, basic$2.25
 $1.30
 $2.74
 $2.40
 $2.29
Weighted-average shares outstanding, basic25,642
 25,522
 25,318
 26,472
 28,558
Net income per common share, diluted$2.24
 $1.29
 $2.71
 $2.38
 $2.27
Weighted-average shares outstanding, diluted25,734
 25,624
 25,515
 26,687
 28,799

 As of June 30,
 2019 2018 2017 2016 2015
 (in thousands)
Balance sheet data:         
Working capital$776,429
 $651,851
 $624,748
 $643,793
 $645,398
Total assets2,067,261
 1,945,295
 1,718,303
 1,491,185
 1,476,941
Total debt (including current debt)360,506
 249,429
 97,300
 76,856
 8,826
Total shareholders’ equity$914,129
 $866,376
 $837,145
 $774,496
 $808,985


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 As of June 30,
 20202019201820172016
 (in thousands)
Balance sheet data:
Working capital$484,460 $776,429 $651,851 $624,748 $643,793 
Total assets1,692,094 2,067,261 1,945,295 1,718,303 1,491,185 
Total debt (of continuing operations)218,728 327,489 249,429 97,300 76,856 
Total shareholders’ equity$678,246 $914,129 $866,376 $837,145 $774,496 

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Index to Financial Statements


ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

ScanSource is at the center of the technological solution delivery channel, connecting businesses and institutions and providing solutions for their complex needs. We provide technology solutions and services from the world’s leading suppliers of mobility and barcode, point-of-sale (POS), payments, barcode, physical security, unified communications and collaboration, telecom and cloud services to our customers. We serve approximately 38,00030,000 customers located in the United States, Canada, Brazil, additional Latin American countriesthe UK and Europe and provide solutions and services from approximately 550500 technology suppliers.

We operate our business under a management structure that enhances our worldwide technology market focus and growth strategy. We segment our business into two technology-focused areas that each operate in the U.S.,United States, Canada, Brazil, additional Latin American countries and Europe:the UK:

•Worldwide Barcode, Networking & Security
•Worldwide Communications & Services

We sell products to the United States and Canada from our facilities located in Mississippi, California and Kentucky; into Latin America principallyBrazil primarily from facilities located in Florida, Mexico, Brazil, Colombiathe Brazilian states of Paraná, Espírito Santo and Chile;Santa Catarina. Some of our digital products and into Europe principallyservices are provided from facilities in Belgium, France and the United Kingdom.our CASCADE platform. We also have drop-shipment arrangements with some of our suppliers, which allow us to offer products to customers without taking physical delivery at our facilities.

Our key suppliers include 8x8, ACC Business, AT&T, Aruba/HPE, Axis, AudioCodes, Avaya, Barco, Bematech, Bosch, CenturyLink/Level 3,CenturyLink, Cisco, Comcast Business, Datalogic, Dell, Dialogic, Elo, Epson, Exacq, Extreme, Fortinet, Hanwha, HID, Honeywell, HP/Aruba, IBM,HID, Ingenico, Jabra, Lifesize,March Networks, Masergy, Microsoft, Milestone, Mitel, NCR, NICE inContact, Oracle, Panasonic, Pioneer, Plantronics/Polycom (Poly),Poly, RingCentral, Ruckus, Samsung, Sony, Spectralink, Spectrum, Star Micronics, Toshiba Global Commerce Solutions, TPx, Ubiquiti, Verifone, Verizon, Windstream, YealinkZebra Technologies and Zebra Technologies.Zoom. We also offer customers significant choices in cloud services through our Intelisys business, and our intY cloud services distribution platform, including offerings in contact center, infrastructure and unified communications, security, and Microsoft offerings.communications.

Recent Developments

On August 20,Impact of COVID-19 on our Business Environment

In early March 2020, the World Health Organization characterized COVID-19 as a pandemic. The rapid 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 and business shutdowns. The pandemic and these containment measures have had, and are expected to continue to have, a substantial impact on businesses around the world and on global, regional and national economies.

During the COVID-19 pandemic, our top priority is protecting the health and safety of our employees. We moved quickly to transition our employees, where possible, to a fully remote working environment. We have taken a number of measures to ensure our teams feel secure in their jobs and have the flexibility and resources they need to stay safe and healthy.

We have activated our contingency plans. We have deployed teams to monitor the rapidly evolving situation and recommend risk mitigation actions; we have implemented travel restrictions; and we are following social distancing guidelines. We are following global guidance from authorities and health officials including, but not limited to, checking the temperature of associates when entering our facilities, requiring associates to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitation routines. In addition, nearly all office-based employees around the world are working remotely.

We saw a significant impact from COVID-19 pandemic during the fourth quarter of our fiscal year, with a 21.6% decline year-over-year for quarterly GAAP net sales and a 19.3% decline year-over-year for quarterly non-GAAP net sales, excluding the negative impact of foreign currency translation.

In July 2020, we announced plansactions to divestaddress the business impacts of the COVID-19 pandemic and prepare for the next phase of growth. These actions include an approximate $30 million annualized expense reduction plan, partially offset by approximately $8 to $9 million in severance and employee benefits for those employees who left the Company. These actions
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Index to Financial Statements


are designed to better align the cost structure for our physicalwholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic. As part of the plan, we will continue to invest in our higher growth agency business, Intelisys. Strong growth for the Intelisys business has continued, even with the COVID-19 pandemic.

See "Risk Factors" for information on additional impacts of COVID-19 as well as other matters that could have a material adverse effect on our results of operations and financial condition.

Closure of the Canpango Professional Services Business

In July 2020, we initiated actions to close Canpango, our salesforce implementation and consulting business. In August 2018, we acquired Canpango to help partners build out their customer relationship management capabilities as part of a CCaaS solution. There has been limited adoption by our partner community. As a result of closing the Canpango business we recorded a pre-tax non-cash charge of approximately $2 million at June 30, 2020. We expect to complete existing contracts over the next few months.

Divestitures

An agreement was signed on July 23, 2020, subsequent to our fiscal year end, to sell our product distribution businessesbusiness located in Europe, UK, Mexico, Colombia, Chile, Peru and our Miami-based export operations.operations to Intcomex. We will continueexpect to operate our digital businesses in these locations, includingfinalize the businesses acquired within the last year, intY, Canpango and Intelisys Global.sale of Latin America divestitures, outside of Brazil, on or around September 30, 2020. The operations in these locations have been performing below our expectations. We are beginning the process to market and sell these businesses. There can be no assurance that this sale process will result in a transaction or the timing of any transaction.
On July 1, 2019, we acquired intY and its CASCADE cloud services distribution platform. As an additional element of the our cloud and digital strategy, intY’s CASCADE solution provides our sales partners with another route to market to enable distribution andCompany is actively working on sales opportunities for key strategic cloud services. IntY joins our Worldwide Communications & Services operating segment.

divestitures in Europe and the UK and expects to finalize a sale within twelve months from the current reporting period.
Our Strategy

We rely on a channel sales model offering hardware, software, services and connectivity solutions from leading technology suppliers to sales partners that serve end customers. We sell technology solutions that solve end customer's business needs.customers' challenges. With our CASCADE platform, we also offer customers SaaS and subscription services from leading technology suppliers. While we do not manufacture products, we provide technology solutions and services from leading technology suppliers. Our solutions may include a combination of offerings from multiple suppliers or give our sales partners access to additional services, such as custom configuration, key injection, integration support, custom development and other services, to deliver solutions. We also offer the flexibility of on-premise, cloud and hybrid solutions.

As a trusted adviser to our sales partners, we provide more complete solutions through a better understanding of end customer needs. We drive growth through enhancing our sales partners' capabilities to provide hardware, software, services and connectivity solutions to meet these needs.solutions. Our teams deliver value-added support programs and services, including education and training, network assessments, implementation, custom development and marketing to help our sales partners extend their capabilities, develop new technology practices or reach new end customers.

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Our objective is to grow profitable sales in the technologies we offer and expand in higher margin and adjacent markets to help our sales partners offer more products and services and increase recurring revenue opportunities. As part of our strategic plan, we consider strategic acquisitions and alliances to enhance our technology offerings and service capabilities.

Profitability

Our operating income is driven by gross profits and by control of operating expenses. Our operations feature scalable information systems, streamlined management and centralized distribution, enabling us to achieve the economies of scale necessary for cost-effective solution selling. In order to continue to grow in our markets, we have continued to invest in new technologies and increased marketing efforts to recruit new customers.

Results of Operations from Continuing Operations

The following table sets forth for the periods indicated certain income and expense items as a percentage of net sales:

sales. Totals may not sum due to rounding.
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Index to Financial Statements


 Fiscal Year Ended June 30,
 2019 2018
Statement of income data:   
Net sales100.0% 100.0%
Cost of goods sold88.3
 88.7
Gross profit11.7
 11.3
Selling, general and administrative expenses8.1
 7.7
Depreciation expense0.3
 0.3
Intangible amortization expense0.5
 0.5
Change in fair value of contingent consideration0.4
 1.0
Operating income2.3
 1.8
Interest (income) expense, net0.3
 0.1
Other (income) expense, net0.0
 0.0
Income before income taxes2.0
 1.6
Provision for income taxes0.5
 0.7
Net income1.5% 0.9%

 Fiscal Year Ended June 30,
 202020192018
Statement of income data:
Net sales100.0 %100.0 %100.0 %
Cost of goods sold88.3 87.9 88.3 
Gross profit11.7 12.1 11.7 
Selling, general and administrative expenses8.5 7.8 7.3 
Depreciation expense0.4 0.4 0.4 
Intangible amortization expense0.7 0.6 0.6 
Impairment charges4.0 0.0 0.0 
Change in fair value of contingent consideration0.2 0.5 1.2 
Operating (loss) income(2.1)2.9 2.2 
Interest expense0.4 0.4 0.3 
Interest income(0.2)(0.1)(0.1)
Other (income) expense, net0.0 0.0 0.0 
(Loss) Income from continuing operations before income taxes(2.4)2.6 2.0 
Provision for income taxes0.2 0.6 0.9 
Net (loss) income from continuing operations(2.6)2.0 1.1 
Net (loss) from discontinued operations(3.7)(0.2)(0.1)
Net (loss) income(6.3)%1.8 %1.0 %

Comparison of Fiscal Years Ended June 30, 2020, 2019 and 2018

Below is a discussion of fiscal years ended June 30, 2020, 2019 and 2018. Please refer to our Form 10-K for the fiscal year ended June 30, 2018 for a discussion of fiscal year ended June 30, 2017.our continuing operations.

Net Sales

Fiscal year 2020 compared to fiscal year 2019

We have two reportable segments, which are based on the technologies provided to customers. The following table summarizes our net sales results by business segment and by geographic location for the comparable fiscal years ending June 30, 2020, 2019 and 2018.2018.










22
24

Index to Financial Statements



20202019$ Change% Change
% Change Constant Currency, Excluding Divestitures and Acquisitions (a)
 (in thousands) 
Sales by Segment:
Worldwide Barcode, Networking & Security$2,093,217 $2,141,896 $(48,679)(2.3)%(1.8)%
Worldwide Communications & Services954,517 1,107,903 (153,386)(13.8)%(11.9)%
Total net sales$3,047,734 $3,249,799 $(202,065)(6.2)%(5.2)%
Sales by Geography Category:
United States$2,755,134 $2,917,780 $(162,646)(5.6)%(5.7)%
International292,600 332,019 (39,419)(11.9)%(1.4)%
Total net sales$3,047,734 $3,249,799 $(202,065)(6.2)%(5.2)%
(a) A reconciliation of non-GAAP net sales in constant currency, excluding acquisitions is presented at the end of Results of Operations, under Non-GAAP Financial Information.






 2019 2018 $ Change % Change % Change Constant Currency, Excluding Acquisitions (a)
 (in thousands)    
Sales by Segment:         
Worldwide Barcode, Networking & Security$2,589,837
 $2,628,988
 $(39,151) (1.5)% (0.6)%
Worldwide Communications & Services1,283,274
 1,217,272
 66,002
 5.4 % 8.6 %
Total net sales$3,873,111
 $3,846,260
 $26,851
 0.7 % 2.3 %
          
Sales by Geography Category:         
North America$2,917,780
 $2,847,197
 $70,583
 2.5 % 1.9 %
International955,331
 999,063
 (43,732) (4.4)% 3.5 %
Total net sales$3,873,111
 $3,846,260
 $26,851
 0.7 % 2.3 %

(a) A reconciliation of non-GAAP net sales in constant currency, excluding acquisitions is presented at the end of Results of Operations, under Non-GAAP Financial Information.



Worldwide Barcode, Networking & Security

The Worldwide Barcode, Networking & Security segment consists of sales to technology customers in North America Europe, Brazil and additional Latin American countries.Brazil. During fiscal year 2019,2020, net sales for this segment decreased $39.2$48.7 million, or 1.5%2.3%, compared to fiscal year 2018.2019. Excluding the foreign exchange negative impact of $33.3$10.4 million, adjusted net sales for fiscal year 2020 decreased $38.3 million, or 1.8%, compared to the prior year. The decrease in net sales and adjusted net sales is primarily due to lower sales volume across North America and Brazil, with the exception of our payments business which grew year-over-year. Lower sales volume are largely a result of the negative impacts of the COVID-19 pandemic.

Worldwide Communications & Services

The Worldwide Communications & Services segment consists of sales to technology customers in North America, Brazil, Europe and the UK. During fiscal year 2020, net sales for this segment decreased $153.4 million or 13.8% compared to fiscal year 2019 largely as a result of the negative impacts of the COVID-19 pandemic. Excluding the foreign exchange negative impact of $29.8 million and sales from fiscal 2020 and 2019 acquisitions, adjusted net sales decreased $131.7 million, or 11.9%, compared to the prior year. The decrease in adjusted net sales is primarily due to lower sales volumes in the premise-based communications business in North America and the negative impacts of the COVID-19 pandemic. This impact was partially offset by sales growth in local currency in Brazil and increases in net sales for our master agency business, Intelisys.

Fiscal year 2019 compared to fiscal year 2018

25

Index to Financial Statements


20192018$ Change% Change% Change Constant Currency, Excluding Divestitures and Acquisitions (a)
 (in thousands)
Sales by Segment:
Worldwide Barcode, Networking & Security$2,141,896 $2,143,135 $(1,239)(0.1)%0.3 %
Communications & Services1,107,903 1,021,574 86,329 8.5 %11.6 %
Total net sales$3,249,799 $3,164,709 $85,090 2.7 %4.0 %
Sales by Geography Category:
United States$2,917,780 $2,847,196 $70,584 2.5 %1.9 %
International332,019 317,513 14,506 4.6 %22.0 %
Total net sales$3,249,799 $3,164,709 $85,090 2.7 %4.0 %
(a) A reconciliation of non-GAAP net sales in constant currency, excluding acquisitions is presented at the end of Results of Operations, under Non-GAAP Financial Information.


Worldwide Barcode, Networking & Security

During fiscal year 2019, net sales for this segment decreased $1.2 million, or 0.1%, compared to fiscal year 2018 due to the negative impact of foreign exchange. Excluding the foreign exchange negative impact of $16.2 million and sales from the POS Portal acquisition for the first quarter of fiscal years 2019 and 2018, adjusted net sales for fiscal year 2019 decreased $14.7increased $6.0 million, or 0.6%0.3%, compared to the prior year. The decreaseincrease in net sales and adjusted net sales is primarily due to decreasedincreased sales volume in our international businesses, partially offset by sales growthdiversified technologies in our North America business.America.

Worldwide Communications & Services

The Worldwide Communications & Services segment consists of sales to technology customers in North America, Europe Brazil and additional Latin American countries. During fiscal year 2019, net sales for this segment increased $66.0$86.3 million or 5.4%8.5% compared to fiscal year 2018. Excluding the foreign exchange negative impact of $45.7$39.3 million and sales from fiscal 2019 acquisitions, adjusted net sales for fiscal year 2019 increased $104.4$118.6 million, or 8.6%11.6%, compared to the prior year. The increase in net sales and adjusted net sales is primarily due to sales growth in our Brazil and our North America businesses, partially offset bycommunications business.

Gross Profit

Fiscal year 2020 compared to fiscal year 2019

The following table summarizes our gross profit for the fiscal years ended June 30, 2020 and 2019:
     % of Sales
June 30,
 20202019$ Change% Change20202019
 (in thousands)   
Worldwide Barcode, Networking & Security$180,582 $209,243 $(28,661)(13.7)%8.6 %9.8 %
Worldwide Communications & Services174,988 183,560 (8,572)(4.7)%18.3 %16.6 %
Total gross profit$355,570 $392,803 $(37,233)(9.5)%11.7 %12.1 %

During the 2020 fiscal year, we undertook a conversion to a new inventory management system in our Southaven, Mississippi distribution center. That software did not perform up to expectations, and during the third quarter, we incurred a $4.5 million expense for inventory charges. That charge increased our cost of goods sold, which lowered gross profit for the quarter ended March 31, 2020. We implemented an inventory action plan to address the warehouse inventory discrepancies and were back to typical warehouse operations during the fourth quarter.
26

Index to Financial Statements



Worldwide Barcode, Networking & Security

For the Worldwide Barcode, Networking & Security segment, gross profit dollars decreased $28.7 million and gross profit margin decreased to 8.6% for fiscal year 2020 compared to the prior year. The decrease is primarily due to lower sales volume, higher vendor program recognition in the prior year, and higher inventory charges during the third quarter following the conversion to a new inventory management system.

Worldwide Communications & Services

For the Worldwide Communications & Services segment, gross profit dollars decreased $8.6 million due to lower sales volume. Gross profit margin increased to 18.3% for fiscal year 2020 compared to 16.6% in the prior year primarily due to a more favorable sales mix, including results contributed by our EuropeIntelisys recurring revenue business and the addition of the intY SaaS business.

Fiscal year 2019 compared to fiscal year 2018
Gross Profit

The following table summarizes our gross profit for the fiscal years ended June 30, 2019 and 2018:

     % of Sales
June 30,
 20192018$ Change% Change20192018
 (in thousands)   
Worldwide Barcode, Networking & Security$209,243 $198,716 $10,527 5.3 %9.8 %9.3 %
Worldwide Communications & Services183,560 170,590 12,970 7.6 %16.6 %16.7 %
Total gross profit$392,803 $369,306 $23,497 6.4 %12.1 %11.7 %
23

         
% of Sales
June 30,
 2019 2018 $ Change % Change 2019 2018
 (in thousands)      
Worldwide Barcode, Networking & Security$244,746
 $238,318
 $6,428
 2.7% 9.5% 9.1%
Worldwide Communications & Services207,826
 197,807
 10,019
 5.1% 16.2% 16.3%
Total gross profit$452,572
 $436,125
 $16,447
 3.8% 11.7% 11.3%




Worldwide Barcode, Networking & Security

For the Worldwide Barcode, Networking & Security segment, gross profit dollars increased $6.4$10.5 million and gross profit margin increased to 9.5%9.8% for fiscal year 2019 compared to the prior year primarily due to higher vendor program recognition.

Worldwide Communications & Services

For the Worldwide Communications & Services segment, gross profit dollars increased $10.0$13.0 million due to increased sales volume. Gross profit margin decreased slightly to 16.2%16.6% for fiscal year 2019 as compared to 16.3% for the prior year primarily due to a less favorable sales mix.

Operating expenses

Fiscal year 2020 compared to fiscal year 2019

The following table summarizes our operating expenses for the periods ended June 30, 2020 and 2019:

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Index to Financial Statements


     % of Sales
June 30,
 20202019$ Change% Change20202019
 (in thousands)   
Selling, general and administrative expenses$260,139 $252,948 $7,191 2.8 %8.5 %7.8 %
Depreciation expense13,033 12,028 1,005 8.4 %0.4 %0.4 %
Intangible amortization expense19,953 17,893 2,060 11.5 %0.7 %0.6 %
Impairment charges120,470 — 120,470 100.0 %4.0 %— %
Change in fair value of contingent consideration6,941 15,200 (8,259)(54.3)%0.2 %0.5 %
Operating expenses420,536 298,069 122,467 41.1 %13.8 %9.2 %

Selling, general and administrative expenses ("SG&A") increased $7.2 million for the fiscal year ending June 30, 2020 compared to the prior year. The increase in SG&A expenses is primarily due to increased employee-related expenses in North America, partially offset by a tax recovery in Brazil. In July 2020, we announced an expense reduction plan designed to better align the cost structure for our wholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic.

Depreciation expense increased $1.0 million for the fiscal year ending June 30, 2020 primarily due to additional expense on capitalized IT investments.

Intangible amortization expense increased $2.1 million for the fiscal year ending June 30, 2020 largely due to intangible amortization expense for assets acquired in the intY acquisition.

Impairment charges include $119.0 million in goodwill impairment charges for our Worldwide Barcode, Networking and Security segment and $1.4 million in intangible asset impairment charges for our Canpango business. The Company has initiated actions to close the Canpango business.

We have elected to present changes in fair value of the contingent consideration owed to former shareholders of businesses we acquire separately from other SG&A expenses. In fiscal 2020, we have recorded a $6.9 million expense from change in fair value of contingent consideration, all of which related to Intelisys. The expense is largely from recurring amortization of the unrecognized fair value discount and a reduction in the discount rate for the Intelisys liability.

Fiscal year 2019 compared to fiscal year 2018

The following table summarizes our operating expenses for the periods ended June 30, 2019 and 2018:

        
% of Sales
June 30,
     % of Sales
June 30,
2019 2018 $ Change % Change 2019 2018 20192018$ Change% Change20192018
(in thousands)    
   (in thousands)   
Selling, general and administrative expenses$314,521
 $297,475
 $17,046
 5.7 % 8.1% 7.7%Selling, general and administrative expenses$252,948 $232,291 $20,657 8.9 %7.8 %7.3 %
Depreciation expense13,155
 13,311
 (156) (1.2)% 0.3% 0.3%Depreciation expense12,028 12,286 (258)(2.1)%0.4 %0.4 %
Intangible amortization expense19,732
 20,657
 (925) (4.5)% 0.5% 0.5%Intangible amortization expense17,893 18,680 (787)(4.2)%0.6 %0.6 %
Change in fair value of contingent consideration15,200
 37,043
 (21,843) (59.0)% 0.4% 1.0%Change in fair value of contingent consideration15,200 37,043 (21,843)(59.0)%0.5 %1.2 %
Operating expenses362,608
 368,486
 (5,878) (1.6)% 9.4% 9.6%Operating expenses$298,069 $300,300 $(2,231)(0.7)%9.2 %9.5 %

Selling, general and administrative expenses ("SG&A") increased $17.0$20.7 million for the fiscal year ending June 30, 2019 compared to the prior year. The increase in SG&A expenses reflects investments for future growth,year primarily indue to increased employee-related expenses in North America.

Depreciation expense and intangible amortization expense decreased $0.2$0.3 million and $0.9$0.8 million, respectively, for the fiscal year ending June 30, 2019. The decrease in intangible amortization expense is due to assets trade names and non-compete agreements
28

Index to Financial Statements


that became fully depreciated or amortized during the current year, partially offset by additional expense related to assets acquired through fiscal year 2019 acquisitions.

We have elected to present changes in fair value of the contingent consideration owed to former shareholders of businesses we acquire separately from other SG&A expenses. In fiscal 2019, we have recorded a $15.2 million expense from change in fair value of contingent consideration, largely from recurring amortization of the unrecognized fair value discount for the Intelisys liability and agreed upon adjustments in the final earnout payment to Network1.

Operating Income


Fiscal year 2020 compared to fiscal year 2019
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The following table summarizes our operating income for the periods ended June 30, 2020, 2019 and 2018:
     % of Sales
June 30,
 20202019$ Change% Change20202019
 (in thousands)   
Worldwide Barcode, Networking & Security$(83,515)$57,019 $(140,534)(246.5)%(4.0)%2.7 %
Worldwide Communications & Services22,548 38,933 (16,385)(42.1)%2.4 %3.5 %
Corporate(4,000)(1,218)(2,782)228.4 %— %— %
Total operating (loss) income$(64,967)$94,734 $(159,701)(168.6)%(2.1)%2.9 %
         
% of Sales
June 30,
 2019 2018 $ Change % Change 2019 2018
 (in thousands)    
  
Worldwide Barcode, Networking & Security$59,875
 $56,911
 $2,964
 5.2% 2.3% 2.2%
Worldwide Communications & Services31,307
 10,900
 20,407
 187.2% 2.4% 0.9%
Corporate(1,218) (172) (1,046) 608.1% —% —%
Total operating income$89,964
 $67,639
 $22,325
 33.0% 2.3% 1.8%



Worldwide Barcode, Networking & Security

For the Worldwide Barcode, Networking & Security segment, the operating income decrease reflects the goodwill impairment charges. Excluding goodwill impairment charges of $119.0 million, adjusted operating income decreased $21.5 million compared to the prior year and adjusted operating margin decreased to 1.7% for the fiscal year June 30, 2020. The decrease in adjusted operating margin is largely due to the lower gross profits.

Worldwide Communications & Services

For the Worldwide Communications & Services segment, operating income decreased $16.4 million compared to the prior year, and the operating margin decreased to 2.4% for the fiscal year ended June 30, 2020. The decrease is largely due to lower gross profits from lower sales volume and increased employee-related expenses, which includes additional expenses from the fiscal year 2020 intY acquisition.

Corporate

Corporate incurred $4.0 million in acquisition and divestiture costs for fiscal year ended June 30, 2020, compared to $1.2 million in acquisition costs for the years ended June 30, 2019.

Fiscal year 2019 compared to fiscal year 2018
     % of Sales
June 30,
 20192018$ Change% Change20192018
 (in thousands)   
Worldwide Barcode, Networking & Security$57,019 $49,313 $7,706 15.6 %2.7 %2.3 %
Worldwide Communications & Services38,933 19,865 19,068 96.0 %3.5 %1.9 %
Corporate(1,218)(172)(1,046)608.1 %— %— %
Total operating income$94,734 $69,006 $25,728 37.3 %2.9 %2.2 %
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Worldwide Barcode, Networking & Security

For the Worldwide Barcode, Networking & Security segment, operating income increased $3.0$7.7 million and operating margin increased slightly to 2.3%2.7% for the fiscal year ended June 30, 2019 compared to the prior year. The increase in operating income and operating margin is primarily attributable to higher gross margins, partially offset by increased employee-related expenses.

Worldwide Communications & Services

For the Worldwide Communications & Services segment, operating income increased $20.4$19.1 million and operating margin increased to 2.4%3.5% for the fiscal year ended June 30, 2019 as compared to the prior year. Operating margin in the prior year was impacted by significant expense related to the change in fair value of contingent consideration for Network1. Excluding change in fair value of contingent consideration for each comparable year, adjusted operating income decreased $1.3$2.7 million and adjusted operating margin decreased to 3.6%4.9% compared to 3.9%5.6% in the prior-year, largely due to increased employee-related expenses, partially offset by increased sales volume.

Corporate

Corporate incurred $1.2 million and $0.2 million in acquisition costs for the years ended June 30, 2019 and 2018, respectively.
Total Other (Income) Expense

Fiscal year 2020 compared to fiscal year 2019

The following table summarizes our total other (income) expense for the fiscal years ended June 30, 20192020 and 2018:2019:

        
% of Sales
June 30,
     % of Sales
June 30,
2019 2018 $ Change % Change 2019 2018 20202019$ Change% Change20202019
(in thousands)       (in thousands)   
Interest expense$13,382
 $9,149
 $4,233
 46.3 % 0.3 % 0.2 %Interest expense$12,224 $13,162 $(938)(7.1)%0.4 %0.4 %
Interest income(1,843) (3,713) 1,870
 (50.4)% — % (0.1)%Interest income(5,826)(1,818)(4,008)220.5 %(0.2)%(0.1)%
Net foreign exchange losses (gains)1,156
 2,096
 (940) (44.8)% — % 0.1 %Net foreign exchange losses (gains)525 635 (110)(17.3)%— %— %
Other, net(639) (818) 179
 (21.9)% — % — %Other, net(114)(882)768 (87.1)%— %— %
Total other (income) expense$12,056
 $6,714
 $5,342
 79.6 % 0.3 % 0.2 %Total other (income) expense$6,809 $11,097 $(4,288)(38.6)%0.2 %0.3 %

Interest expense reflects interest incurred on borrowings, non-utilization fees from our revolving credit facility and amortization of debt issuance costs. Interest expense increaseddecreased in fiscal 20192020 as compared to 20182019 principally from additionalreduced borrowings on our multi-currency revolving credit facility.

Interest income for the year ended June 30, 2020 and 2019 was generated on interest-bearing customer receivables and interest earned on cash and cash equivalents, principally in Brazil. In fiscal year 20182020, we recognized accrued interest income of $2.7 million related to a legal tax settlementrecovery in Brazil of $0.7 million that did not recur in the current year.Brazil.


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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. Foreign exchange 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, the Canadian dollar versus the U.S. dollar and other currencies versus the U.S. dollar. While we utilize foreign exchange contracts and debt in non-functional currencies to hedge foreign currency exposure, our foreign exchange policy prohibits the use of derivative financial instruments for speculative transactions. We partially offset foreign currency exposure with the use of foreign exchange forward contracts to hedge against these exposures. The costs associated with foreign exchange forward contracts are included in the net foreign exchange loss. Foreign exchange losses decreased during fiscal year 20192020 compared to the prior year from the lower cost of hedging.

Fiscal year 2019 compared to fiscal year 2018

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     % of Sales
June 30,
 20192018$ Change% Change20202019
 (in thousands)   
Interest expense$13,162 $9,121 $4,041 44.3 %0.4 %0.3 %
Interest income(1,818)(3,710)1,892 (51.0)%(0.1)%(0.1)%
Net foreign exchange losses (gains)635 1,178 (543)(46.1)%— %— %
Other, net(882)(632)(250)39.6 %— %— %
Total other (income) expense$11,097 $5,957 $5,140 86.3 %0.3 %0.2 %

Interest expense reflects interest incurred on borrowings, non-utilization fees from our revolving credit facility and amortization of debt issuance costs. Interest expense increased in fiscal 2019 as compared to 2018 principally from additional borrowings on our multi-currency revolving credit facility.

Interest income for the year ended June 30, 2019 was generated on interest-bearing customer receivables and interest earned on cash and cash equivalents, principally in Brazil. In fiscal year 2018 we recognized accrued interest income related to a legal tax settlement in Brazil of $0.7 million that did not recur in the current year.

Net foreign exchange losses decreased during fiscal year 2019 compared to the prior year, primarily from hedging costs.

Provision for Income Taxes

Income tax expense for continuing operations was $20.3$7.5 million, $18.8 million and $27.8$27.6 million for the fiscal years ended June 30, 2020, 2019, and 2018, respectively, reflecting an effective tax rate of 26.1%(10.4)%, 22.5% and 45.6%43.8%, respectively. The decrease in the effective tax rate for fiscal year 2020 compared to fiscal year 2019 is primarily the result of impairment charges, most of which are not deductible for tax purposes. The decrease in the effective tax rate for fiscal year 2019 as compared to fiscal year 2018 is primarily due to significant discrete tax items recognized in the prior year associated with U.S. tax reform that did not recur in the current year.

We expect the fiscal year 20202021 effective tax rate from continuing operations to be approximately 25%28.5% to 26%29.5%. See Note 13 - Income Taxes in the Notes to Consolidated Financial Statements for further discussion including an effective tax rate reconciliation.


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Quarterly Results

The following tables set forth certain unaudited quarterly financial data. The information has been derived from unaudited financial statements that, in the opinion of management, reflect all adjustments.

 Three Months Ended
 Fiscal 2020Fiscal 2019
 Jun. 30
2020		Mar. 31
2020		Dec. 31
2019		Sept. 30
2019		Jun. 30
2019		Mar. 31
2019		Dec. 31
2018		Sept. 30
2018
 (in thousands, except per share data)
Net sales$636,450 $744,584 $823,999 $842,701 $811,432 $752,799 $872,348 $813,220 
Cost of goods sold562,303 660,006 725,680 744,176 714,789 657,043 768,926 716,239 
Gross profit$74,147 $84,578 $98,319 $98,525 $96,643 $95,756 $103,422 $96,981 
Impairment charges120,470 — — — — — — — 
Change in fair value of contingent consideration674 618 3,176 2,472 3,666 5,101 1,850 4,584 
Net (loss) income from continuing operations(108,859)5,715 11,626 12,291 $15,996 $13,455 $19,758 $15,649 
Net (loss) income from discontinued operations(108,403)(4,003)(260)(761)(4,418)(1,740)224 (1,327)
Net (loss) income$(217,262)1,712 11,366 11,530 $11,578 $11,715 $19,982 $14,322 
Net (loss) income from continuing operations per common share, basic(4.29)0.23 0.46 0.48 0.62 0.53 0.77 0.61 
Net (loss) income from discontinued operations per common share, basic(4.28)(0.16)(0.01)(0.03)(0.17)(0.07)0.01 (0.05)
Net (loss) income per common share, basic$(8.57)$0.07 $0.45 $0.45 $0.45 $0.46 $0.78 $0.56 
Weighted-average shares outstanding, basic25,353 25,346 25,274 25,539 25,627 25,704 25,640 25,599 
Net (loss) income from continuing operations per common share, diluted(4.29)0.23 0.46 0.48 0.62 0.52 0.77 0.61 
Net (loss) income from discontinued operations per common share, diluted(4.28)(0.16)(0.01)(0.03)(0.17)(0.07)0.01 (0.05)
Net (loss) income per common share, diluted$(8.57)$0.07 $0.45 $0.45 $0.45 $0.45 $0.78 $0.56 
Weighted-average shares outstanding, diluted25,353 25,363 25,358 25,617 25,691 25,762 25,750 25,755 

32
 Three Months Ended
 Fiscal 2019 Fiscal 2018
 
Jun. 30
2019
 
Mar. 31
2019
 
Dec. 31
2018
 
Sept. 30
2018
 
Jun. 30
2018
 
Mar. 31
2018
 
Dec. 31
2017
 
Sept. 30
2017
 (in thousands, except per share data)
Net sales$960,833
 $893,357
 $1,046,021
 $972,900
 $993,852
 $895,637
 $1,032,212
 $924,559
Cost of goods sold850,969
 783,342
 925,543
 860,685
 880,503
 791,749
 919,241
 818,642
Gross profit$109,864
 $110,015
 $120,478
 $112,215
 $113,349
 $103,888
 $112,971
 $105,917
Change in fair value of contingent consideration$3,665
 $5,101
 $1,850
 $4,584
 $8,448
 $4,801
 $6,913
 $16,881
Net income$11,578
 $11,715
 $19,982
 $14,322
 $10,388
 $10,649
 $7,969
 $4,147
Net income per common share, basic$0.45
 $0.46
 $0.78
 $0.56
 $0.41
 $0.42
 $0.31
 $0.16
Weighted-average shares outstanding, basic25,627
 25,704
 25,640
 25,599
 25,577
 25,572
 25,506
 25,434
Net income per common share, diluted$0.45
 $0.45
 $0.78
 $0.56
 $0.40
 $0.42
 $0.31
 $0.16
Weighted-average shares outstanding, diluted25,691
 25,762
 25,750
 25,755
 25,675
 25,606
 25,648
 25,579
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Non-GAAP Financial Information

Evaluating Financial Condition and Operating Performance


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In addition to disclosing results that are determined in accordance with United States generally accepted accounting principles ("US GAAP" or "GAAP"), we also disclose certain non-GAAP financial measures. These measures include non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income, non-GAAP EPS, return on invested capital ("ROIC") and "constant currency." Constant currency is a measure that excludes the translation exchange impact from changes in foreign currency exchange rates between reporting periods. We use non-GAAP financial measures to better understand and evaluate performance, including comparisons from period to period.

These non-GAAP financial measures have limitations as analytical tools, and the non-GAAP financial measures that we report may not be comparable to similarly titled amounts reported by other companies. Analysis of results and outlook on a non-GAAP basis should be considered in addition to, and not in substitution for or as superior to, measurements of financial performance prepared in accordance with US GAAP.

Net Sales in Constant Currency, Excluding Acquisitions
We make references to "constant currency," a non-GAAP performance measure that excludes the foreign exchange rate impact from fluctuations in the average foreign exchange rates between reporting periods. Constant currency is calculated by translating current period results from currencies other than the U.S. dollar into U.S. dollars using the comparable average foreign exchange rates from the prior year period. We also exclude the impact of acquisitions prior to the first full year of operations from the acquisition date in order to show net sales results on an organic basis. This information is provided to analyze underlying trends without the translation impact of fluctuations in foreign currency rates and the impact of acquisitions. Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency, excluding acquisition:

Net Sales by Segment:     
 Fiscal Year Ended June 30,    
 2019 2018 $ Change % Change
Worldwide Barcode, Networking & Security:(in thousands)  
Net sales, as reported$2,589,837
 $2,628,988
 $(39,151) (1.5)%
Foreign exchange impact (a)
33,318
 —
    
Net sales, constant currency2,623,155
 2,628,988
 (5,833) (0.2)%
Less: Acquisitions(23,465) (14,553)    
Net sales, constant currency excluding acquisitions$2,599,690
 $2,614,435
 $(14,745) (0.6)%
        
Worldwide Communications & Services:       
Net sales, as reported$1,283,274
 $1,217,272
 $66,002
 5.4 %
Foreign exchange impact (a)
45,655
 —
    
Net sales, constant currency1,328,929
 1,217,272
 111,657
 9.2 %
Less: Acquisitions(7,261) —
    
Net sales, constant currency excluding acquisitions$1,321,668
 $1,217,272
 $104,396
 8.6 %
        
Consolidated:       
Net sales, as reported$3,873,111
 $3,846,260
 $26,851
 0.7 %
Foreign exchange impact (a)
78,973
 —
    
Net sales, constant currency3,952,084
 3,846,260
 105,824
 2.8 %
Less: Acquisitions(30,726) (14,553)    
Net sales, constant currency excluding acquisitions$3,921,358
 $3,831,707
 $89,651
 2.3 %
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the year ended June 30, 2019 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2018.


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Net Sales by Geography:     
 Fiscal Year Ended June 30,    
 2019 2018 $ Change % Change
United States and Canada:(in thousands)  
Net sales, as reported$2,917,780
 $2,847,197
 $70,583
 2.5 %
Less: Acquisitions(30,726) (14,553)    
Net sales, excluding acquisitions$2,887,054
 $2,832,644
 $54,410
 1.9 %
        
International:       
Net sales, as reported$955,331
 $999,063
 $(43,732) (4.4)%
Foreign exchange impact (a)
78,973
 —
    
Net sales, constant currency1,034,304
 999,063
 35,241
 3.5 %
Less: Acquisitions—
 —
    
Net sales, constant currency excluding acquisitions$1,034,304
 $999,063
 $35,241
 3.5 %
        
Consolidated:       
Net sales, as reported$3,873,111
 $3,846,260
 $26,851
 0.7 %
Foreign exchange impact (a)
78,973
 —
    
Net sales, constant currency3,952,084
 3,846,260
 105,824
 2.8 %
Less: Acquisitions(30,726) (14,553)    
Net sales, constant currency excluding acquisitions$3,921,358
 $3,831,707
 $89,651
 2.3 %
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the year ended June 30, 2019 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2018.
Non-GAAP Operating Income, Non-GAAP Pre-Tax Income, Non-GAAP Net Income and Non-GAAP EPS

To evaluate current period performance on a more consistent basis with prior periods, we disclose non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to acquisitions, changes in fair value of contingent consideration, acquisition costs and other non-GAAP adjustments. Non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted EPS are useful in assessing and understanding our operating performance, especially when comparing results with previous periods or forecasting performance for future periods. Below we provide a non-GAAP reconciliation of operating income, pre-tax income, net income and earnings per share adjusted for the costs and charges mentioned above:

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 Year ended June 30, 2019 Year ended June 30, 2018
 Operating Income Pre-Tax Income Net Income Diluted EPS Operating Income Pre-Tax Income Net Income Diluted EPS
 
(in thousands, except per share data)

GAAP Measures$89,964
 $77,908
 $57,597
 $2.24
 $67,639
 $60,925
 $33,153
 $1.29
Adjustments:               
Amortization of intangible assets19,732
 19,732
 14,956
 0.58
 20,657
 20,657
 14,021
 0.55
Change in fair value of contingent consideration15,200
 15,200
 11,294
 0.44
 37,043
 37,043
 24,697
 0.96
Acquisition costs1,218
 1,218
 1,218
 0.05
 172
 172
 172
 0.01
Restructuring costs2,402
 2,402
 1,740
 0.07
 —
 —
 —
 —
Tax recovery, net and related interest income—
 —
 (387) (0.02) (2,466) (3,119) (2,058) (0.08)
Legal settlement, net of attorney fees—
 —
 —
 —
 952
 952
 771
 0.03
Tax reform changes—
 —
 —
 —
 —
 —
 9,034
 0.35
Non-GAAP measures$128,516
 $116,460
 $86,418
 $3.36
 $123,997
 $116,630
 $79,790
 $3.11


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Operating Income by Segment:         
 Fiscal year ended June 30,     
% of Net Sales
June 30,
 2019 2018 $ Change % Change 2019 2018
Worldwide Barcode, Networking & Security:           
GAAP operating income$59,875
 $56,911
 $2,964
 5.2 % 2.3% 2.2%
Adjustments:           
Amortization of intangible assets8,098
 8,703
 (605)      
Restructuring costs793
 —
 793
      
Change in fair value of contingent consideration—
 69
 (69)      
Tax recovery—
 (1,512) 1,512
      
Non-GAAP operating income$68,766
 $64,171
 $4,595
 7.2 % 2.7% 2.4%
            
Worldwide Communications & Services:           
GAAP operating income$31,307
 $10,900
 $20,407
 187.2 % 2.4% 0.9%
Adjustments:           
Amortization of intangible assets11,634
 11,954
 (320)      
Change in fair value of contingent consideration15,200
 36,974
 (21,774)      
Restructuring costs1,609
 —
 1,609
      
Legal settlement—
 952
 (952)      
Tax recovery—
 (954) 954
      
Non-GAAP operating income$59,750
 $59,826
 $(76) (0.1)% 4.7% 4.9%
            
Corporate:           
GAAP operating income$(1,218) $(172) $(1,046) nm*
 nm*
 nm*
Adjustments:           
Acquisition costs1,218
 172
 1,046
      
Non-GAAP operating income$—
 $—
 $—
 nm*
 nm*
 nm*
            
Consolidated:           
GAAP operating income$89,964
 $67,639
 $22,325
 33.0 % 2.3% 1.8%
Adjustments:           
Amortization of intangible assets19,732
 20,657
 (925)      
Change in fair value of contingent consideration15,200
 37,043
 (21,843)      
Acquisition costs1,218
 172
 1,046
      
Restructuring costs2,402
 —
 2,402
      
Legal settlement—
 952
 (952)      
Tax recovery—
 (2,466) 2,466
      
Non-GAAP operating income$128,516
 $123,997
 $4,519
 3.6 % 3.3% 3.2%

Return on Invested Capital

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Management uses ROIC as a performance measurement to assess efficiency at allocating capital under our control to generate returns. Management believes this metric balances our operating results with asset and liability management, is not impacted by capitalization decisions and correlates with shareholder value creation. In addition, it is easily computed, communicated and understood. ROIC also provides management a measure of our profitability on a basis more comparable to historical or future periods.
ROIC assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performance. We believe the calculation of ROIC provides useful information to investors and is an additional relevant comparison of our performance during the year.
We calculate ROIC as earnings before interest expense, income taxes, depreciation and amortization, plus change in fair value of contingent consideration and other non-GAAP adjustments ("adjusted EBITDA"), divided by invested capital. Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period. The following table summarizes annualized ROIC for the fiscal years ended June 30, 20192020 and 2018,2019, respectively.
20202019
Return on invested capital ratio7.5 %12.1 %
 2019 2018
Return on invested capital ratio12.0% 12.5%
The components of our ROIC calculation and reconciliation to our financial statements are shown, as follows:
Fiscal Year Ended June 30,
 20202019
 (in thousands)
Reconciliation of net income to EBITDA:
Net (loss) income from continuing operations (GAAP)$(79,227)$64,859 
Plus: Interest expense12,224 13,162 
Plus: Income taxes7,451 18,778 
Plus: Depreciation and amortization35,328 33,652 
EBITDA (non-GAAP)(24,224)130,451 
Plus: Change in fair value of contingent consideration6,941 15,200 
Plus: Acquisition and divestiture costs(a)
4,000 1,218 
Plus: Restructuring costs604 — 
Plus: Impairment charges120,470 — 
Plus: Tax recovery, net(10,744)— 
Adjusted EBITDA (numerator for ROIC) (non-GAAP)$97,047 $146,869 

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Reconciliation of EBITDA to Net IncomeFiscal Year Ended June 30,
 2019 2018
 (in thousands)
Net income (GAAP)$57,597
 $33,153
Plus: income taxes20,311
 27,772
Plus: interest expense13,382
 9,149
Plus: depreciation & amortization(a) 
36,619
 37,495
EBITDA127,909
 107,569
Change in fair value of contingent consideration15,200
 37,043
       Acquisition costs(b) 
1,218
 172
       Restructuring costs(a) 
2,267
 —
Legal settlement (recovery), net of attorney fees—
 952
Tax recovery and related interest income—
 (3,119)
       Adjusted EBITDA (numerator for ROIC) (non-GAAP)$146,594
 $142,617
Invested capital calculationsFiscal Year Ended June 30,
 20202019
 (in thousands)
Invested capital calculations:
Equity – beginning of the year$914,129 $866,376 
Equity – end of the year678,246 914,129 
Plus: Change in fair value of contingent consideration, net of tax5,247 11,294 
Plus: Acquisition and divestiture costs(a)
4,000 1,218 
Plus: Restructuring, net of tax449 — 
Plus: Impairment charges, net of tax114,398 — 
Plus: Tax recovery, net(8,001)(3,110)
Plus: Impact of discontinued operations, net of tax98,794 (16,557)
Average equity903,631 886,675 
Average funded debt(b)
390,709 329,473 
Invested capital (denominator for ROIC) (non-GAAP)$1,294,340 $1,216,148 
Invested capital calculationsFiscal Year Ended June 30,
 2019 2018
 (in thousands)
Equity – beginning of the year$866,376
 $837,145
Equity – end of the year914,129
 866,376
Change in fair value of contingent consideration, net of tax11,294
 24,697
       Acquisition costs(b) 
1,218
 172
       Restructuring costs(a) 
1,631
 —
Legal settlement (recovery), net of attorney fees, net of tax

—
 771
Tax recovery, net and related interest income, net of tax(387) (2,058)
Tax reform charges—
 9,034
Average equity, adjusted897,131
 868,069
Average funded debt(c) 
329,473
 276,233
Invested capital (denominator)$1,226,604
 $1,144,302
    
(a) Accelerated depreciation expense on certain European facilities in connection with restructuring in Includes acquisition and divestitures costs for the third quarter of fiscal 2019 are classified as
depreciation expense above rather than restructuring costs.
(b)Includesyear ended June 30, 2020 and acquisition costs for the yearsfiscal year ended June 30, 20192019. Acquisition and 2018. Acquisitiondivestiture costs are generally non-deductible for tax purposes.
(c)(b) Average funded debt, which includes both continuing operations and discontinued operations, is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt.

Net Sales in Constant Currency, Excluding Acquisitions and Divestitures
We make references to "constant currency," a non-GAAP performance measure that excludes the foreign exchange rate impact from fluctuations in the average foreign exchange rates between reporting periods. Constant currency is calculated by translating current period results from currencies other than the U.S. dollar into U.S. dollars using the comparable average foreign exchange rates from the prior year period. We also exclude the impact of acquisitions prior to the first full year of operations from the acquisition date and the impact of Divestitures in order to show net sales results on an organic basis. This information is provided to analyze underlying trends without the translation impact of fluctuations in foreign currency rates and the impact of acquisitions. Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency, excluding acquisition:
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Net Sales by Segment:
Fiscal Year Ended June 30,
20202019$ Change% Change
Worldwide Barcode, Networking & Security:(in thousands)
Non-GAAP net sales, including Divestitures$2,511,666 $2,589,837 $(78,171)(3.0)%
Divestitures(418,449)(447,941)
Net sales, reported2,093,217 2,141,896 (48,679)(2.3)%
Foreign exchange impact(a)
10,395 — 
Non-GAAP net sales, constant currency excluding Divestitures and acquisitions$2,103,612 $2,141,896 $(38,284)(1.8)%
Worldwide Communications & Services:
Non-GAAP net sales, including Divestitures$1,097,564 $1,283,274 $(185,710)(14.5)%
Divestitures(143,047)(175,371)
Net sales, reported954,517 1,107,903 (153,386)(13.8)%
Foreign exchange impact(a)
29,829 — 
Less: Acquisitions(9,122)(1,026)
Non-GAAP net sales, constant currency excluding Divestitures and acquisitions$975,224 $1,106,877 $(131,653)(11.9)%
Consolidated:
Non-GAAP net sales, including Divestitures$3,609,230 $3,873,111 $(263,881)(6.8)%
Divestitures(561,496)(623,312)
Net sales, reported3,047,734 3,249,799 (202,065)(6.2)%
Foreign exchange impact(a)
40,224 — 
Less: Acquisitions(9,122)(1,026)
Non-GAAP net sales, constant currency excluding Divestitures and acquisitions$3,078,836 $3,248,773 $(169,937)(5.2)%
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the year ended June 30, 2020 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2019.
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Net sales by segment
Fiscal Year Ended June 30,
20192018$ Change% Change
Worldwide Barcode, Networking & Security:
Non-GAAP net sales, including Divestitures$2,589,837 $2,628,988 $(39,151)(1.5)%
Divestitures(447,941)(485,853)
Net sales, reported2,141,896 2,143,135 (1,239)(0.1)%
Foreign exchange impact(a)
16,196 — 
Less: Acquisitions(23,465)(14,553)
Non-GAAP net sales, constant currency excluding Divestitures and acquisitions$2,134,627 $2,128,582 $6,045 0.3 %
Worldwide Communications & Services:
Non-GAAP net sales, including Divestitures$1,283,274 $1,217,272 $66,002 5.4 %
Divestitures(175,371)(195,698)
Net sales, reported1,107,903 1,021,574 86,329 8.5 %
Foreign exchange impact(a)
39,274 — 
Less: Acquisitions(7,052)— 
Non-GAAP net sales, constant currency excluding Divestitures and acquisitions$1,140,125 $1,021,574 $118,551 11.6 %
Consolidated:
Non-GAAP net sales, including Divestitures$3,873,111 $3,846,260 $26,851 0.7 %
Divestitures(623,312)(681,551)
Net sales, reported3,249,799 3,164,709 85,090 2.7 %
Foreign exchange impact(a)
55,470 — 
Less: Acquisitions(30,517)(14,553)
Non-GAAP net sales, constant currency excluding Divestitures and acquisitions$3,274,752 $3,150,156 $124,596 4.0 %
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the year ended June 30, 2019 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2018.
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Net Sales by Geography:
Fiscal Year Ended June 30,
20202019$ Change% Change
United States and Canada:(in thousands)
Net sales, as reported$2,755,134 $2,917,780 $(162,646)(5.6)%
Less: Acquisitions(3,542)(1,062)
Net sales, excluding acquisitions$2,751,592 $2,916,718 $(165,126)(5.7)%
International:
Non-GAAP net sales, including Divestitures$854,096 $955,331 $(101,235)(10.6)%
Divestitures(561,496)(623,312)
Net sales, reported292,600 332,019 (39,419)(11.9)%
Foreign exchange impact(a)
40,224 — 
Less: Acquisitions(5,580)36 
Net sales, constant currency excluding Divestitures and acquisitions (non-GAAP)$327,244 $332,055 $(4,811)(1.4)%
Consolidated:
Non-GAAP net sales, including Divestitures$3,609,230 $3,873,111 $(263,881)(6.8)%
Divestitures(561,496)(623,312)
Net sales, reported3,047,734 3,249,799 (202,065)(6.2)%
Foreign exchange impact(a)
40,224 — 
Less: Acquisitions(9,122)(1,026)
Net sales, constant currency excluding Divestitures and acquisitions (non-GAAP)$3,078,836 $3,248,773 $(169,937)(5.2)%
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the year ended June 30, 2020 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2019.

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Net Sales by Geography:
Fiscal Year Ended June 30,
20192018$ Change% Change
United States and Canada:
Net sales, as reported$2,917,780 $2,847,197 $70,583 2.5 %
Less: Acquisitions(30,517)(14,553)
Net sales, excluding acquisitions$2,887,263 $2,832,644 $54,619 1.9 %
International:
Non-GAAP net sales, including Divestitures$955,331 $999,063 $(43,732)(4.4)%
Divestitures(623,312)(681,551)
Net sales, reported332,019 317,512 14,507 4.6 %
Foreign exchange impact(a)
55,459 — 
Less: Acquisitions— — 
Net sales, constant currency excluding Divestitures and acquisitions (non-GAAP)$387,478 $317,512 $69,966 22.0 %
Consolidated:
Non-GAAP net sales, including Divestitures$3,873,111 $3,846,260 $26,851 0.7 %
Divestitures(623,312)(681,551)
Net sales, reported3,249,799 3,164,709 85,090 2.7 %
Foreign exchange impact(a)
55,470 — 
Less: Acquisitions(30,517)(14,553)
Net sales, constant currency excluding Divestitures and acquisitions (non-GAAP)$3,274,752 $3,150,156 $124,596 4.0 %
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the year ended June 30, 2019 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2018.
Income Statement Non-GAAP Metrics

To evaluate current period performance on a more consistent basis with prior periods, we disclose non-GAAP net sales, non-GAAP gross profit, non-GAAP operating income, non-GAAP net other expense, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to acquisitions, changes in fair value of contingent consideration, acquisition and divestiture costs, restructuring costs, impact of Divestitures and other non-GAAP adjustments. These metrics are useful in assessing and understanding our operating performance, especially when comparing results with previous periods or forecasting performance for future periods. Below we provide a non-GAAP reconciliation of the aforementioned metrics adjusted for the costs and charges mentioned above:

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Operating Income by Segment:

Fiscal year ended June 30,% of Net Sales
June 30,
20202019$ Change% Change20202019
Worldwide Barcode, Networking & Security:
GAAP operating (loss) income(83,515)57,019 (140,534)(246.5)%(4.0)%2.7 %
Adjustments:
Amortization of intangible assets7,871 8,099 (228)
Tax recovery(5,480)— (5,480)
Impairment charges119,037 — 119,037 
Non-GAAP operating income$37,913 $65,118 $(27,205)(41.8)%1.8 %3.0 %
Worldwide Communications & Services:
GAAP operating income22,548 38,933 (16,385)(42.1)%2.4 %3.5 %
Adjustments:
Amortization of intangible assets12,082 9,794 2,288 
Change in fair value of contingent consideration6,941 15,200 (8,259)
Restructuring costs604 — 604 
Tax recovery(2,583)— (2,583)
Impairment charges1,433 — 1,433 
Non-GAAP operating income$41,025 $63,927 $(22,902)(35.8)%4.3 %5.8 %
Corporate:
GAAP operating loss$(4,000)$(1,218)$(2,782)nm*nm*nm*
Adjustments:
Acquisition and divestiture costs4,000 1,218 2,782 
Non-GAAP operating income$— $— $— nm*nm*nm*
Consolidated:
GAAP operating (loss) income(64,967)94,734 (159,701)(168.6)%(2.1)%2.9 %
Adjustments:
Amortization of intangible assets19,953 17,893 2,060 
Change in fair value of contingent consideration6,941 15,200 (8,259)
Acquisition and divestiture costs4,000 1,218 2,782 
Restructuring costs604 — 604 
Tax recovery(8,063)— (8,063)
Impairment charges120,470 — 120,470 
Non-GAAP operating income$78,938 $129,045 $(50,107)(38.8)%2.6 %4.0 %

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Year ended June 30, 2020
GAAP MeasureIntangible amortization expenseChange in fair value of contingent consideration
Acquisition, divestiture and restructuring costs(a)
Tax recovery, netImpairment chargesNon-GAAP measure
(in thousands, except per share data)
Net sales$3,047,734 $— $— $— $— $— $3,047,734 
Gross profit355,569 — — — — — 355,569 
Operating (loss) income(64,967)19,953 6,941 4,604 (8,063)120,470 78,938 
Other expense, net6,809 — — — 2,681 — 9,490 
Pre-tax (loss) income(71,776)19,953 6,941 4,604 (10,744)120,470 69,448 
Net (loss) income from continuing operations(79,227)15,091 5,247 4,449 (8,001)114,398 51,957 
Diluted EPS from continuing operations$(3.12)$0.59 $0.21 $0.18 $(0.32)$4.51 $2.05 
(a) Acquisition and divestiture costs totaled $4.0 million for the fiscal year ended June 30, 2020 and are generally nondeductible for tax purposes. Restructuring costs totaled $0.6 million for the fiscal year ended June 30, 2020.
Year ended June 30, 2019
GAAP MeasureIntangible amortization expenseChange in fair value of contingent consideration
Acquisition, divestiture and restructuring costs(a)
Tax recovery, netImpairment chargesNon-GAAP measure
(in thousands, except per share data)
Net sales$3,249,799 $— $— $— $— $— $3,249,799 
Gross profit392,803 — — — — — 392,803 
Operating income94,734 17,893 15,200 1,218 — — 129,045 
Other expense, net11,097 — — — — — 11,097 
Pre-tax income83,637 17,893 15,200 1,218 — — 117,948 
Net income from continuing operations64,859 13,484 11,294 1,218 (3,110)— 87,745 
Diluted EPS from continuing operations$2.52 $0.52 $0.44 $0.05 $(0.12)$— $3.41 
(a) Acquisition and divestiture costs totaled $1.2 million for the fiscal year ended June 30, 2019 and are generally nondeductible for tax purposes.

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Index to Financial Statements


Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in conformity with US GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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, inventory reserves to reduce inventories to the lower of cost or net realizable value and supplier incentives. Management bases its estimates on historical experience and on various other 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. Actual results may differ materially from these estimates under different assumptions or conditions. For further discussion of our significant accounting policies, refer to Note 1 - Business and Summary of Significant Accounting Policies.
Allowances for Trade and Notes Receivable
We maintain an allowance for uncollectible accounts receivable for estimated losses resulting from customers’ failure to make payments on accounts receivable due to the Company. Management determines the estimate of the allowance for uncollectible accounts receivable by considering a number of factors, including: (1) historical experience, (2) aging of the accounts receivable, (3) specific information obtained by the Company on the financial condition and the current creditworthiness of its customers and (4) the current economic and country specific environment. If the financial condition of our customers were to deteriorate and reduce the ability of our customers to make payments on their accounts, we may be required to increase our allowance by recording additional bad debt expense. Likewise, should the financial condition of our customers improve and result in payments or settlements of previously reserved amounts, we may be required to record a reduction in bad debt expense to reverse the recorded allowance.
Inventory Reserves
Management determines the inventory reserves required to reduce inventories to the lower of cost or net realizable value based principally on the effects of technological changes, quantities of goods and length of time on hand and other factors. An estimate is made of the net realizable value, less cost to dispose, of products whose value is determined to be impaired. If these products are ultimately sold at less than estimated amounts, additional reserves may be required. The estimates used to calculate these reserves are applied consistently. The adjustments are recorded in the period in which the loss of utility of the inventory occurs, which establishes a new cost basis for the inventory. This new cost basis is maintained until such time that the reserved inventory is disposed of, returned to the supplier or sold. To the extent that specifically reserved inventory is sold, cost of goods sold is expensed for the new cost basis of the inventory sold.
Supplier Programs

We receive incentives from suppliers related to cooperative advertising allowances, volume rebates and other incentive programs. These incentives are generally under quarterly, semi-annual or annual agreements with the suppliers. Some of these incentives are negotiated on an ad hoc basis to support specific programs mutually developed between the Company and the supplier. Suppliers generally require that we 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. ASC 606– Revenue from Contracts with Customers addresses accounting for consideration payable to a customer, which the Company interruptsinterprets and applies as the customer (i.e., the Company) receivingreceives advertising funds from a supplier. The portion of these supplier funds in excess of our costs are reflected as a reduction of inventory. Such funds are recognized as a reduction of the cost of goods sold when the related inventory is sold.

We record unrestricted volume rebates received as a reduction of inventory and reduces the cost of goods sold when the related inventory is sold. Amounts received or receivables from suppliers that are not yet earned are deferred in the Consolidated Balance Sheets. Supplier receivables are generally collected through reductions to accounts payable authorized by the supplier. In addition, we may receive early payment discounts from certain suppliers. We record early payment discounts received as a reduction of inventory, thereby resulting in a reduction of cost of goods sold when the related inventory is sold. ASC 606 requires management to make certain estimates of the amounts of supplier consideration that will be received. Estimates are
41

Index to Financial Statements


based on the terms of the incentive program and historical experiences. Actual recognition of the supplier consideration may vary from management estimates.

Goodwill


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We account for recorded goodwill in accordance with ASC 350, Goodwill and Other Intangible Assets, which requires that goodwill be reviewed annually for impairment or more frequently if impairment indicators exist. Goodwill testing utilizes an impairment analysis, whereby we compare the carrying value of each identified reporting unit to its fair value. The carrying value of goodwill is reviewed at a reporting unit level at least annually for impairment, or more frequently if impairment indicators exist. Our goodwill reporting units align directly with our operating segments, Worldwide Barcode, Networking & Security and Worldwide Communications & Services. 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 the operating and macroeconomic factors. Historical financial information, internal plans and projections and industry information are used in making such estimates.

Under Accounting Standards Update ("ASU") 2017-04 if fair value of goodwill fair value is determined to be less than carrying value, an impairment loss is recognized for the amount of the carrying value that exceeds the amount of the reporting units' fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Additionally, we would consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. We also assess the recoverability of goodwill if facts and circumstances indicate goodwill may be impaired. In our most recent annual test, we estimated the fair value of our reporting units primarily based on the income approach utilizing the discounted cash flow method. We also utilized fair value estimates derived from the market approach utilizing the public company market multiple method to validate the results of the discounted cash flow method, which required us to make assumptions about the applicability of those multiples to our reporting units. The discounted cash flow method requires us to estimate future cash flows and discount those amounts to present value. The key assumptions utilized in determining fair value included:

•Industry weighted-average cost of capital ("WACC"): We utilized a WACC relative to each reporting unit's respective geography and industry as the discount rate for estimated future cash flows. The WACC is intended to represent a rate of return that would be expected by a market place participant in each respective geography.
•Operating income: We 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.
•Cash flows from working capital changes: We utilized a projected cash flow impact pertaining to expected changes in working capital as each of our goodwill reporting units grow.
While we believe our assumptions are appropriate, they are subject to uncertainty and by nature include judgments and estimates regarding future events, including projected growth rates, margin percentages and operating efficiencies. Key assumptions used in determining fair value include projected growth and operating margin, working capital requirements and discount rates. During fiscal years 2019 and 2018,year 2020, we completed our annual impairment test as of each April 30th and determined that goodwill for our goodwill isWorldwide Barcode, Networking and Security reporting unit was impaired and we recorded an impairment charge of $119.0 million accordingly. It became apparent to management during the fourth quarter of the current fiscal year that the negative impacts of the COVID-19 pandemic would drive year-over-year revenue losses for the current quarter and next fiscal year. Such losses resulted in reduced cash flow projections for this reporting unit that were not at riskexpected during the previous quarter as COVID-19 was just beginning to impact the United States. In addition, we saw an unanticipated and sustained reduction in our stock price compared to historical values as we progressed further through the fourth quarter. The fair value of impairment.our Worldwide Communications & Services reporting unit exceeds its carrying value of assets by approximately 12%.
See Note 7 - Goodwill and Other Identifiable Intangible Assets in the Notes to Consolidated Financial Statements for further discussion on our goodwill impairment testing and results.
Liability for Contingent Consideration
In addition to the initial cash consideration paid to former shareholders of Intelisys, Network1 and POS Portal, and Imago, we 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. We paid annual earnout payments to the former shareholders of Intelisys in fiscal years 2018, 2019 and 2020. We paid the final earnout payment to the former shareholders of Network1
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Index to Financial Statements


during fiscal year 2019 and to Imago during fiscal year 2017.2019. We also made a single earnout payment to the former shareholders of POS Portal during fiscal year 2018 in accordance with the share purchase agreement.
Intelisys has twoone remaining earnout paymentspayment to be paid in annual installments during fiscal years 2020 andyear 2021. In accordance with ASC Topic 805, Business Combinations, we determine the fair value of this liability for contingent consideration at each reporting date throughout the term of the earnout using a form of a probability weighted discounted cash flow model. Each period we reflect the contingent consideration liability at fair value with changes recorded in the change in fair value of contingent consideration line item on the Consolidated Income Statement. Current and noncurrent portions of the liability are presented in the current portion of contingent consideration and long-term portion of contingent consideration line items on the Consolidated Balance Sheets.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future affecteffect or change on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance���off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the company is a party, under which the company has (i) any obligation arising under a

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guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
Accounting Standards Recently Issued
See Note 1 in the Notes to Consolidated Financial Statements for the discussion on recent accounting pronouncements.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations and borrowings under the $350 million revolving credit facility. Our business requires significant investment in working capital, particularly accounts receivable and inventory, partially financed through our accounts payable to suppliers. In general, as our sales volumes increase, our net investment in working capital typically increases, which typically results in decreased cash flow from operating activities. Conversely, when sales volumes decrease, our net investment in working capital typically decreases, which typically results in increased cash flow from operating activities.
Cash and cash equivalents totaled $23.8$29.5 million, $19.3 million and $23.5 million at June 30, 2020, 2019, compared to $25.5 million at June 30, and 2018,, respectively, of which $18.9$23.6 million, $14.1 million and $20.3$18.3 million was held outside of the United States as of June 30, 2020, 2019 and 2018, respectively. Checks released but not yet cleared from these accounts in the amounts of $25.4$15.4 million, $7.4 million and $5.7$5.6 million are classified as accounts payable as of June 30, 2020, 2019 and 2018, respectively.
We conduct business in many locations throughout the world where we generate and use cash. We provide for United States income taxes for the earnings of our Canadian subsidiary, but earnings from Brazil will continue to be considered retained indefinitely for reinvestment and all other foreign geographies are immaterial. It has been our practice to reinvest those earnings in the businesses outside the United States. Due to recent tax legislation in the United States, we were required to estimate a one-time transition tax on repatriation of foreign earnings during the fiscal year ended June 30, 2018. See Note 13 - Income Taxes in the Notes to the Consolidated Financial Statements for further discussion.
Our net investment in working capital increased $124.6decreased $150.0 million to $776.4$431.3 million at June 30, 2020 from $581.2 million at June 30, 2019, primarily from $651.9decreases in accounts receivable and inventory, partially offset by decreases in accounts payable. Our net investment in working capital totaled $490.9 million at June 30, 2018, principally from higher2018. Decreases in accounts receivable, inventory, levels. Higher inventory levelsand accounts payable in the current year are due to strategic inventory purchases duringlower sales volumes as a result of the year, coupled with lower than planned sales.OurCOVID-19 pandemic. Our net investment in working capital is affected by several factors such as fluctuations in sales volume, net income, timing of collections from customers, increases and decreases to inventory levels, payments to suppliers, as well as cash generated or used by other financing and investing activities.
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Index to Financial Statements


 Year ended
Cash provided by (used in):June 30, 2019 June 30, 2018
 (in thousands)
Operating activities$(27,127) $24,805
Investing activities(39,376) (151,927)
Financing activities64,233
 100,574
Effect of exchange rate change on cash and cash equivalents558
 (4,016)
Decrease in cash and cash equivalents$(1,712) $(30,564)
Year ended
Cash provided by (used in):June 30, 2020June 30, 2019June 30, 2018
(in thousands)
Operating activities of continuing operations$182,033 $16,032 $31,447 
Investing activities of continuing operations(55,308)(37,958)(150,766)
Financing activities of continuing operations(152,686)31,314 100,920 
Net cash used inprovided by operating activities was $27.1$182.0 million for the year ended June 30, 2019,2020, compared to $24.8$16.0 million and $31.4 million provided by operating activities for the years ended June 30, 2019 and 2018. Operating cash flows for the year ended June 30, 20192020 is primarily attributable to increasedreduced inventory levels,and accounts receivable balances and earnings from operations adjusted for non-cash items. Operating cash flows for the year ended June 30, 2019 is primarily attributable to earnings from operations adjusted for non-cash items, partially offset by net income, excluding the impact of initial account balances assumed from the Canpango and RPM acquisitions. increased inventory. Operating cash flows for the year ended June 30, 2018 is primarily attributable to net income, increases inearnings from operations adjusted for non-cash adjustments to net income,items, partially offset by overall increases in cash used for working capital needs, excluding the impact of initial accounts balances assumed from the POS Portal acquisition.needs.
Excluding Intelisys,the master agency business, the number of days sales outstanding ("DSO") was 6263 at June 30, 2020, compared to 58 at June 30, 2019 compared to 59and 56 at June 30, 2018. The increase in DSO is primarily a result of changes in the aging portfolio of North America. Throughout the current fiscal year, DSO ranged from 5856 to 62.63. Inventory turnover was 4.74.5 times during the fourth quarter of the current fiscal year, compared to 6.04.9 and 6.4 times in the fourth quarter of fiscal year 2018.years 2019 and 2018, respectively. Throughout the current fiscal year, 2019, inventory turnover ranged from 4.34.5 to 5.45.6 times.

Cash used in investing activities was $39.4$55.3 million, $38.0 million and $151.9$150.8 million for the years ended June 30, 2020, 2019, and 2018, respectively. Cash used in the business acquisitions ofinvesting activities is primarily attributable to cash used to purchase IntY in fiscal year 2020, RPM and Canpango in fiscal year 2019, and POS Portal in each respectivefiscal year drove investing cash flow for the years ended June 30, 2019 and 2018.


34
Table of Contents

Index to Financial Statements



Cash provided byused in financing activities for the year ended June 30, 20192020 totaled to $64.2$152.7 million, compared to cash provided by financing activities of $100.6$31.3 million and $100.9 million in fiscal years 2019 and 2018, respectively. For fiscal year 2018.2020, cash used in financing activities is primarily attributable to net debt repayments and contingent consideration payments. For both fiscal years 2019 and 2018, cash provided by financing activities is primarily attributable to net debt borrowings, partially offset by contingent consideration payments.

Share Repurchase Program

In August 2016, the Board of Directors authorized a three year $120 million share repurchase program. The share repurchase program expired in August 2019. Since the inception of the program, through June 30, 2019, we have repurchased 0.91.1 million shares totaling $30.5$35.9 million, of which 0.30.2 million totaling $10.1$5.4 million were repurchased during the year ended June 30, 2019. The current share repurchase authorization expires in August 2019.2020.

Credit Facility

We have a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (the “Amended Credit Agreement”).banks. On April 30, 2019, we amended this credit facility to expand the borrowing capacity and extend its maturity to April 30, 2024. 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,” we may increase itsour borrowings by up to an additional $250 million, for a total of up to $750 million, andsubject 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.

At our 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 to trailing four-quarter adjusted earnings before interest expense, taxes, depreciation and amortization ("EBITDA") (the "Leverage Ratio"). This spread ranges from 1.00% to 1.750% for LIBOR-based loans and 0.00% to 0.750% for alternate base rate 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. The Amended Credit Agreement contains customary yield protection provisions.
44

Index to Financial Statements


Additionally, the Company is assessed commitment fees ranging from 0.150%0.15% to 0.30%, depending upon the Leverage Ratio, on non-utilized borrowing availability, excluding swingline loans. Borrowings under the Amended Credit Agreement are guaranteed 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.

The Amended Credit Agreement includes customary representations, warranties, and affirmative and negative covenants, including financial covenants. Specifically, our Leverage Ratio must be less than or equal to 3.50 to 1.00 at all times. In addition, our Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement) must be at least 3.00:1.00 as of the end of each fiscal quarter. In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates. We were in compliance with all covenants under the credit facility as of June 30, 2019. There2020. Including borrowings for both continuing and discontinued operations, there was $92.4 million, $200.8 million, and $244.0 million outstanding on the revolving credit facility at June 30, 2020, 2019 and 2018 respectively.

TheIncluding borrowings for both continuing and discontinued operations, the average daily balance on the revolving credit facility, excluding the term loan facility, was $235.4 million, $296.4 million and $269.5 million for the years ended June 30, 2020, 2019 and 2018, respectively. There were no letters of credit issued under the multi-currency revolving credit facility for the discontinued operations of $0.3 million as of June 30, 2020. There were no letters of credit issued as of June 30, 2019 and June 30, 2018. ThereTaking into consideration outstanding borrowings on the multi-currency revolving credit facility for both continuing and discontinued operations, there was $149.2$257.3 million and $156.0$149.2 million available for additional borrowings as of June 30, 2020 and 2019, and 2018, respectively. Future availability will dependAvailability to use this borrowing capacity depends upon, among other things, the levels of our Leverage Ratio and Interest Coverage Ratio, which, in turn, will depend upon (1) our overall net debtCredit Facility Net Debt relative to our EBITDA, and (2) Credit Facility EBITDA relative to total interest expense.expense respectively.  As a result, our availability will increase if EBITDA increases (subject to the limit of the facility) and decrease if EBITDA decreases.

We have a bank overdraft facility with Bank of America used by our European subsidiaries. The facility allows us to disburse checks in excess of bank balances up to $14.0 million U.S. dollar equivalent for up to seven days. Borrowings under the overdraft facility bear interest at a rate equal to a spread of 1.0% over the applicable currency's LIBOR with a zero percent floor. There was an outstanding balance of $4.6 million on the overdraft facility at At June 30, 2019.2020, based upon the calculation of our Credit Facility Net Debt relative to our Credit Facility EBITDA, there was $132.1 million available for borrowing. While we were in compliance with the financial covenants contained in the Credit Facility as of June 30, 2020, and currently expect to continue to maintain such compliance, should we encounter difficulties, our historical relationship with our Credit Facility lending group has been strong and we anticipate their continued support of our long-term business.

Earnout Payments

As of June 30, 2019,2020, we are obligated to pay certainone final earnout paymentspayment to the former shareholders of Intelisys related to their acquisition on August 29, 2016. See Note 10 - Fair Value of Financial Instruments for a discussion on the liabilities recorded. We paid the final earnout payment to the former shareholders of Network1 in fiscal year 2019. We made a single earnout payment to the former shareholders of POS Portal in fiscal year 2018. FutureThe future earnout paymentspayment for Intelisys areis expected to be funded by cash from operations and our existing revolving credit facility.

35
Table of Contents

Index to Financial Statements



Summary
We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds under our credit agreements, will provide sufficient resources to meet our present and future working capital and cash requirements for at least the next twelve months.
Commitments
At June 30, 2019,2020, we had contractual obligations in the form of non-cancelable operating leases, a capital lease (including interest payments), debt (including interest payments) and the contingent consideration for the earnout pertaining to the Intelisys acquisition. See Notes 8, 10 and 14 of the Notes to the Consolidated Financial Statements. The following table summarizes our future contractual obligations:
45
 Payments Due by Period
 Total Year 1 Years 2-3 Years 4-5 
Greater than
5 Years
 (in thousands)
Contractual Obligations 
Non-cancelable operating leases(1) 
$41,257
 $8,043
 $13,137
 $9,297
 $10,780
Capital lease675
 675
 —
 —
 —
Overdraft facility4,590
 4,590
      
Principal debt payments155,099
 4,085
 15,681
 131,950
 3,383
Revolving credit facility200,817
 —
 —
 200,817
 —
Contingent consideration(2)
77,925
 37,933
 39,534
 —
 —
Other(3) 
—
 —
 —
 —
 —
Total obligations$480,363
 $55,326
 $68,352
 $342,064
 $14,163
(1)Amounts to be paid in future periods for real estate taxes, insurance and other operating expenses applicable to the properties pursuant to the respective operating leases have been excluded from the table above as the amounts payable in future periods are generally not specified in the lease agreements and are dependent upon amounts which are not known at this time. Such amounts were not material in the current fiscal year.
(2)Amounts disclosed regarding future Intelisys earnout payments are presented at their discounted fair value. Estimated future, undiscounted earnout payments for Intelisys could range as high as $85.1 million as of June 30, 2019.
(3)
Amounts totaling $25.8 million of deferred compensation, which are included in accrued expenses and other current liabilities and other long-term liabilities in our Consolidated Balance Sheets as of June 30, 2019, have been excluded from the table above due to the uncertainty of the timing of the payment of these obligations, which are generally at the discretion of the individual employees or upon death of the former employee, respectively.


36
 Payments Due by Period
 TotalYear 1Years 2-3Years 4-5Greater than
5 Years
 (in thousands)
Contractual Obligations
Non-cancelable operating leases(1)
$28,464 $5,430 $9,643 $7,414 $5,977 
Capital lease2,631 1,228 1,403 — — 
Principal debt payments151,014 7,839 19,441 120,709 3,025 
Revolving credit facility(2)
67,714 — — 67,714 — 
Contingent consideration(3)
46,334 46,334 — — — 
Other(4)
— — — — — 
Total obligations$296,157 $60,831 $30,487 $195,837 $9,002 
(1)Amounts to be paid in future periods for real estate taxes, insurance and other operating expenses applicable to the properties pursuant to the respective operating leases have been excluded from the table above as the amounts payable in future periods are generally not specified in the lease agreements and are dependent upon amounts which are not known at this time. Such amounts were not material in the current fiscal year.
(2)The Company has $24.7 million outstanding under the revolving credit facility classified as long term liabilities held for sale in the Consolidated Balance Sheets for our discontinued operations that is not included in the chart above.
(3)Amounts disclosed regarding future Intelisys earnout payments are presented at their discounted fair value. Estimated future, undiscounted earnout payments for Intelisys could range as high as $46.9 million as of June 30, 2020.
(4)Amounts totaling $27.2 million of deferred compensation, which are included in accrued expenses and other current liabilities and other long-term liabilities in our Consolidated Balance Sheets as of June 30, 2020, have been excluded from the table above due to the uncertainty of the timing of the payment of these obligations, which are generally at the discretion of the individual employees or upon death of the former employee, respectively.

46

Index to Financial Statements


ITEM 7A.Quantitative and Qualitative Disclosures about Market Risk.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.

Our principal exposure to changes in financial market conditions in the normal course of our business is a result of our selective use of bank debt and transacting business in foreign currencies in connection with our foreign operations.

Interest Rate Risk

We are exposed to changes in interest rates primarily as a result of our borrowing activities, which include revolving credit facilities with a group of banks used to maintain liquidity and fund our business operations. The nature and amount of our debt may vary as a result of future business requirements, market conditions and other factors. A hypothetical 100 basis point increase or decrease in interest rates on total borrowings (continuing and discontinued operations) on our revolving credit facility and variable rate long-term debt, net of the impact of the interest rate swap, would have resulted in approximately a $2.6$2.9 million and $2.3 million increase or decrease in pre-tax income for the fiscal year ended June 30, 20192020 and 2018,2019, respectively.

We evaluate our interest rate risk and may use interest rate swaps to mitigate the risk of interest rate fluctuations associated with our current and long-term debt. At June 30, 20192020 and 20182019 we had $355.9$247.0 million and $249.4$360.5 million, respectively, in variable rate long term debt for both continuing and borrowings under the revolving credit facility.discontinued operations. In connection with the borrowings under the credit facility including potential future amendments or extensions of the facility, we entered into an interest rate swap maturing on April 3, 2022. The interest rate swap agreement was settled in connection with the April 30, 2019 amendment to our credit facility and we entered into a new interest rate swap with 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. The purpose of the interest rate swap is to manage or hedge our exposure to floating rate debt and achieve a desired proportion of fixed versus floating rate debt. Our use of derivative instruments have the potential to expose us to certain market risks including the possibility of (1) our hedging activities not being as effective as anticipated in reducing the volatility of our cash flows, (2) the counterparty not performing its obligations under the applicable hedging arrangement, (3) the hedging arrangement being imperfect or ineffective or (4) the terms of the swap or associated debt changing. We seek to lessen such risks by having established a policy to identify, control and manage market risks which may arise from changes in interest rates, as well as limiting our counterparties to major financial institutions.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency risks that arise from our foreign operations in Canada, Brazil, other parts of Latin America,the UK and Europe. These risks include transactions denominated in non-functional currencies and intercompany loans with foreign subsidiaries. In the normal course of the business, foreign exchange risk is managed by the use of currency options and forward contracts to hedge these exposures as well as balance sheet netting of exposures. In addition, exchange rate fluctuations may cause our international results to fluctuate significantly when translated into U.S. dollars. A hypothetical 10% increase or decrease in foreign exchange rates would have resulted in approximately a $1.3$1.1 million and $0.4$1.3 million increase or decrease in pre-tax income for fiscal years ended June 30, 20192020 and 2018,2019, respectively. These risks may change over time as business practices evolve and could have a material impact on our financial results in the future.

Our senior management has approved a foreign exchange hedging policy to reduce foreign currency exposure. Our policy is to utilize financial instruments to reduce risks where internal netting cannot be effectively employed and not to enter into foreign currency derivative instruments for speculative or trading purposes. We monitor our risk associated with the volatility of certain foreign currencies against our functional currencies and enter into foreign exchange derivative contracts to minimize short-term currency risks on cash flows. These positions are based upon balance sheet exposures and, in certain foreign currencies, our forecasted purchases and sales. We continually evaluate foreign exchange risk and may enter into foreign exchange transactions in accordance with our policy. Actual variances from these forecasted transactions can adversely impact foreign exchange results. Foreign currency gains and losses are included in other expense (income).

We have elected not to designate our foreign currency contracts as hedging instruments, and therefore, the instruments are marked-to-market with changes in their values recorded in the consolidated income statement each period. Our foreign currencies are primarily Brazilian reais, euros, British pounds and Canadian dollars, Mexican pesos and Colombian pesos.dollars. At June 30, 20192020 and 20182019 the fair value of our currency forward contracts were ofa net receivablepayable of less than $0.1 million. We do not utilize financial instruments for trading or other speculative purposes.


37
47

ITEM 8.
ITEM 8. Financial Statements and Supplementary Data.


Index to Financial Statements


Page
Financial Statements
4149
3952
4253
4354
4455
4556
4657
4859

All schedules and exhibits not included are not applicable, not required or would contain information whichthat is shown in the financial statements or notes thereto.


38
48

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
ScanSource, Inc.:

Opinion on the Financial Statements

financial statements

We have audited the accompanying consolidatedbalance sheets of ScanSource, Inc. (a South Carolina corporation)and subsidiaries(the (the “Company”) as of June 30, 20192020 and 2018,2019, the related consolidatedstatements of income, comprehensive (loss) income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended June 30, 2019,2020, and the related notes and financial statement schedule included under Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, thefinancial statements present fairly, in all material respects, the financial position of the Companyas of June 30, 20192020 and 2018,2019, and the results of itsoperations and itscash flows for each of the three years in the period ended June 30, 2019,2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of June 30, 2019,2020, based on criteria established in the 2013 Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report datedAugust 22, 201931, 2020 expressedan unqualified opinionopinion.
.
Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical audit mattersAudit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated 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 consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Supplier Incentives

As more fully 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.
The principal considerations for our determination that
We identified supplier incentives isas a critical audit matter aredue to the large volume of transactions subject to rebates that are earned under varying contract terms, and the related assumptionsestimates 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 assumptionsestimates about future purchases and sales. Accordingly, forFor both instant and achievement-based rebates,

39

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.

49

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 rebate receivables.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 receivables balance.period. In addition, we analyzed the rebaterebates receivable collection history to evaluate the overall collectability of the supplier rebate receivablesrebates 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.

Europe Held for Sale and Discontinued Operations Classification in the Absence of an Executed Sales Agreement

As described in Note 18 to the consolidated financial statements, during the fourth quarter of fiscal 2020, the Company classified the product distribution businesses in Europe, the UK (collectively,“Europe”), Mexico, Colombia, Chile, Peru, and the Miami-based export operations (collectively, “Latin America”) as assets held for sale and discontinued operations. As of June 30, 2020, the Company measured these businesses at the lower of carrying value or fair value less costs to sell, resulting in a pre-tax loss of $88.9 million, recorded within loss from discontinued operations for the year ended June 30, 2020.

We identified the Europe held for sale treatment as a critical audit matter due to the complexities and judgments involved in making the accounting treatment determination. There are subjective and complex judgments in the following areas: determination of whether the sale of Europe is probable, that the transfer of assets are a completed sale within one year from June 30, 2020, and the determination of an estimated sales price since there is no signed purchase agreement in place as of the date the 10-K was filed. There were also complexities in determining the proper treatment of deferred taxes related to currency translation adjustments previously recorded.

Our audit procedures related to held for sale and discontinued operations classification of Europe included the following, among others. We audited management's held for sale evaluation for Europe by comparing the relevant guidance against management’s conclusions. We tested the Company’s judgments in determining the estimated sales price of Europe based on review of correspondence with potential buyers. We audited management’s calculation of the loss on held for sale classification, and the applicable deferred tax impact associated with currency translation adjustments. We evaluated the adequacy of the Company’s disclosures on held for sale treatment and discontinued operations against the requirements of the accounting framework and tested the completeness and accuracy of the prior year financial presentation. We tested the design and operating effectiveness of controls established to identify, authorize and approve, account for and disclose the discontinued operations in the consolidated financial statements.

Goodwill Valuation

As described in Note 7 to the consolidated financial statements, as of June 30, 2020, goodwill recorded in the Worldwide Barcode, Networking and Security reporting unit (“Barcode”) was $16.4 million and goodwill recorded in the Worldwide Communications and Services (“Communications”) reporting unit was $197.9 million. Goodwill is tested by the Company’s management for impairment at least annually at the reporting unit level and more frequently when indicators of potential impairment are identified. During the fourth quarter of fiscal 2020, management performed a quantitative impairment test of goodwill. This test resulted in impairment charges of $119.0 million for the Barcode reporting unit. No impairment was recorded in the Communications reporting unit.

We identified goodwill valuation as a critical audit matter because of the significant judgments made by management to estimate the fair value of goodwill in each reporting unit. Estimates of future performance and market conditions used to arrive at the net present value of future cash flows, which is used within the goodwill impairment analysis, are subjective in nature. In particular, the Company’s fair value estimate was sensitive to assumptions including the discount rate and revenue growth rates, which are affected by expectations about future market or economic conditions. There were also complexities in determining the allocation of the identified goodwill impairment charges to legal jurisdictions for tax purposes.

Our audit procedures related to goodwill valuation include the following, among other procedures. We compared the significant assumptions used by management to current industry and economic trends. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the Barcode and Communications reporting units which would result from changes in assumptions. With the assistance of our valuation specialists, we assessed the Company’s methodologies and tested the significant assumptions and underlying data used by the Company in its valuation analysis. With the assistance of our tax specialists, we evaluated whether the allocation of the goodwill impairment for income taxes purposes was appropriate. We evaluated the adequacy of the Company’s disclosures on goodwill valuation against the requirements of the accounting framework. We obtained an understanding, evaluated the
50

Index to Financial Statements


design, and tested the operating effectiveness of controls over the Company’s goodwill impairment review process. This includes controls over management’s review of the significant assumptions described above.

/s/ Grant Thornton LLP

We have served as the Company’s auditor since 2014.

Columbia, South Carolina
August 22, 2019












31, 2020
40
51

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
ScanSource, Inc.:

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of ScanSource, Inc. (a South Carolina corporation) and subsidiaries (the “Company”) as of June 30, 2019,2020, based on criteria established in the 2013 Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2019,2020, based on criteria established in the 2013 Internal Control-IntegratedControl—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended June 30, 2019,2020, and our report datedAugust 22, 201931, 2020 expressed an unqualified opinion on those financial statements.

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”report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Canpango, Inc. (Canpango) and RPM Software, LLC (RPM)intY Holdings ("intY"), twoa wholly-owned subsidiaries,subsidiary, whose financial statements reflect total combined assets and revenues from continuing operations constituting 23.5 percent and less than 1 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended June 30, 2019.2020. As indicated in Management’s Report, Canpango and RPM wereintY was acquired during the year ended June 30, 2019.2020. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of Canpango and RPM.intY.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Grant Thornton LLP

Columbia, South Carolina
August 22, 2019

31, 2020
41
52

ScanSource, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share information)
 
June 30,
2020		June 30,
2019
Assets
Current assets:
Cash and cash equivalents$29,485 $19,305 
Accounts receivable, less allowance of $21,906 at June 30, 2020
and $27,521 at June 30, 2019
443,185 523,424 
Inventories454,885 554,080 
Prepaid expenses and other current assets94,681 83,753 
Current assets held for sale181,231 296,753 
Total current assets1,203,467 1,477,315 
Property and equipment, net55,641 60,570 
Goodwill214,288 310,715 
Identifiable intangible assets, net121,547 121,214 
Deferred income taxes24,630 15,447 
Other non-current assets72,521 52,921 
Non-current assets held for sale0 29,079 
Total assets$1,692,094 $2,067,261 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$454,240 $488,291 
Accrued expenses and other current liabilities76,686 64,629 
Current portion of contingent consideration46,334 38,393 
Income taxes payable5,886 3,956 
Current portion of long-term debt7,839 4,085 
Current liabilities held for sale128,022 101,532 
Total current liabilities719,007 700,886 
Deferred income taxes3,884 0 
Long-term debt, net of current portion143,175 151,014 
Borrowings under revolving credit facility67,714 172,390 
Long-term portion of contingent consideration0 39,532 
Other long-term liabilities80,068 57,153 
Long-term liabilities held for sale0 32,157 
Total liabilities1,013,848 1,153,132 
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, NaN issued0 0 
Common stock, no par value; 45,000,000 shares authorized, 25,361,298 and 25,408,397 shares issued and outstanding at June 30, 2020 and June 30, 2019, respectively63,765 64,287 
Retained earnings747,276 939,930 
Accumulated other comprehensive loss(132,795)(90,088)
Total shareholders’ equity678,246 914,129 
Total liabilities and shareholders’ equity$1,692,094 $2,067,261 
 June 30,
2019		 June 30,
2018
Assets   
Current assets:   
Cash and cash equivalents$23,818
 $25,530
Accounts receivable, less allowance of $38,849 at June 30, 2019
and $45,561 at June 30, 2018
654,983
 646,086
Inventories697,343
 595,948
Prepaid expenses and other current assets101,171
 94,598
Total current assets1,477,315
 1,362,162
Property and equipment, net63,363
 73,042
Goodwill319,538
 298,174
Identifiable intangible assets, net127,939
 136,806
Deferred income taxes24,724
 22,199
Other non-current assets54,382
 52,912
Total assets$2,067,261
 $1,945,295
Liabilities and Shareholders’ Equity   
Current liabilities:   
Accounts payable$558,101
 $562,564
Accrued expenses and other current liabilities91,407
 90,873
Current portion of contingent consideration38,393
 42,975
Income taxes payable4,310
 13,348
Short-term borrowings4,590
 —
Current portion of long-term debt4,085
 551
Total current liabilities700,886
 710,311
Deferred income taxes1,395
 1,769
Long-term debt, net of current portion151,014
 4,878
Borrowings under revolving credit facility200,817
 244,000
Long-term portion of contingent consideration39,532
 65,258
Other long-term liabilities59,488
 52,703
Total liabilities1,153,132
 1,078,919
Commitments and contingencies

 

Shareholders’ equity:   
Preferred stock, no par value; 3,000,000 shares authorized, none issued—
 —
Common stock, no par value; 45,000,000 shares authorized, 25,408,397 and 25,593,122 shares issued and outstanding at June 30, 2019 and June 30, 2018, respectively64,287
 68,220
Retained earnings939,930
 882,333
Accumulated other comprehensive loss(90,088) (84,177)
Total shareholders’ equity914,129
 866,376
Total liabilities and shareholders’ equity$2,067,261
 $1,945,295

See accompanying notes to consolidated financial statements.

53
42

ScanSource, Inc. and Subsidiaries
Consolidated Income Statements
Years Ended June 30, 2020, 2019 2018 and 20172018
(in thousands, except per share information)
 
202020192018
Net sales$3,047,734 $3,249,799 $3,164,709 
Cost of goods sold2,692,165 2,856,996 2,795,403 
Gross profit355,569 392,803 369,306 
Selling, general and administrative expenses260,139 252,948 232,291 
Depreciation expense13,033 12,028 12,286 
Intangible amortization expense19,953 17,893 18,680 
Impairment charges120,470 0 0 
Change in fair value of contingent consideration6,941 15,200 37,043 
Operating (loss) income(64,967)94,734 69,006 
Interest expense12,224 13,162 9,121 
Interest income(5,826)(1,818)(3,710)
Other expense (income), net411 (247)546 
(Loss) income before income taxes(71,776)83,637 63,049 
Provision for income taxes7,451 18,778 27,593 
Net (loss) income from continuing operations(79,227)64,859 35,456 
Net loss from discontinued operations(113,427)(7,262)(2,303)
Net (loss) income$(192,654)$57,597 $33,153 
Per share data:
Net (loss) income from continuing operations per common share, basic$(3.12)$2.53 $1.39 
Net loss from discontinued operations per common share, basic(4.47)(0.28)(0.09)
Net (loss) income per common share, basic$(7.59)$2.25 $1.30 
Weighted-average shares outstanding, basic25,378 25,642 25,522 
Net (loss) income from continuing operations per common share, diluted$(3.12)$2.52 $1.38 
Net loss from discontinued operations per common share, diluted(4.47)(0.28)(0.09)
Net (loss) income per common share, diluted$(7.59)$2.24 $1.29 
Weighted-average shares outstanding, diluted25,378 25,734 25,624 
 2019 2018 2017
Net sales$3,873,111
 $3,846,260
 $3,568,186
Cost of goods sold3,420,539
 3,410,135
 3,184,590
Gross profit452,572
 436,125
 383,596
Selling, general and administrative expenses314,521
 297,475
 265,178
Depreciation expense13,155
 13,311
 9,444
Intangible amortization expense19,732
 20,657
 15,524
Change in fair value of contingent consideration15,200
 37,043
 5,211
Operating income89,964
 67,639
 88,239
Interest expense13,382
 9,149
 3,215
Interest income(1,843) (3,713) (5,329)
Other (income) expense, net517
 1,278
 (11,142)
Income before income taxes77,908
 60,925
 101,495
Provision for income taxes20,311
 27,772
 32,249
Net income$57,597
 $33,153
 $69,246
Per share data:     
Net income per common share, basic$2.25
 $1.30
 $2.74
Weighted-average shares outstanding, basic25,642
 25,522
 25,318
Net income per common share, diluted$2.24
 $1.29
 $2.71
Weighted-average shares outstanding, diluted25,734
 25,624
 25,515

See accompanying notes to consolidated financial statements.


43
54

ScanSource, Inc. and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income
Years Ended June 30, 2020, 2019 2018 and 20172018
(in thousands)
 202020192018
Net (loss) income$(192,654)$57,597 $33,153 
Unrealized (loss) gain on hedged transaction, net of tax(4,646)(3,277)1,089 
Foreign currency translation adjustment(38,061)(2,634)(12,062)
Comprehensive (loss) income$(235,361)$51,686 $22,180 
See accompanying notes to these consolidated financial statements.

55
 2019 2018 2017
Net income$57,597
 $33,153
 $69,246
Unrealized (loss) gain on hedged transaction, net of tax(3,277) 1,089
 13
Foreign currency translation adjustment(2,634) (12,062) (530)
Comprehensive income$51,686
 $22,180
 $68,729
      
See accompanying notes to these consolidated financial statements.  
      


44

ScanSource, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
Years Ended June 30, 2020, 2019 2018 and 20172018
(in thousands, except share information)
Common
Stock
(Shares)		Common
Stock
(Amount)		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Total
Common
Stock
(Shares)
 
Common
Stock
(Amount)
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 Total
Balance at June 30, 201625,614,673
 $67,249
 $779,934
 $(72,687) $774,496
Net income—
 —
 69,246
 —
 69,246
Unrealized gain on hedged transaction, net of tax—
 —
 —
 13
 13
Foreign currency translation adjustment—
 —
 —
 (530) (530)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes394,815
 8,208
 —
 —
 8,208
Common stock repurchased(577,643)
 (20,335)     (20,335)
Share based compensation—
 6,578
 —
 —
 6,578
Tax shortfall from exercise or vesting of share-based payment arrangements

—
 (531) —
 —
 (531)
Balance at June 30, 201725,431,845
 61,169
 849,180
 (73,204) 837,145
Balance at June 30, 201725,431,845$61,169 $849,180 $(73,204)$837,145 
Net income—
 —
 33,153
 —
 33,153
Net income— — 33,153 — 33,153 
Unrealized gain on hedged transaction, net of tax—
 —
 —
 1,089
 1,089
Unrealized gain on hedged transaction, net of tax— — — 1,089 1,089 
Foreign currency translation adjustment—
 —
 —
 (12,062) (12,062)Foreign currency translation adjustment— — — (12,062)(12,062)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes161,277
 636
 —
 —
 636
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes161,277636 — — 636 
Common stock repurchased—
 —
     —
Share based compensation—
 6,415
 —
 —
 6,415
Share based compensation— 6,415 — — 6,415 
Balance at June 30, 201825,593,122
 68,220
 882,333
 (84,177) 866,376
Balance at June 30, 201825,593,12268,220 882,333 (84,177)866,376 
Net income—
 —
 57,597
 —
 57,597
Net income— — 57,597 — 57,597 
Unrealized loss on hedged transaction, net of tax—
 —
 —
 (3,277) (3,277)Unrealized loss on hedged transaction, net of tax— — — (3,277)(3,277)
Foreign currency translation adjustment—
 —
 —
 (2,634) (2,634)Foreign currency translation adjustment— — — (2,634)(2,634)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes139,107
 103
 —
 —
 103
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes139,107103 — — 103 
Common stock repurchased(323,832)
 (10,129) —
 —
 (10,129)Common stock repurchased(323,832)(10,129)0 0 (10,129)
Share based compensation—
 6,093
 —
 —
 6,093
Share based compensation— 6,093 — — 6,093 
Balance at June 30, 201925,408,397
 $64,287
 $939,930
 $(90,088) $914,129
Balance at June 30, 201925,408,39764,287 939,930 (90,088)914,129 
Net lossNet loss— — (192,654)— (192,654)
Unrealized loss on hedged transaction, net of taxUnrealized loss on hedged transaction, net of tax— — — (4,646)(4,646)
Foreign currency translation adjustmentForeign currency translation adjustment— — — (38,061)(38,061)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxesExercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes120,969(599)— — (599)
Common stock repurchasedCommon stock repurchased(168,068)(5,432)— — (5,432)
Share based compensationShare based compensation— 5,509 — — 5,509 
Balance at June 30, 2020Balance at June 30, 202025,361,298$63,765 $747,276 $(132,795)$678,246 

See accompanying notes to consolidated financial statements.

56
45

ScanSource, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended June 30, 2020, 2019 2018 and 20172018
(in thousands)
 2019 2018 2017
Cash flows from operating activities:     
Net income$57,597
 $33,153
 $69,246
Adjustments to reconcile net income to net cash (used in) provided by operating activities:     
Depreciation and amortization36,618
 37,495
 24,968
Amortization of debt issue costs350
 326
 290
Provision for doubtful accounts2,282
 7,075
 8,901
Share-based compensation6,122
 6,459
 6,602
Deferred income taxes(2,900) (22,286) (1,861)
Excess tax benefits from share-based payment arrangements—
 —
 (89)
Change in fair value of contingent consideration15,200
 37,043
 5,211
Contingent consideration payments excess(10,190) (3,066) —
Changes in operating assets and liabilities, net of acquisitions:     
Accounts receivable(12,598) (38,268) (62,731)
Inventories(104,594) (59,498) 28,449
Prepaid expenses and other assets(5,203) (14,864) (7,698)
Other noncurrent assets(678) (6,361) (9,540)
Accounts payable(2,730) 44,464
 19,861
Accrued expenses and other liabilities2,703
 (11,540) 8,491
Income taxes payable(9,106) 14,673
 4,776
Net cash (used in) provided by operating activities(27,127) 24,805
 94,876
Cash flows from investing activities:     
Capital expenditures(7,215) (8,159) (8,849)
Cash paid for business acquisitions, net of cash acquired(32,161) (143,768) (83,804)
Payments for acquisition of intangible assets—
 —
 (3,583)
Net cash used in investing activities(39,376) (151,927) (96,236)
Cash flows from financing activities:     
Short-term borrowings, net4,558
 —
 —
Borrowings on revolving credit, net of expenses2,072,279
 2,301,443
 1,813,062
Repayments on revolving credit, net of expenses(2,115,530) (2,149,659) (1,792,620)
Borrowings on long-term debt, net149,670
 —
 —
Repayments of capital lease obligations(662) (591) (246)
Debt issuance costs(1,096) (296) (876)
Contingent consideration payments(35,606) (50,959) (10,241)
Exercise of stock options1,509
 2,273
 9,969
Taxes paid on settlement of equity awards(1,406) (1,637) (1,761)
Repurchase of common stock(9,483) —
 (20,882)
Excess tax benefits from share-based payment arrangements—
 —
 89
Net cash provided by (used in) financing activities64,233
 100,574
 (3,506)
Effect of exchange rate changes on cash and cash equivalents558
 (4,016) (440)
Decrease in cash and cash equivalents(1,712) (30,564) (5,306)
Cash and cash equivalents at beginning of period25,530
 56,094
 61,400
Cash and cash equivalents at end of period$23,818
 $25,530
 $56,094

202020192018
Cash flows from operating activities:
Net (loss) income$(192,654)$57,597 $33,153 
Net loss from discontinued operations(113,427)(7,262)(2,303)
Net (loss) income from continuing operations(79,227)64,859 35,456 
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:
Depreciation and amortization35,328 33,652 34,493 
Amortization of debt issue costs417 350 326 
Provision for doubtful accounts1,621 1,712 6,127 
Share-based compensation5,478 6,045 6,379 
Impairment charges120,470 0 0 
Deferred income taxes(12,193)(2,757)(20,908)
Change in fair value of contingent consideration6,941 15,200 37,043 
Contingent consideration payments excess(3,050)(10,190)(3,066)
Finance lease interest85 — — 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable57,477 (5,490)(35,881)
Inventories86,177 (85,862)(53,209)
Prepaid expenses and other assets(13,880)(10,091)(14,951)
Other non-current assets(13,563)(2,438)(6,818)
Accounts payable(20,846)16,134 37,319 
Accrued expenses and other liabilities11,239 2,377 (4,733)
Income taxes payable(441)(7,469)13,870 
Net cash provided by operating activities of continuing operations182,033 16,032 31,447 
Cash flows from investing activities of continuing operations:
Capital expenditures(6,387)(5,797)(6,998)
Cash paid for business acquisitions, net of cash acquired(48,921)(32,161)(143,768)
Net cash used in investing activities of continuing operations(55,308)(37,958)(150,766)
Cash flows from financing activities of continuing operations:
Borrowings on revolving credit, net of expenses2,085,918 2,061,090 2,301,443 
Repayments on revolving credit, net of expenses(2,190,595)(2,132,702)(2,149,313)
Borrowings on long-term debt, net(4,085)149,670 0 
Repayments of finance lease obligations(1,765)(662)(591)
Debt issuance costs0 (1,096)(296)
Contingent consideration payments(35,482)(35,606)(50,959)
Exercise of stock options754 1,509 2,273 
Taxes paid on settlement of equity awards(1,353)(1,406)(1,637)
Repurchase of common stock(6,078)(9,483)0 
Net cash (used in) provided by financing activities of continuing operations(152,686)31,314 100,920 
46
57

Index to Financial Statements



202020192018
(continued)
Cash flows from discontinued operations:
Net cash flows provided by (used in) operating activities of discontinued operations44,238 (43,159)(6,641)
Net cash flows used in by investing activities of discontinued operations(77)(1,416)(1,161)
Net cash flows (used in) provided by financing activities of discontinued operations(3,921)32,917 (347)
Net cash flows provided by (used in) discontinued operations40,240 (11,658)(8,149)
Effect of exchange rate changes on cash and cash equivalents(3,642)558 (4,016)
Increase (decrease) in cash and cash equivalents10,637 (1,712)(30,564)
Cash and cash equivalents at beginning of period23,818 25,530 56,094 
Cash and cash equivalents at end of period34,455 23,818 25,530 
Cash and cash equivalents of discontinued operations4,970 4,513 2,085 
Cash and cash equivalents of continuing operations$29,485 $19,305 $23,445 
2019 2018 2017
(continued)
Supplemental disclosure of cash flow information:     
Supplemental disclosure of consolidated cash flow information:Supplemental disclosure of consolidated cash flow information:
Interest paid during the year$13,078
 $8,544
 $2,831
Interest paid during the year$11,959 $13,162 $8,614 
Income taxes paid during the year$33,061
 $38,330
 $31,126
Income taxes paid during the year$16,869 $30,610 $36,021 
See accompanying notes to consolidated financial statements.

58
47

SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 20192020
(1)Business and Summary of Significant Accounting Policies
(1)Business and Summary of Significant Accounting Policies

Business Description

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 institutions and providing technology solutions. The Company brings technology solutions and services from the world’s leading suppliers of mobility and barcode, point-of-sale (POS), payments, barcode, physical security, unified communications and collaboration, and telecom and cloud services to market. The Company operates in the United States, Canada, Brazil, additional Latin American countries, the UK and Europe. However, the Company is in the process of divesting its products distribution business in the UK, Europe and Latin America, outside of Brazil. See Note 18 - Discontinued Operations for more information regarding the Company's divestitures. The Company's two2 operating segments, Worldwide Barcode, Networking & Security and Worldwide Communications & Services, are based on product, customer, and service type.

Consolidation PolicyCOVID-19

In early March 2020, the World Health Organization characterized COVID-19 as a pandemic. The rapid 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 and business shutdowns. The Company moved quickly to transition our employees, where possible, to a fully remote working environment. The Company took steps to deploy teams to monitor the rapidly evolving situation and recommend risk mitigation actions; implement travel restrictions; and employees are following social distancing practices. The Company is following guidance from authorities and health officials including, but not limited to, checking the temperature of associates when entering our facilities, requiring associates to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitation routines.

The pandemic and these containment measures have had, and are expected to continue to have, a substantial impact on businesses around the world, including our own, and on global, regional and national economies. The Company is unable to predict the ultimate impact that COVID-19 will have on our business due to the inability to predict the duration or magnitude of the virus' impacts. However, we have experienced decreased revenue and increased employee-related healthcare and prevention costs. Overall, the Company expects COVID-19 to adversely impact our results of operations for at least the next two quarters if not longer, while the Company has made adjustments, including implementing an annualized expense reduction plan for fiscal year 2021, and will likely continue to make adjustments, to our operating practices as appropriate, it is unlikely that these measures will be sufficient to fully offset the adverse impacts.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 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.

Related Party Transactions

A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. There were no0 material related party transactions for the fiscal years ended June 30, 2020, 2019 2018 and 2017.2018.

Use of Estimates
59

Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020


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 and inventory reserves.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. Actual results may differ from these estimates under different assumptions or conditions; however, management believes that its estimates, including those for the above describedabove-described items, are reasonable and that the actual results will not vary significantly from the estimated amounts.

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

(a) Allowances for Trade and Notes Receivable

The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from customers’ failure to make payments on accounts receivable due to the Company.

Management determines the estimate of the allowance for uncollectible accounts receivable by considering a number of factors, including: (1) historical experience, (2) aging of the accounts receivable, (3) specific information obtained by the Company on the financial condition and the current creditworthiness of its customers and (4) the current economic and country specificcountry-specific environment. If the financial condition of the Company’s customers were to deteriorate and reduce the ability of the Company’s customers to make payments on their accounts, the Company may be required to increase its allowance by recording additional bad debt expense. Likewise, should the financial condition of the Company’s customers improve and result in payments or settlements of previously reserved amounts, the Company may be required to record a reduction in bad debt expense to reverse the recorded allowance.



48
Table of Contents

Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


(b) Inventory Reserves

Management determines the inventory reserves required to reduce inventories to the lower of cost or net realizable value based principally on the effects of technological changes, quantities of goods on hand, length of time on hand and other factors. Net realizable value is determined based on continual inquiries of suppliers who are able to provide credible knowledge of the salability and value of the products. An estimate is made of the net realizable value, less cost to dispose, of products whose value is determined to be impaired. If these products are ultimately sold at less than estimated amounts, additional reserves may be required. The estimates used to calculate these reserves are applied consistently. The adjustments are recorded in the period in which the loss of utility of the inventory occurs, which establishes a new cost basis for the inventory. This new cost basis is maintained until such time that the reserved inventory is disposed of, returned to the supplier or sold. To the extent that specifically reserved inventory is sold, cost of goods sold is expensed for the new cost basis of the inventory sold.

(c) Purchase Price Allocations

For each acquisition, theThe Company allocates the purchase price to assets acquired, liabilities assumed and goodwill and intangiblesaccounts for business combinations in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805, Business Combinations. For each acquisition, the Company allocates the purchase price to assets acquired, liabilities assumed and goodwill and intangibles. The Company recognizes assets and liabilities acquired at their estimated fair values. Management uses judgment to (1) identify the acquired assets and liabilities assumed, (2) estimate the fair value of these assets, (3) estimate the useful life of the assets and (4) assess the appropriate method for recognizing depreciation or amortization expense over the asset’sassets' useful life. See Note 6 - Acquisitions for further discussion of the Company's business combinations.

(d) Goodwill and Intangible Asset Fair Value

60

Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

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. The Company also utilizes fair value estimates derived from the market approach utilizing the public company market multiple method to validate the results of the discounted cash flow method for fair value of goodwill, which requires it to make assumptions about the applicability of those multiples to its reporting units. The discounted cash flow method requires the Company to estimate future cash flows, using key assumptions such as the weighted average cost of capital, revenue growth rates, projected gross margin and operating margin percentage growth, expected working capital changes and a related cash flow impact from working capital changes, and then discount those amounts at an appropriate discount rate to present value.

(e) Supplier Incentives

The Company receives incentives from suppliers as achievement-based supplier rebates that require management to make certain estimates about the amount of supplier consideration that will be received. 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 determination of achievement-based rebates requires management to make assumptions about future purchases and sales. Estimates are based on the terms of the incentive program and historical experiences.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. The Company maintains some zero-balance disbursement accounts at various financial institutions inat which the Company does not maintain significant depository relationships. Due to the terms of the agreements governing these accounts, the Company generally does not have the right to offset most if not all outstanding checks written from these accounts against cash on hand, and the respective institutions are not legally obligated to honor the checks until sufficient funds are transferred to fund the checks. As a result, checks released but not yet cleared from these accounts in the amounts of $25.4$15.4 million and $5.7$7.4 million are classified as accounts payable as of June 30, 20192020 and 2018,2019, 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 our continuing operations totaled $18.9$23.6 million and $20.3$14.1 million as of June 30, 20192020 and 2018,2019, respectively.

Concentration of Credit Risk

The Company sells to a large base of customers throughout the United States, Canada, Brazil, additional Latin American countriesthe UK and Europe. The Company performs ongoing credit evaluations of its customers’ financial condition. In certain cases, the Company will accept tangible assets as collateral to increase the trade credit of its customers. In addition, the Company carries credit insurance on certain subsections of the customer portfolio. No single customer accounted for moreSales to individual customers were less than 5%, 6% and 5%10% of the Company’s net sales for fiscal years 2020, 2019 2018 and 2017, respectively.2018.

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. The Company accounts for these arrangements

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June 30, 2019


by recording them at their historical cost less specific allowances at balance sheet dates. Interest income is recognized in the period earned and is recorded as interest income in the Consolidated Income Statement.

Derivative Financial Instruments

The Company uses derivative instruments to manage certain exposures related to fluctuations in foreign currency exchange rates and changes in interest rates in connection with borrowing activities. The Company records all derivative instruments as either assets or liabilities in the Consolidated Balance Sheet at fair value. The Company does not use derivative financial instruments for trading or speculative purposes.

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Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

The Company’s exposure to changes in foreign currency exposureexchange rates results from foreign currency denominated assets and liabilities, purchasing and selling internationally in several foreign currencies and from intercompany loans with foreign subsidiaries.subsidiaries, including subsidiaries included in discontinued operations. The Company’s objective is to preserve the economic value of non-functional currency denominated cash flows. The Company's foreign currencies are denominated primarily in Brazilian reais, euros, British pounds and Canadian dollars, Mexican pesos and Colombian pesos.

dollars.

The Company may reduce its exposure to fluctuations in foreign exchange rates by creating offsetting positions through the use of derivative financial instruments. The market risk related to the foreign exchange agreements is offset by changes in the valuation of the underlying items. These contracts are generally for a duration of 90 days or less. The Company has elected not to designate its foreign currency contracts as hedging instruments. They are, therefore, marked-to-market with changes in their fair value recorded in the Consolidated Income Statement each period. Derivative financial instruments related to foreign currency exposure are accounted for on an accrual basis with gains or losses on these contracts recorded in income in the period in which their value changes, with the offsetting entry for unsettled positions reflected in either other assets or other liabilities.

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 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). income. There was no ineffective portion recorded as an adjustment to earnings for the year ended June 30, 2019.2020.

Investments

The Company has investments that are held in a grantor trust formed by the Company related to the ScanSource, Inc. Nonqualified Deferred Compensation Plan and founder’s Supplemental Executive Retirement Plan ("SERP").Plan. The Company has classified these investments as trading securities, and they are recorded at fair value with unrealized gains and losses included in the accompanying Consolidated Income Statements. The Company’s obligations under this deferred compensation plan change in concert with the performance of the investments along with contributions to and withdrawals from the plan. The fair value of these investments and the corresponding deferred compensation obligation was $25.8$27.2 million and $23.4$25.8 million as of June 30, 2020 and June 30, 2019, and June 30, 2018, respectively. These investments are classified as either prepaid expenses and current assets or other non-current assets in the Consolidated Balance Sheets depending on the timing of planned disbursements. The deferred compensation obligation is classified either within accrued expenses and other current liabilities or other long-term liabilities as well. The amounts of these investments classified as current assets with corresponding current liabilities were $1.6$2.6 million and $1.6 million at June 30, 2020 and June 30, 2019, and 2018. respectively.

Inventories

Inventories (consisting entirely of finished goods) are stated at the lower of cost (first-in, first-out method) or net realizable value.

Supplier Programs

The Company receives incentives from suppliers related to cooperative advertising allowances, volume rebates and other incentive programs. These incentives are generally under quarterly, semi-annual or annual agreements with the suppliers. Some of these incentives are negotiated on an ad hoc basis to support specific programs mutually developed between the Company and the supplier. 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. ASC 606–606, Revenue from Contracts with Customersaddresses accounting for consideration payable to a customer, which the Company interprets and applies as the customer

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June 30, 2019


(i.e. (i.e., the Company) receiving advertising funds from a supplier. The portion of these supplier funds in excess of our costs are reflected as a reduction of inventory. Such funds are recognized as a reduction of the cost of goods sold when the related inventory is sold.

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Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

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. Amounts received or receivables from suppliers that are not yet earned are deferred in the Consolidated Balance Sheets. Supplier receivables are generally collected through reductions to accounts payable authorized by the supplier. In addition, the Company may receive early payment discounts from certain suppliers. The Company records early payment discounts received as a reduction of inventory, thereby resulting in a reduction of cost of goods sold when the related inventory is sold. Management makes certain estimates of the amounts of supplier consideration that will be received. Estimates are based on the terms of the incentive program and historical experiences. Actual recognition of the supplier consideration may vary from management estimates.

Supplier Concentration

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, 2020 and 2019. Avaya, Cisco, and Zebra each constituted more than 10% of the Company’sCompany's net sales for the yearsyear ended June 30, 2018 and 2017.2018.

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 three3 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. As a result, the Company has not recorded a provision for estimated service warranty costs. To maintain customer relations, the Company facilitates returns of defective products from the Company's customers by accepting for exchange, with the Company's prior approval, most defective products within 30 days of invoicing.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives of 3 to 10 years for furniture, equipment and computer software, 25 to 40 years for buildings and 15 years for building improvements. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life. Maintenance, repairs and minor renewals are charged to expense as incurred. Additions, major renewals and betterments to property and equipment are capitalized.

Capitalized Software

The Company accounts for capitalized software in accordance with ASC 350-40, Computer Software Developed for Internal Use, which provides guidance for computer software developed or obtained for internal use. The Company is required to continually evaluate the stage of the implementation process to determine whether or not costs are expensed or capitalized. Costs incurred during the preliminary project phase or planning and research phase are expensed as incurred. Costs incurred during the development phase, such as material and direct services costs, compensation costs of employees associated with the development and interest cost, are capitalized as incurred. Costs incurred during the post-implementation or operation phase, such as training and maintenance costs, are expensed as incurred. In addition, costs incurred to modify existing software that result in additional functionality are capitalized as incurred.

Goodwill

The Company accounts for recorded goodwill in accordance with ASC 350, Goodwill and Other Intangible Assets, which requires that goodwill be reviewed annually for impairment or more frequently if impairment indicators exist. 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

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June 30, 2019


Worldwide Communications & Services. 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
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

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

Under Accounting Standards Update ("ASU") 2017-04, if fair value of goodwill is determined to be less than carrying value, an impairment loss is recognized for the amount of the carrying value that exceeds the amount of the reporting units' fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Additionally, the Company would consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Company also assesses the recoverability of goodwill if facts and circumstances indicate goodwill may be impaired. In its most recent annual test, the Company estimated the fair value of its reporting units primarily based on the income approach utilizing the discounted cash flow method. The Company also corroborated the fair value estimates derived from the income approach by considering the implied market multiples of comparable transactions and companies. The discounted cash flow method required the Company to estimate future cash flows and discount those amounts to present value. The key assumptions utilized in determining fair value included:

•Industry weighted-average cost of capital ("WACC"): The Company utilized a WACC relative to each reporting unit's respective geography and industry as the discount rate for estimated future cash flows. 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, 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: 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 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. NaN goodwill impairment charges were recognized for the years ended June 30, 2019 2018 and 2017.2018. See Note 7 - Goodwill and Other Identifiable Intangible Assets for more information regarding goodwill and the results of our testing.

Intangible Assets

Intangible assets consist of customer relationships, trade names, distributor agreements, supplier partner programs, developed technology, non-compete agreements and an encryption key library. Customer relationships, distributor agreements,trade names, supplier partner programs, developed technology and the encryption key library are amortized using the straight-line method over their estimated useful lives, which range from 53 to 15 years. Trade names are amortized over a period ranging from 1 to 519 years. Non-compete agreements are amortized over their contract life.

These assets are shown in detail in Note 7 - Goodwill and Other Identifiable Intangible Assets.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. Tests for recoverability of a long-lived asset to be held and used are measured by comparing the carrying amount of the long-lived asset to the sum of the estimated future undiscounted cash flows expected to be generated by the asset. In estimating the future undiscounted cash flows, the Company uses projections of cash flows directly associated with, and which are expected to arise as a direct result of, the use and eventual disposition of the assets. If it is determined that a long-lived asset is not recoverable, an impairment loss would be calculated equal to the excess of the carrying amount of the long-lived asset over its fair value. Novalue. 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. NaN intangible asset or other long-lived asset impairment charges were recognized for the fiscal years ended June 30, 2019 2018 and 2017.2018. See Note 7 - Goodwill and Other Identifiable Intangible Assets for more information regarding intangible asset impairment charges.

Fair Value of Financial Instruments

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June 30, 2020

The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying values of financial instruments such as accounts receivable, accounts payable, accrued liabilities, borrowings under the revolving credit facility and subsidiary lines of credit approximate fair value based upon either short maturities or variable interest rates of these instruments. For additional information related to the fair value of derivatives, please see Note 10 - Fair Value of Financial Instruments.

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Liability for Contingent Consideration
In addition to the initial cash consideration paid to former shareholders of Intelisys, Network1, and POS Portal, and Imago, 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. The Company paid the final earnout payment to the former shareholders of Network1 during fiscal year 2019 and to Imago during fiscal year 2017.2019. The Company also made a single earnout payment to the former shareholders of POS Portal during fiscal year 2018 in accordance with the share purchase agreement.
Intelisys has two1 remaining earnout paymentspayment to be paid in annual installments during fiscal years 2020 andyear 2021. In accordance with ASC Topic 805, Business Combinations, the Company determines the fair value of this liability for contingent consideration at each reporting date throughout the term of the earnout using a form of a probability weighted discounted cash flow model. Each period the Company will reflect the contingent consideration liability at fair value with changes recorded in the change in fair value of contingent consideration line item on the Consolidated Income Statement. Current and noncurrentnon-current portions of the liability are presented in the current portion of contingent consideration and long-term portion of contingent consideration line items on the Consolidated Balance Sheets.

Contingencies

The Company accrues for contingent obligations, including estimated legal costs, when it is probable that a liability is incurred and the amount is reasonably estimable. 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.

Revenue Recognition

The Company adoptedaccounts for revenue in accordance with ASC 606, effective July 1, 2018 utilizing the full retrospective method.Revenue from Contracts with Customers. In determining the appropriate amount of revenue to recognize, the Company applies the following five-step model: (i) identify contracts with customers; (ii) identify performance obligations in the contracts; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations per the contracts; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company recognizes revenue as control of products and services are transferred to customers, which is generally at the point of shipment. 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. For more detailed disclosures on the Company's revenue recognition policies, see Note 2 - Revenue Recognition.

Advertising Costs

The Company defers advertising-related costs until the advertising is first run in trade or other publications or, in the case of brochures, until the brochures are printed and available for distribution or posted online. Advertising costs, net of supplier reimbursement, are included in selling, general and administrative expenses and were not significant in any of the three fiscal years ended June 30, 2020, 2019 2018 and 2017.2018. Deferred advertising costs for each of these three fiscal years were also not significant.

Foreign Currency

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, euros, British pounds, Colombian pesos, and
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

Canadian dollars and South African rand.dollars. The assets and liabilities of these foreign entities are translated into U.S. dollars using the exchange rate at the end of the respective period. Sales, costs and expenses are translated at average exchange rates effective during the respective period. Foreign currency transactional and re-measurement gains and losses are included in other expense (income) in the Consolidated Income Statements. Such amounts are not significant to any of the periods presented.

Income Taxes

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Income taxes are accounted for under the asset and liability method. 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 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 13 - 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.

Share-Based Payments

The Company accounts for share-based compensation using the provisions of ASC 718, Accounting for Stock Compensation, which requires the recognition of the fair value of share-based compensation. Furthermore, the Company adopted ASU 2016-09, which simplified several aspects of the accounting for share-based compensation, including income tax effects, forfeitures, statutory withholding requirements and cash flow statement classifications. Share-based compensation is estimated at the grant date based on the fair value of the awards. 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. 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

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. In August 2016, the Board of Directors authorized a three-year $120 millionThe Company's share repurchase program.authorization expired in August 2019, as such all repurchases were completed in the first quarter of fiscal year 2020.

Comprehensive Income

ASC 220, Comprehensive Income, defines comprehensive income as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The components of comprehensive income for the Company include net income, unrealized gains or losses on hedged transactions, net of tax and foreign currency translation adjustments arising from the consolidation of the Company’s foreign subsidiaries.

Business Combinations

The Company accounts for business combinations in accordance with ASC 805, Business Combinations. ASC 805 establishes principles and requirements for recognizing the total consideration transferred to and the assets acquired, liabilities assumed and any non-controlling interest in the acquired target in a business combination. ASC 805 also provides guidance for recognizing and measuring goodwill acquired in a business combination and requires the acquirer to disclose information that users may need to evaluate and understand the financial impact of the business combination. See Note 6 - Acquisitions for further discussion.

Reclassifications

Certain reclassificationsReclassifications have been made on the Consolidated Balance Sheets, Consolidated Income Statements and Consolidated Statements of Cash Flows in the prior years. On the Consolidated Balance Sheets balances have been reclassified within other current assets from trade accounts receivable to other receivables. On the Consolidated Statements of Cash Flows balances have been reclassified within the operating activities related to the aforementioned changes to other current assets and balances have been reclassified within our operating and financing activities section for contingent consideration paymentsyears in connection with adopting ASU 2016-15.reporting discontinued operations. These reclassifications had no effect on consolidated financial results.

Recent Accounting Pronouncements


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In May 2014, the Financial Accounting Standards Board ("FASB") issued a comprehensive new revenue recognition standard for contracts with customers that superseded the most current revenue recognition guidance, including industry-specific guidance under Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). In March, April, May and December 2016 the FASB issued additional ASUs to provide supplemental adoption guidance and clarification to ASU 2014-09. The core principle of this standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the standard provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. This guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The Company adopted the standard on July 1, 2018 using the full retrospective method. The adoption of this standard had no material impact on the Company's consolidated financial statements. See Note 2 Revenue Recognition for additional information.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic (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 will beare 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 will beis measured at the lease liability amount, adjusted for lease prepayments,
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

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. The standard isThis ASU was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This guidance will be applicable to the Company forbeginning in the first quarter of fiscal year beginning July 1, 2019. The guidance can be adopted using a2020. Entities are required to use the modified retrospective approach or a cumulative-effect adjustment to the opening balance sheet of retained earnings in the period of adoption, for leases that existwith the option of applying the requirements of the standard either (1) retrospectively to each prior comparative reporting period presented or are entered into after(2) retrospectively at the beginning of the earliest comparative period in the financial statements.of adoption.  The Company is currently inadopted the process of finalizing its assessmentstandard on July 1, 2019 and applied it at the beginning of the impactperiod of adoption. Therefore, upon adoption, financial information and disclosures are not updated for comparative reporting periods under the new standard and implementing related process and system changes. Thestandard. Additionally, the Company currently expects thathas elected the primary impact will betransition package of practical expedients upon adoption which, among other things, allows an increase in its total assets and total liabilities dueentity to not reassess the recognition ofhistorical lease classification. Upon adoption, the Company recognized right-of-use assets and corresponding lease liabilities upon implementation for both operating and finance leases currently accounted for as operating leases.of approximately $37 million on the Condensed Consolidated Balance Sheets. The adoption of this standard iswas not expected to be material to the Company’s consolidated financial statements, and based on the Company's ongoing assessment, the Company expects to recognize right-of-use assets and correspondingCondensed Consolidated Income Statements. See Note 14 - Leases for additional lease liabilities of approximately $35 million to $45 million.disclosures.

In June 2016, the FASB issues 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 guidance is effective for the Company beginning in the first quarter of fiscal year 2021 with early adoption permitted. The Company has evaluated the need for a change in our methodology for calculating allowance for trade and notes receivable in accordance with the guidance and has determined no change is currently evaluating the potential impactnecessary. The adoption of this guidance on itsstandard is not expected to be material to the Company's consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) intended to reduce diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The update addresses eight specific cash flow issues, with the treatment of contingent consideration payments made after a business combination being the most directly applicable to the Company. The update requires that cash payments made approximately three months or less after an acquisition's consummation date should be classified as cash outflows for investing activities. Payment made thereafter up to the amount of the original contingent consideration liability should be classified as cash outflows from financing activities. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows from operating activities. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted the standard for the fiscal year beginning July 1, 2018 using the retrospective transition method. For fiscal year 2018, the Company classified the amount of the Network1 earnout payment paid in excess of the originally anticipated liability at the acquisition date as an operating cash outflow. For fiscal year 2019, the Company classified the amounts of the Intelisys and Network1 earnout payments in excess as an operating cash outflow.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) that amends and simplifies guidance related to hedge accounting to more accurately portray the economics of an entity’s risk management activities in its financial statements.

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The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. This guidance will be applicable to the Company for the fiscal year beginning July 1, 2019. The guidance requires adoption using a modified retrospective approach. The presentation and disclosure requirements apply prospectively. The Company is currently evaluating the impact on its consolidated financial statements upon the adoption of this new guidance.

In August 2018, the FASB issued ASU 2018-13,, Fair Value Measurement (Topic(ASC Topic 820) Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.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. This guidance is applicable to the Company’s fiscal year beginning July 1, 2020.2020. The Company is currently evaluating the potential impact of this guidance on its consolidated financial statements.

In August 2018,March 2020, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU amends the definition of a hosting arrangement and requires a customer in a hosting arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project. Under this ASU, a customer will determine whether to capitalize implementation costsNo. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the cloud computing arrangement thatEffects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”), which provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. The company is a service contract or expense them as incurred. Thiscurrently evaluating the potential impact of this guidance is applicable to the Company’s fiscal year beginning July 1, 2020, with early adoption permitted. The Company adopted the standard as of June 30, 2019, capitalizing $5.4 million of SaaS implementation costs related to Salesforce software which is classified as prepaid expenses and other current assets in the Consolidated Balance Sheets.on its 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.

(2)Revenue Recognition

The Company provides technology solutions and services from the world's leading suppliers of mobility and barcode, POS, payments, barcode, physical security, unified communications and collaboration, and telecom and cloud services. This includes hardware, related accessories and device configuration as well as software licenses, professional services and hardware support programs.

The Company adopted ASC 606 effective July 1, 2018 utilizing the full retrospective method. In determining the appropriate amount of revenue to recognize, the Company applies the following five-step model: (i) identify contracts with customers; (ii) identify performance obligations in the contracts; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations per the contracts; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company recognizes revenue as control of products and services are transferred to customers, which is generally at the point of shipment. 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.

Significant Judgments:

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
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

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


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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


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.

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 or the most likely amount 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.

Contract Balances

The Company records contract assets and liabilities for payments received from customers in advance of services performed. These assets and liabilities are the result of the sales of the Company's self-branded warranty programs and other transactions where control has not yet passed to the customer. These amounts are immaterial to the consolidated financial statements for the periods presented.

Practical Expedients & Accounting Policy Elections
•
•Incremental costs of obtaining a contract - These costs are included in selling, general and administrative expenses as the amortization period is generally one year or less. The Company expenses costs associated with obtaining and fulfilling contracts as incurred.
•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.
•- These costs are included in selling, general and administrative expenses as the amortization period is generally one year or less. The Company expenses costs associated with obtaining and fulfilling contracts as incurred.
•
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:
68
  Fiscal year ended June 30, 2019
    (in thousands)  
  Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total
Revenue by product/service:      
Technology solutions $2,589,837
 $1,228,017
 $3,817,854
Master agency and professional services —
 55,257
 55,257
  $2,589,837
 $1,283,274
 $3,873,111


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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 20192020


Fiscal year ended June 30, 2020
(in thousands)
Worldwide Barcode, Networking & Security SegmentWorldwide Communications & Services SegmentTotal
Revenue by product/service:
Technology solutions$2,093,217 $892,814 $2,986,031 
Master agency and professional services(a)
0 61,703 61,703 
$2,093,217 $954,517 $3,047,734 
  Fiscal year ended June 30, 2018
    (in thousands)  
  Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total
Revenue by product/service:      
Technology solutions $2,628,988
 $1,174,960
 $3,803,948
Master agency and professional services —
 42,312
 42,312
  $2,628,988
 $1,217,272
 $3,846,260

  Fiscal year ended June 30, 2017
    (in thousands)  
  Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total
Revenue by product/service:      
Technology solutions $2,389,256
 $1,149,508
 $3,538,764
Master agency and professional services —
 29,422
 29,422
  $2,389,256
 $1,178,930
 $3,568,186


Fiscal year ended June 30, 2019
(in thousands)
Worldwide Barcode, Networking & Security SegmentWorldwide Communications & Services SegmentTotal
Revenue by product/service:
Technology solutions$2,141,896 $1,052,854 $3,194,750 
Master agency and professional services(a)
0 55,049 55,049 
$2,141,896 $1,107,903 $3,249,799 

Fiscal year ended June 30, 2018
(in thousands)
Worldwide Barcode, Networking & Security SegmentWorldwide Communications & Services SegmentTotal
Revenue by product/service:
Technology solutions$2,143,135 $979,262 $3,122,397 
Master agency and professional services(a)
0 42,312 42,312 
$2,143,135 $1,021,574 $3,164,709 
(a) Includes Intelisys Communications, Inc., Canpango, and Intelisys Global Ltd.

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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

(3)Earnings per Share

Basic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share are computed by dividing net income by the weighted-average number of common and potential common shares outstanding.
Fiscal year ended June 30,
202020192018
 (in thousands, except per share data)
Numerator:
Net (loss) income from continuing operations$(79,227)$64,859 $35,456 
Net loss from discontinued operations(113,427)(7,262)(2,303)
Net (loss) income$(192,654)$57,597 $33,153 
Denominator:
Weighted-average shares, basic25,37825,642 25,522 
Dilutive effect of share-based payments0 92 102 
Weighted-average shares, diluted(1)
25,37825,734 25,624 
Net (loss) income from continuing operations per common share, basic(3.12)2.53 1.39 
Net loss from discontinued operations per common share, basic(4.47)(0.28)(0.09)
Net (loss) income per common share, basic$(7.59)$2.25 $1.30 
Net (loss) income from continuing operations per common share, diluted(3.12)2.52 1.38 
Net loss from discontinued operations per common share, diluted(4.47)(0.28)(0.09)
Net (loss) income per common share, diluted$(7.59)$2.24 $1.29 
 Fiscal year ended June 30,
 2019 2018 2017
 (in thousands, except per share data)
Numerator:     
Net income$57,597
 $33,153
 $69,246
      
Denominator:

 

  
Weighted-average shares, basic25,642 25,522
 25,318
Dilutive effect of share-based payments92
 102
 197
Weighted-average shares, diluted25,734 25,624
 25,515
 

 

  
Net income per common share, basic$2.25
 $1.30
 $2.74
Net income per common share, diluted$2.24
 $1.29
 $2.71
(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, 2020, 2019, 2018 and 2017,2018, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would have been antidilutive were 1,040,226, 582,856, 551,320 and 551,320, respectively.
418,325, respectively.

(4)Property and Equipment

Property and equipment is comprised of the following:


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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 20192020


 June 30,
 20202019
 (in thousands)
Land$3,331 $3,331 
Buildings and leasehold improvements21,791 18,122 
Computer software and equipment75,008 68,575 
Furniture, fixtures and equipment17,775 19,442 
Construction in progress476 2,751 
Rental equipment10,207 12,056 
128,588 124,277 
Less accumulated depreciation(72,947)(63,707)
$55,641 $60,570 
 June 30,
 2019 2018
 (in thousands)
Land$3,331
 $3,331
Buildings and leasehold improvements21,603
 21,384
Computer software and equipment70,357
 74,220
Furniture, fixtures and equipment26,676
 27,077
Construction in progress2,751
 1,584
Rental equipment12,056
 13,817
 136,774
 141,413
Less accumulated depreciation(73,411) (68,371)
 $63,363
 $73,042


Depreciation expense recorded as selling, general and administrative costs in the accompanying Consolidated Income Statements was $13.2$13.0 million,, $13.3 $12.0 million and $9.4$12.3 million for the fiscal years ended June 30, 2020, 2019, 2018 and 2017,2018, respectively. Depreciation expense recorded as cost of goods sold in the accompanying Consolidated Income Statements was $2.3 million, $3.7 million and $3.5 million for the fiscal year ended June 30, 2020, 2019 and 2018. There was no depreciation expense recorded as cost of goods sold prior to the acquisition of POS Portal on July 31, 2017.2018, respectively.


(5)Other assets and liabilities, current and non-current

The table below details prepaid expenses and other current assets.

June 30,
20202019
(in thousands)
Other receivables$56,266 $53,047 
Prepaid expense16,660 10,976 
Other taxes receivable5,258 7,382 
Other current assets16,497 12,348 
$94,681 $83,753 
 June 30,
 2019 2018
 (in thousands)
Other receivables$63,699
 $60,802
Foreign currency receivable165
 157
Prepaid expense12,845
 6,004
Other taxes receivable10,005
 6,333
Other current assets14,457
 21,302
 $101,171
 $94,598



The table below details accrued expenses and other current liabilities.

 June 30,
 20202019
 (in thousands)
Deferred warranty revenue$12,101 $13,829 
Accrued compensation13,616 13,326 
Other taxes payable15,756 11,700 
Accrued marketing expense5,667 3,813 
Accrued freight2,886 3,383 
Short-term operating lease liability4,476 — 
Other accrued liabilities22,184 18,578 
$76,686 $64,629 
 June 30,
 2019 2018
 (in thousands)
Deferred warranty revenue$16,835
 $20,483
Accrued compensation17,703
 21,762
Other taxes payable23,719
 18,573
Accrued marketing expense4,247
 4,457
Brazilian pre-acquisition contingencies761
 1,385
Accrued freight4,071
 3,848
Other accrued liabilities24,071
 20,365
 $91,407
 $90,873


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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 20192020



The table below details other long-term liabilities.

 June 30,
 20202019
 (in thousands)
Long-term deferred warranty revenue$4,031 $5,624 
Long-term deferred compensation liability24,572 24,224 
Interest rate swap9,433 3,504 
Long-term income taxes payable6,674 7,376 
Long-term operating lease liability20,760 — 
Other long-term liabilities14,598 16,425 
$80,068 $57,153 
 June 30,
 2019 2018
 (in thousands)
Long-term deferred warranty revenue$7,034
 $7,235
Long-term deferred compensation liability24,224
 21,757
Interest rate swap3,504
 —
Long-term income taxes payable7,376
 8,264
Other long-term liabilities17,350
 15,447
 $59,488
 $52,703


(6)Acquisitions

intY

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 7 - Goodwill and Other Identifiable Intangible Assets for the amounts of goodwill and intangible assets recognized 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 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.

RPM, Canpango and Intelisys Global

During the quarter ended December 31, 2018, the Company acquired the assets of RPM Software ("RPM"), a business process software developer with focus in the telecom channel business for calculating and paying agency commissions in an automated cloud-based system. During the quarter ended September 30, 2018, the Company completed the acquisition of Canpango, a global Salesforce implementation and consulting business with deep knowledge of customer relationship management (CRM) and integration with telecom systems. Intelisys Global was also acquired during the quarter ended September 30, 2018. The total combined purchase price for all companies, net of cash acquired, was approximately $32.2 million. The purchase price of these collective acquisitions was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction date. Purchase accounting was finalized duringIntangible assets acquired include trade names, customer relationships, non-compete agreements and developed technology. Goodwill recognized on these acquisitions is expected to be deductible for tax purposes. See Note 7 - Goodwill and Other Identifiable Intangible Assets for the year ended June 30, 2019.amount of goodwill and intangible assets recognized in connection with these acquisitions. The impact of these acquisitions was not material to the consolidated financial statements. In connection with these acquisitions during fiscal 2019, the Company recognized $0.9 million in acquisition-related costs included in selling, general and administrative expenses on the Consolidated Income Statements.

POS Portal

On July 31, 2017, the Company acquired all of the outstanding shares of POS Portal a leading provider of payment devices and services primarily to the small and midsized market segment in the United States. POS Portal joined the Worldwide Barcode, Networking & Security segment.

Under the share purchase agreement, the all-cash transaction included an initial purchase price of approximately $144.9 million paid in cash at closing. The Company paid an additional $3.4 millionhas initiated plans to close Canpango, its Salesforce implementation and consulting business. See Note 19 - Subsequent Events for customary closing adjustments during the six months ended December 31, 2017. The Company acquired $4.6 million in cash, net of debt payoff and other customary closing adjustments, resulting in $143.8 million net cash paid for POS Portal. The Company paid a cash earnout payment of $13.2 million during the quarter ended December 31, 2017. A portion of the purchase price was placed into escrow to indemnify the Company for certain pre-acquisition damages. As of June 30, 2019, the balance available in escrow was $0.2 million. In connection with the POS Portal acquisition during fiscal 2018, the Company recognized $0.2 million in acquisition-related cost included in selling, general and administrative expenses on the Consolidated Income Statements.

The purchase price of this acquisition was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction date. Purchase accounting for this acquisition was finalized during the quarter ended December 31, 2017. The goodwill balance is primarily attributed to expanding the Company's high-value capabilities and market reach across all payment channels. Goodwill, identifiable intangible assets and the related deferred tax liability are not deductible for tax purposes. Pro forma results of operations have not been presented for the acquisition of POS Portal because such results are not material to our consolidated results.

more information.
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 20192020


 POS Portal
 (in thousands)
Receivables$8,914
Inventory8,352
Other current assets917
Property and equipment, net24,963
Goodwill101,198
Identifiable intangible assets57,000
Other non-current assets100
 $201,444
  
Accounts payable$10,897
Accrued expenses and other current liabilities5,130
Contingent consideration13,098
Other long-term liabilities102
Long-term deferred taxes payable28,449
Consideration transferred, net of cash acquired143,768
 $201,444


(7)  Goodwill and Other Identifiable Intangible assets acquired include trade names, customer relationships, non-compete agreements and an encryption key library. The weighted-average amortization period for these identified assets after purchase accounting adjustments, other than goodwill, was 10 years.Assets


(7)Goodwill and Other Identifiable Intangible Assets

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 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. Key assumptions used in determining fair value include projected growth and operating margin, working capital requirements and discount rates. The Company's projected growth and operating margins have been 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 for the fiscal year ended June 30, 2020 which is recorded to the impairment charges line item in the Consolidated Income Statements. The fair value of our Worldwide Communications & Services reporting unit exceeds its carrying value of assets by approximately 12%. During fiscal years ended June 30, 2019 and 2018, and 2017, no0 impairment charges related to goodwill were recorded.

Changes in the carrying amount of goodwill for the years ended June 30, 20192020 and 2018,2019, by reportable segment, are set forth in the table below. Additions to goodwill for fiscal years 20192020 and 20182019 are due to the recent acquisitions.
Worldwide Barcode, Networking & Security SegmentWorldwide Communications & Services SegmentTotal
 (in thousands)
Balance at June 30, 2018$135,954 $152,769 $288,723 
Additions0 21,854 21,854 
Unrealized loss on foreign currency translation11 127 138 
Balance at June 30, 2019$135,965 $174,750 $310,715 
Additions0 30,445 30,445 
Goodwill impairment charges(119,037)0 (119,037)
Unrealized loss on foreign currency translation(558)(7,277)(7,835)
Balance at June 30, 2020$16,370 $197,918 $214,288 
 Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total
 (in thousands)
Balance at June 30, 2017$36,260
 $164,621
 $200,881
Additions101,198
 —
 101,198
Unrealized loss on foreign currency translation(244) (3,661) (3,905)
Balance at June 30, 2018$137,214
 $160,960
 $298,174
Additions—
 21,854
 21,854
Unrealized loss on foreign currency translation(137) (353) (490)
Balance at June 30, 2019$137,077
 $182,461
 $319,538


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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019



The following table shows the Company’s identifiable intangible assets as of June 30, 20192020 and 2018,2019, respectively.

 June 30, 2020June 30, 2019
 Gross
Carrying
Amount		Accumulated
Amortization		Net
Book
Value		Gross
Carrying
Amount		Accumulated
Amortization		Net
Book
Value
 (in thousands)
Amortized intangible assets:
Customer relationships$137,146 $56,107 $81,039 $131,263 $45,707 $85,556 
Trade names19,509 7,617 11,892 21,546 9,451 12,095 
Non-compete agreements2,410 1,711 699 2,586 1,209 1,377 
Supplier partner program4,085 1,191 2,894 3,583 815 2,768 
Encryption key library19,900 7,255 12,645 19,900 4,768 15,132 
Developed technology14,004 1,626 12,378 4,512 226 4,286 
Total intangibles$197,054 $75,507 $121,547 $183,390 $62,176 $121,214 
 June 30, 2019 June 30, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Book
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Book
Value
 (in thousands)
Amortized intangible assets:           
Customer relationships$143,541
 $51,823
 $91,718
 $139,479
 $40,337
 $99,142
Trade names23,831
 11,320
 12,511
 27,123
 12,224
 14,899
Non-compete agreements3,094
 1,714
 1,380
 3,064
 1,221
 1,843
Distributor agreements354
 210
 144
 363
 188
 175
Supplier partner program3,583
 815
 2,768
 3,583
 456
 3,127
Encryption key library19,900
 4,768
 15,132
 19,900
 2,280
 17,620
Developed technology4,512
 226
 4,286
 —
 —
 —
Total intangibles$198,815
 $70,876
 $127,939
 $193,512
 $56,706
 $136,806


During fiscal year 2020, the Company acquired customer relationships, trade names and developed technology related to the acquisition of intY. During fiscal year 2019, the Company acquired customer relationships, trade names non-compete agreements and developed technology related to the acquisitionsacquisition of RPM. In addition, during fiscal year 2019, the Company acquired customer relationships, trade names and non-compete agreements related to the acquisition of Canpango, and RPM.which were subsequently
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

impaired in fiscal year 2020, totaling $1.4 million in impairment charges. 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.NaN impairment charges were recognized in fiscal years ended June 30, 2019 and 2018.

The weighted-average amortization period for all intangible assets was approximately 10 years for the year ended June 30, 2020, compared to 9 years for the year ended June 30, 2019 compared toand 10 years for the year ended June 30, 2018. Amortization expense for continuing operations for the years ended June 30, 2020, 2019 and 2018 was $20.0 million, $17.9 million and 2017. Amortization expense for the years ended June 30, 2019, 2018 and 2017 was $19.7$18.7 million,, $20.7 million and $15.5 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.

Estimated future amortization expense is as follows:
 Amortization
Expense
 (in thousands)
Year Ended June 30,
2021$19,313 
202217,677 
202316,737 
202416,633 
202516,633 
Thereafter34,554 
Total$121,547 
 
Amortization
Expense
 (in thousands)
Year Ended June 30, 
2020$19,075
202119,489
202217,698
202316,588
202416,443
Thereafter38,646
Total$127,939


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

The following table shows the Company’s short-term and long-term debt as of June 30, 20192020 and 2018,2019, respectively.

June 30,
20202019
(in thousands)
Current portion of long-term debt7,839 4,085 
Mississippi revenue bond, net of current portion4,425 4,764 
Senior secured term loan facility, net of current portion138,750 146,250 
Borrowings under revolving credit facility(a)
67,714 172,390 
Total debt$218,728 $327,489 
(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 and $28.4 million for the fiscal years ended June 30, 2020 and 2019, respectively.

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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


 June 30,
 2019 2018
 (in thousands)
Short-term borrowings$4,590
 $—
Current portion of long-term debt4,085
 551
Mississippi revenue bond, net of current portion4,764
 4,878
Senior secured term loan facility, net of current portion146,250
 —
Borrowings under revolving credit facility200,817
 244,000
Total debt$360,506
 $249,429



Short-term Borrowings

The Company has a bank overdraft facility with Bank     of America used by its European subsidiaries. The facility allows the Company to disburse checks in excess of bank balances up to $14.0 million U.S. dollar equivalent for up to seven days. Borrowings under the overdraft facility bear interest at a rate equal to a spread of 1.0% over the applicable currency's London Interbank Offered Rate ("LIBOR") with a zero percent floor. Since borrowings outstanding under the overdraft facility at June 30, 2019 were denominated in euros, which bore a negative LIBOR rate, the interest applicable to the Company was 1.0%. There was no outstanding balance on the overdraft facility at June 30, 2018.

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 (the “Amended Credit Agreement”).banks. On April 30, 2019, the Company amended this credit facility to expand the borrowing capacity and extend its maturity to April 30, 2024. The Amended Credit Agreement includes (i) a five-yearfive-year $350 million multi-currency senior secured revolving credit facility and (ii) a five-yearfive-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. 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.

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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020


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-quarter4-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. Borrowings under the Amended Credit Agreement are guaranteedsecured 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.

The spread in effect as of June 30, 20192020 was 1.75% for LIBOR-based loans and 0.75% for alternate base rate loans. The commitment fee rate in effect as of June 30, 20192020 was 0.30%. The Amended Credit Agreement includes customary representations, warranties, and affirmative and negative covenants, including financial covenants. Specifically, the Company’s Leverage Ratio must be less than or equal to 3.50 to 1.00 at all times. In addition, the Company’s Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement) must be at least 3.00 to1.00 as of the end of each fiscal quarter. In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates. The Company was in compliance with all covenants under the credit facilityAmended Credit Agreement as of June 30, 2019.

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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


2020.
TheIncluding 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, 2020 and 2019 was $235.4 million and 2018 was $296.4 million, respectively. Taking into consideration outstanding borrowings on the multi-currency revolving credit facility for both continuing and $269.5discontinued operations, there was $257.3 million respectively. There was $149.2 millionand $156.0$149.2 million available for additional borrowings as of June 30, 20192020 and 2018,2019, respectively. At June 30, 2020, based upon the Leverage Ratio calculations, there was $132.1 million available for additional borrowings. There were no letters of credit issued under the multi-currency revolving credit facility for the discontinued operations of $0.3 million as of June 30, 2019 and2020. There were 0 letters of credit issued as of June 30, 2018.2019.

Mississippi Revenue Bond

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 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. The agreement also provides the bondholder with a put option, exercisable only within 180 days of each 5th anniversary of the agreement, requiring the Company to pay back the bonds at 100% of the principal amount outstanding. As of June 30, 2019,2020, the Company was in compliance with all covenants under this bond. The interest rate at June 30, 20192020 and 20182019 was 3.280%1.03% and 2.855%3.28%, respectively.

Scheduled maturities of the Company’s short-term borrowings, revolving credit facility from continuing operations and long-term debt at June 30, 20192020 are as follows:

75
 Revolving Credit Facility Term Loan Facility Mississippi Bond Bank Overdraft Facility
 (in thousands)  
Fiscal year:       
2020$—
 $3,750
 $335
 $4,590
2021—
 7,500
 338
 —
2022—
 7,500
 343
 —
2023—
 11,250
 348
 —
2024200,817
 120,000
 352
 —
Thereafter—
 —
 3,383
 —
Total principal payments$200,817
 $150,000
 $5,099
 $4,590

Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

 Revolving Credit FacilityTerm Loan FacilityMississippi Bond
 (in thousands)
Fiscal year:
2021$0 $7,500 $339 
20220 7,500 343 
20230 11,250 348 
202467,714 120,000 352 
20250 0 357 
Thereafter0 0 3,025 
Total principal payments$67,714 $146,250 $4,764 

Debt Issuance Costs

As of June 30, 2019,2020, net debt issuance costs associated with the credit facility and bonds totaled $2.1$1.6 million and are being amortized on a straight-line basis through the maturity date of each respective debt instrument.


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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


(9) Derivatives and Hedging Activities

The Company’s results of operations could be materially impacted by significant changes in foreign currency exchange rates and interest rates. In an effort to manage the exposure to these risks, the Company periodically enters into various derivative instruments. 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. GAAP. 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.

Foreign Currency Derivatives – The Company conducts a portion of its business internationally in a variety of foreign currencies. The exposurecurrencies and is exposed to market risk for changes in foreign currency exchange rates arises from foreign currency denominated assets and liabilities and transactions arising from non-functional currency financing or trading activities. The Company’s objective is to preserve the economic value of non-functional currency denominated cash flows.rates. The Company attempts to hedge transaction exposures with natural offsets to the fullest extent possible and once these opportunities have been exhausted the Company uses currency options and forward contracts or other hedging instruments with third parties. These contracts will periodically hedge the exchange of various currencies, including the U.S. dollar, Brazilian real, euro, British pound and Canadian dollar Mexican peso, Colombian peso, Chilean peso,for continuing operations. See Note 1- Business and Peruvian nuevo sol. While the Company utilizes foreign exchange contracts to hedge foreign currency exposure,Summary of Significant Accounting Policies for more information regarding the Company's foreign exchange policy prohibits the use ofon derivative financial instruments for speculative purposes.instruments.

The Company had contracts outstanding with notional amounts of $110.7$16.6 million and $74.6$25.3 million for the exchange of foreign currencies as of June 30, 20192020 and 2018,2019, respectively. To date, the Company has chosen not to designate these derivatives as hedging instruments, and accordingly, these instruments are adjusted to fair value through earnings in other income and expense. Summarized financial information related to these derivative contracts and changes in the underlying value of the foreign currency exposures are as follows:
 Fiscal year ended June 30,
 202020192018
 (in thousands)
Net foreign exchange derivative contract (gain) loss$(3,975)$235 $(436)
Net foreign currency transactional and re-measurement loss4,500 400 1,614 
Net foreign currency loss$525 $635 $1,178 
 Fiscal year ended June 30,
 2019 2018 2017
 (in thousands)
Net foreign exchange derivative contract loss (gain)$(558) $386
 $146
Net foreign currency transactional and re-measurement loss1,714
 1,710
 1,773
Net foreign currency loss$1,156
 $2,096
 $1,919


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, the U.S. dollar versus the euro, British pound versus the euro and other currencies versus the U.S. dollar.
76

Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

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. 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. Interest rate differentials paid or received under the swap agreement are recognized as adjustments to interest expense. To the extent the swap is effective in offsetting the variability of the hedged cash flows, changes in the fair value of the swap are not included in current earnings but are reported as other comprehensive income (loss). There was no0 ineffective portion to be recorded as an adjustment to earnings for fiscal years ended June 30, 20192020 and 2018.2019.

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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


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:
Fiscal Year Ended June 30,
 202020192018
 (in thousands)
Net interest expense (income) recognized as a result of interest rate swap$799 $(233)$161 
Unrealized (loss) gain in fair value of interest swap rates(6,900)(4,159)1,422 
Net increase in accumulated other comprehensive (loss) income(6,101)(4,392)1,583 
Income tax effect1,455 1,115 (494)
Net increase in accumulated other comprehensive (loss) income, net of tax$(4,646)$(3,277)$1,089 
 Fiscal Year Ended June 30,
 201920182017
 (in thousands)
Net interest (income) expense recognized as a result of interest rate swap$(233)$161
$7
Unrealized (loss) gain in fair value of interest swap rates(4,159)1,422
14
Net increase in accumulated other comprehensive (loss) income(4,392)1,583
21
Income tax effect(1,115)494
8
Net increase in accumulated other comprehensive (loss) income, net of tax$(3,277)$1,089
$13

The Company has the following derivative instruments for continuing operations located on the Consolidated Balance Sheets as of June 30, 2020, utilized for the risk management purposes detailed above:

 June 30, 2020
 Balance Sheet LocationFair Value of  Derivatives
Designated as  Hedge
Instruments		Fair Value of  Derivatives
Not Designated as Hedge
Instruments
 (in thousands)
Derivative liabilities:
Foreign exchange contractsAccrued expenses and other current liabilities$0 $26 
Interest rate swap agreementOther current liabilities$9,433 $0 

The Company has the following derivative instruments located on the Consolidated Balance Sheets and Income Statements as of June 30, 2019, utilized for the risk management purposes detailed above:

 June 30, 2019
 Balance Sheet Location 
Fair Value of  Derivatives
Designated as  Hedge
Instruments
 
Fair Value of  Derivatives
Not Designated as Hedge
Instruments
   (in thousands)
Derivative assets:  
  
Foreign exchange contractsPrepaid expenses and other current assets $—
 $168
Derivative liabilities:     
Foreign exchange contractsAccrued expenses and other current liabilities $—
 $165
Interest rate swap agreementOther current liabilities $3,504
 $—


77
The Company has the following derivative instruments located on the Consolidated Balance Sheets and Income Statements as of June 30, 2018, utilized for the risk management purposes detailed above:

 June 30, 2018
 Balance Sheet Location 
Fair Value of  Derivatives
Designated as  Hedge
Instruments
 
Fair Value of  Derivatives
Not Designated as Hedge
Instruments
   (in thousands)
Derivative assets:  
  
Foreign exchange contractsPrepaid expenses and other current assets $—
 $157
Interest rate swap agreementOther current assets $1,604
 $—
Derivative liabilities:     
Foreign exchange contractsAccrued expenses and other current liabilities $—
 $156









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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 20192020

 June 30, 2019
 Balance Sheet LocationFair Value of  Derivatives
Designated as  Hedge
Instruments		Fair Value of  Derivatives
Not Designated as Hedge
Instruments
 (in thousands)
Derivative liabilities:
Foreign exchange contractsAccrued expenses and other current liabilities$0 $21 
Interest rate swap agreementOther current liabilities$3,504 $0 


(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 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;
•Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;
•Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. 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 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).

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, 20192020:
TotalQuoted
prices  in
active
markets
(Level  1)		Significant
other
observable
inputs
(Level 2)		Significant
unobservable
inputs
(Level 3)
(in thousands)
Assets:
Deferred compensation plan investments, current and non-current portion$27,159 $27,159 $0 $0 
Total assets at fair value$27,159 $27,159 $0 $0 
Liabilities:
Deferred compensation plan investments, current and non-current portion$27,159 $27,159 $0 $0 
Forward foreign currency exchange contracts26 0 26 0 
Interest rate swap agreement9,433 0 9,433 0 
Liability for contingent consideration46,334 0 0 46,334 
Total liabilities at fair value$82,952 $27,159 $9,459 $46,334 
78
 Total 
Quoted
prices  in
active
markets
(Level  1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 (in thousands)
Assets:       
Deferred compensation plan investments, current and non-current portion$25,787
 $25,787
 $—
 $—
Forward foreign currency exchange contracts168
 —
 168
 —
Total assets at fair value$25,955
 $25,787
 $168
 $—
Liabilities:       
Deferred compensation plan investments, current and non-current portion$25,787
 $25,787
 $—
 $—
Forward foreign currency exchange contracts165
 —
 165
 —
Interest rate swap agreement3,504
 —
 3,504
 —
Liability for contingent consideration, current and non-current77,925
 
— 

 —
 77,925
Total liabilities at fair value$107,381
 $25,787
 $3,669
 $77,925


Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020


The following table presents assets and liabilities measured at fair value on a recurring basis as of June 30, 2018:2019:

TotalQuoted
prices  in
active
markets
(Level  1)		Significant
other
observable
inputs
(Level 2)		Significant
unobservable
inputs
(Level 3)
(in thousands)
Assets:
Deferred compensation plan investments, current and non-current portion$25,787 $25,787 $0 $0 
Total assets at fair value$25,787 $25,787 $0 $0 
Liabilities:
Deferred compensation plan investments, current and non-current portion$25,787 $25,787 $0 $0 
Forward foreign currency exchange contracts21 0 21 0 
Interest rate swap agreement3,504 0 3,504 0 
Liability for contingent consideration, current and non-current77,925 0 0 77,925 
Total liabilities at fair value$107,237 $25,787 $3,525 $77,925 

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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


 Total 
Quoted
prices  in
active
markets
(Level  1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 (in thousands)
Assets:       
Deferred compensation plan investments, current and non-current portion$23,352
 $23,352
 $—
 $—
Forward foreign currency exchange contracts157
 —
 157
 —
Interest rate swap agreement1,604
 —
 1,604
 —
Total assets at fair value$25,113
 $23,352
 $1,761
 $—
Liabilities:       
Deferred compensation plan investments, current and non-current portion$23,352
 $23,352
 $—
 $—
Forward foreign currency exchange contracts156
 —
 156
 —
Liability for contingent consideration, current and non-current108,233
 —
 —
 108,233
Total liabilities at fair value$131,741
 $23,352
 $156
 $108,233


The investments in the deferred compensation plan are held in a "rabbi trust" and include mutual funds and cash equivalents for payment of non-qualified benefits for certain retired, terminated or active employees. These investments are recorded to prepaid and other current assets or other non-current assets depending on their corresponding, anticipated distributions to recipients, which are reported in accrued expenses and other current liabilities or other long-term non-current liabilities, respectively.

Derivative instruments, such as foreign currency forward contracts, are measured using the market approach on a recurring basis considering foreign currency spot rates and forward rates quoted by banks or foreign currency dealers and interest rates quoted by banks (Level 2). Fair values of interest rate swaps are measured using standard valuation models with inputs that can be derived from observable market transactions, including LIBOR spot and forward rates (Level 2). Foreign currency contracts and interest rate swap agreements are classified in the Consolidated Balance Sheet as prepaid expenses and other current assets or accrued expenses and other current liabilities, depending on the respective instruments' favorable or unfavorable positions. See Note 9 - Derivatives and Hedging Activities.
The Company recorded contingent consideration liabilities at the acquisition date of Network1 Intelisys and POS PortalIntelisys 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. 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 1617 - Accumulated Other Comprehensive (Loss) Income.

POS Portal is part of the Company's Worldwide Barcode, Networking & Security Segment. Network1 and Intelisys are part of the Company's Worldwide Communications & Services segment.

The final earnout payment due to former shareholders of Network1 was paid during the fiscal year ended June 30, 2019. The table below provides a summary of the changes in fair value of the Company’sCompany's contingent considerations for the Network1, and Intelisys earnouts,earnout, which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the fiscal year ended June 30, 2019. The final earnout payment due to former shareholders of Network1 was paid during fiscal year ended June 30, 2019.

2020.
68
79

Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 20192020


 
Contingent Consideration for the Fiscal Year Ended 

 June 30, 2019
 Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total
 (in thousands)
Fair value at beginning of period$—
 $108,233
 $108,233
Payments—
 (45,796) (45,796)
Change in fair value—
 15,200
 15,200
Fluctuation due to foreign currency exchange—
 288
 288
Fair value at end of period$—
 $77,925
 $77,925

June 30, 2020
Worldwide Communications & Services Segment
(in thousands)
Fair value at beginning of period$77,925
Payments(38,532)
Change in fair value6,941
Fair value at end of period$46,334

The table below provides a summary of the changes in fair value of the Company’sCompany's contingent considerationsconsideration for the Network1 and Intelisys and POS Portal earnouts which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the fiscal year ended June 30, 2018.The contingent consideration2019. The final earnout payment due to the former shareholders of POS PortalNetwork1 was paid in full during the fiscal year ended June 30, 2018.2019.
June 30, 2019
Worldwide Communications & Services Segment
(in thousands)
Fair value at beginning of period$108,233
Payments(45,796)
Change in fair value15,200
Fluctuation due to foreign currency exchange288
Fair value at end of period$77,925
 
Contingent Consideration for the Fiscal Year Ended 

 June 30, 2018
 Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total
 (in thousands)
Fair value at beginning of period$—
 $114,036
 $114,036
Issuance of contingent consideration13,098
 —
 13,098
Payments(13,167) (40,858) (54,025)
Adjustments to contingent consideration (1)
—
 (779) (779)
Change in fair value69
 36,974
 37,043
Fluctuation due to foreign currency exchange—
 (1,140) (1,140)
Fair value at end of period$—
 $108,233
 $108,233

(1)The contingent consideration payable to the former shareholders of Network1 was been reduced by payments the Company made to settle pre-acquisition contingencies during the quarter ended June 30, 2018.

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:

•estimated future results, net of pro forma adjustments set forth in the purchase agreements;
•the probability of achieving these results; and
•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, 20192020 and 20182019 were as follows.

Reporting PeriodValuation TechniqueSignificant Unobservable Inputs
Weighted Average Rates(a)
June 30, 2020Discounted cash flowWeighted average cost of capital3.0%
June 30, 2019Discounted cash flowWeighted average cost of capital14.2%
Adjusted EBITDA growth rate21.5%
(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.

Intelisys

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80

Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 20192020


Reporting PeriodValuation TechniqueSignificant Unobservable InputsWeighted Average Rates
June 30, 2019Discounted cash flowWeighted average cost of capital14.2%
Adjusted EBITDA growth rate21.5%
June 30, 2018Discounted cash flowWeighted average cost of capital14.8%
Adjusted EBITDA growth rate18.2%


Worldwide Barcode, Networking & Security Segment

POS Portal

The contingent consideration due to the former shareholders of POS Portal was paid in full during the fiscal year ended June 30, 2018. The expense from the change in the fair value of the contingent consideration recognized in the Consolidated Income Statements for the fiscal year ended June 30, 2018 totaled less than $0.1 million.

Worldwide Communications & Services Segment

Network1

The final earnout payment was paid to the former shareholders of Network1 during the fiscal year ended June 30, 2019, therefore no liability for the contingent consideration related to Network1 isIntelisys recognized as ofat June 30, 2019. The expense from the change in fair value of the contingent consideration recognized in the Consolidated Income Statements totaled $2.5 million for the fiscal year ended June 30, 2019, which is primarily for agreed upon adjustments in the final payment.

As of June 30, 2018, the fair value of the contingent consideration2020 was $10.7$46.3 million, all of which wasis classified as current. The expense from the change in fair value of the contingent consideration recognized in the Condensed Consolidated Income StatementsStatement totaled $21.0$6.9 million for the fiscal year ended June 30, 2018, which was2020. The change in fair value for the fiscal year is primarily duedriven by the recurring amortization of the unrecognized fair value discount and a reduction in the discount rate. Although there is no contractual limit, total future undiscounted contingent consideration payments are anticipated to a change inrange up to $46.9 million, based on the Company’s best estimate of the fiscal year 2018 payment to the former shareholdersearnout calculated on a multiple of Network1, additional agreed upon adjustments to the projected final settlement and improved actual results for the for fiscal year 2018.adjusted earnings.

Intelisys

The fair value of the liability for the contingent consideration related to Intelisys recognized at June 30, 2019 was $77.9 million, of which $38.4 million is classified as current. The expense from the change in fair value of the contingent consideration recognized in the Condensed Consolidated Income Statements totaled $12.7 million for the fiscal year ended June 30, 2019, which was primarily due to the recurring amortization of the unrecognized fair value discount and improved projected results. Although there is no contractual limit, total future undiscounted contingent consideration payments are anticipated to range up to $85.1 million, based on the Company’s best estimate of the earnout calculated on a multiple of adjusted earnings.

Network1

The fair valuefinal earnout payment was paid to the former shareholders of Network1 during the liability for the contingent consideration related to Intelisys recognized atfiscal year ended June 30, 2018 was $97.5 million of which $32.2 million is classified as current.2019. The expense from the change in fair value of the contingent consideration recognized in the Consolidated Income Statements totaled $16.0 million for the fiscal year ended June 30, 2018, which was largely driven by the recurring amortization of the unrecognized fair value discount and an adjustment to the probability weights2019 recognized in the discounted cash flow model.Condensed Consolidated Income Statements contributed a loss of $2.5 million for agreed upon adjustments in the final payments.

Scheduled maturities of the Company’s contingent considerations at June 30, 2019 are as follows:

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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


 Contingent Consideration
 (in thousands)
Fiscal year: 
2020$38,393
202139,532
Total contingent consideration payments$77,925


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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


(11) Share-Based Compensation

Share-Based Compensation Plans

The Company has awards outstanding from two2 share-based compensation plans (the 2002 Long-Term Incentive Plan and the 2013 Long-Term Incentive Plan). Awards are currently only being granted under the 2013 Long-Term Incentive Plan. As of June 30, 2019,2020, there were 1,740,7681,536,626 shares available for future grant under the 2013 Long-Term Incentive Plan. 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.

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. Total share-based compensation included as a component of selling, general and administrative expenses in our Consolidated Income Statements was as follows:

 Fiscal Year Ended June 30,
 2019 2018 2017
 (in thousands)
Share-based compensation related to:     
Equity classified stock options$868
 $1,184
 $1,356
Equity classified restricted stock5,254
 5,275
 5,246
Total share-based compensation$6,122
 $6,459
 $6,602

 Fiscal Year Ended June 30,
 202020192018
 (in thousands)
Share-based compensation related to:
Equity classified stock options$508 $868 $1,184 
Equity classified restricted stock4,970 5,177 5,195 
Total share-based compensation$5,478 $6,045 $6,379 

Stock Options

During the fiscal year ended June 30, 2020, the Company did not grant stock options. Stock options granted in fiscal years ended June 30, 2019, the Company granted stock options for 2,110 shares. These options and 2018 vest annually over 3 years and have a 10-year10-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.
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020


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 their vesting requirements ("forfeitures"). 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.









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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


The Company used the following weighted-average assumptions for the options granted during the followingin fiscal years:years ended June 30, 2019 and 2018:

 Fiscal Year Ended June 30,
 2019 2018 2017
Expected term4 years
 5 years
 5 years
Expected volatility32.93% 30.70% 30.88%
Risk-free interest rate2.84% 2.17% 1.84%
Dividend yield0.00% 0.00% 0.00%
Weighted-average fair value per option$11.86
 $10.60
 $11.26

 Fiscal Year Ended June 30,
 20192018
Expected term4 years5 years
Expected volatility32.93 %30.70 %
Risk-free interest rate2.84 %2.17 %
Dividend yield0.00 %0.00 %
Weighted-average fair value per option$11.86 $10.60 

The weighted-average expected term of the options represents the period of time the options are expected to be outstanding based on historical trends and behaviors of certain groups and individuals receiving these awards. The expected volatility is predominantly based on the historical volatility of our common stock for a period approximating the expected term. The risk-free interest rate reflects the interest rate at grant date on zero-coupon United States governmental bonds that have a remaining life similar to the expected option term. The dividend yield assumption was based on the Company's dividend payment history and management's expectations of future dividend payments.

A summary of activity under our stock option plans is presented below:

 Fiscal Year Ended June 30, 2019
 Options 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
Outstanding, beginning of year897,120
 $37.33
    
Granted during the period2,110
 39.35
    
Exercised during the period(43,975) 33.21
    
Canceled, forfeited, or expired during the period(4,560) 34.35
    
Outstanding, end of year850,695
 37.57
 5.05 $259,658
Vested and expected to vest at June 30, 2019850,220
 37.57
 5.05 $259,467
Exercisable, end of year748,263
 $37.91
 4.61 $257,612


 Fiscal Year Ended June 30, 2020
 OptionsWeighted-
Average
Exercise
Price		Weighted-
Average
Remaining
Contractual
Life		Aggregate
Intrinsic
Value
Outstanding, beginning of year850,695 $37.57 
Granted during the period0 0 
Exercised during the period(29,174)25.81 
Canceled, forfeited, or expired during the period(5,224)36.37 
Outstanding, end of year816,297 37.99 4.15$0 
Vested and expected to vest at June 30, 2020816,263 37.99 4.15$0 
Exercisable, end of year781,383 $38.16 4.00$0 

The aggregate intrinsic value was calculated using the market price of the Company's stock on June 30, 2019,2020, and the exercise price for only those options that have an exercise price that is less than the market price of our stock. 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, 2020, 2019, 2018 and 20172018 was $0.4$0.2 million,, $0.5 $0.4 million and $1.6$0.5 million,, respectively.















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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


A summary of the status of the Company’s shares subject to unvested options is presented below:
 Fiscal Year Ended June 30, 2019
 Options 
     Weighted     
Average
Exercise
Price
 
Weighted
Average
Grant
    Date Fair-    
Value
Unvested, beginning of year211,566
 $35.69
 $10.54
Granted2,110
 39.35
 11.86
Vested(106,684) 36.45
 10.33
Canceled or forfeited(4,560) 34.35
 10.62
Unvested, end of year102,432
 $35.03
 $10.78
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

 Fiscal Year Ended June 30, 2020
 OptionsWeighted Average Exercise PriceWeighted Average
Grant Date 
Fair Value
Unvested, beginning of year102,432 $35.03 $10.78 
Granted0 0 0 
Vested(63,011)35.43 10.88 
Canceled or forfeited(4,507)35.90 11.00 
Unvested, end of year34,914 $34.19 $10.58 

As of June 30, 2019,2020, there was approximately $0.7$0.2 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 0.840.47 years. The total fair value of options vested during the fiscal years ended June 30, 2020, 2019, 2018 and 20172018 is $0.7 million, $1.1 million $1.3 millionand $1.5$1.3 million, respectively. The following table summarizes information about stock options outstanding and exercisable as of June 30, 2019:2020:

  Options Outstanding Options Exercisable
Range of Exercise Prices 
Shares
  Outstanding   
 
Weighted
Average
Remaining
  Contractual  
Life
 
    Weighted    
Average
Exercise
Price
 
Number
  Exercisable   
 
    Weighted    
Average
Exercise
Price
$22.27 - $26.38 25,000
 0.43 24.57
 25,000
 24.57
$26.38 - $30.49 19,731
 3.44 29.80
 19,731
 29.80
$30.49 - $34.60 153,236
 6.90 34.17
 80,251
 34.18
$34.60 - $38.71 371,169
 4.67 37.04
 343,832
 37.04
$38.71 - $42.82 281,559
 5.06 41.81
 279,449
 41.83
  850,695
 5.05 $37.57
 748,263
 $37.91

 Options OutstandingOptions Exercisable
Range of Exercise PricesShares
  Outstanding		Weighted
Average
Remaining
  Contractual Life		Weighted Average
Exercise
Price		Number ExercisableWeighted Average
Exercise
Price
$26.38 - $30.4918,731 2.4429.80 18,731 29.80 
$30.49 - $34.60146,948 5.8334.16 112,529 34.16 
$34.60 - $38.71371,169 3.6737.04 370,674 37.04 
$38.71 - $42.82279,449 4.0241.83 279,449 41.83 
816,297 4.15$37.99 781,383 $38.16 

The Company issues shares to satisfy the exercise of options.

Restricted Stock

Grants of Restricted Shares

During the fiscal year ended June 30, 2019,2020, the Company granted 210,359287,948 shares of restricted stock to employees and non-employee directors, all of which were issued in the form of RSUs or PUs:
 Fiscal Year Ended June 30, 2020
 Shares
granted		Date grantedGrant date
fair value		Vesting period
Employees
Certain employees based on performance204,524 November 15, 2019$35.25 Annually over 3 years
Certain employees based upon hire14,225 December 2, 2019$35.15 Annually over 3 years
Named executive officers based on performance42,199 January 30, 2020$35.19 January 1, 2020 through December 31, 2022
Non-Employee Directors
Certain Directors22,200 November 15, 2019$35.25 6 months
Certain Director based upon appointment700 November 15, 2019$35.25 6 months
Certain Director based upon appointment4,100 May 14, 2020$21.58 6 months



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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 20192020


 Fiscal Year Ended June 30, 2019
 
Shares
granted
 Date granted 
Grant date
fair value
 Vesting period
Employees       
Certain employees based on performance127,506
 December 3, 2018 $39.35
 Annually over 3 years
Certain employees based on performance(1)
27,192
 January 29, 2019 $37.27
 January 1, 2019 through December 31, 2020
Certain employees based on performance(2)
35,261
 January 29, 2019 $37.27
 January 1, 2019 through December 31, 2021
        
Non-Employee Directors(3)
       
Certain Directors20,400
 December 3, 2018 $39.35
 6 months

(1) The RSU's granted to non-executive employees on January 29, 2019 contains both service and performance-based vesting conditions for the period January 1, 2019 through December 31, 2020 (the "performance cycle") as determined by the Compensation Committee of the Company's Board of Directors. The total number for target shares granted could differ from the actual shares vested at the conclusion of the respective performance cycle. See the Company's proxy statement for more information about these grants.
(2) The RSU's granted to executive officers on January 29, 2019 contain performance-based vesting conditions for the period January 1, 2019 through December 31, 2020 and service-based vesting conditions for the period January 1, 2019 through December 31, 2021 (collectively the "performance cycle") as determined by the Compensation Committee of the Company's Board of Directors. The total number for target shares granted could differ from the actual shares vested at the conclusion of the respective performance cycle. See the Company's proxy statement for more information about these grants.
(3) Under the 2013 Long-Term Incentive Plan, non-employee directors receive annual awards of restricted stock, as opposed to stock options. The number of shares of restricted stock to be granted is established from time to time by the Board of Directors. Currently, the number of shares of restricted stock awarded annually to each non-employee director generally is determined by dividing $100,000 by the equity award value of the common stock on the date of grant, as defined in the 2013 Long-Term Incentive Plan. The equity award value means the value per share based on a 45-day averaging of the fair market value of the common stock over a specified period of time, or the fair market value of the common stock on a specified date. These awards will generally vest in full on the day that is six months after the date of grant or upon the earlier occurrence of (i) the director’s termination of service as a director by reason of death, disability or retirement or (ii) a change in control by the Company. The compensation expense associated with these awards will be recognized on a pro-rata basis over this period.

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

 Fiscal Year Ended June 30, 2019
 Shares 
Weighted-Average
Grant Date Fair
Value
Outstanding, beginning of year253,519
 $35.93
Granted during the period210,359
 38.73
Vested during the period(133,196) 37.01
Cancelled, forfeited, or expired during the period(9,797) 37.23
Outstanding, end of year320,885
 $37.28


 Fiscal Year Ended June 30, 2020
 SharesWeighted-Average
Grant Date Fair
Value
Outstanding, beginning of year320,885 $37.28 
Granted during the period287,948 35.04 
Vested during the period(128,566)36.93 
Cancelled, forfeited, or expired during the period(41,811)36.71 
Outstanding, end of year438,456 $35.37 

As of June 30, 2019,2020, there was approximately $6.6$8.2 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 1.331.25 years. The Company withheld 38,06436,771 shares for income taxes during the fiscal year ended June 30, 20192020.
.


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Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


(12) Employee Benefit Plans

The Company hasmaintains defined contribution plans under Section 401(k) of the Internal Revenue Code of 1986. One plan governsthat 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.$800. Employer contributions are vested based upon tenure over a five-year period.

 Fiscal Year Ended June 30,
 202020192018
 (in thousands)
Matching contributions$1,214 $1,262 $1,130 
Discretionary contributions0 1,536 4,573 
Total contributions$1,214 $2,798 $5,703 
 Fiscal Year Ended June 30,
 2019 2018 2017
 (in thousands)
Matching contributions$1,283
 $1,163
 $875
Discretionary contributions1,555
 4,700
 3,413
Total contributions$2,838
 $5,863
 $4,288


Internationally, the Company contributes to either plans required by local governments or to various employee annuity plans. Additionally, the Company maintains a non-qualified, unfunded deferred compensation plan that allows eligible members of management to defer a portion of their compensation in addition to receiving discretionary matching contributions from the Company. Employer contributions are vested over a five-year period.

(13) Income Taxes

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”).Act. The Tax Act reduced the corporate federal tax rate from 28%35% to 21% effective January 1, 2018 and implemented a modified territorial tax system. Since the Company has a June 30th fiscal year-end, the lower tax rate resulted in a blended U.S. statutory federal rate of approximately 28% for the fiscal year ended June 30, 2018. The U.S. statutory federal rate is 21% for fiscal year ended June 30, 2019 and subsequent fiscal years. As part of of the Tax Act, U.S. companies are required to pay a one-time transition tax on the deemed repatriation of undistributed foreign earnings and to remeasure deferred tax assets and liabilities.
The Tax Act includes a mandatory deemed repatriation of all undistributed foreign earnings that are subject to a U.S. income tax as part of the transition. For the fiscal year ended June 30, 2018, the Company recognized provisional income tax expense of $9.6 million for a one-time transition tax liability on total post-1986 foreign subsidiaries’ earnings and profits (“E&P”) that were previously deferred from U.S. income taxes. The Company completed its analysis for this item withingwithin the permitted measurement period under the guidance of Staff Accounting Bulletin No. 118 (“SAB 118”) and determined an adjustment was necessary. As a result, a discrete tax benefit for $0.2 million was recorded during the quarter ended December 31, 2018. The Company will continue to distribute the earnings of its Canadian subsidiary, but earnings from Brazilall other continuing operations foreign geographies will continue to be considered retained indefinitely for reinvestmentreinvestment. For Latin America and all other foreign geographiesEurope, where the Company has discontinued operations, when these entities are immaterial.sold, the Company intends to repatriate the earnings to the United States. It has been the practice of the Company to reinvest those earnings in the businesses outside the United States.
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

Apart from the one-time transition tax, any incremental deferred income taxes on the unremitted foreign earnings are not expected to be material.

As part of accounting for the Tax Act, the Company remeasured certain deferred tax assets and liabilities based on the rates at which such deferred taxes are expected to reverse in the future, which is generally 21%. For the fiscal year ended June 30, 2018 the Company recognized provisional discrete income tax benefit of $1.6 million for the remeasurement of the Company’s deferred tax asset and liability balances. The Company completed its analysis for this item within the permitted measurement period under the guidance of SAB 118 and determined that the provisional amount should not be adjusted.

The Tax Act created a provision known as global intangible low-tax income ("GILTI") that imposes a tax on certain earnings of foreign subsidiaries. The GILTI tax became effective for the Company during fiscal year 2019 and an accounting policy election was made to treat the tax as a current period expense. The Company recognized GILTI tax of approximately $0.1 million and $0.4 million for the fiscal yearfiscals years ended June 30, 2019.2020 and 2019, respectively.

Income tax expense (benefit) consists of:

 Fiscal Year Ended June 30,
 202020192018
 (in thousands)
Current:
Federal$13,892 $18,223 $38,476 
State3,244 4,459 3,504 
Foreign1,188 (2,342)7,481 
Total current18,324 20,340 49,461 
Deferred:
Federal(8,526)(4,913)(10,336)
State(2,667)(945)(2,025)
Foreign320 4,296 (9,507)
Total deferred(10,873)(1,562)(21,868)
Provision for income taxes$7,451 $18,778 $27,593 
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2019


 Fiscal Year Ended June 30,
 2019 2018 2017
 (in thousands)
Current:     
Federal$17,742
 $38,263
 $31,149
State4,404
 3,503
 2,615
Foreign(157) 9,203
 269
Total current21,989
 50,969
 34,033
Deferred:     
Federal(4,328) (9,987) (3,832)
State(806) (1,962) (397)
Foreign3,456
 (11,248) 2,445
Total deferred(1,678) (23,197) (1,784)
Provision for income taxes$20,311
 $27,772
 $32,249


A reconciliation is provided below of the U.S. Federal income tax expense at a statutory rate of 21% for the fiscal yearyears ended June 30, 2020 and 2019 and a blended statutory rate of 28.0%28% for the fiscal year ended June 30, 2018 andto actual income tax expense. Since the Company has a June 30th fiscal year-end, the lower tax rate resulted in a blended U.S. statutory federal rate of 35%approximately 28% for the fiscal year ended and June 30, 2017 to actual income tax expense is as follows:2018.
 Fiscal Year Ended June 30,
 2019 2018 2017
 (in thousands)
U.S. statutory rate21.0% 28.0% 35.0%
U.S. Federal income tax at statutory rate$16,361
 $17,094
 $35,524
Increase (decrease) in income taxes due to:     
State and local income taxes, net of Federal benefit2,727
 1,883
 1,729
Tax credits(1,808) (1,825) (1,430)
Valuation allowance2,142
 1,530
 444
Effect of foreign operations, net2,103
 (1,396) (1,477)
Stock compensation35
 1,049
 (61)
Capitalized acquisition costs69
 48
 231
Nontaxable income(828) (9) (4,437)
Disallowed interest1,600
 1,888
 2,011
Net favorable recovery(2,670) —
 —
Other1,085
 (1,438) (285)
U.S. Tax Reform transition tax(827) 9,609
 —
U.S. Tax Reform impact of rate change on deferred taxes—
 (1,615) —
Belgium Tax Reform impact of rate change on deferred taxes—
 1,040
 —
Other jurisdictions impact of rate change on deferred taxes(43) (86) —
Global intangible low taxed income (GILTI) tax

365
 —
 —
Provision for income taxes$20,311
 $27,772
 $32,249
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

 Fiscal Year Ended June 30,
 202020192018
 (in thousands)
U.S. statutory rate21.0 %21.0 %28.0 %
U.S. Federal income tax at statutory rate$(15,073)$17,564 $17,690 
Increase (decrease) in income taxes due to:
State and local income taxes, net of Federal benefit1,316 2,864 1,968 
Tax credits(1,419)(1,324)(1,825)
Valuation allowance1,699 57 1,304 
Effect of varying statutory rates in foreign operations, net1,374 1,938 320 
Stock compensation41 35 1,049 
Capitalized acquisition costs59 69 48 
Disallowed interest1,639 1,600 1,664 
Earnings from foreign subsidiaries1,661 50 120 
Net favorable recovery(6,517)(3,112)0 
Global intangible low taxed income (GILTI) tax
(128)365 0 
Non-deductible goodwill impairment20,180 0 0 
Nontaxable income0 (822)0 
U.S. Tax Reform transition tax0 (827)9,609 
U.S. Tax Reform impact of rate change on deferred taxes0 0 (2,701)
Other jurisdictions impact of rate change on deferred taxes0 (20)0 
Other2,619 341 (1,653)
Provision for income taxes$7,451 $18,778 $27,593 

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

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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 20192020


 June 30,
 2019 2018
 (in thousands)
Deferred tax assets derived from:   
Allowance for accounts receivable$10,681
 $12,874
Inventories4,561
 4,060
Nondeductible accrued expenses9,848
 7,426
Net operating loss carryforwards6,241
 5,350
Tax credits6,530
 5,795
Timing of amortization deduction from goodwill6,406
 5,756
Deferred compensation6,396
 5,696
Stock compensation3,034
 2,809
Timing of amortization deduction from intangible assets3,110
 2,510
Total deferred tax assets56,807
 52,276
Valuation allowance(7,238) (5,098)
Total deferred tax assets, net of allowance49,569
 47,178
Deferred tax liabilities derived from:   
Timing of depreciation and other deductions from building and equipment(6,719) (7,468)
Timing of amortization deduction from goodwill(3,742) (1,782)
Timing of amortization deduction from intangible assets(15,779) (17,498)
Total deferred tax liabilities(26,240) (26,748)
Net deferred tax assets$23,329
 $20,430

 June 30,
 20202019
 (in thousands)
Deferred tax assets derived from:
Allowance for accounts receivable$6,466 $7,387 
Inventories3,226 3,255 
Nondeductible accrued expenses11,109 9,054 
Net operating loss carryforwards3,083 73 
Tax credits6,734 6,046 
Timing of amortization deduction from goodwill12,516 6,406 
Deferred compensation7,247 6,396 
Stock compensation3,034 3,034 
Timing of amortization deduction from intangible assets4,145 3,110 
Total deferred tax assets57,560 44,761 
Valuation allowance(9,195)(4,447)
Total deferred tax assets, net of allowance48,365 40,314 
Deferred tax liabilities derived from:
Timing of depreciation and other deductions from building and equipment(3,347)(6,618)
Timing of amortization deduction from goodwill(7,390)(3,742)
Timing of amortization deduction from intangible assets(16,882)(14,507)
Total deferred tax liabilities(27,619)(24,867)
Net deferred tax assets$20,746 $15,447 

The components of pretax earnings are as follows:
 Fiscal Year Ended June 30,
 202020192018
 (in thousands)
Domestic$(83,517)$68,675 $63,185 
Foreign11,741 14,962 (136)
Worldwide pretax earnings$(71,776)$83,637 $63,049 
 Fiscal Year Ended June 30,
 2019 2018 2017
 (in thousands)
Domestic$67,426
 $66,416
 $79,871
Foreign10,482
 (5,491) 21,624
Worldwide pretax earnings$77,908
 $60,925
 $101,495


As of June 30, 2019,2020, there were (i) gross net operating loss carryforwards of approximately $4.0$1.8 million for U.S. federal income tax purposes; (ii) gross state net operating loss carryforwards of approximately $7.3$2.0 million; (iii) foreign gross net operating loss carryforwards of approximately $19.0$8.2 million; (iv) state income tax credit carryforwards of approximately $2.5$2.6 million that will began to expire in the 2020 tax year; and (v) withholding tax credits of approximately $4.0$4.5 million; and (vi) foreign tax credits of $0.5$0.1 million. The Company maintains a valuation allowance of $2.3$0.4 million for U.S. federal income tax purposes, $2.7 million for foreign currency translation adjustments on impairment charges, $0.3 million for foreign net operating losses, a less than $0.1 million valuation allowance for state net operating losses, a $4.0$4.5 million valuation allowance for withholding tax credits, a $0.5$0.1 million valuation allowance for foreign tax credits, and $0.3 million valuation allowance for state income tax credits, and a less than $0.1 million valuation allowance for the notional interest deduction, 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 less than $0.1 million and $1.0 million for the fiscal years ended June 30, 2020 and 2019 and $1.0 million for fiscal year ended 2018, respectively.

As of June 30, 2019,2020, the Company had gross unrecognized tax benefits of $1.2 million, $1.0$0.9 million of which, if recognized, would affect the effective tax rate. This reflects a decrease of $0.9less than $0.1 million on a gross basis over the prior fiscal year.
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

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

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June 30, 2019



The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Income Statement. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheet. The total amount of interest and penalties accrued, but excluded from the table below, were $1.1 million, $1.0 million $1.2 million and $1.1$1.2 million for the fiscal years ended June 30, 2020, 2019 2018 and 2017,2018, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
June 30,
202020192018
 (in thousands)
Beginning Balance$1,234 $1,703 $1,826 
Additions based on tax positions related to the current year137 69 157 
Additions for tax positions of prior years0 0 0 
Reduction for tax positions of prior years(215)(538)(280)
Ending Balance$1,156 $1,234 $1,703 
 June 30,
 2019 2018 2017
 (in thousands)
Beginning Balance$2,053
 $2,176
 $2,148
Additions based on tax positions related to the current year69
 157
 174
Additions for tax positions of prior years—
 —
 —
Reduction for tax positions of prior years(888) (280) (146)
Ending Balance$1,234
 $2,053
 $2,176


Financial results for the Belgium business produced pre-tax loss of less than $0.1 million for the year ended June 30, 2019. However, the Belgium business reported cumulative taxable income for two of the five prior years. In the judgment of management, it is more likely than not that the deferred tax asset will be realized. A corporate tax reform law was enacted in Belgium on December 25, 2017, which reduces the corporate tax rate from 33% to 25% over a three-year period. The company remeasured certain deferred tax assets and liabilities based on the rates at which such deferred taxes are expected to reverse in the future. As a result, the Company recognized income tax expense of $1.0 million during the year ended June 30, 2018.

During the quarter ended June 30, 2017, a lawsuit filed by ScanSource Brazil with the Brazilian Supreme Court in 2014 regarding the tax treatment of certain Brazilian state-provided tax benefits was settled in Scansource Brazil’s favor.  As a result, Scansource Brazil was awarded and recovered a tax settlement. The Company recorded, discrete to the June 30, 2017 quarter, the income tax benefit associated with that recovery equal to approximately $4.5 million.

A Supplemental Law was issued in Brazil during the Company's fiscal year 2019 which affirmed that Brazilian state-provided benefits are not subject to income tax. The Company recorded, discrete to the June 30, 2019 quarter, an income tax benefit of $3.1 million related to the confirmation of the recovery of state-provided tax benefits. During the fiscal year ended June 30, 2020, the Company determined that the Supplemental Law was applicable to prior periods. As a result, the Company recorded, discrete to the June 30, 2020 quarter, an income tax benefit of $2.8 million related to the recovery of prior period state-provided tax benefits.

Discrete to the June 30, 2020 quarter, the Company recorded a tax benefit of $3.7 million for the reversal of a contingency related to certain tax credits with respect to the calculation of PIS/COFINS gross receipts tax related to its Brazilian operations. This tax benefit is a result of several favorable court decisions issued regarding these credits.
The Company conducts business globally and, as a result, one or more of its subsidiariessubsidiaries files income tax returns in the United States federal, various state, local and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in countries in which it operates. With certain exceptions, the Company is no longer subject to state and local, or non-United States income tax examinations by tax authorities for tax years before June 30, 2014.2015.


(14) CommitmentsLeases

In accordance with ASC 842, Leases, at contract inception the Company determines if a contract contains a lease by assessing whether the contract contains an identified asset and Contingencies

Leases

Thewhether the Company leases office and warehouse space under non-cancelable operating leases that expire through 2023.has the ability to control the asset. The Company also determines if the lease meets the classification criteria for an operating lease versus a finance lease under ASC 842. Substantially all of the Company's leases certainare operating leases for real estate, warehouse and office equipment under a capitalranging in duration from 1 year to 10 years. The Company has elected not to record short-term operating leases with an initial term of 12 months or less on the Condensed Consolidated Balance Sheets. Operating leases are recorded as other non-current assets, accrued expenses and other current liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets. The Company has finance leases for information technology equipment expiring in fiscal year 2022. Finance leases are recorded as property and equipment, net, accrued expenses and other current liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets. The gross amount of the balances recorded related to finance leases is immaterial to the financial statements at June 30, 2020 and 2019.

Operating lease that expires in 2020. Lease expenseright-of-use assets and lease liabilities are recognized at the commencement date based on the net present value of future minimum lease payments under operatingover the lease term. The Company generally is not able to determine the rate implicit in its leases and capital leases arehas elected to apply an incremental borrowing rate as follows:

the discount rate for the present value determination, which is based on the Company's cost of borrowings for the relevant terms of each lease and geographical economic factors. Certain operating lease agreements contain options to extend or terminate the lease. The lease term used is adjusted for these options when the Company is reasonably certain it will exercise the option. Operating lease expense is recognized on a straight-line
 Fiscal Year Ended June 30,
 2019 2018 2017
 (in thousands)
Lease expense$9,519
 $9,824
 $8,703
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June 30, 20192020


basis over the lease term. 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.
 Operating Lease Payments Capital Lease Payments Total Payments
 (in thousands)
Fiscal Year Ended June 30,     
2020$8,043
 $675
 $8,718
20217,197
 —
 7,197
20225,940
 —
 5,940
20235,092
 —
 5,092
20244,205
 —
 4,205
Thereafter10,780
 —
 10,780
Total future minimum lease payments41,257
 675
 41,932
Less: amounts representing interest on capital lease—
 8
 8
Total future minimum principal lease payments$41,257
 $667
 $41,924


The following table presents amounts recorded on the Condensed Consolidated Balance Sheet related to operating leases at June 30, 2020:
On July 6, 2016,
Operating leasesBalance Sheet locationJune 30, 2020
(in thousands)
Operating lease right-of-use assetsOther non-current assets$23,581
Current operating lease liabilitiesAccrued expenses and other current liabilities4,476
Long-term operating lease liabilitiesOther long-term liabilities20,760

The following table presents amounts recorded in operating lease expense as part of selling general and administrative expenses on the Company entered intoCondensed Consolidated Income Statements during the fiscal year ended June 30, 2020. Operating lease costs contain immaterial amounts of short-term lease costs for leases with an amended agreement to continue to lease approximately 741,000 square feet for distribution, warehousing and storage purposes in a building located in Southaven, Mississippi. Theinitial term of the lease is 13512 months with 2 consecutive 5-year extension options.or less.
Fiscal year ended
June 30, 2020
(in thousands)
Operating lease cost$6,135
Variable lease cost1,485
$7,620


On December 7, 2017Supplemental cash flow information related to the Company entered into a new lease agreement and amended an existing lease agreementCompany's operating leases for certain information technology infrastructure locatedthe fiscal year ended June 30, 2020 are presented in the Greenville, South Carolina facility expiringtable below:

Fiscal year ended
June 30, 2020
(in thousands)
Cash paid for amounts in the measurement of lease liabilities$5,773
Right-of-use assets obtained in exchange for lease obligations1,672

The weighted-average remaining lease term and discount rate at June 30, 2020 are presented in 2020. The Company determined each lease qualified as a capital lease and recorded a capital lease obligation equal to the present value of the minimum lease payments of $1.9 million.

table below:

June 30, 2020
Weighted-average remaining lease term5.98
Weighted-average discount rate4.14%

The componentsfollowing table presents the maturities of the Company's capitaloperating lease as of liabilities at June 30, 2019 are as follows:2020:

       Capital Lease Obligations
 Property & Equipment Accumulated Depreciation Net Book Value Short-Term Long-Term Total
 (in thousands)
IT Infrastructure$1,583
 $(914) $669
 $667
 $—
 $667


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Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

Operating leases
(in thousands)
2021$5,430 
20224,988 
20234,655 
20244,158 
20253,256 
Thereafter5,977 
Total future payments28,464 
Less: amounts representing interest3,228 
Present value of lease payments$25,236 


(15) Commitments and Contingencies

A majority of the Company’s net revenues in fiscal years 2020, 2019, 2018 and 20172018 were received from the sale of products purchased from the Company’s ten10 largest suppliers. The Company has entered into written agreements with substantially all of its major suppliers. While the Company’s agreements with most of its suppliers contain standard provisions for periodic renewals, these agreements generally permit termination by either party without cause upon 30 to 120 days' notice.

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.

During fiscal year ended June 30, 2018, the Company recognized $2.9 million in proceeds from a legal tax settlement, net of attorney fees, in Brazil. Of the total settlement, $2.5 million is included in selling, general and administrative expenses and $0.4 million is included in interest income on the Consolidated Income Statements. During the fiscal year ended June 30, 2017, the Company recognized $12.8 million in proceeds from a legal settlement, net of attorney fees, included in other income (expense), net on the Consolidated Income Statements.

Capital Projects

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June 30, 2019



The Company expects total capital expenditures to range from $4.0$3.0 million to $6.0 million during fiscal year 20202021 primarily for rental equipment investments, IT investments and facility improvements.

Pre-Acquisition Contingencies

During the Company's due diligence for the Network1 acquisition, several pre-acquisition contingencies were identified regarding various Brazilian federal and state tax exposures. The Company recorded indemnification receivables that are reported gross of the pre-acquisition contingency liabilities as the funds were escrowed as part of the acquisition. The sellers deposited $6.4 million and $12.3 million into the escrow account for the yearsyear ended June 30, 2019 and 2018.2019. In addition, $25.3 million was released from the escrow account during the fiscal year ended June 30, 2019. There were 0 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, 20192020 and 2018,2019, for future pre-acquisition contingency settlements or to be released to the sellers was $6.5$4.8 million and $24.1$6.5 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:
90
 June 30, 2019 June 30, 2018
 (in thousands)
Assets   
Prepaid expenses and other assets (current)$761
 $1,385
Other assets (noncurrent)$5,219
 $5,700
Liabilities   
Other current liabilities$761
 $1,385
Other long-term liabilities$5,219
 $5,700

Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

June 30, 2020June 30, 2019
 (in thousands)
Assets
Prepaid expenses and other assets (current)$14 $761 
Other assets (noncurrent)$3,652 $5,219 
Liabilities
Other current liabilities$14 $761 
Other long-term liabilities$3,652 $5,219 

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, 20192020 is estimated to range from $6.0$3.7 million to $22.3$14.8 million at this time, of which all exposures are indemnifiable under the share purchase agreement.

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June 30, 20192020


(15)(16) Segment Information

The Company is a leading provider of technology products and solutions to customers in specialty technology markets. The Company has two2 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 Brazil, additional Latin American countries and Europe.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.services and includes our recent acquisition of intY. We have business operations within this segment in the United States, Canada, Brazil additional Latin American countries and Europe.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.











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Notes to Consolidated Financial Statements—(Continued)
June 30, 20192020


Selected financial information for each business segment is presented below:

 Fiscal Year Ended June 30,
 202020192018
 (in thousands)
Sales:
Worldwide Barcode, Networking & Security$2,093,217 $2,141,896 $2,143,135 
Worldwide Communications & Services954,517 1,107,903 1,021,574 
$3,047,734 $3,249,799 $3,164,709 
Depreciation and amortization:
Worldwide Barcode, Networking & Security$16,910 $17,274 $17,958 
Worldwide Communications & Services15,239 12,891 13,041 
Corporate3,179 3,488 3,493 
$35,328 $33,653 $34,492 
Change in fair value of contingent consideration:
Worldwide Barcode, Networking & Security$0 $0 $69 
Worldwide Communications & Services6,941 15,200 36,974 
$6,941 $15,200 $37,043 
Operating income:
Worldwide Barcode, Networking & Security$(83,515)$57,019 $49,313 
Worldwide Communications & Services22,548 38,933 19,865 
Corporate(1)
(4,000)(1,218)(172)
$(64,967)$94,734 $69,006 
Capital expenditures:
Worldwide Barcode, Networking & Security$3,632 $3,660 $4,222 
Worldwide Communications & Services2,755 2,133 1,422 
Corporate0 4 1,354 
$6,387 $5,797 $6,998 
Sales by Geography Category:
United States$2,787,475 $2,949,725 $2,907,591 
International(2)
292,600 332,019 317,513 
Less intercompany sales(32,341)(31,945)(60,395)
$3,047,734 $3,249,799 $3,164,709 
 Fiscal Year Ended June 30,
 2019 2018 2017
 (in thousands)
Sales:     
Worldwide Barcode, Networking & Security$2,589,837
 $2,628,988
 $2,389,256
Worldwide Communications & Services1,283,274
 1,217,272
 1,178,930
 $3,873,111
 $3,846,260
 $3,568,186
Depreciation and amortization:     
Worldwide Barcode, Networking & Security$17,623
 $18,233
 $6,496
Worldwide Communications & Services15,507
 15,769
 15,099
Corporate3,488
 3,493
 3,373
 $36,618
 $37,495
 $24,968
Change in fair value of contingent consideration:     
Worldwide Barcode, Networking & Security$—
 $69
 $—
Worldwide Communications & Services15,200
 36,974
 5,211
 $15,200
 $37,043
 $5,211
Operating income:     
Worldwide Barcode, Networking & Security$59,875
 $56,911
 $49,727
Worldwide Communications & Services31,307
 10,900
 39,768
Corporate(1)
(1,218) (172) (1,256)
 $89,964
 $67,639
 $88,239
Capital expenditures:     
Worldwide Barcode, Networking & Security$3,876
 $4,841
 $3,796
Worldwide Communications & Services3,335
 1,964
 3,163
Corporate4
 1,354
 1,890
 $7,215
 $8,159
 $8,849
Sales by Geography Category:     
United States$2,946,644
 $2,877,225
 $2,719,413
International(2)
955,322
 999,245
 882,446
Less intercompany sales(28,855) (30,210) (33,673)
 $3,873,111
 $3,846,260
 $3,568,186
      


(1) For the years ended June 30, 2020 the amounts shown above include acquisition and divestiture costs. For the years ended June 30, 2019 2018 and 2017,2018, the amounts shown above include acquisition costs.
(2) For the years ended June 30, 2019,2020 and 2018, and 2017, there were no sales in excess of 10% of consolidated net sales to any single international country. Net sales to Brazil represented 10% of consolidated net sales for the year ended June 30, 2019.

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June 30, 20192020


June 30, 2020June 30, 2019
 (in thousands)
Assets:
Worldwide Barcode, Networking & Security$875,882 $1,097,207 
Worldwide Communications & Services757,148 905,439 
Corporate59,064 64,615 
$1,692,094 $2,067,261 
Property and equipment, net by Geography Category:
United States$53,083 $58,961 
International2,558 1,609 
$55,641 $60,570 
 June 30, 2019 June 30, 2018
 (in thousands)
Assets:   
Worldwide Barcode, Networking & Security$1,097,207
 $1,062,143
Worldwide Communications & Services905,439
 841,490
Corporate64,615
 41,662
 $2,067,261
 $1,945,295
Property and equipment, net by Geography Category:   
United States$58,961
 $69,032
International4,402
 4,010
 $63,363
 $73,042



(17) Accumulated Other Comprehensive Loss

(16)Accumulated Other Comprehensive (Loss) Income

The components of accumulated other comprehensive (loss) income,loss, net of tax, are as follows:

Fiscal Years Ended June 30,
202020192018
 (in thousands)
Currency translation adjustment$(125,974)$(87,913)$(85,279)
Unrealized (loss) gain on fair value of interest rate swap, net of tax(6,821)(2,175)1,102 
Accumulated other comprehensive loss$(132,795)$(90,088)$(84,177)
 Fiscal Years Ended June 30,
 2019 2018 2017
 (in thousands)
Currency translation adjustment$(87,913) $(85,279) $(73,217)
Unrealized (loss) gain on fair value of interest rate swap, net of tax(2,175) 1,102
 13
Accumulated other comprehensive loss$(90,088) $(84,177) $(73,204)


The tax effect of amounts in comprehensive income (loss)loss reflect a tax expense or benefit as follows:
Fiscal years ended June 30,
202020192018
(in thousands)
Tax expense (benefit)$1,025 $(1,117)$2,059 
 Fiscal years ended June 30,
 2019 2018 2017
 (in thousands)
Tax expense (benefit)$73
 $1,993
 $(396)
      

(17)Subsequent Events

(18) Discontinued Operations
On July 1, 2019, the Company acquired all the outstanding shares of intY and its CASCADE cloud services distribution platform for a purchase price of approximately $51.0 million. As an additional element of the Company's cloud and digital strategy, intY's CASCADE solution provides the Company's sales partners with another route to market to enable key strategic cloud services and aid in growth of their recurring revenue practices.
On August 20, 2019, the Company announced its planplans to divest its physicalthe product distribution businesses in Europe, the UK, Mexico, Colombia, Chile, Peru and the Company’s Miami-based export operations. ScanSourceoperations as these businesses have been performing below management's expectations. The Company will continue to operate its digital businessesbusiness in these locations, includingcountries. Management determined that the businesses acquired within the last year, intY, Canpango, and Intelisys Global. The operationsCompany did not have sufficient scale in these locations have been performing below Management’s expectations.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.

The Company actively marketed the sale these businesses during fiscal year 2020. An agreement was signed July 23, 2020, subsequent to our fiscal year end, with Intcomex for our divestitures located in Latin America, outside of Brazil. The Company expects to finalize the sale of the Latin America divestitures on or around September 30, 2020. The Company is beginningactively working on sales opportunities for our divestitures in Europe and the processUK and expects to marketfinalize a sale within twelve months from the current reporting period.

Major components of net loss from discontinued operations for the years ended June 30, 2020, 2019 and sell these businesses. There can be no assurance that this sale process will result in a transaction or the timing of any transaction.2018 were as follows:


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Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

Fiscal Year Ended June 30,
202020192018
(in thousands)
Net sales$561,496 $623,312 $681,551 
Cost of goods sold513,003 563,543 614,731 
Gross profit48,493 59,769 66,820 
Selling, general and administrative expenses53,946 61,574 65,183 
Depreciation expense975 1,127 1,026 
Intangible amortization expense1,403 1,839 1,977 
Impairment charges13,747 0 0 
Operating loss(21,578)(4,771)(1,366)
Interest expense, net1,399 195 24 
Loss on held for sale classification88,923 0 0 
Other expense, net1,124 763 733 
Loss from discontinued operations before taxes(113,024)(5,729)(2,123)
Income tax expense403 1,533 180 
Net loss from discontinued operations$(113,427)$(7,262)$(2,303)

For fiscal year ended June 30, 2020, the Company allocated goodwill to our 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. 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, 2020 and 2019:

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Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

June 30, 2020June 30, 2019
(in thousands)
Assets
Current assets:
Cash and cash equivalents$4,970 $4,513 
Accounts receivable, net117,200 131,560 
Inventories, net106,779 143,263 
Prepaid expenses and other current assets23,808 17,417 
Total current assets252,757 296,753 
Property and equipment, net1,833 2,793 
Goodwill0 8,823 
Identifiable intangible assets, net0 6,726 
Deferred income taxes9,349 9,277 
Other non-current assets6,215 1,460 
Total assets, before valuation allowance270,154 325,832 
Less: valuation allowance(88,923)0 
Total assets, net of valuation allowance (1)
$181,231 $325,832 
Liabilities
Current liabilities:
Accounts payable$56,098 $69,810 
Accrued expenses and other current liabilities14,815 14,763 
Other taxes payable20,378 12,018 
Short-term borrowings3,524 4,590 
Income tax payable1,085 351 
Total current liabilities95,900 101,532 
Borrowings under revolving credit facility24,704 28,427 
Other long-term liabilities7,418 3,730 
Total liabilities(1)
128,022 133,689 
(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, as the discontinued operations are expected to be disposed of within twelve months of the balance sheet date. The assets and liabilities of discontinued operations are classified in their respective current and long-term classifications, respectively, in the Company's consolidated balance sheet as of June 30, 2019 in accordance with the nature and underlying classification of such assets and liabilities.

The Company has a bank overdraft facility with Bank of America used by its European subsidiaries recognized as Short-term borrowings. The facility allows the Company to disburse checks in excess of bank balances up to $14.0 million U.S. dollar equivalent for up to seven days. Borrowings under the overdraft facility bear interest at a rate equal to a spread of 1.0% over the applicable currency's London Interbank Offered Rate ("LIBOR") with a zero percent floor. Since borrowings outstanding under the overdraft facility at June 30, 2020 were denominated in euros, which bore a negative LIBOR rate, the interest applicable to the Company was 1.0%.

Significant non-cash operating items and capital expenditures reflected in the cash flows from discontinued operations for the fiscal years ended June 30, 2020, 2019 and 2018 were as follows:
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2020

Fiscal Year Ended June 30,
202020192018
(in thousands)
Loss on held for sale classification$88,923 $0 $0 
Impairment charges13,747 0 0 
Depreciation and amortization2,378 2,966 3,003 
Capital expenditures(77)(1,416)(1,161)
(19) Subsequent Events

In July 2020, the Company announced actions to address the business impacts of the COVID-19 pandemic and prepare for the next phase of growth. These actions include an approximate $30 million annualized expense reduction plan, partially offset by approximately $8 to $9 million in severance and employee benefits for those employees who left the Company. These actions are designed to better align the cost structure for the wholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic. As part of the plan, the Company will continue to invest in its higher growth agency business, Intelisys.
In July 2020, the Company also initiated actions to close Canpango, its salesforce implementation and consulting business. In August 2018, the Company acquired Canpango to help partners build out their customer relationship management capabilities as part of a CCaaS solution. There has been limited adoption by the Company’s partner community. As a result of the closure of the Canpango business, the Company recorded a pre-tax non-cash charge of approximately $2 million for the fiscal year ended June 30, 2020 which is recorded to the selling, general and administrative expenses and impairment charges line item in the Consolidated Income Statements. The Company expects to complete existing contracts over the next few months.

97

Index to Financial Statements


ITEM 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable. 

ITEM 9A.Controls and Procedures.
ITEM 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply judgment in evaluating the cost-benefit relationship of those disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Our disclosure controls and procedures are designed to provide reasonable assurance that the controls and procedures will meet their objectives.
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures, as of June 30, 2019,2020, were effective in providing reasonable assurance that the objectives of the disclosure controls and procedures are met.
(b) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of June 30, 2019.2020. However, the Canpango and RPM businessesintY acquired during the current fiscal year has been excluded from management's assessment of internal controls over financial reporting. The operations of Canpango and RPM,intY acquired August 20, 2018 and December 20, 2018,July 1, 2019 represent less than 1% of our consolidated revenues from continuing operations and less than 2% approximately 3.5% of our consolidated total assets for the fiscal year ended June 30, 2019.2020. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in 2013 Internal Control – Integrated Framework. Based on its assessment using those criteria, our management concluded that our internal control over financial reporting was effective as of June 30, 2019.2020.
The effectiveness of our internal control over financial reporting as of June 30, 20192020 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their Report of Independent Registered Certified Public Accounting Firm on Internal Control Over Financial Reporting which is included with the Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.
(c) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal year ended June 30, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9B.
ITEM 9B. Other Information.

We will be holding our next annual shareholders’ meeting on or about January 30, 2020 (the “2020 Annual Meeting”), which is more than 30 days from the first anniversary of the 2018 annual shareholders meeting. Therefore, we must receive shareholder proposals intended to be presented at the 2020 Annual Meeting for possible inclusion in the proxy materials relating to such meeting by September 10, 2019, which is a reasonable time before we expect to print and mail the proxy statement for the 2020 Annual Meeting.


None.
85
98

Index to Financial Statements



Shareholders intending to present a proposal or to nominate a candidate for the election of directors at the 2020 Annual Meeting, but not to have the proposal or nomination considered for inclusion in the proxy materials for that meeting, must be eligible and give us advance written notice in accordance with our Bylaws.

Our Bylaws provide that such notice shall set forth in writing: (i) whether the shareholder is providing the notice at the request of a beneficial holder of shares, whether the shareholder, any such beneficial holder or any nominee has any agreement, arrangement or understanding with, or has received any financial assistance, funding or other consideration from, any other person with respect to the investment by the shareholder or such beneficial holder in the Company or the matter the notice relates to, and the details thereof, including the name of such other person (the shareholder, any beneficial holder on whose behalf the notice is being delivered, any nominees listed in the notice and any persons with whom such agreement, arrangement or understanding exists or from whom such assistance has been obtained are hereinafter collectively referred to as “Interested Persons”), (ii) the name and address of all Interested Persons, (iii) a complete listing of the record and beneficial ownership positions (including number or amount) of all equity securities and debt instruments, whether held in the form of loans or capital market instruments, of the Company or any of its subsidiaries held by all Interested Persons, (iv) whether and the extent to which any hedging, derivative or other transaction is in place or has been entered into within the prior six months preceding the date of delivery of the notice by or for the benefit of any Interested Person with respect to the Company or its subsidiaries or any of their respective securities, debt instruments or credit ratings, the effect or intent of which transaction is to give rise to gain or loss as a result of changes in the trading price of such securities or debt instruments or changes in the credit ratings for the Company, its subsidiaries or any of their respective securities or debt instruments (or, more generally, changes in the perceived creditworthiness of the Company or its subsidiaries), or to increase or decrease the voting power of such Interested Person, and if so, a summary of the material terms thereof, and (v) a representation that the shareholder is a holder of record of stock of the Company that would be entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to propose the matter set forth in the notice. As used herein, “beneficially owned” has the meaning provided in Rules 13d-3 and 13d-5 under the Exchange Act. The notice shall be updated not later than 10 days after the record date for the determination of shareholders entitled to vote at the meeting to provide any material changes in the foregoing information as of the record date.

Because the 2020 Annual Meeting is not scheduled to be held within a period that commences 30 days before the anniversary date of the 2018 Annual Meeting and ends within 60 days after the anniversary date of the 2018 Annual Meeting, the deadline for shareholders to provide written notice of intent to make nominations for the election of directors at the 2020 Annual Meeting (but not for inclusion in the proxy materials relating to such meeting) will be November 1, 2019.

If the notice relates to the nomination of directors it must also contain (i) the information regarding each nominee required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by the SEC (or the corresponding provisions of any successor regulation), (ii) each nominee’s signed consent to serve as a director if elected, and (iii) whether each nominee is eligible for consideration as an independent director under the relevant standards contemplated by Item 407(a) of Regulation S-K (or the corresponding provisions of any successor regulation). We may also require any proposed nominee to furnish such other information, including completion of our director’s questionnaire, as it may reasonably require to determine whether the nominee would be considered “independent” as a director or as a member of the audit committee of the Board of Directors under the various rules and standards applicable to the Company. In addition to complying with the foregoing procedures, any shareholder recommending a director candidate must also comply with all applicable requirements of the Exchange Act, including the rules and regulations under such Act. In the event that the number of directors to be elected to the Board of Directors is increased and either all of the nominees for director or the size of the increased Board of Directors is not publicly announced or disclosed by us at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a shareholder’s notice shall also be considered timely hereunder, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Company at our principal executive office not later than the close of business on the tenth day following the first date all of such nominees or the size of the increased Board of Directors shall have been publicly announced or disclosed.

Our Nominating Committee will consider nominees recommended by shareholders that are properly brought before the Company. The proper procedures shareholders must follow to receive nominee consideration are outlined in this section. These nominees will be evaluated in the same manner as Board nominees as described in our proxy statement.

For business proposals to be brought before an annual meeting by a shareholder, the shareholder must give timely notice to the Corporate Secretary and such other business must otherwise be a proper matter for shareholder action. Notice other than the nomination of directors must contain: (i) the text of the proposal to be presented, including the text of any resolutions to be proposed for consideration by shareholders and (ii) a brief written statement of the reasons why such shareholder favors the proposal. The deadline for shareholders to provide written notice of their intent to bring a proposal (other than a nomination for the election of directors) at the 2020 Annual Meeting (but not for inclusion in the proxy materials relating to such meeting) is November 1, 2019.


86
Table of Contents

Index to Financial Statements



To be in proper written form, a shareholder’s notice to the Corporate Secretary must set forth in writing as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on our books, of the shareholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made, (iii) the class and number of shares of our common stock which are owned beneficially and of record by the shareholder and such beneficial owner and (iv) any material interest of the shareholder or such beneficial owner in such business.


87
Table of Contents

Index to Financial Statements



PART III

Information called for by Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K has been omitted as we intend to file with the SEC not later than 120 days after the end of our fiscal year ended June 30, 2019,2020, an amendment to this Form 10-K or a definitive Proxy Statement relating to the 20202021 Annual Meeting pursuant to Regulation 14A promulgated under the Exchange Act (the "Part III Filing"). Such information will be set forth in such Part III Filing and is incorporated herein by reference.
 
ITEM 10.Directors, Executive Officers and Corporate Governance.
ITEM 10. Directors, Executive Officers and Corporate Governance.

The information required to be included by Item 10 of Form 10-K will be included in our Part III Filing and such information is incorporated by reference herein.

ITEM 11.Executive Compensation.
ITEM 11. Executive Compensation.

The information required to be included by Item 11 of the Form10-K will be included in our Part III Filing and such information is incorporated by reference herein.

ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required to be included by Item 12 of Form 10-K will be included in our Part III Filing and such information is incorporated by reference herein.

ITEM 13.Certain Relationships and Related Transactions, and Director Independence.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.

The information required to be included by Item 13 of Form 10-K will be included in our Part III Filing and such information is incorporated by reference herein.

ITEM 14.Principal Accountant Fees and Services.
ITEM 14. Principal Accountant Fees and Services.

The information required to be included by Item 14 of Form 10-K will be included in our Part III Filing and such information is incorporated by reference herein.


88
99

PART IV
 
ITEM 15.Exhibits and Financial Statement Schedules.
ITEM 15. Exhibits and Financial Statement Schedules.
(a)(1) Financial Statements. For a list of the financial statements included in this Annual Report on Form 10-K, see "Index to Financial Statements" included herein.
(a)(2) Financial Statement Schedules. See Schedule II – "Valuation and Qualifying Accounts," which appears below.
(a)(3) Exhibits. The list of exhibits filed as a part of this Annual Report on Form 10-K is set forth on the Exhibit Index immediately preceding such exhibits and is incorporated by reference in this Item 15(a)(3).
(b) Exhibits. See Exhibit Index.
(c) Separate Financial Statements and Schedules. None.


89
100

SCHEDULE II
SCANSOURCE, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(in thousands)
DescriptionBalance at
Beginning
of Period		Amounts
Charged to
Expense
Reductions (1)
Other (2)
Balance at
End of
Period
Allowance for bad debt:
Year ended June 30, 2018$34,246 6,127 (5,297)(1,233)$33,843 
Trade and current note receivable allowance$33,843 
Year ended June 30, 2019$33,843 1,712 (9,005)971 $27,521 
Trade and current note receivable allowance$27,521 
Year ended June 30, 2020$27,521 1,621 (5,176)(2,060)$21,906 
Trade and current note receivable allowance$21,906 
(1)"Reductions" amounts represent net write-offs for the years indicated.
(2)"Other" amounts include recoveries and the effect of foreign currency fluctuations for years ended June 30, 2020, 2019 and 2018. The amount in 2020 includes less than $0.1 million in accounts receivable reserves acquired with the intY acquisition on July 1, 2020. The amount in 2019 includes less than $0.1 million in accounts receivable reserves acquired with the Canpango acquisition on August 20, 2018.The amount in 2018 includes $0.1 million in accounts receivable reserves acquired with the POS Portal acquisition on July 31, 2017.


101
Description
Balance at
Beginning
of Period
 
Amounts
Charged to
Expense
 
Reductions (1)
 
Other (2)
 
Balance at
End of
Period
Allowance for bad debt:         
Year ended June 30, 2017$39,032
 8,901
 (3,860) 361
 $44,434
Trade and current note receivable allowance        $44,434
Year ended June 30, 2018$44,434
 7,075
 (5,610) (338) $45,561
Trade and current note receivable allowance        $45,561
Year ended June 30, 2019$45,561
 2,282
 (9,421) 427
 $38,849
Trade and current note receivable allowance        $38,849
(1)"Reductions" amounts represent write-offs for the years indicated.
(2)"Other" amounts include recoveries and the effect of foreign currency fluctuations for years ended June 30, 2019, 2018 and 2017. The amount in 2019 includes $0.1 million in accounts receivable reserves acquired with the Canpango acquisition on August 20, 2018.The amount in 2018 includes $0.1 million in accounts receivable reserves acquired with the POS Portal acquisition on July 31, 2017. The amount in 2017 includes $0.6 million of recoveries and $0.3 million of accounts receivable reserves acquired with the Intelisys acquisition on August 29, 2017.




90

ITEM 16.FORM 10-K SUMMARY
ITEM 16. FORM 10-K SUMMARY
None
102

Index to Financial Statements


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
SCANSOURCE, INC.
Date:August 31, 2020
SCANBy:SOURCE, INC.
Date:August 22, 2019By:/s/ MICHAEL L. BAUR
Michael L. Baur
Chairman, Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SignatureTitleDate
/s/ MICHAEL L. BAURChairman, Chief Executive Officer and PresidentAugust 22, 2019
Michael L. Baur(principal executive officer)
/s/ GERALD LYONSSenior Executive Vice President and Chief Financial OfficerAugust 22, 2019
Gerald Lyons(principal financial officer and principal accounting officer)
/s/ PETER C. BROWNINGDirectorAugust 22, 2019
Peter C. Browning
/s/ MICHAEL J. GRAINGERDirectorAugust 22, 2019
Michael J. Grainger
/s/ JOHN P. REILLYDirectorAugust 22, 2019
John P. Reilly
/s/ ELIZABETH O. TEMPLEDirectorAugust 22, 2019
Elizabeth O. Temple
/s/ CHARLES R. WHITCHURCHDirectorAugust 22, 2019
Charles R. Whitchurch


91

Exhibit Index          
Exhibit
Number
 Description 
Filed
herewith
 Form Exhibit 
Filing
Date
2.1 
Letter Agreement between Registrant and Intersmart Comércio ImportaçãoExportação de Equipamentos Eletrônicos, S.A., dated August 14, 2014
   8-K 10.1 8/15/2014
2.2 
Share Purchase and Sale Agreement for Global Data Network LLP dated January 8, 2015
   10-Q 2.1 2/3/2015
2.3+ 
Asset Purchase Agreement for Intelisys, Inc. dated August 5, 2016
   10-Q 10.1 11/7/2016
2.4+ 
Share Purchase Agreement for POS Portal, Inc. dated June 28, 2017
   10-K 2.5 8/29/2017
3.1 
Amended and Restated Articles of Incorporation and Articles of Amendment
   10-Q 3.1 2/3/2005
3.2 
Amended and Restated Bylaws
   8-K 3.1 11/30/2018
4.1 Form of Common Stock Certificate   SB-2 4.1 2/7/1994
4.2 
Description of Securities
 X      
  Executive Compensation Plans and Arrangements        
10.1 
Amended and Restated Directors Equity Compensation Plan, as amended and restated
   10-Q 10.4 11/2/2012
10.2 
Form of Restricted Stock Award (for Amended and Restated Directors Equity Compensation Plan as amended and restated)
   10-Q 10.3 5/6/2011
10.3 
Nonqualified Deferred Compensation Plan, as amended and restated
   10-Q 10.1 2/3/2015
10.4 
Amended and Restated 2002 Long-Term Incentive Plan
   8-K 10.1 12/7/2009
10.5 
2013 Long-Term Incentive Plan
   S-8 99 12/5/2013
10.6 
Employee Stock Purchase Plan
   S-8 99 12/5/2013
10.7 
Founder's Supplemental Executive Retirement Plan Agreement
   10-Q 10.2 5/6/2011
10.8 
Executive Severance Plan
   8-K 10.3 6/21/2017
10.9 
Form of Incentive Stock Option Award Certificate under the Amended and Restated 2002 Long-Term Incentive Plan for grants on or after December 3, 2009
   8-K 10.3 12/7/2009
10.10 
Form of Incentive Stock Option Award Certificate under the Amended and Restated 2002 Long-Term Incentive Plan for grants on or after December 3, 2010
   10-Q 10.2 2/4/2011
10.11 
Form of Non-Qualified Stock Option Award Certificate under the Amended and Restated 2002 Long-Term Incentive Plan for grants on or after December 3, 2009
   8-K 10.4 12/7/2009
10.12 
Form of Non-Qualified Stock Option Award Certificate under the Amended and Restated 2002 Long-Term Incentive Plan for grants on or after December 3, 2010
   10-Q 10.3 2/4/2011

92

10.13 
Form of Restricted Stock Unit Award Certificate under ScanSource, Inc. 2013 Long-Term Incentive Plan for grants on or after December 5, 2013
   10-Q 10.1 2/6/2014
10.14 
Form of Director Restricted Stock Unit Award Certificate under ScanSource, Inc. 2013 Long-Term Incentive Plan for grants on or after December 5, 2013
   10-Q 10.2 2/6/2014
10.15 
Form of Incentive Stock Option Award Certificate under ScanSource, Inc. 2013 Long-Term Incentive Plan for grants on or after December 5, 2013
   10-Q 10.3 2/6/2014
10.16 
Form of Non-Qualified Stock Option Award Certificate under ScanSource, Inc. 2013 Long-Term Incentive Plan for grants on or after December 5, 2013
   10-Q 10.4 2/6/2014
10.17 
Form of Other Stock Based Award Certificate under ScanSource, Inc. 2013 Long-Term Incentive Plan
   10-K 10.33 8/28/2014
10.18 
Form of Performance and Service - Based Restricted Stock Unit Award Certificate under ScanSource Inc. 2013 Long-Term Incentive Plan
   10-K 10.34 8/28/2014
10.19 
Form of Restricted Stock Unit Award (Performance and Service-Based) under the 2013 Long-Term Incentive Plan (2017 version)
   8-K 10.1 12/8/2017
10.20 
Form of Restricted Stock Unit Award (Service-Based) under the 2013 Long-Term Incentive Plan (2017 version)
   8-K 10.2 12/8/2017
10.21 
Form of Non-Qualified Stock Option Agreement under the 2013 Long-Term Incentive Plan (2017 version)
   8-K 10.3 12/8/2017
10.22 
Form of Incentive Stock Option Agreement under the 2013 Long-Term Incentive Plan (2017 version)
   8-K 10.4 12/8/2017
10.23 
Amended and Restated Employment Agreement, effective as of July 1, 2017, of Michael L. Baur
   8-K 10.1 6/21/2017
10.24 
Amended and Restated Employment Agreement, dated June 25, 2014, of Gerald Lyons
   10-K 10.24 8/28/2014
10.25 
First Amendment to Amended and Restated Employment Agreement, effective June 15, 2017, of Gerald Lyons
   8-K 10.2 6/21/2017
10.26 
Employment Letter, dated August 23, 2017, of Gerald Lyons
   8-K 10.1 8/24/2017
10.27 
Employment Letter, dated January 11, 2018 of Matthew Dean
 X      
10.28 
Board of Directors Compensation Program effective July 1, 2018
   10-K 10.32 8/28/2018
10.29 
First Amendment to Nonqualified Deferred Compensation Plan
   8-K 10.1 11/30/2018
10.30 
Form of Director Restricted Stock Award Certificate for grants on or after January 1, 2019
   8-K 10.2 11/30/2018
10.31 
Form of Director Restricted Stock Unit Certificate for grants on or after January 1, 2019
   8-K 10.3 11/30/2018
10.32 
Form of Director Restricted Stock Award Certificate
   8-K 10.4 11/30/2018
10.33 
Form of Restricted Stock Unit Award Certificate
   8-K 10.5 11/30/2018
  Bank Agreements        

93

10.34 
Second Amended and Restated Credit Agreement
   8-K 10.1 5/1/2019
  Other Agreements        
10.35+ 
Industrial Lease Agreement dated April 27, 2007 between Registrant and Industrial Developments International, Inc.
   10-K 10.26 8/29/2007
10.36+ 
Third Amendment to Industrial Lease Agreement between Registrant and Industrial Developments International, Inc.
   10-K 10.54 8/29/2016
10.37+ 
Fourth Amendment to Industrial Lease Agreement
   10-Q 10.1 5/9/2019
10.38++ 
Nonexclusive Value Added Distributor Agreement between ScanSource, Inc. and Cisco Systems, Inc.
 X      
10.39++ 
Amendment No. 3 to Cisco Nonexclusive Value Added Distributor Agreement
 X      
10.40++ 
Amendment No. 5 to Cisco Nonexclusive Value Added Distributor Agreement
 X      
10.41++ 
Amendment No. 6 to Cisco Nonexclusive Value Added Distributor Agreement
 X      
10.42++ 
Amendment No. 7 to Cisco Nonexclusive Value Added Distributor Agreement
 X      
10.43 
Amendment No. 9 to Cisco Nonexclusive Value Added Distributor Agreement
 X      
10.44++ 
Amendment No. 11 to Cisco Nonexclusive Value Added Distributor Agreement
 X      
10.45 
Amendment No. 12 to Cisco Nonexclusive Value Added Distributor Agreement
 X      
10.46 
Amendment No. 13 to Cisco Nonexclusive Value Added Distributor Agreement
 X      
10.47 
Amendment No. 14 to Cisco Nonexclusive Value Added Distributor Agreement
 X      
10.48++ 
Addendum to Cisco Nonexclusive Value Added Distributor Agreement dated March 25, 2019
 X      
10.49++ 
Addendum to Cisco Nonexclusive Value Added Distributor Agreement dated March 2, 2015
 X      
10.50++ 
Affiliate Agreement under Cisco Nonexclusive Value Added Distributor Agreement
 X      
10.51+ 
Distribution Agreement with US Motorola (f/k/a Symbol Technologies, Inc.).
   10-Q/A 10.1 10/24/2014
10.52+ 
Amendment to PartnerEmpower Distribution Agreement with Zebra.
   10-K 10.50 8/29/2016
10.53+ 
Participation Agreement Relating to Distribution Agreement with Zebra.
   10-K 10.51 8/29/2016
10.54+ 
Amendment to PartnerConnect EVM Distributor Agreement
   10-K 10.51 8/29/2017
10.55++ 
Addendum to Zebra Partnerconnect Distributor Agreement
   10-Q 10.2 5/9/2019

94

21.1SignatureTitleDate
/s/ MICHAEL L. BAURChairman, Chief Executive Officer and PresidentAugust 31, 2020
Michael L. Baur(principal executive officer)
/s/ GERALD LYONSSenior Executive Vice President and Chief Financial OfficerAugust 31, 2020
Gerald Lyons(principal financial officer and principal accounting officer)
/s/ PETER C. BROWNINGLead Independent DirectorAugust 31, 2020
Peter C. Browning
/s/ MICHAEL J. GRAINGERDirectorAugust 31, 2020
Michael J. Grainger
/s/ DOROTHY F. RAMONEDADirectorAugust 31, 2020
Dorothy F. Ramoneda
/s/ JOHN P. REILLYDirectorAugust 31, 2020
John P. Reilly
/s/ JEFFREY R. RODEKDirectorAugust 31, 2020
Jeffrey R. Rodek
/s/ ELIZABETH O. TEMPLEDirectorAugust 31, 2020
Elizabeth O. Temple
/s/ CHARLES R. WHITCHURCHDirectorAugust 31, 2020
Charles R. Whitchurch

103
Table of Contents

Index to Financial Statements


Exhibit Index
Exhibit
Number		DescriptionFiled
herewith		FormExhibitFiling
Date
2.18-K10.18/15/2014
2.2
Share Purchase and Sale Agreement for Global Data Network LLP dated January 8, 2015
10-Q2.12/3/2015
2.3+10-Q10.111/7/2016
3.110-Q3.12/3/2005
3.28-K3.111/30/2018
4.1Form of Common Stock CertificateSB-24.12/7/1994
4.210-K4.28/22/2019
Executive Compensation Plans and Arrangements
10.110-Q10.12/3/2015
10.28-K10.112/7/2009
10.3S-89912/5/2013
10.4S-89912/5/2013
10.510-Q10.25/6/2011
10.68-K10.36/21/2017
10.78-K10.312/7/2009
10.810-Q10.22/4/2011
10.98-K10.412/7/2009
10.1010-Q10.32/4/2011
10.1110-Q10.12/6/2014
10.1210-Q10.22/6/2014
104
Table of Contents

Index to Financial Statements


10.1310-Q10.32/6/2014
10.1410-Q10.42/6/2014
10.1510-K10.338/28/2014
10.1610-K10.348/28/2014
10.178-K10.112/8/2017
10.188-K10.212/8/2017
10.198-K10.312/8/2017
10.208-K10.412/8/2017
10.218-K10.16/21/2017
10.2210-K10.248/28/2014
10.238-K10.26/21/2017
10.248-K10.18/24/2017
10.2510-K10.278/22/2019
10.2610-K10.328/28/2018
10.278-K10.111/30/2018
10.288-K10.211/30/2018
10.298-K10.311/30/2018
10.308-K10.411/30/2018
10.318-K10.511/30/2018
10.328-K10.11/30/2020
Bank Agreements
10.338-K10.15/1/2019
Other Agreements
10.34+10-K10.268/29/2007
105
Table of Contents

Index to Financial Statements


10.35+10-K10.548/29/2016
10.36+10-Q10.15/9/2019
10.37++10-K10.388/22/2019
10.38++10-K10.398/22/2019
10.39++10-K10.408/22/2019
10.40++10-K10.418/22/2019
10.41++10-K10.428/22/2019
10.4210-K10.438/22/2019
10.43++10-K10.448/22/2019
10.4410-K10.458/22/2019
10.4510-K10.468/22/2019
10.4610-K10.478/22/2019
10.47++10-K10.488/22/2019
10.48++10-K10.498/22/2019
10.49++10-K10.508/22/2019
10.50+10-Q/A10.110/24/2014
10.51+10-K10.508/29/2016
10.52+10-K10.518/29/2016
10.53+10-K10.518/29/2017
10.54++10-Q10.25/9/2019
10.55X
21.1X
23.1X
31.1X
106
Table of Contents

Index to Financial Statements


31.2X
23.132.1X
31.1
Certification of the Chief Executive Officer
X
31.232.2X
32.1101
Certification of the Chief Executive Officer
X
32.2
Certification of the Chief Financial Officer
X
101
The following materials from our Annual Report on Form 10-K for the year ended June 30, 2019,2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of June 30, 20192020 and June 30, 2018,2019, (ii) the Consolidated Income Statements for the years ended June 30, 2019,2020, June 30, 20182019 and June 30, 2017,2018, (iii) the Consolidated Statements of Shareholders' Equity for the years ended June 30, 2019,2020, June 30, 20182019 and June 30, 2017,2018, (iv) the Consolidated Statements of Cash Flows for the years ended June 30, 2019,2020, June 30, 20182019 and June 30, 2017,2018, and (v) the Notes to the Consolidated Financial Statements, tagged as blocks of text. The instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
X
+Confidential treatment has been requested or granted with respect to certain portions of this Exhibit, which portions have been omitted and filed separately with the Commission as part of an application for confidential treatment.
'++
Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

Our SEC file number for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 000-26926.



95
107