UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________________________
FORM 10-K
 _______________________________________________
FORM
10-K/A
Amendment No. 1 to 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, 2020
2022

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

Commission File Number:
000-26926
_______________________________________________
scsc-20220630_g1.jpg
ScanSource, Inc.
South Carolina
(State of Incorporation)
incorporation)

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

6 Logue Court
Greenville, South Carolina 29615
(864) 288-2432
(864)
288-2432
_______________________________________________ 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class:Each ClassTrading symbol:Symbol
Name of exchangeEach Exchange on which registered:
Which Registered
Common stock,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:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) 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"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company”company" and “emerging"emerging growth company”company" in Rule
12b-2
of the Exchange Act.
Large accelerated filer☒Smaller reporting companyAccelerated filer☐
AcceleratedNon-accelerated filer
(Do not check if a smaller reporting company)		☐Emerging growthSmaller reporting company☐
Non-accelerated
filer		☐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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange 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, 20192021 was $929,201,973,$885,335,710, as computed by reference to the closing price of such stock on such date. For this purpose, directors, officers and 10% shareholders (other than institutional shareholders) have been assumed to be affiliates.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at October 12, 2020
Common Stock, no par value per share
25,373,757
EXPLANATORY NOTE
This Form
10-K/A
(“Amendment No.1”) amends the annual report on Form
10-K
of ScanSource, Inc. for the fiscal year ended June 30, 2020, filed with the Securities and Exchange Commission (the “SEC”) on August 31, 2020 (the “2020 Form
10-K”).
The primary purpose of Amendment No. 1 is to provide the information required by Items 10 through 14 of Part III of the 2020 Form
10-K.
This Amendment No. 1 speaks as of the original filing date of the 2020 Form
10-K
and reflects only the changes to the cover page and Items 10, 11, 12, 13 and 14 of Part III and inclusion of the certifications required under Section 302 of The Sarbanes-Oxley Act of 2002 in Item 15 of Part IV. No other information included in the 2020 Form
10-K,
including the information set forth in Part I and Part II, has been modified or updated in any way. The 2020 Form
10-K
continues to speak as of the date of the original filing, and the Company has not updated the disclosures contained therein to reflect any events that occurred at a date subsequent to the original filing other than as expressly indicated in this Amendment No. 1. Accordingly, this Amendment No. 1 should be read in conjunction with the 2020 Form
10-K
and the Company’s other SEC filings.
As used herein, the terms “ScanSource,” the “Company,” “we,” “us,” and “our” refer to ScanSource, Inc., a South Carolina corporation, and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only ScanSource, Inc. The term “common stock” means shares of our common stock, no par value per share.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Board of Directors of the Registrant
Michael L. Baur
AGE
63
DIRECTOR SINCE
December 1995
COMMITTEES
None
Experience
Michael L. Baur is our Chairman, Chief Executive Officer and President. Mr. Baur has served as our President or CEO since our inception, as a director since December 1995, and as Chairman of the Board since February 2019. Mr. Baur has been employed with the Company since its inception in December 1992.
Qualifications
Mr. Baur has served the Company since its inception and has developed a deep institutional knowledge and perspective regarding the Company’s strengths, challenges and opportunities. Mr. Baur has more than 30 years of experience in the IT industry, having served in various leadership and senior management roles in the technology and distribution industries before joining ScanSource. Mr. Baur brings strong leadership, entrepreneurial, business building and development skills and experience to the Board.
Peter C. Browning
AGE
78
DIRECTOR SINCE
June 2014
COMMITTEES
Lead Independent Director and Chair of Compensation Committee and serves on all committees
Experience
Peter C. Browning has served as a director of the Company since June 2014 and as Lead Independent Director since February 2019. He has extensive experience in business, serving as an executive officer of a number of public companies, including Continental Can Company, National Gypsum Company and Sonoco Products Company. He also has served on more than 14 public-company boards, including Wachovia from 2002 to 2008, Nucor Corporation from 1999 to 2015, Lowe’s Companies from 1997 to 2014, EnPro Industries, Inc. from 2001 to 2015, and The Phoenix Companies from 1988 to 1999 and from 2000 to 2009, and in a variety of board leadership roles, including serving as
non-executive
chair, lead director and chair of audit, compensation and governance/nominating committees. Mr. Browning currently serves as lead director of Acuity Brands and on the board of GMS, Inc. He also serves as lead independent director of the board of Equilar, a private company that is a leading provider of corporate data.
Qualifications
Mr. Browning is a well-known authority on board governance and his knowledge and experience in that area are invaluable to our Board. He was the Dean of the McColl Graduate School of Business at Queens University of Charlotte from 2002 to 2005 and has served as the Managing Partner of Peter Browning Partners, a board advisory consulting firm, since 2009. Mr. Browning was selected for the “2011 and 2012 NACD Director 100 List” (a list of the most influential people in corporate governance in the boardroom). He
co-authored
a book on governance guidance, titled
The Directors Manual: A Framework for Board Governance
, which offers practical advice on leading an organization’s board.
Frank E. Emory, Jr.
AGE
63
DIRECTOR SINCE
October 2020
COMMITTEES
Serves on all committees
Experience
Frank E. Emory, Jr. has served as a director of the Company since October 2020. Mr. Emory has served as Executive Vice President and Chief Administrative Officer of Novant Health since 2019. From June 2001 to December 2018, he served as a partner with Hunton Andrews Kurth LLP, an international law firm.
Qualifications
As a former partner of Hunton Andrews Kurth LLP and executive of Novant Health (including serving as its Chief Administrative Officer), Mr. Emory brings considerable experience overseeing legal, government relations, risk management, corporate audit, compliance, human resources and diversity, inclusion and health equity teams to the Board.
1
Michael J.
Grainger
AGE
68
DIRECTOR SINCE
October 2004
COMMITTEES
Chair of Risk Committee and serves on all committees
Experience
Michael J. Grainger has served as a director of the Company since October 2004. Mr. Grainger served as President and Chief Operating Officer of Ingram Micro, Inc., a technology distributor, from January 2001 to April 2004. From May 1996 to July 2001, he served as Executive Vice President and Chief Financial Officer of Ingram Micro, and from July 1990 to October 1996 as Vice President and Controller of Ingram Industries, Inc. Mr. Grainger currently serves on the board of directors of Ingram Industries, Inc., a multinational diversified private company.
Qualifications
As a former executive of Ingram Micro (including serving as its Chief Financial Officer), Mr. Grainger brings extensive knowledge of our industry and our competitive environment to the Board. He also brings extensive accounting and financial skills important in the understanding and oversight of our financial reporting, enterprise and operational risk management and corporate finance, tax and treasury matters.
Dorothy F.
Ramoneda
AGE
61
DIRECTOR SINCE
November 2019
COMMITTEES
Serves on all committees
Experience
Dorothy F. Ramoneda has served as a director of the Company since November 2019. Ms. Ramoneda has been in the role of Executive Vice President and Chief Information Officer of First-Citizens Bank since January 2014. She also has served as Chief Information Officer and Vice President of Information Technology and Telecommunications at Progress Energy.
Qualifications
Ms. Ramoneda has extensive leadership experience serving as the Chief Information Officer of a Fortune 500 Company and in multiple industries. Over Ms. Ramoneda’s career, she has provided leadership for the continued development of innovative, robust, and secure information technology environments, giving her an understanding of the challenges and issues in our industry and the industries of many of our vendors and customers.
John P. Reilly
AGE
72
DIRECTOR SINCE
June 2001
COMMITTEES
Chair of Nominating Committee and serves on all committees
Experience
John P. Reilly has served as a director of the Company since June 2001. Mr. Reilly served as a partner of Ares Management, LLC, a global alternative asset manager, until June 2016. Ares acquired Keltic Financial Services, LLC in 2014, where Mr. Reilly was President and CEO from 1999 to June 2014. Prior to that, from 1977 to 1999, he held senior management positions in the Leveraged
Buy-Out,
Leasing, Corporate Finance and Private Banking divisions at Citibank, N.A. Mr. Reilly also serves on the Board of Directors of Chimera Investment Corporation, a public real estate investment trust.
Qualifications
Mr. Reilly brings to the Board extensive financial skills important in the understanding and oversight of our financial reporting, enterprise and operational risk management and corporate finance matters. His long career in the financial services industry, along with his MBA in Finance from Fairleigh Dickinson University, also provides Mr. Reilly with financial management expertise which he brings to our Board.
Jeffrey R. Rodek
AGE
66
DIRECTOR SINCE
May 2020
COMMITTEES
Serves on all committees
Experience
Jeffrey Rodek has served as a director of the Company since May 2020. Mr. Rodek has served as an Executive Network Advisor and Limited Partner of Tensility Venture Partners, a seed-stage venture capital firm investing in enterprise software companies, since October 2017. From July 2007 to May 2018, Mr. Rodek served as a Senior Lecturer at the Fisher College of Business at The Ohio State University. Prior to that, Mr. Rodek served as Senior Advisor and Executive Partner at Accretive, LLC from July 2007 to December 2009; as Executive Chairman, Chairman and Chief Executive Officer of Hyperion Solutions Corporation from October 1999 to April 2007; and as President and Chief Operating Officer of Ingram Micro Corporation from 1995 to 1999.
Qualifications
Mr. Rodek has over 40 years of business and leadership experience spanning across multiple industries. Over Mr. Rodek’s career, he has driven performance growth and improved corporate governance strategies in the enterprise software and technology solutions industries, giving him a keen understanding of the challenges and issues present in our industry.
2
Elizabeth O.
Temple
AGE
55
DIRECTOR SINCE
September 2017
COMMITTEES
Chair of Governance Committee and serves on Nominating and Risk Committees
Experience
Elizabeth O. Temple has served as a director of the Company since September 2017. Ms. Temple has served as the Chair and Chief Executive Officer of Womble Bond Dickinson (US) LLP since January 1, 2016 and as
Co-Chair
and Chief Executive Officer of Womble Bond Dickinson, a Global Top 100 law firm, since November 1, 2017. She has been a practicing corporate and securities attorney at the firm since 1989. Prior to serving as Chair and Chief Executive Officer, Ms. Temple served in a number of leadership roles at the firm over the past decade and has been a partner at the firm since 1997.
Qualifications
Ms. Temple has extensive leadership experience serving as the Chief Executive Officer of a Global Top 100 law firm. Over Ms. Temple’s legal career, she has counseled public and private companies on their highest strategic priorities, giving her an understanding of the challenges and issues in the Company’s industry and the industries of many of its vendors and customers. Her background as a legal advisor to public companies and boards provides the Board with additional expertise in the areas of risk management, corporate governance, acquisitions and securities regulation.
Charles R.
Whitchurch
AGE
74
DIRECTOR SINCE
February 2009
COMMITTEES
Chair of Audit Committee and serves on all committees
Experience
Charles R. Whitchurch has served as a director of the Company since February 2009. Mr. Whitchurch served as the Chief Financial Officer of Zebra Technologies Corporation from September 1991 to June 2008. Mr. Whitchurch previously served on the boards of directors of SPSS, Inc., a publicly-held provider of predictive analytic software, from October 2003 to October 2009, Landmark Aviation, a privately-held operator of fixed-base aviation operations throughout the United States and Europe, from October 2008 to October 2012, Tricor Braun Holdings, a privately-held distributor of rigid packaging materials, from July 2010 to November 2016, and Ashworth College, a provider of nationally accredited
on-line
education, from June 2010 to December 2019. On all boards, he served as Chairman of the Audit Committee.
Qualifications
Mr. Whitchurch’s executive career brings
in-depth
knowledge of business operations and strategy and broad experience related to financial and corporate governance matters through his tenure serving on the boards of directors of public companies, including serving as the chairman of audit committees. With over three decades of service as a Chief Financial Officer, more than half of which was with a public company, Mr. Whitchurch has a deep understanding of the complex accounting issues often faced by public companies.
Executive Officers of the Registrant
  Name
Experience and Qualifications
Age  
  Michael L. Baur
Michael L. Baur is our Chairman, Chief Executive Officer and President. Mr. Baur has served as our President or CEO since our inception, as a director since December 1995, and as Chairman of the Board since February 2019.63
  Gerald Lyons
Gerald Lyons has served as our Senior Executive Vice President and Chief Financial Officer since August 2017, after serving in an interim role beginning in November 2016. Mr. Lyons has served in various finance and accounting roles since joining the Company in April 2007.57
  Matthew S. Dean
Matthew S. Dean joined the Company in January 2018 and serves as our Senior Executive Vice President, Chief Legal and Strategy Officer. Prior to that, Mr. Dean served as Vice President and General Counsel for Vertiv, Inc., a provider of equipment and services for data centers, from 2011 through 2017.51
3
Delinquent Section 16(a) Reports
To our knowledge, based solely on a review of the copies of Section 16 reports furnished to us and written representations that no other reports were required, during the fiscal year ended June 30, 2020, all Section 16(a) filing requirements applicable to directors, executive officers and greater than ten percent beneficial owners were complied with by such persons, except that each of Mr. Baur, Mr. Lyons and Mr. Dean filed one late Form 4 reporting the withholding of stock to satisfy tax withholding obligations upon vesting of restricted stock awards.
Code of Conduct
Our Code of Conduct applies to all of our executive officers, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), directors and employees. We have posted the Code of Conduct on the “Investors” page of our website,
www.scansource.com
, under the “Governance” tab. We will provide a copy of the Code of Conduct upon request to any person without charge. Such requests may be transmitted by regular mail in the care of the Corporate Secretary.
We will post on our website,
www.scansource.com
, under the “Governance” tab, or will disclose on a Form
8-K
filed with the SEC, any amendments to, or waivers from, any provision of the Code of Conduct that applies to our CEO and our CFO, or persons performing similar functions, and that relate to (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications made by us, (iii) compliance with applicable governmental laws, rules and regulations, (iv) the prompt internal reporting of violations of the Code of Conduct to an appropriate person or persons identified in the Code of Conduct, or (v) accountability for adherence to the Code of Conduct. Any waiver granted to an executive officer or a director may only be granted by the Board and will be disclosed, along with the reasons therefor, on a Form
8-K
filed with the SEC. No waivers were sought or granted in fiscal 2020.
Audit Committee and Audit Committee Financial Expert
The Board has a standing Audit Committee. The Audit Committee currently is composed of Chair Whitchurch and Directors Browning, Emory, Grainger, Ramoneda, Reilly, and Rodek. The functions of the Audit Committee include selecting the independent auditor, reviewing the scope of the annual audit undertaken by our independent auditor and the progress and results of its work, reviewing our financial statements and our internal accounting and auditing procedures and overseeing our internal audit function. The Audit Committee met four times during the 2020 fiscal year. Each member of the Audit Committee meets the definition of independence for audit committee members as set forth in the NASDAQ listing standards and Exchange Act. The Board has determined that Directors Browning, Grainger, Reilly, Rodek, and Whitchurch meet the requirements of an “audit committee financial expert” as defined in SEC rules and regulations.
Procedures for Shareholder Recommendations of Nominees to the Board of Directors
There were no material changes to the procedures described in our Proxy Statement relating to the 2020 annual meetings of shareholders by which shareholders may recommend nominees to our Board of Directors.
4
Item 11. Executive Compensation
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis outlines our executive compensation program for our named executive officers (NEOs) listed below. The CD&A provides information about our compensation objectives and practices for our NEOs and explains how the Compensation Committee of the Board of Directors arrived at the compensation decisions for fiscal 2020.
Name                                            
Title
Michael L. BaurChairman, Chief Executive Officer and President
Gerald LyonsSenior Executive Vice President and Chief Financial Officer
Matthew S. DeanSenior Executive Vice President and Chief Legal and Strategy Officer
Executive Summary
2020 Business Highlights
We have continued to make progress on our strategic plan of establishing ScanSource at the center of the solution delivery channel in our markets. Due in part to lower sales volumes and increased costs as a result of the
COVID-19
pandemic, our results declined in fiscal year 2020. For fiscal year 2020, net sales decreased 6% to $3.0 billion. Excluding the foreign currency translation and net sales from acquisitions, organic sales for fiscal year 2020 decreased 5% year-over-year, largely as a result of the negative impacts of the
COVID-19
pandemic.
Non-GAAP
operating income decreased 39% to $78.9 million, driven by lower sales volume and higher SG&A expenses. On a GAAP basis, net income for fiscal year 2020 totaled $(79.2) million, or $(3.12) per diluted share, compared to net income of $64.9 million, or $2.52 per diluted share for the prior year. The fiscal year 2020 results reflected
non-cash
goodwill and asset impairment charges.
Non-GAAP
net income totaled $52.0 million, or $2.05 per diluted share, compared to $87.7 million, or $3.41 per diluted share, for the prior year.
As previously announced, we entered into an agreement to sell our products businesses in Mexico, Colombia, Chile and Peru as well as our Miami-based export operations to Intcomex. This action continues our strategic portfolio repositioning to align investments with higher-growth, higher-margin businesses.
COVID-19
has impacted our sales volumes negatively in our wholesale VAR business in both our Worldwide Barcode, Networking & Security and Worldwide Communications & Services segments. This includes the acceleration of the decline in our premise-based communications business. We have also experienced increased employee-related healthcare and prevention costs. In July 2020, we initiated a $30 million 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. 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. The expense reduction plan includes (i) 10% to 25% salary reductions for the executive team through December 31, 2020, (ii) elimination of cash retainers for the Board of Directors through December 31, 2020, (iii) cost savings measures related to discretionary SG&A expenses, (iv) a reduction in workforce in North America, excluding the Intelisys business, and (v) the wind-down of the Canpango professional services business.
These actions are expected to reduce our annualized SG&A cost base by approximately $30 million. In the first quarter of fiscal year 2021, we anticipate recording an estimated
pre-tax
cash charge of approximately $8 to $9 million, consisting of severance and related employee benefits. We completed substantially all of the workforce reduction of approximately 200 positions by the end of the September 2020 quarter.
Fiscal 2020 Pay Mix
The Compensation Committee strives to provide our NEOs with a compensation package that balances short-term and long-term compensation. We believe that our current executive compensation program, consisting of a mix of base salary, retirement contributions, annual performance-based cash incentive awards and both performance-based and service-based grants of equity, (i) provides a predictable and transparent structure for executive compensation, (ii) provides a significant percentage of a NEO’s compensation through variable performance-based vehicles and (iii) attracts, retains and motivates our NEOs.
Our executive compensation program emphasizes performance-based pay. The elements of compensation and the general mix of compensation among the various elements remained largely unchanged in fiscal 2020 from the previous year. Our financial performance during fiscal 2020 is reflected in the compensation of each of our NEOs for fiscal 2020, particularly with respect to payouts pursuant to our annual cash incentive program. Our cash incentive opportunity is designed so that, if our financial results, as measured by
non-GAAP
operating income growth, non-GAAP
5
operating income margin and ROWC, reflect an increase in the financial performance of the Company, then our executives should realize a greater cash incentive. In addition, individual performance also is taken into account by the Compensation Committee, and an award may be modified by up to 20% depending on if the executive did not meet or exceeded performance expectations. Awards are also capped at 200% of each executive’s target bonus regardless of our financial performance.
For fiscal year 2020, the cash incentives paid to our CEO declined by 54% from fiscal 2019 and 89% from fiscal 2018 based on (i) our financial performance and (ii) the Compensation Committee’s
pre-established
MIP operating targets for the cash incentive opportunity. The target value of the equity awarded to our CEO stayed flat from fiscal 2019 to fiscal 2020. We believe this result is appropriately aligned with the Company’s fiscal 2020 financial performance.
In addition, the total compensation of our CEO generally has increased or decreased during the past five fiscal years as our
non-GAAP
operating results have increased or decreased. We believe this correlation between the Company’s performance and pay appropriately motivates and rewards our CEO and is beneficial to our shareholders.
In addition, we believe that it is important to link each of our NEO’s compensation and personal financial interests with long-term shareholder value creation. Accordingly, 65% of our CEO’s total compensation, 40% of Mr. Lyons’ total compensation and 38% of Mr. Dean’s total compensation for fiscal 2020 was in the form of long-term equity incentives. For fiscal 2020, variable performance-based compensation in the form of cash and long-term equity incentives constituted 70% of our CEO’s total compensation, 45% of Mr. Lyons’ total compensation and 41% of Mr. Dean’s total compensation (each as reported in the Summary Compensation Table).
Greater detail regarding the compensation of our NEOs can be found within the 2020 Summary Compensation Table.
Consideration of Results of Shareholder Advisory Votes in Executive Compensation
The Compensation Committee monitors the results of the
“Say-on-Pay”
vote and considers those results along with the objectives listed below in determining compensation policies. A substantial majority (93.7%) of our shareholders voting at the 2020 Annual Meeting approved the compensation described in our 2019 proxy statement. The Compensation Committee interpreted this vote result as a strong indication of support for our current compensation program.
Objectives of the Compensation Program
Our executive compensation program is designed to attract, retain and motivate executives through achieving the following three objectives:
●
Pay-for-Performance
●
Align Interests of Executives with Shareholders
●
Retain Talented Leadership
Pay-for-Performance
The guiding principle of our compensation philosophy is that pay should be linked to performance and that the interests of executives and shareholders should be aligned. Our compensation program is designed to provide significant performance-based compensation, including equity compensation that is variable and based on our actual results and our executives’ performance, as compared to fixed or guaranteed compensation. As a result, a significant portion of our NEOs’ compensation is directly contingent on our operating results
(non-GAAP
operating income growth,
non-GAAP
operating income margin and return on working capital (“ROWC”)) and aligned with shareholder interests.
6
Align Interests of Named Executive Officers and Shareholders
The following compensation policies and practices are designed to align the interests of our NEOs and our shareholders :
ScanSource Does
Require significant stock ownership.
We have adopted minimum ownership guidelines for our CEO. He is required to retain 50% of the net shares resulting from vesting or exercises of equity awards until he owns Company common stock in an amount equal to three times his base salary.
 
Mandate a claw-back policy tied to a compensation program.
We maintain a “claw-back policy,” which would allow us to recover certain incentive compensation based on financial results in the event those results were restated due at least partially to the recipient’s misconduct.
 
Seek our shareholders’ input on executive compensation.
We value our shareholders’ input on our executive compensation, and we seek an annual
non-binding
vote on our executive compensation policies.
ScanSource Does Not
Permit pledging of our securities by our Named Executive Officers or Board of Directors.
We have a policy that prohibits officers and directors from pledging Company securities in margin accounts or as collateral for a loan.
 
Permit hedging of our securities by our Named Executive Officers or Board of Directors without
pre-clearance
from the Company’s General Counsel.
We have a policy that generally prohibits employees (including the NEOs and Directors) from trading in options, warrants, puts, calls or similar instruments in connection with our securities, or selling our securities “short.”
 
Provide automatic cash severance benefits upon a change in control.
Our employment arrangements with our NEOs provide cash severance only upon a “double trigger.”
 
Provide golden parachute tax gross ups or excessive perquisites.
We do not provide excise tax
gross-ups
for severance benefits received by our NEOs under their employment arrangements. We only provide limited perquisites to our NEOs.
Retain Talented Leadership
We operate in a marketplace characterized by significant competition for talented executives. Our executive compensation program is designed to enable us to attract, motivate, reward and retain the management talent necessary to achieve both long-term and short-term corporate objectives and enhance shareholder value. We also aim to establish executive compensation levels that correlate directly to the NEO’s level of responsibility, with the compensation of our NEOs being tied both to our performance as a whole and to individual performance. To do this effectively, our philosophy is that our compensation program must provide our NEOs with a total compensation package that is reasonable in relation to our performance, and sufficiently competitive with the packages offered by similarly sized companies within or outside our industry.
7
Material Elements of Our Compensation Programs
In determining the compensation of our NEOs, the Compensation Committee uses the following specific compensation elements, which it believes support our compensation objectives.
Class
Compensation Objectives
Outstanding at August 19, 2022
  Compensation Element
            Description
Reward
Performance
Attract
and
Retain
Align with
Shareholders
  Base Salary
Fixed level of compensationCommon Stock, no par value per share25,187,351 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 2023 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, 2022.


Index to Financial Statements


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 the following factors, which are neither presented in order of importance nor weighted: the impact of the COVID-19 pandemic, macroeconomic conditions, including potential prolonged economic weakness, inflation and supply chain challenges, the failure to manage and implement the Company's organic growth strategy, credit risks involving the Company's larger customers and suppliers, changes in interest and exchange rates and regulatory regimes impacting the Company's international operations, risk to the Company's business from a cyber-security attack, a failure of the Company's IT systems, failure to hire and retain quality employees, loss of the Company's major customers, termination of the Company's relationship with key suppliers or a significant modification of the terms under which it operates with a key supplier, changes in the Company's operating strategy and the other factors set forth in "Risk Factors" contained herein.




Index to Financial Statements


TABLE OF CONTENTS

  Annual Variable Cash
  Incentive
  Awards
Performance-based cash incentives rewards
Company and individual performance
  Time-Vesting Restricted
  Stock or
  Restricted Stock Units
Long-term equity award, with three-year vesting
  Performance- and Time-
  Vesting
  Restricted Stock or
  Restricted
  Stock Units
Rewards Company performance; new awards with three-year vesting, in addition to performance criteria
  Health, Welfare &
  Retirement Plans
401(k) Savings Plan

Employee Stock Purchase Plan
Deferred Compensation Plan
Executive Severance PlanPage
  Stock Ownership Guidelines,PART I
  Anti- Hedging Policy, Anti-
  Pledging
  Policy and Claw-Back Policy
Compensation risk mitigators
1
Item 1.
1
Item 1A.
8
Item 1B.
17
Item 2.
18
Item 3.
18
Item 4.
18
19
Item 5.
19
Item 6.
20
Item 7.
21
Item 7A.
42
Item 8.
43
Item 9.
88
Item 9A.
88
Item 9B.
88
Item 9C.
88
89
Item 10.
89
Item 11.
89
Item 12.
89
Item 13.
89
Item 14.
89
90
Item 15.
90
Item 16.
91
92
The Compensation Committee determines


Index to Financial Statements


PART I

ITEM 1.    Business.

ScanSource, Inc. (together with its subsidiaries referred to as the amounts"Company” or “ScanSource” or “we”) is a leading hybrid distributor connecting devices to the cloud and accelerating growth for partners across hardware, Software as a Service ("SaaS"), connectivity and cloud. ScanSource enables partners to deliver solutions for their customers to address changing end-user buying and consumption patterns. ScanSource sells through multiple, specialized routes-to-market with hardware, SaaS, connectivity and cloud service offerings from the world's leading technology suppliers. We provide technology solutions and services from more than 500 leading suppliers of each elementmobility, barcode, point-of-sale ("POS"), payments, physical security, networking, unified communications, collaboration (UCaaS, CCaaS), connectivity and cloud services.

ScanSource was incorporated in South Carolina in 1992 and serves approximately 30,000 sales partners. Net sales for fiscal year ended June 30, 2022 totaled $3.53 billion. Our common stock trades on the NASDAQ Global Select Market under the symbol “SCSC.”

Our customers are businesses of all sizes that sell to end-customers across many industries. Our customer channels include value-added resellers (“VARs”), sales 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 grow hybrid technology offerings for end-customers across almost every vertical market in the United States, Canada, Brazil and the aggregate compensationUnited Kingdom ("UK").

In fiscal year 2021, we completed the sale of our product distribution businesses in Europe, the UK, Mexico, Colombia, Chile, Peru and our Miami-based export operations (the "Divestitures"). Management determined that the Company did not have sufficient scale 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 were 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.

Strategy

Our strategy is to drive sustainable, profitable growth by orchestrating hybrid technology solutions through a growing ecosystem of partners leveraging our people, processes, and tools. Our goal is to provide exceptional experiences for our NEOs, without using any specific formulapartners, suppliers, and people, and we strive for operational excellence. Our hybrid distribution strategy relies on a channel sales model to offer hardware, SaaS, connectivity and cloud services from leading technology suppliers to sales partners that solve end-customers’ challenges. ScanSource enables sales partners to deliver solutions for their customers to address changing end-customer buying and consumption patterns. Our solutions may include a combination of offerings from multiple suppliers or attemptinggive our sales partners access to satisfy any specific ratioadditional services. As a trusted adviser to our sales partners, we provide customized solutions through our strong understanding of end-customer needs.

Value Proposition

Our customer channels and supplier relationships serve as competitive advantages. From our pivotal position at the intersection of technology distribution trends, we provide robust value to both our sales partners and our suppliers. We make it easier for compensation among our NEOs; however,sales partners and suppliers to deliver leading technology solutions that drive business outcomes for end-customers.

Value proposition for our customers/sales partners:
•Enable end-user consumption preferences
•Provide pre-sale engineering
•Make it easier to sell the differencestechnology stack
•Inventory availability
•Offer training, education and marketing services
•Provide custom configuration, services, platforms and digital tools
•Offer innovative financial solutions for our sales partners
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Value proposition for our suppliers:
•Expand reach at a variable cost
•Provide access to multiple routes to market
•Lower customer acquisition cost
•Recruit and train new sales partners
•Manage channel credit

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. We have the financial flexibility to invest in our business and in future growth.

Business Segments

We operate our business under a management structure that enhances our technology focus and hybrid distribution growth strategy. Our segments operate in the aggregate compensation between our CEOUnited States, Canada, Brazil and the UK and consist of the following:
•Specialty Technology Solutions
•Modern Communications & Cloud

Specialty Technology Solutions Segment

The Specialty Technology Solutions portfolio includes enterprise mobile computing, data capture, barcode printing, POS, payments, networking, electronic physical security, cyber security and other NEOstechnologies. There are intendedadjacencies among these technologies to reflectdevelop and deliver solutions for our customers. These solutions include data capture and POS solutions that interface with computer systems to automate the individual responsibilitiescollection, 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 and intrusion-related devices. Our networking products include wireless and networking infrastructure products. This segment also includes recurring revenue from hardware rentals and other SaaS offerings.

Modern Communications & Cloud Segment

The Modern Communications & Cloud portfolio of solutions includes communications technologies and services for voice, video conferencing, wireless, data networking, cyber security, 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. This segment includes recurring revenue from our Intelisys and intY businesses.

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 healthcare, among others. Our customers provide us with respectmultiple, specialized routes-to-market through various channels, including: VARs, agents, ISOs and ISVs. No single customer accounted for more than 4% of our total net sales for the fiscal year ended June 30, 2022.

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
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Index to Financial Statements


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 respective positions, experiencerecurring 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 500 suppliers, including 8x8, AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Granite, GTT, Hanwha, Honeywell, Ingenico, Jabra, Lumen, Microsoft, MetTel, Mitel, NCR, NICE CXone, Poly, RingCentral, Spectrum, Toshiba Global Commerce Solutions, Trend Micro, Ubiquiti, Verifone, Verizon, VMWare, Windstream, Zebra Technologies and Zoom.

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, 2022.
•We have three non-exclusive agreements with Cisco. One agreement covers the distribution of Cisco products in the applicable roleUnited States and experiencehas a two year term. The second agreement covers the 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 these agreements upon 30 days' notice to the other party. The third agreement is an agency contract for North America and has a two year term. Either party may terminate this agreement upon 60 days' prior written notice.

•We have three non-exclusive agreements with Zebra. One agreement covers sales of Zebra Enterprise Visibility & Mobility (“EVM”) products in North America and Brazil, while the other two agreements cover sales of Zebra Asset Intelligence & Tracking (“AIT”) products in North America and Brazil. The Zebra agreements each have a one year term that automatically renews for additional one year terms. 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.

In addition to the agreements mentioned above, we have written agreements with almost all of our industry. In determining compensation for our CEO,other suppliers. These agreements generally include the Compensation Committee considersfollowing terms:

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

Along with our inventory management policies and therefore regularly reevaluatespractices, these stock rotation rights and price protection provisions are designed to reduce our risk of loss due to slow-moving inventory, supplier 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 appropriate mixsuppliers' 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 elements,defective products, including those returned to us by our customers. For certain of our product offerings, we offer a self-branded warranty program. We purchase contracts from unrelated third parties, generally the appropriate targetsoriginal 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 incentive awards. The Compensation Committee also reliesexchange, 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 independent expertise compiledCompany.

Offerings and Markets

We currently market over 65,000 products from approximately 500 hardware, software and service suppliers to approximately 30,000 customers. We sell products and services to the general knowledge, experienceUnited States and good judgmentCanada from our facilities located in Mississippi, California and Kentucky; into Brazil from facilities located within the Brazilian states of its members, bothParaná, Espírito Santo and Santa Catarina. We provide some of our digital products, which include SaaS and subscriptions, through our digital tools and platforms. See "Risk Factors" for a discussion of the risks related to our foreign operations. We also have drop-shipment arrangements with regard to competitive compensation levels and the relative success thatsome of our Company has achieved. The Compensation Committee also retains, and relies on information provided by, compensation consultants.
Base Salary
Base salary generally provides a fixed base level of compensation for our executives for the services they render during the year. The purpose of base salary is to compensate our NEOs in light of their respective roles and responsibilities over time. Base salary is essential tosuppliers, which allow us to competeoffer products to customers without taking physical delivery at our facilities. These drop-shipment arrangements represent approximately 20% of fiscal year 2022 net sales.

Our offerings to our customers include hardware, software, services and connectivity across premise, hybrid and cloud environments. We believe that sales partners want to offer end-customers complete technology solutions that solve end-user challenges and deliver positive outcomes. We align our people, processes and tools to help our sales partners grow by providing more hybrid solutions through a better understanding of end-customer needs. We are able to provide a combination of offerings from multiple suppliers or give our sales partners access to additional services, including configuration, key injection, integration support and others to deliver solutions.

We provide our sales partners and suppliers with 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 our ability and willingness to provide the extra level of services that keeps both our sales partners and suppliers satisfied.
We offer technology solutions and services that include the 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, barcode 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 healthcare.

•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.
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These solutions may include self-service checkout, kiosks and products that attach to the POS network in the employment marketplacestore, including network access points, routers and digital signage.

•Payments: We offer payment terminals, comprehensive key injection services, reseller partner branding, extensive key libraries, ability to provide point-to-point encryption, and redundant key injection facilities. We have the resources to deliver secure payment devices that are preconfigured and ready for talentuse. 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.

•Physical Security: We provide electronic physical security solutions that include identification, access control, video surveillance and intrusion-related products. Our networking products include wireless and networking infrastructure products. 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.

•Communications and Collaboration: We offer communications and collaboration solutions, delivered in the cloud, on-premise or hybrid, such as voice, video, integration of communication platforms and contact center solutions. These offerings combine voice, video and data with computers, telecommunications and the internet to deliver communications solutions on-premise. Software and hardware products include IP-based telephony platforms, Voice over Internet Protocol systems, private branch exchanges, call center applications, video conferencing, desk phones, headsets and cloud-enabled 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.

•Connectivity and Cloud 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. Through our digital tools and platforms, we offer sales partners another way to grow their recurring revenue practices, and take     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.

People and Culture

General
Our real competitive advantage is our people, working together to help our customers and partners grow their businesses. The foundation of ScanSource has always been based on strong values and culture with the clear vision of people first. In a changing environment, ScanSource is investing in new infrastructure, tools and programs to ensure a "productivity anywhere" outcome, in the new hybrid working world. In 2022, the Company was named, once again, one of the Best Places to Work in South Carolina.

As of June 30, 2022, we have approximately 2,700 employees, of which approximately 1,800 are in the United States and 900 are located internationally in Canada, Brazil and the UK. We have no organized labor or trade unions in the United States. As of June 30, 2022 we have 12office locations in the U.S., eight office locations outside of the U.S., and have a remote employee presence. During fiscal year 2022, we added 175 new employees.

Diversity and Inclusion

Respecting and protecting our people and our partners are our highest priorities, from ensuring and supporting an inclusive and diverse workforce and partner base; providing a safe, healthy work environment; and working with suppliers and partners that share this commitment, we do what is right for our employees, channel partners and end customers. One of our core values is to promote an environment that respects and values the diverse backgrounds, interests and talents of our employees. In July 2020, we reaffirmed ScanSource’s commitment to diversity and inclusion with the creation of a comprehensive Diversity & Inclusion (D&I) program and the appointment of our first Chief Diversity Officer ("CDO"). Since taking this role, our CDO launched a D&I strategic plan focused on awareness and education, workforce representation, supplier diversity and community relations. Along with the appointment of the CDO, an internal D&I Advisory Council was created to assist in the implementation of our
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D&I plan and serve as a sounding board for our employees. Additionally, initiatives including a D&I book and movie club and employee resource groups are allowing interested employees to broaden their knowledge on various topics in this space.

Professional Development

We want to help our employees succeed—both personally and professionally. We focus heavily on the intellectual and professional development of our employees, and we strive to create an immersive working environment for them. To promote personal and professional growth, we also encourage our employees to pursue ongoing training and career development opportunities, and we provide tuition assistance and reimbursement for certain pre-approved continuing education programs and professional certifications. We enhanced our learning management system, The Hub, to provide a modernized and engaging user experience for our global employees at all levels. The ScanSource Leadership Institute ("SLI") is another important program that focuses on identifying and helping to develop the next wave of senior leaders for the Company. The SLI program brings together twelve hand-selected leaders from our global offices for a two-week program of intensive training and development—with organization. While this provides a tool for an individual’s education and growth, it also nurtures cross-functional collaboration with colleagues through a unique social capability.

Benefits

We offer a comprehensive benefits package which includes on average 80% coverage of employee healthcare premiums and several benefits at no cost to our employees, including life insurance, disability insurance and work-life balance resources. The financial future of our employees is important to us, which is why we have a 401(k) employer match, performance-based bonus program and employee ownership opportunities for a meaningful portion of our employees through equity incentive grants. We partner with Tuition.io to provide employees access to knowledge and tools to help manage or plan for student loan debt. To expand our financial wellness offerings, we offer workshops and webinars focused on student debt and general debt-counselling services.

Health and Safety

We care about our employees’ overall well-being and encourage them to have a healthy lifestyle, both physically and mentally. That’s why we offer dedicated resources to help foster a work/life balance. At the onset of the COVID-19 pandemic, we swiftly and successfully implemented a work-from-home policy for all employees across geographies, outside of our distribution centers. We have continued this policy and are pleased with how our employees have adjusted to this new way of doing business, maintaining an extremely high level of productivity and performance. With a largely remote workforce, it is critical that we continue to focus on our employees’ health. We continue to build our 360you program, which provides employees with extensive education and training/coaching opportunities, wellness and fitness challenges, screenings and other valuable resources.

Board Role in People and Culture Management

Our Board of Directors believes that people and culture management is an important component of totalour continued growth and success and is essential for our ability to attract, retain and develop talented and skilled employees. We pride ourselves on a culture that respects co-workers and values concern for others. Our Board provides oversight of the Company's policies and strategies relating to talent including corporate culture, diversity and inclusion, and employee development as well as the Company's compensation principles and practices. Our Board, through the Compensation Committee, evaluates and approves the Company's compensation plans, policies, and programs applicable to our senior executives. Our Board also engages in an active succession planning process.

Employee Feedback

We foster opportunities for employee engagement and have multiple avenues for communication which allows all full-time employees to anonymously give us feedback on our workplace culture, employee programs, and more.

Competition

We believe we are a leader in the NEOs.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
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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 resellers that sell to franchisees, third-party dealers and end-customers. 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.

In our Specialty Technology Solutions segment, we compete with broad-line distributors, such as Ingram Micro and TD Synnex, in most geographic areas, and more specialized security distributors, such as ADI and Wesco. Additionally, we also compete against other smaller, more specialized AIDC and POS distributors, such as BlueStar. In our Modern Communications & Cloud segment, we compete against broad-line distributors, such as Ingram Micro and TD Synnex, and more specialized distributors, such as Jenne. Additionally, for Intelisys' technology services, we also compete against other smaller, technology services distributors, such as Avant and Telarus. For our intY business, we compete against other 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 organization consists of inside and field sales representatives located in the United States, Canada, the UK and 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 our sales partners with solutions to meet their end-customer’s needs. Our sales teams are advocates for and trusted advisers to our sales partners. Sales teams are 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 supplier 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 sales 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 and Brazilian 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

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 online, 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.
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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 primarily serves North America. We also acquired warehouses in California and Kentucky through our POS Portal acquisition. Our principal warehouses for our Brazil operations are located in the Brazilian states of Paraná, Espírito Santo and 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 our sales partners' need for inventory.

Financial Services

Our sales terms include 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 these 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 Brasil," "Network1, a ScanSource company," "Intelisys," "POS Portal," "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.

The following are certain risks that could affect our business, financial position and results of 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. These factors are neither presented in order of importance nor weighted. 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 and 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.

Risk Factors Related to our Operations

People - If we cannot continue to hire and retain high quality employees, our business and financial results may be negatively affected.
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Our operating results could be adversely affected by increased competition for employees, difficulty in recruiting 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 and attract new ones, we have to provide a satisfying work environment and competitive compensation and benefits.

Acquisitions - Our growth strategy includes acquisitions of companies that complement or expand our existing business. Acquisitions involve unique risks and uncertainties, including difficulty in identifying and completing potential acquisitions.

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 vitalnot 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 affect our business, financial condition and operating results.

We may be unable to identify acquisitions or strategic relationships we deem suitable. Even if we do, we may be unable to successfully complete any such transactions on favorable terms or at all, or to successfully integrate an acquired business, facilities, technologies, or products into our business or retain any key personnel, suppliers, or customers. Furthermore, even if we complete such transactions and effectively integrate the newly acquired business or strategic alliance into our existing operations, we may fail to realize the anticipated returns and/or fail to capture the expected benefits, such as strategic or operational synergies or cost savings.

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 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 goalbusiness 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.
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Our customers rely on our electronic ordering and retaining NEOsinformation 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 proven abilities. 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.

Supply Chain issues, include a shortage of products, may increase our costs or cause a delay in fulfilling customer orders, completing services or purchasing products and services needed to support our internal operations, resulting in an adverse impact on our financial results.

Our business depends on the timely supply of products in order to meet the demands of our customers. At present, there is a worldwide shortage of certain technology products resulting from shortages in semiconductors and other components of those products.Like others, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times and the predictability of lead times for delivery of products, the costs of products and our ability to meet customer demands in a timely fashion.If we are unable to mitigate these disruptions, our financial results may be adversely impacted.

Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, significant labor disputes such as strikes, natural disasters, political or social unrest, pandemics (such as the ongoing COVID-19 pandemic) or other public health crises or other adverse occurrences affecting any of our suppliers’ facilities, could further disrupt our supply chain. We could experience product constraints due to the failure of suppliers to accurately forecast customer demand or to manufacture sufficient quantities of product to meet customer demand (including as a result of shortages of product components), among other reasons.

Our supply chain is also exposed to risks related to international operations. While we purchase our products primarily in the markets we serve (for example, products for United States customers are primarily sourced in the United States), our vendor partners manufacture or purchase a significant portion of the products we sell outside of the United States, primarily in Asia. Political, social or economic instability in Asia, or in other regions in which our vendor partners purchase or manufacture the products we sell, could cause disruptions in trade, including exports to the United States.

Supply chain issues, including a shortage of technology products and available services, may increase our costs or cause a delay in purchasing technology products needed to support our internal systems and infrastructure or operations, resulting in an impact on our operations and availability of our systems, which could result in a materially adverse effect on our operations and financial results.

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 NEO’s base salarysignificant component of our growth strategy is setto expand our channels and expand our existing products and services in our existing channels and entry into new channels. 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 models. Our failure to effectively manage our organic growth could have an adverse effect on our business, financial condition and results of operations.

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

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 histhe arrangement, could result in significant disruptions or her employment agreementcosts 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 letterthe 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 and is reviewed annually.transit losses due to a congested supply chain. Increases if any, to base salary are based generally upon a subjective assessment of overall individual performance, market trends and the Company’s performance. In evaluating the Company’s performance, the primary consideration isin our shipping costs or transit losses may adversely affect our financial performanceresults if we are unable to pass on these higher costs to our customers.

In Brazil, 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 the relevant annual period, with a focus on
non-GAAP
operating income growth,
non-GAAP
operating income marginany reason could disrupt our business and ROWC, each of which aligns executive and shareholder interests and which we consider to have a strong correlation with shareholder value creation.
Annual Variable Performance-Based Cash Incentive Awards
Annual variable performance-based cash incentive awards are designed to encourage the achievement of various
pre-determined
Company financialharm our reputation and operating performance goals. For fiscal 2020,
non-GAAP
operating income growth,
non-GAAP
operating income marginresults. We work closely with our third-party logistics and ROWC arewarehousing providers to anticipate issues, and also review public information regarding their financial health. However, issues may not be identified quickly, which may lead to lack of or poor execution of services, loss or litigation. Additionally, deterioration of the primary measurements of performance for cash incentive awards becausefinancial condition of our belief that each such measurement has a strong correlation with shareholder value. Our management emphasizes
non-GAAP
operating income growth,
non-GAAP
operating income marginlogistical and ROWC, all
non-GAAP
measures,warehousing providers could result in evaluatingdelayed responsiveness or delivery failure, which would ultimately affect our responsiveness to our customers and monitoring the Company’sthus may adversely affect our business, financial condition and results of operations.

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 and results of operations.
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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.

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. In addition, our suppliers have the ability to terminate sales 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 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, which has been more prevalent since the COVID-19 pandemic began. Specifically, shortages of computer chips may lead to product constraints and adversely affect our sales volumes and product availability. 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 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. In addition, suppliers may face liquidity or solvency issues that in turn could negatively affect our business and operating results. Any loss or deterioration of a major supplier relationship could adversely affect our business, financial condition and results of operations.

Liquidity and capital resources - Market factors and our business performance may increase the cost and decrease the availability of capital. 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 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. 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
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covenants. Specifically, our Leverage Ratio must be less than or equal to 3.50:1.00 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 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, inflation, rising interest rates 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.

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 continued widespread disruptive economic impacts, economic recession, and higher interest rates and inflation could result in some of our customers shuttering their businesses, thus negatively impacting our revenues.

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 or our officers and directors 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 any dispute that we are a party to. See Item 3. "Legal Proceedings" for further discussion of our material legal matters.

Fair value measurement of 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 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 recognized significant goodwill and intangible asset impairment in the fiscal year ended June 30, 2020. Any declines resulting in a goodwill impairment or long-lived asset
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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.

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 UK’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, UK 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 those of our customers, suppliers or service providers.

We currently transact business in the UK, where we also have offices. The UK's ongoing process of exiting the E.U. is a source of continued uncertainty. A number of agreements have already been made that alter 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 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.

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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 operations, while our Brazilian and UK 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, prolonged inclement weather, 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.

Risk Factors Related to our Industry

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 agents that sell to franchisees, third-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.

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 some of 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 provide us with certain protections from the loss in value of inventory (such as price protection and certain return
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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 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 and service offerings to meet customer needs at prices that our customers are willing to pay.

General Risk Factors

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 integrated information systems, 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, and may have a serious impact on our reputation and may adversely affect our businesses, operating results and financial condition.

COVID-19 - COVID-19 continues to create macroeconomic uncertainty and could negatively impact our financial results

We are vulnerable to the general economic impacts of pandemics, such as the COVID-19 pandemic, which continue to create significant macroeconomic uncertainty and supply chain constraints. These supply chain constraints have caused shortages in electronics components, resulting in extended lead times and unpredictability. The COVID-19 pandemic has also resulted in the implementation of numerous measures to contain the virus worldwide, which may continue to cause significant disruptions to the US and global economy. The extent to which COVID-19 and related challenges will continue to impact our results will depend on future developments, which are uncertain and cannot be predicted with confidence.

While we are unable to predict the ultimate impact that COVID-19 will have on our business, certain technologies have benefited from the widespread adoption to a work-from-anywhere business model, as well as the accelerated shift to digitize and automate processes. However, our revenues could decrease significantly if our suppliers are not able to supply us products in a timely manner. Additionally, our distribution centers may not be able to maintain staffing levels, which could affect our ability to ship products timely and negatively impact our cash flow.

To the extent the COVID-19 pandemic continues, the mitigation efforts and the resulting economic impact could adversely affect many aspects of our business. COVID-19 may also have the effect of heightening many of the other risk factors disclosed herein, such as those relating to our growth strategies, credit exposure, liquidity and capital resources, people, volatility of stock price and economic weakness.

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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 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.

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

The stock market as a whole and the trading prices of companies with smaller capitalization have been volatile. This volatility could significantly reduce the price of our common stock at any time, without regard to our own operating performance. These three metrics assistThis volatility may affect the price at which you could sell your common stock. Our stock price is likely to continue to be volatile 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 comparingthe 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.

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 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.

Economic weakness - Economic weakness, including recession and inflation, 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 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, inflation and increasing interest rates, which has the potential to disproportionately impact our business depending on which sectors of the economy and which geographies are most impacted.


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ITEM 1B.    Unresolved Staff Comments.
8
Not applicable.

ITEM 2.    Properties.
Our fixed assets include office space and warehouses. Our principal locations and/or properties as of June 30, 2022, were as follows:
LocationApproximate Square FootageType of InterestDescription of Use
United States
Greenville, SC174,000OwnedHeadquarters - Principal Executive and Sales Offices
Greenville, SC7,600LeasedSales and Administration Offices
Southaven, MS741,000LeasedWarehouse
Sacramento, CA53,000LeasedSales and Administration Offices and Warehouse
Louisville, KY22,000LeasedWarehouse
Brazil
São José 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 174,000 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 Brazil. 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 and results of operations.

ITEM 4.    Mine Safety Disclosures.
Not applicable.
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PART II
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, 2022, there were approximately 725 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, 2017.

201720182019202020212022
ScanSource, Inc.$100 $100 $81 $60 $70 $77 
NASDAQ Composite$100 $124 $133 $169 $246 $188 
SIC Code 5045 – Computers & Peripheral Equipment$100 $113 $116 $86 $144 $131 
scsc-20220630_g2.jpg
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Share Repurchases

In August 2021, our Board of Directors authorized a $100 million share repurchase program. The authorization does not have any time limit. In fiscal year 2022, we repurchased 550,194 shares totaling $18.2 million under the share repurchase program.

The following table shows the share-repurchase activity for the quarter ended June 30, 2022 (in thousands except share and per share data):

Period
Total number of shares purchased (1)
Average 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, 2022 through April 30, 2022197,677 $33.85 197,677 $84,249,021 
May 1, 2022 through May 31, 202271,762 33.92 71,762 81,814,854 
June 1, 2022 through June 30, 2022662 38.98 — 81,814,854 
Total270,101 269,439 

(1) Includes 662 shares withheld from employees' stock-based awards to satisfy required tax withholding obligations for the month of June 2022. There were no shares withheld during the months of April and May 2022.

Dividends

We have never declared or paid a cash dividend. Under the terms of our credit facility, the payment of cash dividends is restricted.

ITEM 6.    [Reserved].
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ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

ScanSource is a leading hybrid distributor connecting devices to the cloud and accelerating growth for partners across hardware, SaaS, connectivity and cloud. We provide technology solutions and services from more than 500 leading suppliers of mobility and barcode, POS and payments, physical security and networking, communications and collaboration, connectivity and cloud services to our approximately 30,000 sales partners located in the United States, Canada, Brazil, the UK and Europe.

We operate our business under a management structure that enhances our technology focus and hybrid distribution growth strategy. Our segments operate in the United States, Canada, Brazil and the UK and consist of the following:

•Specialty Technology Solutions
•Modern Communications & Cloud

We sell hardware, SaaS, connectivity and cloud solutions and services through channel partners to end-customers. We operate distribution facilities that support our United States and Canada business in Mississippi, California and Kentucky. Brazil distribution facilities are located in the Brazilian states of Paraná, Espirito Santo and Santa Catarina. We provide some of our digital products, which include SaaS and subscriptions, through our digital tools and platforms.

Our key suppliers include 8x8, AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Granite, GTT, Hanwha, Honeywell, Ingenico, Jabra, Lumen, Microsoft, MetTel, Mitel, NCR, NICE CXone, Poly, RingCentral, Spectrum, Toshiba Global Commerce Solutions, Trend Micro, Ubiquiti, Verifone, Verizon, VMWare, Windstream, Zebra Technologies and Zoom.

Recent Developments

Impact of the Macroeconomic Environment, Including Inflation and Supply Chain Constraints

The macroeconomic environment, including the economic impacts of supply chain constraints, rising interest rates and inflation continues to create significant uncertainty and may adversely affect our consolidated results of operations. We are actively monitoring changes to the global macroeconomic environment and assessing the potential impacts these challenges may have on our financial condition, results of operations and liquidity. We are also mindful of the potential impact these conditions could have on our customers and suppliers.

In spite of these challenges and uncertainties, we believe we have managed the supply chain requirements of our customers and suppliers effectively to date. While we are unable to predict the ultimate impact these factors will have on our business, certain technologies have benefited from the widespread adoption to a work-from-anywhere business model, as well as the accelerated shift to digitize and automate processes.

Our Strategy

Our strategy is to drive sustainable, profitable growth by orchestrating hybrid technology solutions through a growing ecosystem of partners leveraging our people, processes and tools. Our goal is to provide exceptional experiences for our partners, suppliers and employees, and we strive for operational excellence. Our hybrid distribution strategy relies on a channel sales model to offer hardware, SaaS, connectivity and cloud services from leading technology suppliers to sales partners that solve end-customers’ challenges. ScanSource enables sales partners to deliver solutions for their customers to address changing end-customer buying and consumption patterns. Our solutions may include a combination of offerings from multiple suppliers or give our sales partners access to additional services. As a trusted adviser to our sales partners, we provide customized solutions through our strong understanding of end-customer needs.


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. Totals may not sum due to rounding.
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 Fiscal Year Ended June 30,
 202220212020
Statement of income data:
Net sales100.0 %100.0 %100.0 %
Cost of goods sold87.9 88.9 88.3 
Gross profit12.1 11.1 11.7 
Selling, general and administrative expenses7.8 7.9 8.5 
Depreciation expense0.3 0.4 0.4 
Intangible amortization expense0.5 0.6 0.7 
Restructuring and other charges0.0 0.3 0.0 
Impairment charges0.0 0.0 4.0 
Change in fair value of contingent consideration0.0 0.0 0.2 
Operating income3.5 2.0 (2.1)
Interest expense0.2 0.2 0.4 
Interest income(0.1)(0.1)(0.2)
Other (income) expense, net0.0 0.0 0.0 
Income (loss) from continuing operations before income taxes3.4 1.8 (2.4)
Provision for income taxes0.8 0.4 0.2 
Net income (loss) from continuing operations2.5 1.4 (2.6)
Net loss from discontinued operations0.0 (1.1)(3.7)
Net income (loss)2.5 %0.3 %(6.3)%

Comparison of Fiscal Years Ended June 30, 2022, 2021 and 2020

Below is a discussion of fiscal years ended June 30, 2022, 2021 and 2020.

Net Sales

Fiscal year 2022 compared to fiscal year 2021

We have two reportable segments, which are based on technology. The following table summarizes our net sales results by business segment and by geographic location for the comparable fiscal years ended June 30, 2022 and 2021.

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20222021$ Change% Change
% Change Constant Currency, Excluding Divestitures and Acquisitions (a)
 (in thousands) 
Sales by Segment:
Specialty Technology Solutions$2,082,321 $1,815,933 $266,388 14.7 %14.6 %
Modern Communications & Cloud1,447,614 1,334,873 112,741 8.4 %7.9 %
Total net sales$3,529,935 $3,150,806 $379,129 12.0 %11.8 %
Sales by Geography Category:
United States$3,173,694 $2,840,731 $332,963 11.7 %11.7 %
International356,241 310,075 46,166 14.9 %12.0 %
Total net sales$3,529,935 $3,150,806 $379,129 12.0 %11.8 %
(a) A reconciliation of non-GAAP net sales in constant currency, excluding divestitures and acquisitions is presented at the end of Results of Operations, under Non-GAAP Financial Information.

Specialty Technology Solutions

The Specialty Technology Solutions segment consists of sales to customers in North America and Brazil. During fiscal year 2022, net sales for this segment increased $266.4 million, or 14.7%, compared to fiscal year 2021. Excluding the foreign exchange positive impact of $1.7 million, adjusted net sales for fiscal year 2022 increased $264.7 million, or 14.6%, compared to the prior year. The increase in net sales and in adjusted net sales is primarily due to increased broad-based demand across our technologies.

Modern Communications & Cloud

The Modern Communications & Cloud segment consists of sales to customers in North America, Brazil, Europe and the UK. During fiscal year 2022, net sales for this segment increased $112.7 million, or 8.4%, compared to fiscal year 2021. Excluding the foreign exchange positive impact of $7.1 million, adjusted net sales increased $105.6 million, or 7.9%, compared to the prior year. The increase in net sales and adjusted net sales is primarily due to increased demand across our communications solutions.

Intelisys connectivity and cloud net sales for fiscal year 2022 increased 14.4% year-over-year. For our Intelisys business, net sales reflect the net commissions received from suppliers after paying sales partner commissions. For fiscal year 2022, Intelisys net billings, which are amounts billed by suppliers to end users and represents annual recurring revenue, totaled approximately $2.25 billion. The fiscal year 2022 Intelisys net billings resulted in Intelisys net sales of approximately $74.3 million.

Fiscal year 2021 compared to fiscal year 2020

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20212020$ Change% Change
% Change Constant Currency, Excluding Divestitures and Acquisitions (a)
 (in thousands) 
Sales by Segment:
Specialty Technology Solutions$1,815,933 $1,580,441 $235,492 14.9 %16.1 %
Modern Communications & Cloud1,334,873 1,467,293 (132,420)(9.0)%(5.9)%
Total net sales$3,150,806 $3,047,734 $103,072 3.4 %5.5 %
Sales by Geography Category:
United States$2,840,731 $2,755,134 $85,597 3.1 %3.1 %
International310,075 292,600 17,475 6.0 %28.5 %
Total net sales$3,150,806 $3,047,734 $103,072 3.4 %5.5 %
(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.

Specialty Technology Solutions

During fiscal year 2021, net sales for this segment increased $235.5 million, or 14.9%, compared to fiscal year 2020. Excluding the foreign exchange negative impact of $19.3 million, adjusted net sales for fiscal year 2021 increased $254.8 million, or 16.1%, compared to the prior year. The increase in net sales and in adjusted net sales is primarily due to higher sales volume across our technologies in North America.

Modern Communications & Cloud

During fiscal year 2021, net sales for this segment decreased $132.4 million, or 9.0%, compared to fiscal year 2020. Excluding the foreign exchange negative impact of $46.5 million, adjusted net sales decreased $86.0 million, or 5.9%, compared to the prior year. The decrease in net sales and adjusted net sales is primarily due to lower sales volume across our communications technologies. Intelisys connectivity and cloud net sales for fiscal year 2021 increased 13.1% year-over-year.

Gross Profit

Fiscal year 2022 compared to fiscal year 2021

The following table summarizes our gross profit for the fiscal years ended June 30, 2022 and 2021:
     % of Sales
June 30,
 20222021$ Change% Change20222021
 (in thousands)   
Specialty Technology Solutions$205,757 $158,833 $46,924 29.5 %9.9 %8.7 %
Modern Communications & Cloud220,767 191,883 28,884 15.1 %15.3 %14.4 %
Total gross profit$426,524 $350,716 $75,808 21.6 %12.1 %11.1 %

Our gross profit is primarily affected by sales volume and gross margin mix. Gross margin mix is impacted by multiple factors, which include sales mix (proportion of sales of higher margin products or services relative to total sales), vendor program recognition (consisting of volume rebates, inventory price changes and purchase discounts) and freight costs. Increases in vendor program recognition decrease cost of goods sold, thereby increasing gross profit. Net sales derived from our Intelisys business contribute 100% to our gross profit dollars and margin as they have no associated cost of goods sold.

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Specialty Technology Solutions

For the Specialty Technology Solutions segment, gross profit dollars increased $46.9 million. Higher sales volume, after considering the associated cost of goods sold, contributed $23.3 million to the growth of gross profit dollars. Gross margin mix positively impacted gross profit by $23.6 million, largely from higher vendor program recognition. For the year ended June 30, 2022, the gross profit margin increased 113 basis points over the prior-year to 9.9%.

Modern Communications & Cloud

For the Modern Communications & Cloud segment, gross profit dollars increased $28.9 million. Higher sales volume, after considering the associated cost of goods sold, contributed $16.2 million to the growth of gross profit dollars. Gross margin mix positively impacted gross profit by $12.7 million, largely from a more favorable sales mix. For the year ended June 30, 2022, the gross profit margin increased 87 basis points over the prior year to 15.3%.


Fiscal year 2021 compared to fiscal year 2020
     % of Sales
June 30,
 20212020$ Change% Change20212020
 (in thousands)   
Specialty Technology Solutions$158,833 $153,511 $5,322 3.5 %8.7 %9.7 %
Modern Communications & Cloud191,883 202,058 (10,175)(5.0)%14.4 %13.8 %
Total gross profit$350,716 $355,569 $(4,853)(1.4)%11.1 %11.7 %

Specialty Technology Solutions

For the Specialty Technology Solutions segment, gross profit dollars increased $5.3 million. Higher sales volume, after considering the associated cost of goods sold, contributed $22.9 million to the growth of gross profit dollars. Gross margin mix negatively impacted gross profit by $17.6 million, largely from lower vendor program recognition. For the year ended June 30, 2021, the gross profit margin decreased 96 basis points over the prior-year to 8.7%.

Modern Communications & Cloud

For the Modern Communications & Cloud segment, gross profit dollars decreased $10.2 million. Lower sales volume, after considering the associated cost of goods sold, negatively impacted gross profit by $18.2 million. This impact was partially offset by a more favorable sales mix, which positively impacted gross profit by $8.0 million. For the year ended June 30, 2021, the gross profit margin increased 60 basis points over the prior year to 14.4%.

Operating expenses

Fiscal year 2022 compared to fiscal year 2021

The following table summarizes our operating expenses for the periods ended June 30, 2022 and 2021:

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     % of Sales
June 30,
 20222021$ Change% Change20222021
 (in thousands)   
Selling, general and administrative expenses$275,442 $247,438 $28,004 11.3 %7.8 %7.9 %
Depreciation expense11,062 12,533 (1,471)(11.7)%0.3 %0.4 %
Intangible amortization expense17,853 19,488 (1,635)(8.4)%0.5 %0.6 %
Restructuring and other charges— 9,258 (9,258)(100.0)%— %0.3 %
Change in fair value of contingent consideration— 516 (516)(100.0)%— %— %
Operating expenses$304,357 $289,233 $15,124 5.2 %8.6 %9.2 %

Selling, general and administrative expenses ("SG&A") increased $28.0 million for the fiscal year ended June 30, 2022 compared to the prior year. The increase in SG&A expenses is primarily attributable to higher employee costs.

Restructuring and other charges incurred of $9.3 million during the fiscal year ended June 30, 2021 primarily related to employee severance and benefit costs in connection with our expense reduction plan implemented at the end of July 2020.

We recorded expense of $0.5 million for the change in fair value of contingent consideration for the fiscal year ended June 30, 2021, all of which relates to Intelisys. The final Intelisys earnout payment was paid in October 2020.

Fiscal year 2021 compared to fiscal year 2020

The following table summarizes our operating expenses for the periods ended June 30, 2021 and 2020:

     % of Sales
June 30,
 20212020$ Change% Change20212020
 (in thousands)   
Selling, general and administrative expenses$247,438 $259,535 $(12,097)(4.7)%7.9 %8.5 %
Depreciation expense12,533 13,033 (500)(3.8)%0.4 %0.4 %
Intangible amortization expense19,488 19,953 (465)(2.3)%0.6 %0.7 %
Restructuring and other charges9,258 604 8,654 *nm0.3 %— %
Impairment charges— 120,470 (120,470)*nm— %4.0 %
Change in fair value of contingent consideration516 6,941 (6,425)(92.6)%— %0.2 %
Operating expenses$289,233 $420,536 $(131,303)(31.2)%9.2 %13.8 %
*nm - percentages are not meaningful

SG&A decreased $12.1 million for the fiscal year ended June 30, 2021 compared to the prior year. The decrease in SG&A expenses is primarily due to the expense reduction plan announced in July 2020, partially offset by a Brazilian tax recovery in the prior year that did not recur.

Restructuring and other charges incurred of $9.3 million during the fiscal year ended June 30, 2021 primarily related to employee severance and benefit costs in connection with our expense reduction plan implemented at the end of July 2020.

No impairment charges were recorded in the fiscal year ended June 30, 2021. Impairment charges for the fiscal year ended June 30, 2020 include $119.0 million in goodwill impairment charges and $1.4 million in intangible asset impairment charges for our Canpango business.

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In fiscal 2021, we recorded a $0.5 million expense from change in fair value of contingent consideration, all of which is related to Intelisys. The expense is due to the recurring amortization of the unrecognized fair value discount and a reduction in the discount rate for the Intelisys liability.

Operating Income

Fiscal year 2022 compared to fiscal year 2021

The following table summarizes our operating income for the periods ended June 30, 2022 and 2021:
     % of Sales
June 30,
 20222021$ Change% Change20222021
 (in thousands)   
Specialty Technology Solutions$66,686 $29,566 $37,120 125.5 %3.2 %1.6 %
Modern Communications & Cloud55,511 43,551 11,960 27.5 %3.8 %3.3 %
Corporate(30)(11,634)11,604 99.7 %— %— %
Total operating income$122,167 $61,483 $60,684 98.7 %3.5 %2.0 %


Specialty Technology Solutions

For the Specialty Technology Solutions segment, operating income increased $37.1 million, and operating margin increased to 3.2% for the fiscal year ended June 30, 2022 compared to the prior year. The increase in operating income and operating margin is primarily due to higher gross profits.

Modern Communications & Cloud

For the Modern Communications & Cloud segment, operating income increased $12.0 million and the operating margin increased to 3.8% for the fiscal year ended June 30, 2022, compared to the prior year. The increase in operating income and margin is largely due to higher gross profits.

Corporate

Corporate incurred less than $0.1 million in divestiture costs for fiscal year ended June 30, 2022, compared to $11.6 million in divestiture and restructuring costs for the year ended June 30, 2021.

Fiscal year 2021 compared to fiscal year 2020

The following table summarizes our operating income for the periods ended June 30, 2021 and 2020:

     % of Sales
June 30,
 20212020$ Change% Change20212020
 (in thousands)   
Specialty Technology Solutions$29,566 $(67,706)$97,272 143.7 %1.6 %(4.3)%
Modern Communications & Cloud43,551 6,739 36,812 546.3 %3.3 %0.5 %
Corporate(11,634)(4,000)(7,634)(190.9)%— %— %
Total operating income (loss)$61,483 $(64,967)$126,450 194.6 %2.0 %(2.1)%


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Specialty Technology Solutions

For the Specialty Technology Solutions segment, operating income increased $97.3 million, and operating margin increased to 1.6% for the fiscal year ended June 30, 2021 compared to the prior-year. The increase in operating income and operating margin for the fiscal year is due to goodwill impairment charges in the fiscal year 2020. Excluding goodwill impairment charges of $119.0 million in fiscal year 2020, adjusted operating income for the fiscal year ended June 30, 2021 decreased $21.7 million compared to the prior-year. The decrease in adjusted operating income is due to a Brazilian tax recovery in the prior year that did not recur.

Modern Communications & Cloud

For the Modern Communications & Cloud segment, operating income increased $36.8 million and the operating margin increased to 3.3% for the fiscal year ended June 30, 2021, compared to the prior year. The increase in operating income and margin is largely due to lower employee-related expenses, which decreased year-over-year by $16.4 million, or 11.5%. The increase in operating income and margin is also due to impairment charges of $23.1 million in fiscal year 2020, which did not recur in fiscal year 2021.

Corporate

Corporate incurred $11.6 million in divestiture and restructuring costs for fiscal year ended June 30, 2021, compared to $4.0 million in acquisition and divestiture costs for the year ended June 30, 2020.

Total Other (Income) Expense

Fiscal year 2022 compared to fiscal year 2021

The following table summarizes our total other (income) expense for the fiscal years ended June 30, 2022 and 2021:

     % of Sales
June 30,
 20222021$ Change% Change20222021
 (in thousands)   
Interest expense$6,523 $6,929 $(406)(5.9)%0.2 %0.2 %
Interest income(4,333)(3,097)(1,236)39.9 %(0.1)%(0.1)%
Net foreign exchange losses2,078 845 1,233 145.9 %0.1 %— %
Other, net(724)(729)5 (0.7)%— %— %
Total other (income) expense$3,544 $3,948 $(404)(10.2)%0.1 %0.1 %

Interest expense reflects interest incurred on borrowings, non-utilization fees from our revolving credit facility and amortization of debt issuance costs. Interest expense decreased in fiscal 2022 as compared to 2021 primarily from lower interest rates including the spread during the first nine months of fiscal year 2022.

Interest income for the year ended June 30, 2022 and 2021 was generated on interest-bearing customer receivables principally in Brazil.

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. 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 losses.

Fiscal year 2021 compared to fiscal year 2020

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The following table summarizes our total other (income) expense for the fiscal years ended June 30, 2021 and 2020:

     % of Sales
June 30,
 20212020$ Change% Change20212020
 (in thousands)   
Interest expense$6,929 $12,224 $(5,295)(43.3)%0.2 %0.4 %
Interest income(3,097)(5,826)2,729 (46.8)%(0.1)%(0.2)%
Net foreign exchange losses845 525 320 61.0 %— %— %
Other, net(729)(114)(615)539.5 %— %— %
Total other (income) expense$3,948 $6,809 $(2,861)(42.0)%0.1 %0.2 %

Interest expense decreased in fiscal year 2021 as compared to 2020 principally from reduced borrowings on our multi-currency revolving credit facility.

Interest income for the year ended June 30, 2021 and 2020 was generated on interest-bearing customer receivables and interest earned on cash and cash equivalents, principally in Brazil.

Provision for Income Taxes

Income tax expense for continuing operations was $29.9 million and $12.1 million for the fiscal years ended June 30, 2022 and 2021, respectively, reflecting effective tax rates of 25.2% and 21.1%, respectively. The increase in the effective tax rate for fiscal year 2022 compared to fiscal year 2021 is primarily the result of an increase in non-deductible expenses and an inclusion for global intangible low taxed income.

We expect the fiscal year 2023 effective tax rate from continuing operations to be approximately 25.0% to 26.0%. See Note 14 - Income Taxes in the Notes to Consolidated Financial Statements for further discussion including an effective tax rate reconciliation.


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Non-GAAP Financial Information

Evaluating Financial Condition and Operating Performance

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; adjusted earnings before interest expense, income taxes, depreciation, and amortization ("adjusted EBITDA"); adjusted return on invested capital ("adjusted 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.

Adjusted Return on Invested Capital

Adjusted ROIC assists us in comparing our performance over various reporting periods on a
consistent basis because they removeit removes from our operating results the impact of items that do not reflect our core operating performance. We believe the calculation of adjusted ROIC provides useful information to investors and is an additional relevant comparison of our performance during the year.

Adjusted EBITDA starts with net income and are derivedadds back interest expense, income tax expense, depreciation expense, amortization of intangible assets, changes in fair value of contingent consideration, and other non-GAAP adjustments. Since adjusted EBITDA excludes some non-cash costs of investing in our business and people, we believe that adjusted EBITDA shows the profitability from our business operations more clearly. Effective with the first quarter of fiscal year 2022, non-cash share-based compensation expense is also added back in calculating adjusted EBITDA. The presentation for adjusted EBITDA for all periods presented has been recast to reflect this change to enhance comparability between periods.
We calculate adjusted ROIC as 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 adjusted ROIC for the fiscal years ended June 30, 2022 and 2021, respectively.
20222021
Adjusted return on invested capital ratio17.0 %12.6 %
The components of our adjusted ROIC calculation and reconciliation to our financial statements are shown, as described infollows:
“Non-GAAP
Fiscal Year Ended June 30,
 20222021
 (in thousands)
Reconciliation of net income to adjusted EBITDA:
Net income from continuing operations (GAAP)$88,698 $45,389 
Plus: Interest expense6,523 6,929 
Plus: Income taxes29,925 12,146 
Plus: Depreciation and amortization29,884 33,507 
EBITDA (non-GAAP)155,030 97,971 
Plus: Share-based compensation11,663 8,039 
Plus: Change in fair value of contingent consideration— 516 
Plus: Divestiture costs(a)
30 2,376 
Plus: Restructuring costs— 9,047 
Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP)166,723 117,949 

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Table of Contents

Index to Financial Information” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on FormStatements
10-K

Fiscal Year Ended June 30,
 20222021
 (in thousands)
Invested capital calculations:
Equity – beginning of the year$731,191 $678,246 
Equity – end of the year806,528 731,191 
Plus: Share-based compensation, net8,709 6,052 
Plus: Change in fair value of contingent consideration, net— 390 
Plus: Divestiture costs(a)
30 2,337 
Plus: Restructuring, net— 6,840 
Plus: Impact of discontinued operations, net(100)34,594 
Average equity773,179 729,825 
Average funded debt(b)
209,114 202,869 
Invested capital (denominator for adjusted ROIC) (non-GAAP)$982,293 $932,694 
(a)    Includes divestiture costs for the fiscal year ended June 30, 2020. The Compensation Committee has2022 and 2021. Divestiture costs are generally non-deductible for tax purposes.
(b)Average funded debt is calculated as the discretiondaily 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 make adjustments to
"constant currency," a non-GAAP
operating income growth,
non-GAAP
operating income margin and ROWC for extraordinary
one-time
events, or other items beyond management’s control, and to award cash incentives based on other criteria. In fiscal 2020, no such adjustments or additional awards were made.
Annual Performance-Based and Service-Based Equity Awards
The Compensation Committee annually grants equity to our NEOs, since it believes this element of our compensation program provides our NEOs with performance measure that excludes the opportunity to develop a significant ownership stakeforeign exchange rate impact from fluctuations in the Company and directly aligns their interests with the long-term interests of our shareholders. In addition, equity awards serve as a retention vehicle for the NEOs because, if the applicable criteriaaverage foreign exchange rates between reporting periods. Constant currency is met, they typically vest over three years and generally are forfeited if not vested upon termination of employment.
In approving long-term equity incentives, the Compensation Committee focuses on the Company’s overall performance, the value of the proposed award, the amount and value of awards granted in prior years, and the overall compensation package of the NEO with the ultimate goal of aligning the interests of the executives with our shareholders’ interests and motivating and retaining critical leadership through the use of equity. The Compensation Committee also believes that linking the personal financial interests of our NEOs to the Company’s long-term performance discourages excessive risk taking and supports sustainable shareholder value creation.
The Company grants annual equity awards to the NEOs at the November meeting of the Compensation Committee to align the timing close to the annual performance evaluations of those officers. The equity award policy provides that the grant date will be the third trading date following the meeting at which the awards are approved, provided that the Company is in an open trading window, and otherwise on the first trading day of the next open window. Equity awards may also be madecalculated by the Compensation Committeetranslating current period results from time to time to incentivize and reward certain performance and to provide additional retention value. See the “
Long-Term Equity Incentives
” section of this Compensation Discussion and Analysis for more information.
The Compensation Committee’s policy is to set the exercise price of stock option awards by using the closing price of our stock on the date of the grant. The Compensation Committee determines the number of shares of a value-based restricted stock unit award by using the closing price of the common stock on the grant date.
Process for Determining Named Executive Officer Compensation
Role of the Compensation Committee
The Compensation Committee is responsible for reviewing, approving, and monitoring compensation policies and programs that are consistent with the Company’s business strategy and aligned with shareholders’ interests. Specifically, the Compensation Committee is responsible for:
●
reviewing and approving the corporate goals and objectives relevant to the compensation of the CEO and other NEOs;
●
negotiating the employment agreement of the CEO;
●
reviewing and approving any employment letters or contracts and severance plans of all other NEOs;
●
reviewing and approving annual incentive awards to NEOs; and
●
reviewing and approving equity-based compensation plans and grants of equity awards under such plans and the Board-approved policies or guidelines applicable to them.
The Compensation Committee meets several times each year to review and approve executive compensation programs and performance and, if necessary, recommend approval to the Board of Directors. 
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Role of Management
The Compensation Committee regularly meets with the CEO to receive reports and recommendations regarding the compensation of our NEOscurrencies other than the CEO. In particular,U.S. dollar into U.S. dollars using the CEO recommends to the Compensation Committee annual base salaries, annual incentive awards and long-term or performance equity grants for the NEOs other than himself. The Compensation Committee then evaluates each NEO, sets performance criteria for annual cash incentive awards, and makes long-term equity grants, if any. At the beginning of each fiscal year, Management Incentive Plan (“MIP”) targets for certain financial measures are established following consultation with management with consideration for adjustments for
one-time
expenses or longer-term investments that are planned. As part of its evaluation process, the Compensation Committee considers the Company’s performance and consistency, the NEO’s individual performance overcomparable average foreign exchange rates from the prior year changes in responsibilities and future potential as well as data availableperiod. We also exclude the impact of acquisitions prior to the first full year of operations from compensation surveys and compensation consultants. Although the Compensation Committee considers the CEO’s recommendations, the final decisions regarding base salary, annual incentive awards and equity awards of the NEOs are made by the Compensation Committee.
Role of Compensation Consultant
The Compensation Committee has the authority to retain independent compensation consultants to provide counsel and advice. For fiscal 2020, the Compensation Committee retained Willis Towers Watson through May 2020 and in June 2020 retained Pearl Meyer for the remainder of the year.
The Compensation Committee regularly reviews benchmarking and market surveysacquisition date in order to ensure that our compensation is competitive with that of our peers. The Compensation Committee also considers analysis and benchmarking by third parties, such as ISS and Equilar, and the different peer groups each firm uses for comparative purposes in order to gain a better understanding of compensation practices and trends in the market.
Our compensation consultants provide the Compensation Committee with general market surveys and other information related to the general market for executive compensation, including best practices and emerging trends. In addition, in fiscal 2020 Willis Towers Watson provided information derived from proxy statements from peer companies that includes publicly traded technology distributors and other technology industry companies with similar revenues. The peer companies referred to for evaluation of fiscal 2020 compensation included the following:
Anixter International Inc.
Applied Industrial Technologies, Inc.
Benchmark Electronics, Inc.
Diebold Nixdorf, Inc.
ePlus, Inc.
Insight Enterprises, Inc.
Itron, Inc.
PC Connection, Inc.
PCM, Inc.
Plexus Corp.
TTM Technologies, Inc.
WESCO International, Inc.
The Compensation Committee reviewed compensation information from this peer group by comparable executive position and level to better understand the market for other participants in the market for all aspects of compensation. In a review of the applicable data, the Compensation Committee sought to ensure that the overall compensation to our NEOs was competitive and within norms for the industry and other companies of similar characteristics based on the executive’s position, level and job performance.
The Compensation Committee took this evaluation into account in determining all elements of NEO compensation for fiscal 2020, including the fiscal 2020 MIP design.
In addition to the executive compensation services, Willis Towers Watson provided health and welfare benefits brokerage services and benefits administration services and other consulting services relating to
non-executive
compensation in fiscal 2020. The brokerage services were provided under long-standing arrangements of which the Compensation Committee was aware prior to commissioning the fiscal 2020 executive compensation services.
The Compensation Committee reviewed all factors relevant to the independence of Willis Towers Watson and Pearl Meyer, including:
●
The provision of services to the Company by the consultant other than those requested by the Compensation Committee;
●
The amount of fees received by the consultant as a percentage of its total revenue;
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●
The policies and procedures adopted by the consultant that are designed to prevent conflicts of interest;
●
Any business or personal relationship between a consultant and a member of the Compensation Committee;
●
Any stock of the Company owned by a consultant; and
●
Any business or personal relationship between a consultant and an executive officer of the Company.
As a result of such evaluation, and a certification from each of Willis Towers Watson and Pearl Meyer regarding its consultant’s independence, the Compensation Committee determined that each of Willis Towers Watson and Pearl Meyer is independent.
Named Executive Officer Compensation in Fiscal 2020
Base Salary
The initial base salary for each NEO was established in the NEO’s employment agreement or employment letter. All NEO employment arrangements require an annual review of base salary by the Compensation Committee, and annual upward adjustments may be made by the Compensation Committee on a discretionary basis. In deciding whether to increase a NEO’s compensation, the Compensation Committee considers company performance, the consistency of the NEO’s individual performance over the prior year, changes in the NEO’s responsibilities and the NEO’s future potential. The Compensation Committee also considers data available from benchmarking studies obtained from a range of industry and general market sources, as well as information that may be provided by its compensation consultants, including comparisons of peer companies comprised of other participants in the industry and other similar companies based on size and other objective factors.
The Compensation Committee met in August of 2019 to determine Mr. Baur’s, Mr. Lyons’ and Mr. Dean’s base salaries for fiscal 2020. The Compensation Committee did not award any base salary increases to Mr. Baur or Mr. Lyons for fiscal 2020. The Compensation Committee increased Mr. Dean’s base salary by $25,000 in light of his increased responsibilities, contributions to the Company and to provide a more competitive compensation package in light of the market review.
Base salaries for Mr. Baur, Mr. Lyons and Mr. Dean for fiscal 2020 were as follows:
    Named Executive Officer
Base Salary
(standard)
  Mr. Baur
$875,000
  Mr. Lyons
$367,500
  Mr. Dean
$450,000
In light of the impacts of
COVID-19,
the Company implemented an expense reduction plan effective July 1, 2020 which included 10% to 25% salary reductions for the executive team through December 31, 2020, with a reduction of 25% for the Chairman and Chief Executive Officer, 15% for the Chief Financial Officer, and 10% for the Chief Legal and Strategy Officer.
Annual Performance-Based Cash Incentives
The principal objective of our performance-based cash incentives is to motivate and reward our NEOs for performance in achieving our business objectives based upon annual attainment of
non-GAAP
operating income growth,
non-GAAP
operating income margin and ROWC targets. The Compensation Committee created a cash incentive design for the NEOs in fiscal 2013, which we refer to as the Management Incentive Plan (“MIP”). Annual performance-based cash incentives were set basedshow net sales results on an analysis of market data and assessing the experience of the respective individual and his or her respective role. The design provides that each NEO’s cash incentive opportunity will be expressed as a percentage of his or her base salary and earned based on
non-GAAP
operating results as compared to
pre-established
threshold and stretch goals. Mr. Baur’s cash incentive opportunityorganic basis. This information is 150% of his base salary, Mr. Lyons’ cash incentive opportunity is 70% of his base salary and Mr. Dean’s cash incentive opportunity is 60% of his base salary. Mr. Dean’s cash incentive opportunity was increased from 40% in fiscal 2019 in recognition of his increased responsibilities and
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contributions to the Company and in order to provide a more competitive 
compensation
package in light of the market review. Each NEO has a variable factor by role or position applied as a percentage against his or her respective base salary.
For fiscal year 2020, the Compensation Committee set MIP targets for
non-GAAP
operating income growth (“MIP OI Growth”),
non-GAAP
operating income margin (“MIP OI Margin”) and ROWC (“MIP ROWC”), to provide for appropriate annual incentives to management. The Compensation Committee establishes MIP targets at the beginning of the fiscal year with certain adjustments to align management’s performance on focused strategic objectives. Individual performance results are also factored into the cash incentive opportunity. For example, if an executive performs below expectations, his or her award may be reduced by up to 20%. If the Company meets the operating targets and the executive exceeds expectations, he or she may be entitled to an additional cash bonus up to 20% of the bonus earned. The maximum incentive award for any NEO is 200% of his or her target bonus.
For fiscal 2020, the Compensation Committee established a MIP OI Growth target of 6%, a MIP OI Margin target of 3.5% and a MIP ROWC target of 21%. The payouts of the awards depend on the Company’s results in comparison to these targets, weighted as follows: MIP OI Growth, 60%; MIP OI Margin, 20%; and MIP ROWC, 20%. If performance of any measure does not meet the applicable threshold for that measure, no award will be earned for that measure. If the performance of a measure reaches the applicable threshold, the award earned for that measure will be 25% of the target. The award earned for results between the threshold and the maximum of 200% of the target is calculated using straight-line interpolation as follows:
 
MIP Performance Targets
 
  
  Standard
  
MIP OI Growth
 
MIP OI Margin
 
MIP ROWC
 
  Funding % of Target    
  Threshold
   0.00%   2.50%   17.00%   25.00% 
  
    1.50%   2.75%   18.00%   35.00% 
  
    3.00%   3.00%   19.00%   50.00% 
  
    4.50%   3.25%   20.00%   70.00% 
  
  Target
   6.00%   3.50%   21.00%   100.00% 
  
    7.50%   3.75%   22.00%   130.00% 
  
    9.50%   4.00%   23.00%   160.00% 
  
    12.00%   4.25%   24.00%   190.00% 
  
  Stretch
   15.00%   4.50%   25.00%   200.00%     
  
       
  
  Weights
   60.00%       20.00%       20.00%         
The Compensation Committee also had the discretion to modify or eliminate an individual executive’s cash incentive award based on the executive’s job performance as follows:
  Individual Performance
Award Modification
Exceeds expectations
Award increased by up to 20%
Meets expectations
Award unchanged
Below expectations
Award reduced by up to 20%
For fiscal 2020, the Compensation Committee elected not to make any discretionary modifications to the awards payable under the MIP. The MIP OI Growth results were below the applicable threshold, and no bonus was earned for that measure. The MIP OI Margin and MIP ROWC results excluded discontinued operations, consistent with the Company’s financial statement presentation for fiscal 2020. As a result of the Company’s MIP OI Margin and MIP ROWC for fiscal 2020 in relation to the targets described above, the cash incentive award earned by the NEOs under the MIP in fiscal 2020 was 12.91% of all target bonuses, as compared to 28% in fiscal 2019 and 114.1% in fiscal 2018.
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The specific calculations, target and cash awards for each NEO under the MIP for fiscal 2020 are detailed below.
Named    
Executive    
Officer    
  
Base Pay
  
Variable
Factor
  
Bonus Target
  
Bonus
Maximum
  
% of Bonus
Target
  
Amount of
Cash
Incentive
Michael L. Baur
  $875,000  150%  $1,312,500  $2,625,000  12.91%  $169,444
Gerald Lyons
  $367,500  70%  $257,250  $514,500  12.91%  $33,211
Matthew S. Dean
  $450,000  60%  $270,000  $540,000  12.91%  $34,857
In August, 2020, Mr. Dean was awarded a bonus of $170,000 in recognition of Mr. Dean’s taking on additional duties, including oversight of the corporate development and strategy group, the software development group, and the divestment of our products distribution operations in Latin America, outside of Brazil, and in Europe and the UK. The award to Mr. Dean was made in the sole discretion of the Compensation Committee and was not a discretionary modification to the awards payable under the MIP. In future years, the Compensation Committee will determine whether these changes in responsibility should be reflected in base salary.
Long-Term Equity Incentives
General Overview
Equity awards are a significant component of our NEO compensation. We grant equity awards, typically in the form of restricted stock awards and/or restricted stock units and performance-based restricted stock units or awards. We maintain a formal Equity Award Grant Policy, whereby equity awards to employees are made by, or with the oversight of, the Compensation Committee or the Board. Under the policy, the Compensation Committee must approve any equity awards to the NEOs. Under the policy, our Principal Accounting Officer and the Senior Executive Vice President of Worldwide Human Resources oversee the documentation of, and accounting for, equity award grants.
The Compensation Committee grants annual service-based equity awards to employees based on merit, which vest over a three-year period in the majority of instances, provided that the grantee remains employed with the Company through each vesting date. The grant date for annual equity awards provides that the grant date will be the third trading date following the meeting at which the awards are approved, provided that the Company is in an open trading window, and otherwise on the first trading day of the next open window. In addition, vesting of such awards accelerates on a change in control followed by termination in certain instances or upon death, disability or termination due to retirement. In certain circumstances, the vesting term may be reduced due to termination of employment, death or disability of a participant.
In addition to the annual service-based equity awards discussed above, the Compensation Committee also grants to certain employees, including our NEOs, additional performance-based restricted stock awards and/or restricted stock units that contain both performance and service vesting conditions over a multi-year period. These combined performance- and service-based awards are discussed in greater detail below.
The Compensation Committee also may make special grants of equity awards during the year in the case of the hiring or promotion of certain eligible persons, or in other situations not involving annual grants. The grant date for
non-annual
grants approved by the Compensation Committee on or before the 15th day of the second month of the quarter will be the first day of the third month of such quarter. For
non-annual
grants approved after the 15th day of the second month of the quarter, the grant date shall be the first day of the third month of the following quarter. In any event, all equity awards must be made during an open trading window.
The number of shares subject to service-based restricted stock awards or restricted stock units granted by the Compensation Committee to NEOs in a given year is based on, among other things, overall Company performance, the number of shares available for awards under the 2013 Plan or successor plan, the value of the proposed award, the amount of shares of restricted stock or restricted stock units awarded in prior years, total
13
compensation and consideration of the competitive market practice for the respective position level and experience, with the ultimate objective of motivating, rewarding and retaining NEOs while maintaining efficient use of equity and preserving shareholder value.
Equity Awards
The annual grant of long-term equity incentives were awarded to our NEOs in November 2019, as provided below. Each of the following equity awards generally vests and, if applicable, becomes exercisable in
one-third
increments on the anniversary of the grant date over three years, subject to the continued employment of the NEO on the applicable vesting date. The performance-based restricted stock units have a performance cycle of one year ending on December 31, 2020. Vesting of the performance-based awards is subject to attainment of certain performance goals over calendar year 2020 in order for the awards to be earned in full, and other terms and conditions established by the Compensation Committee (including discretion of the Compensation Committee as to the extent, if any, to which the award is earned). The performance goal set for these awards is a 6% annual growth rate for
non-GAAP
operating income. In addition to the requirement that this performance goal is met, the grantee must have been employed by the Company from the grant date until December 31, 2022
in order to receive the shares underlying the awards.
The
non-GAAP
Operating Income for calendar 2019 was $117.549 million. Accordingly, factoring in 6% growth in
non-GAAP
OI, the performance target is as follows:
Calendar Year
Target (prior year x 1.06)
2020$117.549 x 1.06 - $124.60 million
This yields the following in terms of potential shares earned:
Achieved OI
Shares Earned
Threshold (90%)
$112.14 million50%
Target
$124.60 million100%
Maximum (110%)
$137.06 million150%
The annual grant of long-term equity incentives awarded to our NEOs in November 2019 are set forth below.
  Named Executive Officer
Form of Equity
Incentive Award
Amount of Shares
Subject to Award
Mr. Baur
Performance-Based
Restricted Stock Units
Time-Based Restricted
Stock Units
31,915
31,915
Mr. Lyons
Performance-Based
Restricted Stock Units
Time-Based Restricted
Stock Units
4,256
4,256
Mr. Dean
Performance-Based
Restricted Stock Units
Time-Based Restricted
Stock Units
6,029
6,029
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Other Important Compensation Policies Affecting the Named Executive Officers
Claw-Back Policy
If a NEO receives an award under the Company equity or cash incentive plans based on financial statements that subsequently are restated in a way that would decrease the amount of the award to which such NEO was entitled and the restatement is based in whole or in part on the misconduct of the NEO, then the NEO will be required to refund to the Company the difference between what he received and what they should have received. In addition, this policy requires the recoupment of any compensation to the extent mandated by all applicable laws, rules, and regulations. The Compensation Committee monitors laws, rules and regulations on claw-back policies and will amend this policy as required to comply with any new claw-back rules or regulations.
Stock Ownership Requirements
The Compensation Committee has adopted minimum ownership requirements for Company stock for the CEO, as well as for the other members of the Board of Directors. The ownership target for the CEO has been established as three times his annual base compensation. The other members of our Board of Directors have an ownership target of five times their $85,000 annual board cash retainer in Company securities.
As of June 30, 2020, our CEO and all other members of our Board of Directors were in compliance with our stock ownership guidelines. Our CEO is expected to utilize grants under equity compensation plans to maintain the levels of ownership required by the policy. The policy also incorporates an equity retention requirement by requiring him to retain 50% of the net shares resulting from the vesting or exercise of certain awards to obtain the required ownership under the policy.
Anti-Hedging and Anti-Pledging Policy
Our NEOs and Directors are prohibited from holding Company securities in margin accounts or pledging Company securities as collateral for a loan. All NEOs and Directors are in compliance with this policy. Our NEOs and Directors also generally are prohibited from certain hedging transactions, and any hedging transaction requires
pre-approval
from our General Counsel. Since the inception of the policy, no requests for
pre-clearance
to allow any such hedging transactions have been made or granted.
Perquisites
The Company provides only limited perquisites to our NEOs, including the availability of a voluntary comprehensive physical examination once every fiscal year. The physical examinations help ensure our NEOs’ continued health and ability to render services to the Company. The physicals are provided to encourage senior leadersanalyze underlying trends without the translation impact of the Company to set the example for living positivelyfluctuations in foreign currency rates and active healthy living. The Company does not provide any other material perquisites to its NEOs.
Health and Insurance Plans
Our NEOs are entitled to participate in our health, vision, dental, paid time off, life, disability and employee stock purchase plans to the same degree that our other employees are entitled to participate. In addition, our NEOs participate in a supplemental long-term disability plan and each receives term life insurance in the amount of $1,000,000 (subject to underwriting) and $500,000 (subject to limited underwriting).
Deferred Compensation Plan
We maintain a deferred compensation plan pursuant to which NEOs may defer a portion of their annual compensation. These deferrals are matched to the extent specified in each NEO’s employment agreement or letter, and such contributions vest over a five-year period. Participants invest their deferrals and Company matching contributions among various funds designated by the plan administrator (and currently may not be invested in our common stock). Participants become fully-vested in any employer contributions as long as they are continuously employed until their death, total disability, reaching the date in which the sum of age and years of service equals or exceeds 65, or the occurrence of a change in control. We maintain the deferred compensation plan to provide a competitive benefit and to facilitate adequate savings for retirement on a tax efficient basis for our NEOs.
15
Retirement Benefits
The NEOs are eligible to participate in our 401(k) Plan, which is a Company-wide,
tax-qualified
retirement plan. The intent of this plan is to provide all employees with a
tax-advantaged
savings opportunity for retirement. We sponsor this plan to help employees at all levels save and accumulate assets for use during their retirement. Eligible pay under this plan is capped at Internal Revenue Code annual limits. The Company provides a match up to a total of $800 per year per employee plus an annual discretionary profit-sharing contribution. These Company contributions vest over a five-year period. For fiscal 2020, our NEOs did not receive a discretionary profit-sharing contribution.
Employee Stock Purchase Plan
Eligible employees may participate in our Employee Stock Purchase Plan (“ESPP”), which is a Company-wide employee stock purchase plan. The intent of the ESPP is to assist our employees in acquiring a stock ownership interest in the Company.
Employment Agreements and Employment Letters
We have determined that our Company’s and our shareholders’ interests are best served by entering into (i) an employment agreement with our CEO and (ii) employment letters with an accompanying severance plan with our other NEOs. Such agreements, letters and plans are the result of arms’ length negotiations between the Compensation Committee, the Company, the CEO and other NEOs, and all are approved by the Compensation Committee. We believe that these employment arrangements benefit us and our shareholders by permitting us to attract and retain NEOs with demonstrated leadership abilities and to secure their services over an extended period of time. In addition, the employment arrangements align executive interests with the long-term interests of the Company and serve our recruitment and retention goals by providing executive officers with security based on the knowledge of how they will be compensated over the course of their employment, while at the same time providing the Company with significant protections regarding
non-competition,
non-solicitation
of business and employees, and confidential business information.
On June 15, 2017, we entered into a three-year employment agreement, effective July 1, 2017, with Mr. Baur. Mr. Baur’s employment agreement provides for:
●
a base salary of $875,000 per year;
●
an annual target variable compensation opportunity of 150% of his base salary (with a maximum opportunity of 200% of target) based upon performance and the attainment of performance goals set by the Committee;
●
consideration for inclusion in our annual equity grant program at a grant level opportunity of $2,250,000;
●
the opportunity to participate in our Nonqualified Deferred Compensation Plan by deferring up to 50% of base salary and/or up to 100% of annual variable compensation, with a match of 50% of deferred amounts to be made by the Company, up to a maximum of $200,000 per year; and
●
automatic
one-year
renewals unless 180 days’ prior notice of
non-renewal
is given to the other party following the initial term.
In addition, we will make additional payments to Mr. Baur’s deferred compensation account to cover the cost of future premiums for “access only” continuation coverage under our medical and dental plan following termination of employment until Mr. Baur attains age 65 and to cover the cost of coverage for years after age 65 assuming Mr. Baur is enrolled in Medicare Parts A, B and D, obtains a Medicare supplemental policy until age 80 and pays the full cost for such coverage.
Under Mr. Baur’s employment agreement, variable cash incentive opportunities will continue to be based upon the performance and attainment of performance goals to be established annually by the Compensation Committee, subject to maximum amounts that may be earned. Mr. Baur’s annual equity award opportunity is subject to the Compensation Committee’s discretion and the terms of the Company’s equity plan and related equity award agreements.
16
Mr. Baur’s employment agreement also provides for severance payments to Mr. Baur upon certain events, as further described in the “
Severance Plan
” section below.
On August 23, 2017, we entered into an employment letter with Mr. Lyons in connection with his appointment as our Chief Financial Officer, effective that date. This employment letter replaced Mr. Lyons’ previous employment agreement with the Company. Under the employment letter, Mr. Lyons is eligible to participate in the variable cash compensation incentive program. He also will receive other benefits, including
change-in-control
payments as a participant in the Severance Plan described below and is eligible for participation in the Company’s other long-term incentive award programs and our Nonqualified Deferred Compensation Plan.
On January 11, 2018, we entered into an employment letter with Mr. Dean in connection with his appointment as our Vice President and General Counsel, effective January 12, 2018. Under the employment letter, Mr. Dean will be paid an annual base salary and be eligible to participate in the variable cash compensation incentive program. He also will receive other benefits, including
change-in-control
payments as a participant in the Severance Plan described below, and is eligible for participation in the Company’s other long-term incentive programs and our Nonqualified Deferred Compensation Plan.
See the “
Employment Arrangements and Potential Payments upon Certain Events
” section for more information on Mr. Baur’s, Mr. Lyons’, and Mr. Dean’s employment arrangements that were in effect during fiscal 2020.
Severance Plan
We have established a Severance Plan to provide severance and other benefits to certain executives selected by the Compensation Committee to participate in the Severance Plan.
Mr. Baur’s employment agreement and the Severance Plan also provide that, if the employment of Mr. Baur or any executive selected by the Committee to participate in the Severance Plan, respectively, is terminated by the Company without cause, or if the Executive resigns for good reason, we will be required to pay or provide the executive’s base salary earned through the date of termination. In addition, we also will be required to pay to the executive in such instances any other amounts or benefits the executive is eligible to receive under any Company plan, program, policy, practice, contract or agreement in accordance with their terms. In such instances, we also will be required to provide severance benefits to the executive, subject to the executive’s execution of a release, consisting of compensation equal to the average annual base salary and variable compensation earned by the executive, including any amounts earned but deferred, in the last three fiscal years completed prior to the termination (the “Average Compensation Amount”), multiplied by a severance multiple, less withholdings. In the case of Mr. Baur, the severance multiple is equal to 2.5, in the case of Mr. Lyons and Mr. Dean, the severance multiple is 1.5, and in the case of any other executive participating in the Severance Plan, the severance multiple will be set forth in a participation agreement between the Company and such executive (a “Participation Agreement”), but such multiple may not exceed 2.5. In the event the termination occurs within 12 months after or prior to and in contemplation of certain change in control events, Mr. Baur will receive three times his Average Compensation Amount, Mr. Lyons and Mr. Dean will receive two times their respective Average Compensation Amount
and, in the case of any other executive participating in the Severance Plan, such executive will receive his Average Compensation Amount multiplied by his change in control multiple, as set forth in a Participation Agreement. In addition, in the event that the executive’s employment is terminated by us without cause, or if the executive resigns for good reason, the executive will be entitled to receive a bonus equal to the
pro-rata
portion of the then current fiscal year annual variable compensation that otherwise would be payable to the executive based on actual performance. For a period of up to twenty-four months following the date of such a termination (or in the case of Mr. Baur, until he attains 65 years of age), the executives shall be entitled to participate in our medical and dental plans, with the executive paying the full premium charged for such coverage subject to the terms of the employment agreement, the employment letter, and/or the Severance Plan, as applicable.
If the executive’s employment is terminated for cause or if the executive voluntarily terminates his employment during the term of the agreement, other than for good reason, we will only be obligated to provide any accrued amounts payable on the executive’s annual base salary or any
17
other amounts not previously paid, but earned, by the executive through the date of termination, and benefits under other plans in accordance with their terms. If the executive dies, becomes disabled, or retires during the term of the employment agreement, the employment letter, and/or the Severance Plan, as applicable, we will only be obligated to provide any accrued amounts payable on the executive’s annual base salary or any other amounts not previously paid, but earned, by the executive as of the date of termination, a bonus equal to the
pro-rata
portion of the then current fiscal year annual variable compensation that would otherwise be payable to the executive based on actual performance, and benefits under other plans in accordance with their terms.
If we do not renew the employment agreement, or enter into a new employment agreement with the same or similar terms after the end of the employment period, and Mr. Baur remains an employee of the Company in any capacity, Mr. Baur’s employment will be on an
at-will
basis, and Mr. Baur generally will be eligible to receive the same severance benefits set forth in the employment agreement.
In addition, each employment agreement, employment letter, and/or Severance Plan, as applicable, requires the executive not to, during the term of his employment and for a period of two years following the termination of such executive’s employment: (a) compete with the Company; (b) solicit certain customers or suppliers and certain prospective customers or suppliers of the Company; or (c) solicit employees to leave the Company. Each of the employment agreement, the employment letter, and/or the Severance Plan, as applicable, also requires the executive not to use or disclose our confidential information or trade secrets during the term of his employment and for a period of five years thereafter or for so long as the trade secrets remain protected. In addition, the Company and each executive agree not to disparage each other during the term of employment or for a period of five years thereafter. If an executive breaches or threatens to breach such restrictions on conduct, we may immediately cease any severance benefits or refuse such payment and shall be entitled to recover from any such executive any amounts previously paid as a severance benefit.
Post-Termination Restrictions and Compensation
The Compensation Committee believes that our NEOs should be provided with reasonable severance benefits in the event a NEO is terminated under certain circumstances. Severance benefits for NEOs reflect the fact that the NEO may not be able to find reasonably comparable employment within a reasonable period of time following a termination. In addition, the Compensation Committee believes that certain post-termination benefits such as change in control payments will allow the NEOs to focus their time on potential transactions that may be beneficial to the Company, rather than have concern for their own employment prospects following a change in control. Severance benefits are provided under our employment agreements, employment letters and/or the Severance Plan, as applicable.
Non-Compete
and
Non-Solicitation
Agreements
Our NEOs are obligated pursuant to their employment agreements, employment letters, and/or the Severance Plan, as applicable, not to compete with the Company for a period of two years following their termination of employment with the Company. These agreements also restrict the NEOs’ disclosure and use of confidential information to which they were exposed during their employment. In addition, the agreements provide for restrictions on the solicitation of suppliers, customers and employees of the Company for a period of twenty-four months following termination of employment.
Severance and Change in Control Benefits
In the event of a termination of employment by the Company other than for cause, death, disability, retirement, the expiration of the employment agreement, or by a NEO for good reason, the NEO will be entitled to a severance payment, provided that the NEO is in, and remains in, compliance with the
non-competition,
confidentiality,
non-solicitation
and related covenants provided in his employment agreement or the Severance Plan. The amount of a severance payment varies based upon the NEO’s historic compensation amounts, up to two and a half times the Chief Executive Officer’s and one and
one-half
times the other NEO’s average annual base salary and variable compensation over the last three fiscal years prior to a termination. These potential payments are discussed in more detail under the caption “
Employment Arrangements and Potential Payments Upon Certain Events
” below.
18
Our NEOs’ employment agreements, employment letters, and/or the Severance Plan, as applicable, provide for severance in the event of certain termination in connection with a change of control. Such severance payments will be made only if a “double trigger” is met. That is, both a change in control and a termination of employment are required. This is discussed in more detail under the caption “
Employment Arrangements and Potential Payments Upon Certain Events
” below. The Compensation Committee believes this benefit is required to offer competitive benefits to attract and retain highly qualified executives.
Additional Compensation Matters
Risk Assessment of Compensation Policies and Practices
We have assessed our compensation programs for all employees and have concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. We believe that our compensation program reflects an appropriate mix of compensation elements and balances current and long-term performance objectives, cash and equity compensation, and risks and rewards. During fiscal 2020, the Compensation Committee reviewed our compensation policies and practices for all employees, including our NEOs, particularly as they relate to risk management practices and risk-taking incentives. As part of its review, the Compensation Committee discussed with management the ways in which risk is effectively managed or mitigated as it relates to our compensation programs and policies.
Based on this review, the Compensation Committee believes that our compensation programs do not encourage excessive risk but instead encourage behaviors that support sustainable value creation. The following features of our executive incentive compensation program illustrate this point:
●
Our compensation program design provides a balanced mix of cash and equity and annual and long-term incentives that are designed to encourage strategies and actions that are in the Company’s and our shareholders’ long-term best interests. Equity awards such as service and performance-based restricted stock awards and restricted stock units reinforce our long-term performance perspective.
●
Our performance goals and objectives generally reflect a mix of corporate and other performance measures designed to promote progress towards both our annual and longer-term goals.
●
A significant component of each of our NEOs’ total direct compensation consists of long-term, equity-based incentive awards that are designed to encourage these NEOs to focus on sustained stock price appreciation.
●
Equity awards typically have vesting schedules of three years and, in some cases, have performance-based vesting components as well; thus, NEOs typically will always have unvested awards that could decrease significantly in value if our business is not well-managed for the long term.
●
Equity incentive awards are granted periodically, typically annually, during open window periods and under an established equity grant program.
●
The Compensation Committee believes that our overall compensation of our NEOs is at reasonable and sustainable levels, as determined by a review of historical analysis and a review of our economic positions and prospects, as well as the compensation offered by comparable companies.
●
The Compensation Committee retains discretion to reduce compensation based on corporate and individual performance and other factors.
●
Equity awards are subject to annual limitations on the number of shares that may be awarded during any year. The typical Company compensation structure has a threshold and maximum for cash bonuses.
●
The target levels under our annual cash bonus program are designed to be set at a level where achieving the target incentive compensation levels is not guaranteed and the achievement of such levels is rewarding to both the NEO and the shareholders.
●
NEO base salaries are consistent with the NEOs’ responsibilities so that they are not motivated to take excessive risks to achieve a reasonable level of financial security.
●
Our internal reporting system ensures a consistent and ongoing assessment of financial results used to determine payouts.
●
Our stock ownership policy sets out a minimum level of Company share ownership for our CEO so that he has personal wealth tied to the long-term success of Company and is therefore aligned with shareholders and imposes an equity retention requirement to facilitate attaining such levels of ownership.
19
●
We maintain a “claw-back policy,” which requires the reimbursement to the Company of any incentive compensation to executive and certain other officers, the payment of which was predicated upon the achievement of financial results that were subsequently the subject of a restatement caused by the recipient’s fraud or misconduct, or otherwise is required under applicable laws, rules, and regulations.
●
Officers must obtain permission from the Office of the General Counsel before the purchase or sale of any shares, even during an open trading period.
Based on a combination of the above, we believe that (i) our NEOs and other employees are encouraged to manage the Company in a prudent manner because our compensation programs are aligned with our business strategy and risk profile, and (ii) our incentive programs are not designed to encourage our NEOs or other employees to take excessive risks or risks that are inconsistent with the Company’s and shareholders’ best interests. In addition, the Company has in place various controls and management processes that help mitigate the potential for incentive compensation plans to have a material adverse effect on the Company.
Impact of Accounting and Tax Treatment of Compensation
Section 162(m) of the Code generally sets a limit of $1 million on the amount of compensation that we may deduct for federal income tax purposes in any given year with respect to the compensation of each of our NEOs. For years beginning prior to January 1, 2018, the $1 million limitation did not apply to qualified performance-based compensation that satisfied certain requirements, including, among others, approval of the material terms of the plan by the Company’s shareholders. Effective for the years beginning on or after January 1, 2018, there is no exception for qualified performance-based compensation from the Section 162(m) limitation, although a transition rule applies in some circumstances for outstanding awards. We consider the impact of the deduction limit under Section 162(m) when developing and implementing our executive compensation programs. We intend to design our executive compensation arrangements to be consistent with the interestsacquisitions. Below we show organic growth by providing a non-GAAP reconciliation of our shareholders. We believe that it is important to preserve flexibilitynet sales in administering compensation programs to promote various corporate goals. Accordingly, we have not adopted a policy that all compensation must qualify as deductible under Section 162(m) of the Internal Revenue Code. Some amounts paid under our compensation programs may not be deductible as the result of Section 162(m).
constant currency, excluding acquisitions:

20
Net Sales by Segment:
Fiscal Year Ended June 30,
20222021$ Change% Change
Specialty Technology Solutions:(in thousands)
Net sales, reported$2,082,321 $1,815,933 $266,388 14.7 %
Foreign exchange impact(a)
(1,710)— 
Non-GAAP net sales, constant currency$2,080,611 $1,815,933 $264,678 14.6 %
Modern Communications & Cloud:
Net sales, reported$1,447,614 $1,334,873 $112,741 8.4 %
Foreign exchange impact(a)
(7,115)— 
Non-GAAP net sales, constant currency$1,440,499 $1,334,873 $105,626 7.9 %
Consolidated:
Net sales, reported$3,529,935 $3,150,806 $379,129 12.0 %
Foreign exchange impact(a)
(8,825)— 
Non-GAAP net sales, constant currency$3,521,110 $3,150,806 $370,304 11.8 %
(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, 2022 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2021.
31
EXECUTIVE COMPENSATION
Compensation Tables
2020 Summary Compensation Table
The following table summarizes compensation paid to or accrued on behalf of the NEOs for the year ended June 30, 2020:
  Name and

  Principal

  Position
  
Year 
   
Salary
($)
   
Bonus
($)
  
Stock
Awards
($)
(1)
   
Option
Awards
($)
(1)
   
Non-Equity
Incentive Plan
Compensation
($)
(2)
   
All Other
Compensation
($)
(3)
   
Total
($)
 
Michael L. Baur
   2020    875,000    —   2,248,093    —    169,444    149,914    3,442,451 
Chairman, Chief Executive Officer
   2019    875,000    —   2,190,566    —    367,500    107,930    3,540,996 
and President
   2018    875,000    —   1,226,125    563,624    1,497,563    293,856    4,456,168 
               
Gerald Lyons
   2020    367,500    —   299,793    —    33,211    41,362    741,866 
Senior Executive Vice President,
   2019    367,500    —   292,075    —    72,030    25,148    756,753 
Chief Financial Officer
   2018    338,462    —   163,479    75,147    279,545    36,609    893,242 
               
Matthew S. Dean
   2020    450,000    170,000(5)   424,648    —    34,857    38,891    1,118,369 
Senior Executive Vice President, Chief Legal and Strategy Officer
(4)
   2019    395,577    —   219,057    —    47,600    12,389    674,623 
(1)
Amounts shown are the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. For a discussion of the assumptions made in such valuation, see Note 11 to our audited financial statements for the fiscal year ended June 30, 2020, included in our Annual Report on Form
10-K
for the fiscal year ended June 30, 2020.
(2)
Reflects the value of cash incentives earned pursuant to our annual incentive plan. For fiscal 2020, the cash incentives were awarded in August 2020. For fiscal 2019, the cash incentives under that program were awarded in August 2019. For fiscal 2018, the cash incentives under that program were awarded in August 2018. See the discussion in “
Compensation Discussion and Analysis
” herein.
(3)
See the All Other Compensation table below for additional information.
(4)
Mr. Dean joined the Company as Vice President and General Counsel in January 2018 and was designated an executive officer in November 2018.
(5)
Mr. Dean was awarded a bonus of $170,000 in August 2020 in recognition of Mr. Dean’s taking on additional duties.
21
Table of Contents

Index to Financial Statements

2020 All Other Compensation Table

The following supplemental table summarizes all other compensation paid to our NEOs for the year ended June 30, 2020, which is included in the All Other Compensation column in the 2020 Summary Compensation Table above:
Net sales by segment
Fiscal Year Ended June 30,
20212020$ Change% Change
Specialty Technology Solutions:(in thousands)
Net sales, reported$1,815,933 $1,580,441 $235,492 14.9 %
Foreign exchange impact(a)
19,311 — 
Non-GAAP net sales, constant currency$1,835,244 $1,580,441 $254,803 16.1 %
Modern Communications & Cloud:
Net sales, reported$1,334,873 $1,467,293 $(132,420)(9.0)%
Foreign exchange impact(a)
46,470 — 
Non-GAAP net sales, constant currency$1,381,343 $1,467,293 $(85,950)(5.9)%
Consolidated:
Net sales, reported$3,150,806 $3,047,734 $103,072 3.4 %
Foreign exchange impact(a)
65,781 — 
Non-GAAP net sales, constant currency$3,216,587 $3,047,734 $168,853 5.5 %
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the year ended June 30, 2021 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2020.
Net Sales by Geography:
Fiscal Year Ended June 30,
20222021$ Change% Change
United States and Canada:(in thousands)
Net sales, as reported$3,173,694 $2,840,731 $332,963 11.7 %
International:
Net sales, reported$356,241 $310,075 $46,166 14.9 %
Foreign exchange impact(a)
(8,825)— 
Non-GAAP net sales, constant currency$347,416 $310,075 $37,341 12.0 %
Consolidated:
Net sales, reported$3,529,935 $3,150,806 $379,129 12.0 %
Foreign exchange impact(a)
(8,825)— 
Non-GAAP net sales, constant currency$3,521,110 $3,150,806 $370,304 11.8 %
(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, 2022 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2021.
  Name
  
Fiscal
Year
   
Perquisites
($)
(1)
   
Company
Contributions
to
Nonqualified
Deferred
Compensation
Plan
($)
  
Company
Paid
Disability
Benefit
($)
(2)
   
Company
Contributions
to
Deferred
Contribution
Plans (401(k))
($)
   
Company
Paid
Travel
for
Spouses
($)
   
Other
($)
(3)
   
Total
($)
 
Michael L. Baur
   2020    5,536    42,361(4)   77,601    800    —    23,616    149,914 
   2019    3,229    25,000(4)   51,160    800    15,507    12,234    107,930 
   2018    12,717    200,000(4)   51,160    15,052    8,385    6,542    293,856 
                     
Gerald Lyons
   2020    1,500    10,819   13,717    800    —    14,526    41,362 
   2019    1,700    11,867   3,785    800    —    6,996    25,148 
   2018    2,050    12,491   3,785    15,052    —    3,231    36,609 
                     
Matthew S. Dean
   2020    1,000    11,250   10,152    800    —    15,689    38,891 
   2019    —    6,750   2,703    800    576    1,560    12,389 
(1)
Represents physical examination costs.
(2)
Includes supplemental long-term disability benefits.
(3)
Represents life insurance benefits.
(4)
The deferred compensation benefit is provided in connection with Mr. Baur’s employment agreement, which is discussed below under “
Employment Arrangements and Potential Payments upon Certain Events
.”
22
2020 Grants of Plan Based Awards Table
The following table summarizes awards granted to each of the NEOs during the year ended June 30, 2020 under the 2013 Plan:
           
Estimated Possible
Payouts
Under Non-Equity
Incentive
Plan Awards
    
Estimated Future Payouts
Under Equity Incentive
Plan Awards
    
All Other
Stock
Awards:
Number
of Shares
of Stock
    
Grant Date
Fair Value
of Stock
and
Option
 
  Name
    
Grant
Date
     
Threshold
($)
    
Target
($)
    
Maximum
($)
    
Threshold
(#)
    
Target
(#)
    
Maximum
(#)
    
or Units
(#)
    
Awards
($)
 
Michael L. Baur
     8/7/2019     328,125    1,312,500    2,625,000                   
     11/15/2019
(2)
                            31,915     1,125,004
(2)
 
     1/30/2020
(2)
                25,532    31,915    35,107         1,123,089
(2)
 
Gerald Lyons
     8/7/2019     64,613    257,250    514,500                   
     11/15/2019
(2)
                            4,256     150,024
(2)
 
     1/30/2020
(2)
                3,405    4,256    4,682         149,769
(2)
 
Matthew S. Dean
     8/7/2019     42,500    170,000    340,000                   
     11/15/2019
(2)
                            6,029     212,522
(2)
 
     1/30/2020
(2)
                4,822    6,029    6,631         212,125
(2)
 
(1)
See “
Compensation Discussion and Analysis — Material Elements of our Compensation Programs — Annual Performance-Based and Service-Based Equity Awards
,” above.
(2)
These equity awards were part of an equity grant granted on November 15, 2019. The performance metrics for the performance-based portion of these awards were set on January 30, 2020. These performance- and service-based equity awards were computed in accordance with FASB ASC Topic 718. See “
Compensation Discussion and Analysis — Material Elements of our Compensation Program — Annual Performance-Based and Service-Based Equity Awards
,” above.
23
2020 Outstanding Equity Awards at Fiscal Year End Table
The following table summarizes outstanding equity awards held by each of the NEOs as of June 30, 2020:
       
Option Awards
  
Stock Awards
 
  Name
  
Grant
Date
   
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    
 
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
 (1)
  
Option
Exercise
Price
($)
   
Option
Expiration
Date
   
Grant
Date
   
Number
of
Shares
or Units
of
Stock
that
Have
Not
Vested
(#)
 (1)
   
Market
Value
of
Shares
or
Units
of
Stock
that
Have
Not
Vested
($)
   
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
that
Have Not
Vested
(#)
  
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
that
Have Not
Vested
($)
 
Michael L. Baur
                 
   5/4/2011    133,000   —   36.17    5/4/2021          
   8/21/2012    26,586   —   34.35    8/21/2022          
   12/6/2013    115,356   —   42.82    12/6/2023          
   12/5/2014    164,093   —   41.13    12/5/2024          
   12/4/2015    125,000   —   38.19    12/4/2025          
   12/2/2016    77,339   —   37.00    12/2/2026          
   12/8/2017    35,562   17,517   34.35    12/8/2027          
           12/8/2017    5,839    140,662    17,693
(2)
   426,224 
           12/3/2018    18,870    454,578    28,590
(3)
   688,733 
           11/15/2019    31,915    768,832    31,915
(4)
   768,832 
Gerald Lyons
                 
   12/7/2012    4,006   —   29.80    12/7/2022          
   12/8/2017    4,741   2,336   34.35    12/8/2027          
           12/8/2017    779    18,776    2,359
(2)
   56,828 
           12/3/2018    2,516    60,610    3,812
(3)
   91,831 
           11/15/2019    4,256    102,527    4,256
(4)
   102,527 
Matthew S. Dean
                 
   2/9/2018    6,700     3,300
(5)
   32.25    2/9/2028          
           12/3/2018    1,887    45,458    2,859
(3)
   68,873 
           11/15/2019    6,029    145,239    6,029
(4)
   145,215 
(1)
Stock options and restricted stock units vest ratably over three years beginning on the grant date, unless otherwise noted.
(2)
These restricted stock units are subject to continued service and performance requirements and will vest, if at all, on December 31, 2020 if certain performance criteria are met.
(3)
These restricted stock units are subject to continued service and performance requirements and will vest, if at all, on December 31, 2021 if certain performance criteria are met.
(4)
These restricted stock units are subject to continued service and performance requirements and will vest, if at all, on December 31, 2022 if certain performance criteria are met.
(5)
These options will vest on February 9, 2021.
24
2020 Option Exercises and Stock Vested Table
The following table summarizes the exercise of options and the vesting of stock awards by each of our NEOs during the fiscal year ended June 30, 2020:
  Name
  
Option Awards
  
    
 
Restricted Awards
 
  
Number
of
Shares
Acquired
on
Exercise
(#)
   
Value
Realized
on
Exercise
($)
    
Number
of
Shares
Acquired
on
Vesting
(#)
   
Value
Realized
on
Vesting
($)
 
Michael L. Baur
   —    —    22,504    829,272 
Gerald Lyons
   1,000    5,250    3,204    118,067 
Matthew S. Dean
   —    —    972    35,818 
2020 Nonqualified Deferred Compensation Table
The following table contains information concerning benefits earned by each of the NEOs under nonqualified deferred compensation plans during the fiscal year ended June 30, 2020:
  Name
  
Executive
Contributions
in Last
Fiscal Year
($)
(1)(2)
   
Registrant
Contributions
in Last
Fiscal Year
($)
(3)
   
Aggregate
Earnings
(Loss)
in Last
Fiscal Year
($)
(4)
  
Aggregate
Withdrawals/
Distributions
($)
(4)
  
Aggregate
Balance at
Last Fiscal
Year-End
($)
 
Michael L. Baur
   84,722    42,361    179,455   (757,064)   11,333,086 
Gerald Lyons
   36,064    10,819    (47,988)   —   417,729 
Matthew S. Dean
   37,500    11,250    (3,785)   —   55,208 
(1)
Amounts represent voluntary deferrals of salary, bonus or a combination of both salary and bonus under our Nonqualified Deferred Compensation Plan. Contributions of deferred salary are reported as fiscal year 2020 income in the “Salary” column of the 2020 Summary Compensation Table.
(2)
Amounts reflect voluntary deferrals under our Nonqualified Deferred Compensation Plan associated with plan awards for fiscal year 2020 but paid in fiscal year 2021.
(3)
Amounts represents our matching contributions under our Nonqualified Deferred Compensation Plan. These amounts are reported as fiscal year 2020 income in the “All Other Compensation” column of the 2020 Summary Compensation Table.
(4)
Reflects cash flows for the fiscal year ended June 30, 2020.
Our Nonqualified Deferred Compensation Plan permits our NEOs to elect to defer a portion of their base salary and incentive bonus, and to receive matching contributions from the Company on a portion of the deferred amounts. Mr. Baur may defer up to 50% of his base compensation and 100% of his bonus, and the Company will provide a matching contribution of 50% of the amount deferred up to a calendar year limit of $200,000 in matching contributions. Mr. Lyons may defer up to 50% of his base salary and 100% of his bonus, and the Company will provide a matching contribution of 30% on the first 15% of compensation deferred. Mr. Dean may defer up to 50% of his base salary and 100% of his bonus, and the Company will provide a matching contribution of 30% on the first 15% of compensation deferred.
Deferred amounts are credited to each participant’s account, which are invested in one or more investment alternatives chosen by each participant from a range of mutual fund offerings and other investments available under the plan. Each participant’s account is adjusted to reflect the investment performance of the selected investments. Benefits under the plan are payable in cash and generally will be paid in either a lump sum or in
25
annual installments over a certain term upon retirement, death or other termination of employment, or upon a change in control of the Company, as elected in advance by the participant. A participant also may elect to receive some or all of the deferred amounts and related earnings pursuant to an
in-service
distribution, subject to a minimum five-year deferral.
Employment Arrangements and Potential Payments Upon Certain Events
We have entered into an employment agreement with Mr. Baur that was effective July 1, 2017 and employment letters with Mr. Lyons and with Mr. Dean effective August 23, 2017 and January 11, 2018, respectively. Mr. Baur, Mr. Lyons and Mr. Dean also participate in the Severance Plan. Notwithstanding these employment arrangements, each of Mr. Baur, Mr. Lyons and Mr. Dean has the right to voluntarily terminate his employment at any time. The employment arrangements set forth the general terms and conditions of Mr. Baur’s, Mr. Lyons’ and Mr. Dean’s employment and provide for certain severance benefits upon the occurrence of certain events.
The material elements of compensation of each NEO as contained in their employment arrangements are described in the “
Compensation Discussion and Analysis
” section herein. The following sets forth in tabular format the incremental compensation that would be payable to such NEO in the event of his termination of employment under various scenarios, which we refer to as termination events. In accordance with SEC rules, the following discussion assumes:
●
That the termination event in question occurred on June 30, 2020, the last day of fiscal 2020; and
●
With respect to calculations based on our stock price, the reported closing price of our common stock on June 29, 2020, $24.09, was used.
The tables contained in this section do not include payments made to a NEO with respect to contracts, agreements, plans or arrangements to the extent they do not discriminate in scope, terms or operation, in favor of our executive officers and that are available generally to all salaried employees, such as our 401(k) plan. The actual amounts that would be paid upon a termination event can only be determined at the time of such executive officer’s termination. Due to the number of factors that affect the nature and amount of any compensation or benefits provided upon the termination events, any actual amounts paid or distributed may be higher or lower than reported below. Factors that could affect these amounts include the timing during the year of any such event and our stock price at such time.
Mr. Baur
General
Pursuant to the terms of Mr. Baur’s employment agreement he received a base salary of $875,000 in fiscal 2020. Under his agreement, Mr. Baur is eligible to receive annual incentive cash and equity awards under our equity plans as described in the “
Compensation Discussion and Analysis
” section herein. Subject to the provisions of his employment agreement, Mr. Baur is obligated to comply with certain provisions relating to
non-competition
(for two years post termination), confidentiality and
non-solicitation
of customers and employees (for two years post termination) if his employment is terminated.
Benefits upon the Occurrence of Certain Termination Events
In addition to the amounts listed below, Mr. Baur is entitled to all accrued compensation, unreimbursed expenses and other benefits through the date of termination in the event of his termination.
26
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Net Sales by Geography:
Fiscal Year Ended June 30,
20212020$ Change% Change
United States:(in thousands)
Net sales, as reported$2,840,731 $2,755,134 $85,597 3.1 %
International:
Net sales, as reported$310,075 $292,600 $17,475 6.0 %
Foreign exchange impact (a)
65,781 — 
Non-GAAP net sales, constant currency$375,856 $292,600 $83,256 28.5 %
Consolidated:
Net sales, as reported$3,150,806 $3,047,734 $103,072 3.4 %
Foreign exchange impact (a)
65,781 — 
Non-GAAP net sales, constant currency$3,216,587 $3,047,734 $168,853 5.5 %
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the year ended June 30, 2021 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2020.
33
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Before
Change in
Control
Termination
w/o Cause
or
for Good
Reason
($)
   
After
Change in
Control
Termination
w/o Cause
or
for Good
Reason
($)
   
Termination
Due to
Death
($)
   
Termination
Due to
Retirement
($)
   
Termination
Due to
Disability
($)
   
Voluntary
Termination
($)
 
Severance
   3,882,923    4,659,507    —    —    —    — 
Pro Rata Variable Compensation
(1)
   169,444    169,444    169,444    169,444    169,444    169,444 
Equity Acceleration
(2)
   —    1,364,072    1,364,072    1,364,072    1,364,072    — 
Performance-Based Equity Acceleration
(3)
   —    1,883,790    1,883,790    1,883,790    1,883,790    — 
Medical Coverage
(4)
   484,158    484,158    484,158    484,158    484,158    — 
Disability
(5)
   —    —    —    —    437,500    — 
TOTAL
(6)
   4,536,525    8,560,971    3,901,464    3,901,464    4,338,964    169,444 
Operating Income by Segment:
Fiscal year ended June 30,% of Net Sales
June 30,
20222021$ Change% Change20222021
Specialty Technology Solutions:(in thousands)
GAAP operating income$66,686 $29,566 $37,120 125.5 %3.2 %1.6 %
Adjustments:
Amortization of intangible assets6,005 6,441 (436)
Non-GAAP operating income$72,691 $36,007 $36,684 101.9 %3.5 %2.0 %
Modern Communications & Cloud:
GAAP operating income$55,511 $43,551 $11,960 27.5 %3.8 %3.3 %
Adjustments:
Amortization of intangible assets11,848 13,047 (1,199)
Change in fair value of contingent consideration— 516 (516)
Non-GAAP operating income$67,359 $57,114 $10,245 17.9 %4.7 %4.3 %
Corporate:
GAAP operating loss$(30)$(11,634)$11,604 nm*nm*nm*
Adjustments:
Divestiture costs30 2,376 (2,346)
Restructuring costs— 9,258 (9,258)
Non-GAAP operating income$— $— $— nm*nm*nm*
Consolidated:
GAAP operating income$122,167 $61,483 $60,684 98.7 %3.5 %2.0 %
Adjustments:
Amortization of intangible assets17,853 19,488 (1,635)
Change in fair value of contingent consideration— 516 (516)
Divestiture costs30 2,376 (2,346)
Restructuring costs— 9,258 (9,258)
Non-GAAP operating income$140,050 $93,121 $46,929 50.4 %4.0 %3.0 %


(1)
Mr. Baur’s employment agreement provides for the payment of a pro rata portion of the current fiscal year annual variable compensation that would otherwise be payable if Mr. Baur had continued employment through the end of the current fiscal year, based on actual performance. Amounts shown reflect the earned and unpaid portion of Mr. Baur’s fiscal 2020 annual variable compensation as of June 30, 2020.
(2)
Reflects (i) the difference between fair market value as of June 30, 2020 of the underlying shares over the exercise price of all unvested stock options, and (ii) the fair market value of all unearned and unvested
non-performance-based
restricted stock awards and restricted stock units. Vesting accelerates in the event of a change in control and termination by the Company without cause or by the grantee for good reason.
(3)
Reflects the fair market value as of June 30, 2020, of the shares of all unearned and unvested performance based restricted stock awards, the vesting of which accelerates with a change in control and termination by the Company without cause or by the grantee for good reason.
(4)
Reflects the cost of providing continued health and welfare benefits to the executive officer as provided in the executive officer’s employment arrangements.
(5)
The executive officer’s employment agreement provides that if his employment is terminated by reason of disability, he will continue to receive his salary during the period under which he continues to receive benefits under our short-term disability policy (assumed to be six months for purposes of this disclosure), less any benefits received under our short-term disability policy.
(6)
These amounts do not include the payout of Mr. Baur’s vested balance under our Nonqualified Deferred Compensation Plan, which is reflected and described in the Nonqualified Deferred Compensation Table herein.
34
Mr. Lyons
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Operating Income by Segment:
Fiscal year ended June 30,% of Net Sales
June 30,
20212020$ Change% Change20212020
Specialty Technology Solutions:(in thousands)
GAAP operating income (loss)$29,566 $(67,706)$97,272 143.7 %1.6 %(4.3)%
Adjustments:
Amortization of intangible assets6,441 6,441 — 
Tax recovery— (5,480)5,480 
Impairment charges— 97,398 (97,398)
Non-GAAP operating income$36,007 $30,653 $5,354 17.5 %2.0 %1.9 %
Modern Communications & Cloud:
GAAP operating income$43,551 $6,739 $36,812 546.3 %3.3 %0.5 %
Adjustments:
Amortization of intangible assets13,047 13,512 (465)
Change in fair value of contingent consideration516 6,941 (6,425)
Restructuring costs— 604 (604)
Tax recovery— (2,583)2,583 
Impairment charges— 23,072 (23,072)
Non-GAAP operating income$57,114 $48,285 $8,829 18.3 %4.3 %3.3 %
Corporate:
GAAP operating loss$(11,634)$(4,000)$(7,634)nm*nm*nm*
Adjustments:
Acquisition and divestiture costs2,376 4,000 (1,624)
Restructuring costs9,258 — 9,258 
Non-GAAP operating income$— $— $— nm*nm*nm*
Consolidated:
GAAP operating income (loss)$61,483 $(64,967)$126,450 194.6 %2.0 %(2.1)%
Adjustments:
Amortization of intangible assets19,488 19,953 (465)
Change in fair value of contingent consideration516 6,941 (6,425)
Acquisition and divestiture costs2,376 4,000 (1,624)
Restructuring costs9,258 604 8,654 
Tax recovery— (8,063)8,063 
Impairment charges— 120,470 (120,470)
Non-GAAP operating income$93,121 $78,938 $14,183 18.0 %3.0 %2.6 %
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Index to Financial Statements


Additional Non-GAAP Metrics

To evaluate current period performance on a more consistent basis with prior periods, we disclose non-GAAP SG&A expenses, 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 and divestiture costs, restructuring costs, impact of Divestitures and other non-GAAP adjustments. These year-over-year metrics include the translation impact of changes in foreign currency exchange rates. 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:

Year ended June 30, 2022
GAAP MeasureIntangible amortization expenseChange in fair value of contingent considerationDivestiture costsRestructuring costsNon-GAAP measure
(in thousands, except per share data)
SG&A expenses$275,442 $— $— $(30)$— $275,412 
Operating income122,167 17,853 — 30 — 140,050 
Pre-tax income118,623 17,853 — 30 — 136,506 
Net income88,698 13,412 — 30 — 102,140 
Diluted EPS$3.44 $0.52 $— $— $— $3.97 
Year ended June 30, 2021
GAAP MeasureIntangible amortization expenseChange in fair value of contingent considerationDivestiture costsRestructuring costsNon-GAAP measure
(in thousands, except per share data)
SG&A expenses$247,438 $— $— $(2,376)$— $245,062 
Operating income61,483 19,488 516 2,376 9,258 93,121 
Pre-tax income57,535 19,488 516 2,376 9,258 89,173 
Net income45,389 14,753 390 2,337 6,999 69,868 
Diluted EPS$1.78 $0.58 $0.02 $0.09 $0.27 $2.74 
36
Mr. Lyons serves as
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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 Senior Executive Vice Presidentconsolidated financial statements, which have been prepared in conformity with US GAAP. The preparation of financial statements requires management to make estimates and Chief Financial Officer. At June 30, 2020, Mr. Lyons received a base salaryassumptions that affect the reported amounts of $367,500. Mr. Lyons is eligibleassets 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 receive both annual incentive cash compensationthe allowance for uncollectible accounts receivable, inventory reserves to reduce inventories to the lower of cost or net realizable value, supplier incentives and equity awardsgoodwill. Management bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the 2013 Plan. Subjectcircumstances, 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 adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326) effective July 1, 2020. The adoption did not have a material impact on our consolidated financial statements. Our policy for estimating allowances for doubtful accounts receivable is described below.

We maintain an allowance for uncollectible accounts receivable for estimated future expected credit losses resulting from customers’ failure to make payments on accounts receivable due us. Management determines the estimate of the allowance for doubtful accounts receivable by considering a number of factors, including: (i) historical experience, (ii) aging of the accounts receivable, (iii) specific information obtained by us on the financial condition and the current creditworthiness of its customers, (iv) the current economic and country specific environment and (v) reasonable and supportable forecasts about collectability. Expected credit losses are estimated on a pool basis when similar risk characteristics exist using an age-based reserve model. Receivables that do not share risk characteristics are evaluated on an individual basis. Estimates of expected credit losses on trade receivables are recorded at inception and adjusted over the contractual life.
Inventory Reserves
Management determines the inventory reserves required to reduce inventories to the provisionslower of his employment arrangements, Mr. Lyonscost 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 obligatedmade of the net realizable value, less cost to complydispose, 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 interprets and applies as the customer (i.e., the Company) receives 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 provisions relating to
non-competition
(for two years post termination), confidentiality and
non-solicitation
of customers and employees (for two years post termination) if his employment is terminated.suppliers. We record early payment discounts received as a
Benefits upon37
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Index to Financial Statements


reduction of inventory, thereby resulting in a reduction of cost of goods sold when the Occurrencerelated inventory is sold. ASC 606 requires management to make certain estimates of Certain Termination Events
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.

Goodwill

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, Specialty Technology Solutions and Modern Communications & Cloud. The fair values of the reporting units are estimated using the net present value of discounted cash flows generated by each reporting unit. Considerable judgment is necessary in estimating future cash flows, discount rates and other factors affecting the estimated fair value of the reporting units, including the operating and macroeconomic factors. Historical financial information, internal plans and projections and industry information are used in making such estimates.

Under ASC 350, 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 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 2022 and 2021, we completed our annual impairment test as of April 30th and determined that our goodwill was not impaired.
See Note 8 - 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, 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 the final earnout payments to the former shareholders of Intelisys in fiscal year 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
38
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Index to Financial Statements


liability are presented in the current portion of contingent consideration and long-term portion of contingent consideration line items on the Consolidated Balance Sheets.
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 $38.0 million, $62.7 million and $29.5 million at June 30, 2022, 2021 and 2020, respectively, of which $35.0 million, $52.1 million and $23.6 million was held outside of the United States as of June 30, 2022, 2021 and 2020, respectively. Checks released but not yet cleared from these accounts in the amounts listed below, Mr. Lyonsof $18.0 million, $14.3 million and $17.1 million are classified as accounts payable as of June 30, 2022, 2021 and 2020, respectively.
We conduct business in many locations throughout the world where we generate and use cash. We provide for United States income taxes from the earnings of our Canadian and Brazilian subsidiaries. See Note 14 - Income Taxes in the Notes to the Consolidated Financial Statements for further discussion.
Our net investment in working capital increased $222.8 million to $709.5 million at June 30, 2022 from $486.7 million at June 30, 2021, primarily from increases in accounts receivable and inventory. Our net investment in working capital totaled $431.3 million at June 30, 2020. Our net investment in working capital is entitledaffected by several factors such as fluctuations in sales volume, net income, timing of collections from customers, increases and decreases to all accrued compensation, unreimbursed expensesinventory levels and payments to vendors. For the fiscal year ended June 30, 2022, our working capital investment increased to support our 12.0% year-over-year net sales growth.
Year ended
Cash (used in) provided by:June 30, 2022June 30, 2021June 30, 2020
(in thousands)
Operating activities of continuing operations$(124,354)$116,767 $182,033 
Investing activities of continuing operations(3,724)31,993 (55,308)
Financing activities of continuing operations108,106 (118,824)(152,686)

Net cash used in operating activities was $124.4 million for the year ended June 30, 2022, compared to $116.8 million provided by operating activities for the year ended June 30, 2021. The decrease of $241.1 million was primarily due to increased accounts receivable, which were 28% higher than in 2021, attributable to net sales growth year-over-year. Also contributing to the decrease in operating cash flows were increased inventory levels, which were 31% higher than in 2021, to support net sales growth. Cash provided by operating activities is subject to variability period over period as a result of the timing of payments related to accounts receivable, accounts payable and other benefits throughworking capital items.
The number of days sales outstanding ("DSO") was 68 at June 30, 2022, compared to 60 at June 30, 2021 and 63 at June 30, 2020. The increase in DSO for fiscal year 2022 is primarily a result of the datetiming of terminationsales resulting in higher net receivables at period end. Throughout the current fiscal year, DSO ranged from 62 to 69. Inventory turnover was 5.6 times during the fourth quarter of the current fiscal year, compared to 6.5 times and 4.5 times in the fourth quarter of fiscal year 2021 and 2020, respectively. Throughout the current fiscal year, inventory turnover ranged from 5.1 to 6.3 times.

Cash used in investing activities was $3.7 million in fiscal year June 30, 2022, as compared to cash provided by investing activities of $32.0 million for the year ended June 30, 2021. Cash used in investing activities for fiscal year 2020 was $55.3 million. Cash used in investing activities for fiscal year 2022 represents capital expenditures, partially offset by proceeds from
39
Table of Contents

Index to Financial Statements


the sale of our discontinued operations. Cash provided by investing activities for fiscal year 2021 is primarily attributable to cash received for the disposal of our Latin American and Europe entities. Cash used in investing activities for fiscal year 2020 is primarily attributable to cash used to purchase intY.

Management expects capital expenditures for fiscal year 2023 to range from $6.5 million to $8.5 million, primarily for IT investments and facility improvements.

Cash provided by financing activities totaled $108.1 million for the fiscal year ended June 30, 2022, primarily from net borrowings on the revolving line of credit, partially offset by our stock repurchases. Cash used in financing activities totaled $118.8 million and $152.7 million for the fiscal years ended June 30, 2021 and 2020, primarily from net repayments on the revolving line of credit.

Share Repurchase Program

In August 2021, our Board of Directors authorized a $100 million share repurchase program. The authorization does not have any time limit. Since the inception of the program, in fiscal year 2022, we repurchased 550,194 shares totaling $18.2 million.

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. On April 30, 2019, we amended this credit facility to expand the borrowing capacity and extend its maturity to April 30, 2024. On December 23, 2021, we entered into an amendment to the Amended Credit Agreement which, among other things, replaced LIBOR as the benchmark rate for non-U.S. Dollar loans and provided for an interpolated rate for 7-day LIBOR for U.S. Dollar loans. The Amended Credit Agreement includes (i) a five-year $350 million multi-currency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility. Pursuant to an “accordion feature,” we may increase our borrowings by 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.

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. Additionally, the Company is assessed commitment fees ranging from 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 his termination.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, 2022. There was $135.8 million and $0.0 million outstanding on the revolving credit facility at June 30, 2022 and 2021, respectively.

The average daily balance on the revolving credit facility, excluding the term loan facility, was $69.0 million for the year ended June 30, 2022. Including borrowings for both continuing and discontinued operations, the average daily balance on the revolving credit facility, excluding the term loan facility was $54.6 million for the year ended 2021. There were no letters of credit issued as of June 30, 2022 and 2021. There was $214.2 million and $350.0 million available for additional borrowings as of June 30, 2022 and 2021, respectively. Availability 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 Credit Facility Net Debt
40
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Index to Financial Statements


relative to our EBITDA and (2) Credit Facility EBITDA relative to total interest expense respectively.  As a result, our availability will increase if EBITDA increases (subject to the limit of the facility) and decrease if EBITDA decreases. At June 30, 2022, based upon the calculation of our Credit Facility Net Debt relative to our Credit Facility EBITDA, there was $214.2 million available for borrowing. While we were in compliance with the financial covenants contained in the Credit Facility as of June 30, 2022, 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

In fiscal year 2021, we paid the final earnout payment to the former shareholders of Intelisys related to their acquisition on August 29, 2016.

Contractual Obligations

At June 30, 2022, we had $135.8 million outstanding under our revolving credit facility. We also had $135.3 million outstanding under our term loan facility, $11.25 million of which matures in fiscal year 2023. Our revolving credit facility and our term loan facility have an April 30, 2024 maturity date. The remaining principal debt payments, which total $4.1 million, have maturity dates in 2024 through 2032. See Footnote 9 - Short Term Borrowings and Long Term Debt.

We also had a non-cancelable operating lease agreement of $17.6 million at June 30, 2022, of which $5.2 million is expected to be paid within the next 12 months. Remaining amounts are expected to be paid through 2028. See Footnote 15 - Leases.

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. We also believe that our longer-term working capital, planned expenditures and other general funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities.


27
41
   
Before
Change in
Control
Termination
w/o Cause
or for Good
Reason
($)
   
After
Change in
Control
Termination
w/o Cause
or for Good
Reason
($)
   
Termination
Due to
Death
($)
   
Termination
Due to
Retirement
($)
   
Termination
Due to
Disability
($)
   
Voluntary
Termination
($)
 
Severance
   729,124    972,165    —    —    —    — 
Pro Rata Variable Compensation
(1)
   33,211    33,211    33,211    33,211    33,211    33,211 
Equity Acceleration
(2)
   —    181,904    181,904    181,904    181,904    — 
Performance-Based Equity Acceleration
(3)
   —    251,186    251,186    251,186    251,186    — 
Medical Coverage
(4)
   37,253    37,253    37,253    37,253    37,253    — 
Disability
(5)
   —    —    —    —    183,750    — 
TOTAL
(6)
   799,588    1,475,719    503,554    503,554    687,304    33,211 
Table of Contents

Index to Financial Statements

(1)
Mr. Lyons’ employment arrangements provide for the payment of a pro rata portion of the current fiscal year annual variable compensation that would otherwise be payable if Mr. Lyons had continued employment through the end of the current fiscal year, based on actual performance. Amounts shown reflect the earned and unpaid portion of Mr. Lyons fiscal 2020 annual variable compensation as of June 30, 2020.
(2)
Reflects (i) the difference between fair market value as of June 30, 2020 of the underlying shares over the exercise price of all unvested stock options, and (ii) the fair market value of all unearned and unvested
non-performance-based
restricted stock awards and restricted stock units. Vesting accelerates in the event of a change in control and termination by the Company without cause or by the grantee for good reason.
(3)
Reflects the fair market value as of June 30, 2020, of the shares of all unearned and unvested performance based restricted stock awards, the vesting of which accelerates with a change in control and termination by the Company without cause or by the grantee for good reason.
(4)
Reflects the cost of providing continued health and welfare benefits to the executive officer as provided in the executive officer’s employment arrangements.
(5)
The executive officer’s employment arrangement provides that if his employment is terminated by reason of disability, he will continue to receive his salary during the period under which he continues to receive benefits under our short-term disability policy (assumed to be six months for purposes of this disclosure), less any benefits received under our short-term disability policy.
(6)
These amounts do not include the payout of the executive officer’s vested balance under our Nonqualified Deferred Compensation Plan, which is reflected and described in the Nonqualified Deferred Compensation Table herein.
Mr. Dean

General
ITEM 7A.    Quantitative and Qualitative Disclosures about Market Risk.
Mr. Dean serves
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 Senior Executive Vice Presidentborrowing activities, which include revolving credit facilities with a group of banks used to maintain liquidity and Chief Legalfund our business operations. The nature and Strategy Officer.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 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 $1.1 million and $1.0 million increase or decrease in pre-tax income for the fiscal year ended June 30, 2022 and 2021, 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, 2020, Mr. Dean received a base salary of $425,000. Mr. Dean is eligible to receive both annual incentive cash compensation2022 and equity awards2021 we had $271.2 million and $143.2 million, respectively, in variable rate debt. 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 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 and the UK. 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 $2.2 million and $1.4 million increase or decrease in pre-tax income for fiscal years ended June 30, 2022 and 2021, 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, British pounds and Canadian dollars. At June 30, 2022 and 2021, the fair value of our currency forward contracts were a net asset or payable of less than $0.1 million.
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ITEM 8.    Financial Statements and Supplementary Data.

Index to Financial Statements

Page
Financial Statements
44
45
46
47
48
49
50
52

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

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
ScanSource, Inc.:

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of ScanSource, Inc. (a South Carolina corporation) and subsidiaries (the “Company”) as of June 30, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended June 30, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2022, 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, 2022, based on criteria established in the 2013 Plan. SubjectInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated August 23, 2022 expressed an unqualified opinion.

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 provisionsCompany in accordance with the U.S. federal securities laws and the applicable rules and regulations of his employment arrangements, Mr. Deanthe 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 regarding 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 matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ Grant Thornton LLP

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

Columbia, South Carolina
August 23, 2022
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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, 2022, based on criteria established in the 2013 Internal Control—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, 2022, based on criteria established in the 2013 Internal Control—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, 2022, and our report dated August 23, 2022 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”). 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.

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 23, 2022
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ScanSource, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share information)
June 30,
2022		June 30,
2021
Assets
Current assets:
Cash and cash equivalents$37,987 $62,718 
Accounts receivable, less allowance of $16,806 at June 30, 2022
and $19,341 at June 30, 2021
729,442 568,984 
Inventories614,814 470,081 
Prepaid expenses and other current assets141,562 117,860 
Total current assets1,523,805 1,219,643 
Property and equipment, net37,477 42,836 
Goodwill214,435 218,877 
Identifiable intangible assets, net84,427 104,860 
Deferred income taxes15,668 21,853 
Other non-current assets61,616 63,615 
Total assets$1,937,428 $1,671,684 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$714,177 $634,805 
Accrued expenses and other current liabilities88,455 87,790 
Income taxes payable34 2,501 
Current portion of long-term debt11,598 7,843 
Total current liabilities814,264 732,939 
Deferred income taxes3,144 3,954 
Long-term debt, net of current portion123,733 135,331 
Borrowings under revolving credit facility135,839 — 
Other long-term liabilities53,920 68,269 
Total liabilities1,130,900 940,493 
Commitments and contingencies00
Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, none issued— — 
Common stock, no par value; 45,000,000 shares authorized, 25,187,351 and 25,499,465 shares issued and outstanding at June 30, 2022 and June 30, 2021, respectively64,297 71,253 
Retained earnings846,869 758,071 
Accumulated other comprehensive loss(104,638)(98,133)
Total shareholders’ equity806,528 731,191 
Total liabilities and shareholders’ equity$1,937,428 $1,671,684 

See accompanying notes to consolidated financial statements.
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ScanSource, Inc. and Subsidiaries
Consolidated Income Statements
Years Ended June 30, 2022, 2021 and 2020
(in thousands, except per share information)
202220212020
Net sales$3,529,935 $3,150,806 $3,047,734 
Cost of goods sold3,103,411 2,800,090 2,692,165 
Gross profit426,524 350,716 355,569 
Selling, general and administrative expenses275,442 247,438 259,535 
Depreciation expense11,062 12,533 13,033 
Intangible amortization expense17,853 19,488 19,953 
Restructuring and other charges— 9,258 604 
Impairment charges— — 120,470 
Change in fair value of contingent consideration— 516 6,941 
Operating income (loss)122,167 61,483 (64,967)
Interest expense6,523 6,929 12,224 
Interest income(4,333)(3,097)(5,826)
Other expense, net1,354 116 411 
Income (loss) before income taxes118,623 57,535 (71,776)
Provision for income taxes29,925 12,146 7,451 
Net income (loss) from continuing operations88,698 45,389 (79,227)
Net income (loss) from discontinued operations100 (34,594)(113,427)
Net income (loss)$88,798 $10,795 $(192,654)
Per share data:
Net income (loss) from continuing operations per common share, basic$3.48 $1.79 $(3.12)
Net loss from discontinued operations per common share, basic— (1.36)(4.47)
Net income (loss) per common share, basic$3.48 $0.42 $(7.59)
Weighted-average shares outstanding, basic25,504 25,423 25,378 
Net income (loss) from continuing operations per common share, diluted$3.44 $1.78 $(3.12)
Net loss from discontinued operations per common share, diluted— (1.36)(4.47)
Net income (loss) per common share, diluted$3.45 $0.42 $(7.59)
Weighted-average shares outstanding, diluted25,758 25,518 25,378 

See accompanying notes to consolidated financial statements.

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ScanSource, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
Years Ended June 30, 2022, 2021 and 2020
(in thousands)
 202220212020
Net income (loss)$88,798 $10,795 $(192,654)
Unrealized gain (loss) on hedged transaction, net of tax5,833 2,249 (4,646)
Foreign currency translation adjustment(12,338)20,778 (38,061)
Realized foreign currency loss from discontinued operations— 11,635 — 
Comprehensive income (loss)$82,293 $45,457 $(235,361)
See accompanying notes to these consolidated financial statements.

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ScanSource, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
Years Ended June 30, 2022, 2021 and 2020
(in thousands, except share information)
Common
Stock
(Shares)		Common
Stock
(Amount)		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Total
Balance at June 30, 201925,408,397$64,287 $939,930 $(90,088)$914,129 
Net loss— — (192,654)— (192,654)
Unrealized loss on hedged transaction, net of tax— — — (4,646)(4,646)
Foreign 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 taxes120,969(599)— — (599)
Common stock repurchased(168,068)(5,432)— — (5,432)
Share-based compensation— 5,509 — — 5,509 
Balance at June 30, 202025,361,29863,765 747,276 (132,795)678,246 
Net income— — 10,795 — 10,795 
Unrealized gain on hedged transaction, net of tax— — — 2,249 2,249 
Foreign currency translation adjustment— — — 20,778 20,778 
Realized foreign currency loss from discontinued operations— — — 11,635 11,635 
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes138,167(585)— — (585)
Share-based compensation— 8,073 — — 8,073 
Balance at June 30, 202125,499,46571,253 758,071 (98,133)731,191 
Net income— — 88,798 — 88,798 
Unrealized gain on hedged transaction, net of tax— — — 5,833 5,833 
Foreign currency translation adjustment— — — (12,338)(12,338)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes238,080(450)— — (450)
Common stock repurchased(550,194)(18,203)— — (18,203)
Share-based compensation— 11,697 — — 11,697 
Balance at June 30, 202225,187,351$64,297 $846,869 $(104,638)$806,528 

See accompanying notes to consolidated financial statements.
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ScanSource, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended June 30, 2022, 2021 and 2020
(in thousands)
202220212020
Cash flows from operating activities:
Net income (loss)$88,798 $10,795 $(192,654)
Net income (loss) from discontinued operations100 (34,594)(113,427)
Net income (loss) from continuing operations88,698 45,389 (79,227)
Adjustments to reconcile net income to net cash (used in) provided by operating activities of continuing operations:
Depreciation and amortization29,884 33,507 35,328 
Amortization of debt issue costs417 417 417 
Provision for doubtful accounts1,514 338 1,621 
Share-based compensation11,663 8,039 5,478 
Impairment charges— — 120,470 
Deferred income taxes5,737 2,916 (12,193)
Change in fair value of contingent consideration— 516 6,941 
Contingent consideration payments excess— (5,457)(3,050)
Finance lease interest34 119 85 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable(165,939)(118,859)57,477 
Inventories(145,962)(12,301)86,177 
Prepaid expenses and other assets(27,371)(18,753)(13,880)
Other non-current assets1,123 9,948 (13,563)
Accounts payable82,969 175,120 (20,846)
Accrued expenses and other liabilities(4,869)(493)11,239 
Income taxes payable(2,252)(3,679)(441)
Net cash (used in) provided by operating activities of continuing operations(124,354)116,767 182,033 
Cash flows from investing activities of continuing operations:
Capital expenditures(6,849)(2,363)(6,387)
Cash paid for business acquisitions, net of cash acquired— — (48,921)
Cash received for business disposal3,125 34,356 — 
Net cash (used in) provided by investing activities of continuing operations(3,724)31,993 (55,308)
Cash flows from financing activities of continuing operations:
Borrowings on revolving credit, net of expenses2,166,409 1,881,679 2,085,918 
Repayments on revolving credit, net of expenses(2,030,569)(1,949,392)(2,190,595)
Repayments on long-term debt, net(7,843)(7,839)(4,085)
Repayments of finance lease obligations(1,238)(1,294)(1,765)
Contingent consideration payments— (41,393)(35,482)
Exercise of stock options2,304 451 754 
Taxes paid on settlement of equity awards(2,754)(1,036)(1,353)
Repurchase of common stock(18,203)— (6,078)
Net cash provided by (used in) financing activities of continuing operations108,106 (118,824)(152,686)
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202220212020
(continued)
Cash flows from discontinued operations:
Net cash flows provided by operating activities of discontinued operations— 24,173 44,238 
Net cash flows used in investing activities of discontinued operations— (58)(77)
Net cash flows (used in) financing activities of discontinued operations— (29,494)(3,921)
Net cash flows (used in) provided by discontinued operations— (5,379)40,240 
Effect of exchange rate changes on cash and cash equivalents(4,759)3,706 (3,642)
(Decrease) increase in cash and cash equivalents(24,731)28,263 10,637 
Cash and cash equivalents at beginning of period62,718 34,455 23,818 
Cash and cash equivalents at end of period37,987 62,718 34,455 
Cash and cash equivalents of discontinued operations— — 4,970 
Cash and cash equivalents of continuing operations$37,987 $62,718 $29,485 
Supplemental disclosure of consolidated cash flow information:
Interest paid during the year$6,066 $6,412 $11,959 
Income taxes paid during the year$29,418 $12,002 $16,869 
See accompanying notes to consolidated financial statements.
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2022
(1)    Business and Summary of Significant Accounting Policies

Business Description

ScanSource, Inc. (together with its subsidiaries referred to as “the Company” or “ScanSource”) is a leading hybrid distributor connecting devices to the cloud and accelerating growth for partners across hardware, Software as a Service ("SaaS"), connectivity and cloud. The Company brings technology solutions and services from the world's leading suppliers of mobility and barcode, point-of-sale ("POS"), payments, physical security, unified communications and collaboration, telecom and cloud services to market. The Company operates in the United States, Canada, Brazil and the UK. The Company's 2 operating segments, Specialty Technology Solutions and Modern Communications & Cloud, are based on technology.

Segment Changes

The Company has moved all of its communications and collaboration business to the Modern Communications & Cloud segment. This technology alignment better represents the operating and financial performance information provided to the Company's chief operating decision maker.

The Company has reclassified certain prior-year amounts in the segment results to conform with current year presentation. These reclassifications had no effect on the condensed consolidated financial results. See Note 17 - Segment Information for descriptions of the Company's segments.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated. 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 no material related party transactions for the fiscal years ended June 30, 2022, 2021 and 2020.

Use of Estimates

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, asset impairments, inventory reserves, purchase price allocations, goodwill and intangibles and supplier incentives. Management bases its estimates on assumptions that management believes to be reasonable under the circumstances, the results of which form a basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, management believes that its estimates, including those for the above-described items, are reasonable and that the actual results will not vary significantly from the estimated amounts.

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

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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

(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: (i) historical experience, (ii) aging of the accounts receivable, (iii) specific information obtained by the Company on the financial condition and the current creditworthiness of its customers, (iv) the current economic and country-specific environment and (v) reasonable and supportable forecasts about collectability. 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.

(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 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

The Company accounts 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 (i) identify the acquired assets and liabilities assumed, (ii) estimate the fair value of these assets, (iii) estimate the useful life of the assets and (iv) assess the appropriate method for recognizing depreciation or amortization expense over the assets' useful life. See Note 7 - Acquisitions for further discussion of the Company's business combinations.

(d) Goodwill and Intangible Asset Fair Value

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
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

items, all qualifying sales and purchases are considered in calculating the rebates and cash receipts or credit memos received are appropriately applied. The determination of achievement-based rebates requires management to make assumptions about future purchases and sales. 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 zero-balance disbursement accounts at various financial institutions at 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 outstanding checks written from these accounts against cash on hand, and the respective institutions are not legally obligated to complyhonor the checks until sufficient funds are transferred to fund the checks. As a result, checks released but not yet cleared from these accounts in the amounts of $18.0 million and $14.3 million are classified as accounts payable as of June 30, 2022 and 2021, respectively.

The Company maintains its cash with certain provisions relatingvarious financial institutions globally that are monitored regularly for credit quality, although it may hold amounts in excess of Federal Deposit Insurance Corporation or other insured limits. Cash and cash equivalents held outside of the United States for continuing operations totaled $35.0 million and $52.1 million as of June 30, 2022 and 2021, respectively.

Concentration of Credit Risk

The Company sells to
non-competition
(for two years post termination), confidentiality and
non-solicitation
a large base of customers throughout the United States, Canada, Brazil and employees (for twothe UK. 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. Sales to any one customer were less than 10% of the Company’s net sales for fiscal years post termination) if his employment2022, 2021 and 2020.

In the event that the Company does not collect payment on accounts receivable within the established trade terms for certain customers, the Company may establish arrangements for longer-term financing. The Company accounts for these arrangements by recording them at their historical cost less specific allowances at balance sheet dates. Interest income is terminated.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.

The Company’s exposure to changes in foreign currency exchange rates results from foreign currency denominated assets and liabilities, purchasing and selling internationally in several foreign currencies and from intercompany loans with foreign subsidiaries. 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, British pounds and Canadian 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
Benefits54
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

this instrument as a hedge of the cash flows on certain variable rate debt. To the extent the derivative instrument was effective in offsetting the variability of the hedged cash flows, changes in the fair value of the derivative instrument were not included in current earnings, but were reported as other comprehensive income (loss). There was no ineffective portion recorded as an adjustment to earnings for the years ended June 30, 2022, 2021 and 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. 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 $25.2 million and $31.2 million as of June 30, 2022 and June 30, 2021, 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 $2.6 million and $4.9 million at June 30, 2022 and June 30, 2021, 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 net sales. ASC 606, Revenue from Contracts with Customers addresses accounting for consideration payable to a customer, which the Company interprets and applies as the customer (i.e., the Company) receiving advertising funds from a supplier. 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.

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 years ended June 30, 2022, 2021 and 2020.

Product Warranty

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Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

The Company’s suppliers generally provide a warranty on the products provided by the Company and allow the Company to return defective products, including those that have been returned to the Company by its customers. In 3 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, Specialty Technology Solutions and Modern Communications & Cloud. The fair values of the reporting units are estimated using the net present value of discounted cash flows generated by each reporting unit. Considerable judgment is necessary in estimating future cash flows, discount rates and other factors affecting the estimated fair value of the reporting units, including operating and 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.
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

•Operating income: The Company utilized historical and expected revenue growth rates, gross margins and operating expense percentages, as well as the expected impact of COVID-19 and the Company's annualized expense reduction plan, which varied based on the projections of each reporting unit being evaluated.
•Cash flows from working capital changes: The Company utilized a projected cash flow impact pertaining to depreciation, capital expenditures and expected changes in working capital as each of its goodwill reporting units grow.

No goodwill impairment charges were recognized for the fiscal years ended June 30, 2022 and 2021. Goodwill impairment charges totaled $119.0 million for the fiscal year ended June 30, 2020 and are included in the impairment charges line item in the Consolidated Income Statements. See Note 8 - Goodwill and Other Identifiable Intangible Assets for more information regarding goodwill and the results of our testing.

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, 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 3 to 19 years. Non-compete agreements are amortized over their contract life.

These assets are shown in detail in Note 8 - 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. No intangible asset or other long-lived asset impairment charges were recognized for the fiscal years ended June 30, 2022 and 2021. Intangible asset impairment charges totaled $1.4 million for our continuing operations for the fiscal year ended June 30, 2020 and are included in the impairment charges line item in the Consolidated Income Statements. See Note 8 - Goodwill and Other Identifiable Intangible Assets for more information regarding intangible asset impairment charges.

Fair Value of Financial Instruments

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 Occurrencefair value of Certain Termination Events
derivatives, please see Note 11 - Fair Value of Financial Instruments.

Liability for Contingent Consideration
In addition to the initial cash consideration paid to former shareholders of Intelisys, the Company agreed to make additional earnout payments based on future results through a specified date based on a multiple of the subsidiary’s pro forma earnings as defined in the respective purchase agreements. The Company paid the final earnout payment to the former shareholders of Intelisys during fiscal year 2021.

Contingencies

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
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

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

Revenue Recognition

The Company accounts for revenue in accordance with ASC 606, 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 a Company warehouse, (ii) drop-shipment directly from the supplier, or (iii) electronic delivery for software licenses. For more detailed disclosures on the Company's revenue recognition policies, see Note 3 - Revenue Recognition.

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, 2022, 2021 and 2020. 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 functional currencies include U.S. dollars, Brazilian reais, British pounds, euros and Canadian dollars. The assets and liabilities of these foreign entities are translated into U.S. 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 listedare not significant to any of the periods presented.

Income Taxes

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 14 - Income Taxes for further discussion.

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 to estimate the total number of awards for which the requisite service period will not be rendered or to account for forfeitures when they occur. The Company estimates the total number of awards expected to be forfeited at the time of grant and revise such estimates, if necessary, in subsequent periods if actual forfeitures differ. The Company has elected to expense grants of awards with graded vesting on a straight-line basis over the requisite service period for each separately vesting portion of the award.

Common stock repurchases
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2022


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

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.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842) requiring lessees to reflect most leases on their balance sheets and recognize expenses on their income statements in a manner similar to current guidance. Under the new guidance, lessees are required to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The asset is measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee's initial direct costs. For leases with a lease term of 12 months or less, as long as the lease does not include options to purchase the underlying assets, lessees can elect not to recognize a lease liability and right-of-use asset. Under the new guidance, lessor accounting is largely unchanged, and the accounting for sale and leaseback transactions is simplified. This ASU was effective for the Company beginning in the first quarter of fiscal 2020. Entities are required to use the modified retrospective approach of adoption, with the option of applying the requirements of the standard either (1) retrospectively to each prior comparative reporting period presented or (2) retrospectively at the beginning of the period of adoption.  The Company adopted the standard on July 1, 2019 and applied it at the beginning of the period of adoption. The adoption of this standard was not material to the Company's Condensed Consolidated Income Statements. See Note 15 - Leases for additional lease disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326: Financial Instruments - Credit Losses, which provides supplemental guidance and clarification to ASU 2016-13 and must be adopted concurrently. The pronouncement revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The Company adopted this standard effective July 1, 2020, and it did not have a material impact on the Company's consolidated financial statements. See Note 2 - Trade Accounts and Notes Receivable for disclosures related to the adoption of ASU 2016-13.

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

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June 30, 2022




(2)     Trade Accounts and Notes Receivable, Net

The Company maintains an allowance for doubtful accounts receivable for estimated future expected credit losses resulting from customers’ failure to make payments on accounts receivable due to the Company. The Company has notes receivable with certain customers, which are included in “Accounts receivable, less allowance” in the Condensed Consolidated Balance Sheets.

Management determines the estimate of the allowance for doubtful accounts receivable by considering a number of factors, including: (i) historical experience, (ii) aging of the accounts receivable, (iii) specific information obtained by the Company on the financial condition and the current creditworthiness of its customers, (iv) the current economic and country-specific environment and (v) reasonable and supportable forecasts about collectability. Expected credit losses are estimated on a pool basis when similar risk characteristics exist using an age-based reserve model. Receivables that do not share risk characteristics are evaluated on an individual basis. Estimates of expected credit losses on trade receivables are recorded at inception and adjusted over the contractual life.

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

DescriptionBalance at
Beginning
of Period		Amounts
Charged to
Expense		Write-offs
Other (1)
Balance at
End of
Period
(in thousands)
Allowance for bad debt:
Year ended June 30, 2020$27,521 1,621 (5,176)(2,060)$21,906 
Trade and current note receivable allowance$21,906 
Year ended June 30, 2021$21,906 338 (4,556)1,653 $19,341 
Trade and current note receivable allowance$19,341 
Year ended June 30, 2022$19,341 1,514 (1,751)(2,298)$16,806 
Trade and current note receivable allowance$16,806 

(1)"Other" amounts include recoveries and the effect of foreign currency fluctuations for the fiscal years ended June 30, 2022, 2021 and 2020, respectively.





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Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

(3)     Revenue Recognition

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

Significant Judgments:

Principal versus Agent Considerations

The Company is the principal for sales of hardware, and certain software services. The Company considers itself the principal in those transactions where it has control of the product or service before it is transferred to the customer. The Company recognizes the principal-associated revenue and cost of goods sold on a gross basis.

The Company is the agent for third-party service contracts, including product warranties and supplier-hosted software. 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. The Intelisys business operates under an agency model.

Variable Considerations

For certain transactions, products are sold with a right of return, and the Company may also provide other rebates or incentives, which are accounted for as variable consideration. The Company estimates the amount of variable consideration for rebates and incentives by using the expected value to be given to the customer and reduces the revenue by those estimated amounts. These estimates are reviewed and updated as necessary at the end of each reporting period. The Company estimates returns allowance based on historical experience and reduces revenue accordingly.

Contract Balances

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.
•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:
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

Fiscal year ended June 30, 2022
Specialty Technology SolutionsModern Communications & CloudTotal
Revenue by product/service type:(in thousands)
Hardware, software and cloud (excluding Intelisys)$2,082,321 $1,373,342 $3,455,663 
Intelisys connectivity and cloud— 74,272 74,272 
$2,082,321 $1,447,614 $3,529,935 

Fiscal year ended June 30, 2021
Specialty Technology SolutionsModern Communications & CloudTotal
Revenue by product/service type:(in thousands)
Hardware, software and cloud (excluding Intelisys)$1,815,933 $1,269,930 $3,085,863 
Intelisys connectivity and cloud— 64,943 64,943 
$1,815,933 $1,334,873 $3,150,806 

Fiscal year ended June 30, 2020
Specialty Technology SolutionsModern Communications & CloudTotal
Revenue by product/service type:(in thousands)
Hardware, software and cloud (excluding Intelisys)$1,580,441 $1,409,872 $2,990,313 
Intelisys connectivity and cloud— 57,421 57,421 
$1,580,441 $1,467,293 $3,047,734 

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Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

(4)    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,
202220212020
 (in thousands, except per share data)
Numerator:
Net income (loss) from continuing operations$88,698 $45,389 $(79,227)
Net income (loss) from discontinued operations100 (34,594)(113,427)
Net income (loss)$88,798 $10,795 $(192,654)
Denominator:
Weighted-average shares, basic25,50425,423 25,378 
Dilutive effect of share-based payments254 95 — 
Weighted-average shares, diluted(1)
25,75825,518 25,378 
Net income (loss) from continuing operations per common share, basic$3.48 $1.79 $(3.12)
Net loss from discontinued operations per common share, basic— (1.36)(4.47)
Net income (loss) per common share, basic$3.48 $0.42 $(7.59)
Net income (loss) from continuing operations per common share, diluted$3.44 $1.78 $(3.12)
Net loss from discontinued operations per common share, diluted— (1.36)(4.47)
Net income (loss) per common share, diluted$3.45 $0.42 $(7.59)
(1) The Company calculates weighted average shares of common stock in accordance with ASC 260, Earnings per Share. The Company's diluted weighted average shares for the year ended June 30, 2020 are the same as basic weighted average shares due to net loss from continuing operations.

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

(5)    Property and Equipment

Property and equipment is comprised of the following:

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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

 June 30,
 20222021
 (in thousands)
Land$2,999 $3,319 
Buildings and leasehold improvements19,838 20,947 
Computer software and equipment72,289 74,432 
Furniture, fixtures and equipment15,223 15,359 
Construction in progress209 123 
Rental equipment9,539 9,379 
120,097 123,559 
Less accumulated depreciation(82,620)(80,723)
$37,477 $42,836 

Depreciation expense recorded as selling, general and administrative costs in the accompanying Consolidated Income Statements was $11.1 million, $12.5 million and $13.0 million for the fiscal years ended June 30, 2022, 2021 and 2020, respectively. Depreciation expense recorded as cost of goods sold in the accompanying Consolidated Income Statements was $1.0 million, $1.5 million and $2.3 million for the fiscal years ended June 30, 2022, 2021 and 2020, respectively.

(6)    Other Assets and Liabilities, Current and Noncurrent

The table below Mr. Dean is entitled to all accrued compensation, unreimburseddetails prepaid expenses and other benefits throughcurrent assets.
June 30,
20222021
(in thousands)
Other receivables$70,105 $73,113 
Prepaid expense51,013 23,641 
Other taxes receivable5,177 9,473 
Other current assets15,267 11,633 
$141,562 $117,860 


The table below details accrued expenses and other current liabilities.
 June 30,
 20222021
 (in thousands)
Deferred warranty revenue$9,640 $9,752 
Accrued compensation25,180 27,340 
Other taxes payable10,852 15,183 
Accrued marketing expense7,697 5,536 
Accrued freight3,421 3,528 
Short-term operating lease liability4,499 4,284 
Other accrued liabilities27,166 22,167 
$88,455 $87,790 

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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

The table below details other long-term liabilities.
 June 30,
 20222021
 (in thousands)
Long-term deferred warranty revenue$4,706 $2,958 
Long-term deferred compensation liability22,558 26,229 
Interest rate swap— 6,280 
Long-term income taxes payable5,269 5,971 
Long-term operating lease liability13,085 16,550 
Other long-term liabilities8,302 10,281 
$53,920 $68,269 

(7)    Acquisitions

intY

On July 1, 2019, the dateCompany acquired all of terminationthe outstanding shares of intY and its CASCADE cloud services distribution platform. The purchase price of this acquisition, net of cash acquired, was approximately $48.9 million. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction date. Intangible assets acquired include trade names, customer relationships, and developed technology. Goodwill recognized on this acquisition is not deductible for tax purposes. See Note 8 - Goodwill and Other Identifiable Intangible Assets for the amounts of goodwill and intangible assets 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 the fiscal year ended June 30, 2020 in acquisition-related costs included in selling, general and administrative expenses on the Condensed Consolidated Income Statements in connection with this acquisition. This acquisition is included in the Modern Communications & Cloud segment.
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

(8)    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, Specialty Technology Solutions and Modern Communications & Cloud. The testing includes the determination of each reporting unit's fair value using a discounted cash flows model compared to each reporting unit's carrying value. Key assumptions used in determining fair value include projected growth and operating margin, working capital requirements and discount rates. During fiscal years ended June 30, 2022 and 2021, no impairment charges related to goodwill were recorded. For the fiscal year ended June 30, 2020, the Company's projected growth and operating margins were impacted by the worldwide economic hardships created by COVID-19 and as such recognized a goodwill impairment charge of $119.0 million, which is recorded to the impairment charges line item in the Consolidated Income Statements.

Changes in the carrying amount of goodwill for the years ended June 30, 2022 and 2021, by reportable segment, are set forth in the table below.
Specialty Technology SolutionsModern Communications & CloudTotal
 (in thousands)
Balance at June 30, 2020$16,370 $197,918 $214,288 
Unrealized gain on foreign currency translation— 4,589 4,589 
Balance at June 30, 2021$16,370 $202,507 $218,877 
Unrealized loss on foreign currency translation— (4,442)(4,442)
Balance at June 30, 2022$16,370 $198,065 $214,435 

The following table shows the Company’s identifiable intangible assets as of June 30, 2022 and 2021, respectively.
 June 30, 2022June 30, 2021
 Gross
Carrying
Amount		Accumulated
Amortization		Net
Book
Value		Gross
Carrying
Amount		Accumulated
Amortization		Net
Book
Value
 (in thousands)
Amortized intangible assets:
Customer relationships$137,366 $79,147 $58,219 $139,262 $68,716 $70,546 
Trade names19,480 12,469 7,011 19,750 10,102 9,648 
Non-compete agreements2,410 2,396 14 2,410 2,271 139 
Supplier partner program4,085 2,051 2,034 4,085 1,621 2,464 
Encryption key library19,900 12,230 7,670 19,900 9,743 10,157 
Developed technology13,865 4,386 9,479 15,165 3,259 11,906 
Total intangibles$197,106 $112,679 $84,427 $200,572 $95,712 $104,860 

During fiscal year 2020, the Company recorded $1.4 million in impairment charges in customer relationships, trade names and non-compete agreements related to the acquisition of Canpango. This charge is included in the impairment charges line item in the Consolidated Income Statements.No impairment charges were recognized in fiscal years ended June 30, 2022 and 2021.

The weighted-average amortization period for all intangible assets was approximately 10 years for the fiscal years ended June 30, 2022, 2021 and 2020. Amortization expense for continuing operations for the years ended June 30, 2022, 2021 and 2020 was $17.9 million, $19.5 million and $20.0 million, respectively, all of which relates to selling, general and administrative costs, not the cost of selling goods, and has been presented as such in the accompanying Consolidated Income Statements.

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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

Estimated future amortization expense is as follows:
 Amortization
Expense
 (in thousands)
Year Ended June 30,
2023$16,746 
202416,642 
202516,642 
202612,775 
20276,602 
Thereafter15,020 
Total$84,427 

(9)    Short Term Borrowings and Long Term Debt
The following table shows the Company’s short-term and long-term debt as of June 30, 2022 and 2021, respectively.
June 30,
20222021
(in thousands)
Current portion of long-term debt$11,598 $7,843 
Mississippi revenue bond, net of current portion3,733 4,081 
Senior secured term loan facility, net of current portion120,000 131,250 
Borrowings under revolving credit facility135,839 — 
Total debt$271,170 $143,174 

Credit Facility

The Company has a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks. On April 30, 2019, the Company amended this credit facility to expand the borrowing capacity and extend its maturity to April 30, 2024. On December 23, 2021, the Company entered into an amendment to the Amended Credit Agreement which, among other things, replaced LIBOR as the benchmark rate for non-U.S. Dollar loans and provided for an interpolated rate for 7-day LIBOR for U.S. Dollar loans. The Amended Credit Agreement includes (i) a five-year $350 million multi-currency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility. Pursuant to an “accordion feature,” the Company may increase its borrowings up to an additional $250 million for a total of up to $750 million, subject to obtaining additional credit commitments from the lenders participating in the increase. The Amended Credit Agreement allows for the issuance of up to $50 million for letters of credit, subject to obtaining additional credit commitments from the lenders participating in the increase. Borrowings under the Amended Credit Agreement are secured by substantially all of the domestic assets of the Company and a pledge of up to 65% of capital stock or other equity interest in certain foreign subsidiaries determined to be either material or a subsidiary borrower as defined in the Amended Credit Agreement. Under the terms of the revolving credit facility, the payment of cash dividends is restricted.

At the Company's option, loans denominated in U.S. dollars under the Amended Credit Agreement, other than swingline loans, bear interest at a rate equal to a spread over the LIBOR or alternate base rate depending upon the Company's net leverage ratio, calculated as total debt less up to $15 million of unrestricted domestic cash ("Credit Facility Net Debt") to trailing 4-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.
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022


The spread in effect as of June 30, 2022 was 1.25% for LIBOR-based loans and 0.25% for alternate base rate loans. The commitment fee rate in effect as of June 30, 2022 was 0.20%. 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 to 1.00 as of the end of each fiscal quarter. In the event of his termination.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 Amended Credit Agreement as of June 30, 2022.
The average daily balance on the revolving credit facility, excluding the term loan facility, was $69.0 million during the fiscal year ended June 30, 2022. Including borrowings for both continuing and discontinued operations, the average daily balance on the revolving credit facility was $54.6 million for the fiscal year ended June 30, 2021. There was $214.2 million and $350.0 million available for additional borrowings as of June 30, 2022 and 2021, respectively. There were no letters of credit issued under the multi-currency revolving credit facility as of June 30, 2022 and 2021.

Mississippi Revenue Bond

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, 2022, the Company was in compliance with all covenants under this bond. The interest rates at June 30, 2022 and 2021 were 1.97% and 0.94%, respectively.

Scheduled maturities of the Company’s short-term borrowings, revolving credit facility from continuing operations and long-term debt at June 30, 2022 are as follows:
 Revolving Credit FacilityTerm Loan FacilityMississippi Bond
 (in thousands)
Fiscal year:
2023$— $11,250 $348 
2024135,839 120,000 352 
2025— — 357 
2026— — 361 
2027— — 366 
Thereafter— — 2,297 
Total principal payments$135,839 $131,250 $4,081 

Debt Issuance Costs

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

(10)    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
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

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

Foreign Currency Derivatives – The Company conducts a portion of its business internationally in a variety of foreign currencies and is exposed to market risk for changes in foreign currency exchange 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, British pound, euro and Canadian dollar for continuing operations. See Note 1- Business and Summary of Significant Accounting Policies for more information regarding the Company's policy on derivative financial instruments.

The Company had contracts outstanding with notional amounts of $34.5 million and $27.9 million for the exchange of foreign currencies as of June 30, 2022 and 2021, respectively. To date, the Company has chosen not to designate these derivatives as hedging instruments, and accordingly, these instruments are adjusted to fair value through earnings in other income and expense. Summarized financial information related to these derivative contracts and changes in the underlying value of the foreign currency exposures are as follows:
 Fiscal year ended June 30,
 202220212020
 (in thousands)
Net foreign exchange derivative contract (gains) losses$(304)$3,462 $(3,975)
Net foreign currency transactional and re-measurement losses (gains)2,382 (2,617)4,500 
Net foreign currency losses$2,078 $845 $525 

Net foreign exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign currency exchange contract gains and losses and are included in other income and expense. Foreign exchange gains and losses are generated as the result of fluctuations in the value of the U.S. dollar versus the Brazilian real and other currencies versus the U.S. dollar.
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 no ineffective portion to be recorded as an adjustment to earnings for fiscal years ended June 30, 2022 and 2021.

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:
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

28
Fiscal Year Ended June 30,
 202220212020
 (in thousands)
Net interest expense recognized as a result of interest rate swap$2,088 $2,250 $799 
Unrealized gain (loss) in fair value of interest swap rates5,748 731 (6,900)
Net increase (decrease) in accumulated other comprehensive income (loss)7,836 2,981 (6,101)
Income tax effect(2,003)(732)1,455 
Net increase (decrease) in accumulated other comprehensive income, net of tax$5,833 $2,249 $(4,646)

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

June 30, 2022
Balance Sheet LocationFair Value of  Derivatives
Designated as  Hedge
Instruments		Fair Value of  Derivatives
Not Designated as Hedge
Instruments
(in thousands)
Derivative assets:
Interest rate swap agreementOther current assets$1,686$—
Derivative liabilities:
Foreign exchange contractsAccrued expenses and other current liabilities$—$5
Foreign currency hedgeOther current liabilities$93$—

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

June 30, 2021
Balance Sheet LocationFair Value of  Derivatives
Designated as  Hedge
Instruments		Fair Value of  Derivatives
Not Designated as Hedge
Instruments
(in thousands)
Derivative assets:
Foreign currency hedgeOther current assets$187$—
Derivative liabilities:
Foreign exchange contractsAccrued expenses and other current liabilities$—$5
Interest rate swap agreementOther current liabilities$6,280$—

   
Before
Change in
Control
Termination
w/o Cause
or for Good
Reason
($)
   
After
Change in
Control
Termination
w/o Cause
or for Good
Reason
($)
   
Termination
Due to
Death
($)
   
Termination
Due to
Retirement
($)
   
Termination
Due to
Disability
($)
   
Voluntary
Termination
($)
 
Severance
   823,526    1,098,034    —    —    —    — 
Pro Rata Variable Compensation
(1)
   34,857    34,857    34,857    34,857    34,857    34,857 
Equity Acceleration
(2)
   —    190,696    190,696    190,696    190,696    — 
Performance-Based Equity Acceleration
(3)
   —    214,088    214,088    214,088    214,088    — 
Medical Coverage
(4)
   38,726    38,726    38,726    38,726    38,726    — 
Disability
(5)
   —    —    —    —    225,000    — 
TOTAL
(6)
   897,109    1,576,401    478,367    478,367    703,367    34,857 

(11)    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
(1)
Mr. Dean’s employment arrangements provide for the payment of a pro rata portion of the current fiscal year annual variable compensation that would otherwise be payable if Mr. Dean had continued employment through the end of the current fiscal year, based on actual performance. Amounts shown reflect the earned and unpaid portion of Mr. Dean fiscal 2020 annual variable compensation as of June 30, 2020.
(2)
Reflects (i) the difference between fair market value as of June 30, 2020 of the underlying shares over the exercise price of all unvested stock options, and (ii) the fair market value of all unearned and unvested
non-performance-based
restricted stock awards and restricted stock units. Vesting accelerates in the event of a change in control and termination by the Company without cause or by the grantee for good reason.
(3)
Reflects the fair market value as of June 30, 2020, of the shares of all unearned and unvested performance based restricted stock awards, the vesting of which accelerates with a change in control and termination by the Company without cause or by the grantee for good reason.
(4)
Reflects the cost of providing continued health and welfare benefits to the executive officer as provided in the executive officer’s employment arrangements.
(5)
The executive officer’s employment arrangement provides that if his employment is terminated by reason of disability, he will continue to receive his salary during the period under which he continues to receive benefits under our short-term disability policy (assumed to be six months for purposes of this disclosure), less any benefits received under our short-term disability policy.
(6)
These amounts do not include the payout of the executive officer’s vested balance under our Nonqualified Deferred Compensation Plan, which is reflected and described in the Nonqualified Deferred Compensation Table herein.
Pay Ratio Disclosure70
Pursuant
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Index to Item 402(u)Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

classify certain assets and liabilities based on the fair value hierarchy, which groups fair value-measured assets and liabilities based upon the following levels of Regulationinputs:
S-K
promulgated under
•Level 1 – Unadjusted quoted prices in active markets that are accessible at the Exchange Act, wemeasurement 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 disclosebe measured at fair value on a recurring basis include deferred compensation plan investments, forward foreign currency exchange contracts, foreign currency hedge agreements, interest rate swap agreements and contingent consideration owed to the median annual total compensationprevious owners of allIntelisys. 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 employees,Company's debt instruments are indexed to a variable rate using the total compensationmarket approach (Level 2 criteria).

The following table summarizes the valuation of the Company’s Chief Executive OfficerCompany's remaining assets and liabilities measured at fair value on a recurring basis as of June 30, 2022:
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$25,178 $25,178 $— $— 
Interest rate swap agreement1,686 — 1,686 — 
Total assets at fair value$26,864 $25,178 $1,686 $— 
Liabilities:
Deferred compensation plan investments, current and non-current portion$25,178 $25,178 $— $— 
Forward foreign currency exchange contracts5 — 5 — 
Foreign currency hedge93 — 93 — 
Total liabilities at fair value$25,276 $25,178 $98 $— 

The following table presents assets and liabilities measured at fair value on a recurring basis as of June 30, 2021:
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

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$31,168 $31,168 $— $— 
Foreign currency hedge187 — 187 — 
Total assets at fair value$31,355 $31,168 $187 $— 
Liabilities:
Deferred compensation plan investments, current and non-current portion$31,168 $31,168 $— $— 
Forward foreign currency exchange contracts5 — 5 — 
Interest rate swap agreement6,280 — 6,280 — 
Total liabilities at fair value$37,453 $31,168 $6,285 $— 

The investments in the ratio of those two amounts. The pay ratio set forth below is a reasonable estimate and has been calculateddeferred compensation plan are held in a manner consistent"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 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 SEC rulesinputs that can be derived from observable market transactions, including LIBOR spot and basedforward 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 methodology described below. respective instruments' favorable or unfavorable positions. See Note 10 - Derivatives and Hedging Activities.
The SEC rulesCompany recorded contingent consideration liabilities at the acquisition date of Intelisys representing the amounts payable to former shareholders, as outlined under the terms of the purchase agreement, based upon the achievement of a projected earnings measure, net of specific pro forma adjustments. Intelisys is part of the Company's Modern Communications & Cloud segment. The fair value of the contingent considerations (Level 3) is determined using a form of a probability weighted discounted cash flow model.

The table below provides a summary of the changes in fair value of the Company's contingent considerations for identifying median employees allow companies to usethe Intelisys earnout, which is measured at fair value on a variety of methodologies. As a result,recurring basis using significant unobservable inputs (Level 3) for the pay ratio reported by others may not be comparable to our reported pay ratio. For thefiscal year ended June 30, 2020:2021.

June 30, 2021
Modern Communications & Cloud
(in thousands)
Fair value at beginning of period$46,334 
Payments(46,850)
Change in fair value516 
Fair value at end of period$— 

72
●
the total compensation for our median employee was $45,914;
●
the annual total compensation of Mr. Baur was $3,442,451; and
●
based on the information above, the ratio of the annual total compensation of our Chief Executive Officer to the median of the annual total compensation of all employees is 75 to 1.
DuringTable of Contents

Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

The fair values of amounts owed were recorded in the current portion of contingent consideration and the long-term portion of contingent consideration in the Company's Consolidated Balance Sheets. In accordance with ASC 805, the Company revalued the contingent consideration liability at each reporting date through the last payment, with changes in the fair value of the contingent consideration reflected in the change in fair value of contingent consideration line item on the Company's Consolidated Income Statement that is included in the calculation of operating income. The fair value of the contingent consideration liability that was associated with future earnout payments was based on several factors, including:

•estimated future results, net of pro forma adjustments set forth in the purchase agreements;
•the probability of achieving these results; and
•a discount rate reflective of the Company's creditworthiness and market risk premium associated with the United States market.

The final earnout payment was paid to the former shareholders of Intelisys during the fiscal year 2020 there were no changesended June 30, 2021. The expense from the change in our employee population or employeefair value of the contingent consideration recognized in the Condensed Consolidated Income Statement totaled $0.5 million for the fiscal year ended June 30, 2021. The change in fair value for the fiscal year is due to the recurring amortization of the unrecognized fair value discount.

(12)    Share-Based Compensation

Share-Based Compensation Plans

The Company has awards outstanding from 2 share-based compensation arrangements that we reasonably believe would result in a significant change to our pay ratio disclosure. Therefore, to calculate our fiscal 2020 pay ratio, we used the same median employee identified in fiscal 2019 and fiscal 2018.
The methodology that we usedplans (the 2013 Long-Term Incentive Plan and the material assumptions, adjustments2021 Long-Term Incentive Plan). The 2021 Long-Term Incentive Plan was approved at the annual meeting of the shareholders on January 27, 2022. The 2021 Plan permits the grant of any or all of the following types of awards to grantees: stock options, including non-qualified options and estimates that we used to identifyISOs; SARs; restricted stock ("RSA"); deferred stock and restricted stock units ("RSU"); performance units ("PU") and performance shares; dividend equivalents; and other stock-based awards. Eligible grantees include employees, officers, non-employee consultants and non-employee directors of the medianCompany and determine annual total compensation were as follows:
Employee population
.its affiliates. Awards are currently only being granted under the 2021 Long-Term Incentive Plan. As of June 30, 2018,2022, there were 1,606,475 shares available for future grant under the 2021 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. An RSA is common stock that is subject to risk of forfeiture or other restrictions that lapse upon satisfaction of specified conditions. An RSU represents the right to receive shares of common stock in the future with the right to future delivery of the shares subject to risk of forfeiture or other restrictions that lapse upon satisfaction of specified conditions. A PU represents the right to receive shares of common stock in the future contingent on performance against predetermined objectives over a specified performance period.

The Company accounts for its share-based compensation awards in accordance with ASC 718, Stock Compensation, which requires all share-based compensation to be recognized in the income statement based on fair value and applies to all awards granted, modified, canceled or repurchased after the effective date. 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,
 202220212020
 (in thousands)
Share-based compensation related to:
Equity classified stock options$1,848 $1,332 $508 
Equity classified restricted stock9,815 6,707 4,970 
Total share-based compensation$11,663 $8,039 $5,478 

Stock Options

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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

The Company did not grant stock options during the fiscal year ended June 30, 2022 or June 30, 2020. The Company granted stock options for 640,782 shares during the fiscal year ended June 30, 2021 that vest annually over 3 years and have a 10-year contractual life. These options were granted with an exercise price that is no less than 100% of the fair market value of the underlying shares on the date we selectedof the grant.

The fair value of each option (for purposes of calculation of share-based compensation) was estimated on the date of grant using the Black-Scholes-Merton option pricing formula that uses assumptions determined at the date of grant. Use of this option pricing model requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them ("expected term"), the estimated volatility of the Company's common stock price over the expected term ("expected volatility") and the number of options that will ultimately not complete 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.

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

Fiscal Year Ended June 30,
2021
Expected term5 years
Expected volatility42.78%
Risk-free interest rate0.36%
Dividend yield0.00%
Weighted-average fair value per option$9.01

The weighted-average expected term of the options represents the period of time the options are expected to identify our median employee, our employee population consistedbe outstanding based on historical trends and behaviors of approximately 2,611certain groups and individuals with 1,106 employees representing 42%receiving these awards. The expected volatility is predominantly based on the historical volatility of our total employee population located outsidecommon 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 1,505management's expectations of future dividend payments.

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

 Fiscal Year Ended June 30, 2022
 OptionsWeighted-
Average
Exercise
Price		Weighted-
Average
Remaining
Contractual
Life		Aggregate
Intrinsic
Value
Outstanding, beginning of year1,235,569 $31.84 
Granted during the period— — 
Exercised during the period(78,126)29.47 
Canceled, forfeited, or expired during the period(34,344)24.50 
Outstanding, end of year1,123,099 32.23 5.77$3,343,205 
Vested and expected to vest at June 30, 20221,119,804 32.26 5.76$3,320,639 
Exercisable, end of year738,461 $35.92 4.40$— 

The aggregate intrinsic value was calculated using the market price of the Company's stock on June 30, 2022, 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, 2022, 2021 and 2020 was $0.6 million, less than $0.1 million and $0.2 million, respectively.

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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

A summary of the status of the Company’s shares subject to unvested options is presented below:
 Fiscal Year Ended June 30, 2022
 OptionsWeighted Average Exercise PriceWeighted Average
Grant Date 
Fair Value
Unvested, beginning of year633,582 $25.10 $9.02 
Granted— — — 
Vested(214,600)25.11 9.03 
Canceled or forfeited(34,344)24.50 8.31 
Unvested, end of year384,638 $25.16 $9.08 

As of June 30, 2022, there was approximately $2.4 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans in the form of stock options. This cost is expected to be recognized over a weighted-average period of 0.88 years. The total fair value of options vested during the fiscal years ended June 30, 2022, 2021 and 2020 is $1.9 million, $0.3 million and $0.7 million, respectively. The following table summarizes information about stock options outstanding and exercisable as of June 30, 2022:

 Options OutstandingOptions Exercisable
Range of Exercise PricesShares
  Outstanding		Weighted
Average
Remaining
  Contractual Life		Weighted Average
Exercise
Price		Number ExercisableWeighted Average
Exercise
Price
$22.27 - $26.38418,853 8.3824.52 128,480 24.55 
$26.38 - $30.49142,825 8.4027.14 48,560 27.14 
$30.49 - $34.6073,303 5.4634.06 73,303 34.06 
$34.60 - $38.71208,669 3.8437.71 208,669 37.71 
$38.71 - $42.82279,449 2.0241.82 279,449 41.83 
1,123,099 5.77$32.23 738,461 $35.92 

The Company issues shares to satisfy the exercise of options.

Restricted Stock

Grants of Restricted Shares

During the fiscal year ended June 30, 2022, the Company granted 381,204 shares of restricted stock to employees representing 58%and non-employee directors, all of our total employee populationwhich were issued in the form of RSUs:
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

 Fiscal Year Ended June 30, 2022
 Shares
granted		Date grantedGrant date
fair value		Vesting period
Employees
Certain employees based on performance255,438 August 27, 2021$36.05 Annually over 4 years
Certain employees based on performance36,927 August 27, 2021$36.05 Annually over 3 years
Certain employees based on performance36,931 August 27, 2021$41.26 Annually over 3 years
Certain employees based upon hire8,671 September 1, 2021$34.60 Annually over 4 years
Certain employees based on performance3,041 December 1, 2021$30.46 Annually over 4 years
Certain employees based on performance3,020 March 1, 2022$35.51 Annually over 4 years
Certain employees based on performance1,294 June 1, 2022$38.73 Annually over 4 years
Certain employees based on hire2,582 June 1, 2022$38.73 Annually over 4 years
Non-Employee Directors
Certain Directors33,300 August 27, 2021$36.05 6 months

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

 Fiscal Year Ended June 30, 2022
 SharesWeighted-Average
Grant Date Fair
Value
Outstanding, beginning of year537,983 $27.99 
Granted during the period381,204 36.47 
Vested during the period(237,943)30.54 
Cancelled, forfeited, or expired during the period(41,902)28.93 
Outstanding, end of year639,342 $32.04 

As of June 30, 2022, there was approximately $15.3 million of unrecognized compensation cost related to unvested restricted stock awards and restricted stock units granted, which is expected to be recognized over a weighted-average period of 1.28 years. The Company withheld 77,989 shares for income taxes during the fiscal year ended June 30, 2022.

(13)    Employee Benefit Plans

The Company maintains defined contribution plans that cover all employees located in the United States. Our employee population for purposesStates that meet certain eligibility requirements and provides a matching contribution equal to 50% of determiningeach participant’s contribution, up to a maximum of 6% of the pay ratio described above was 2,376, after taking into consideration (i) the de minimis adjustment and (ii) the exclusion of certain recently acquired employees, each as permitted by the SEC rules. We excluded approximately 12 individuals whoparticipant's eligible compensation. Employer contributions are located in Chile, 48 individuals who are located in Colombia and 9 individuals who are located in Peru under the de minimis exception. Thesevested based upon tenure over a five-year period.
non-U.S.
 Fiscal Year Ended June 30,
 202220212020
 (in thousands)
Matching contributions$2,929 $1,262 $1,214 
employees accounted for 5% or less of our total employees. We also excluded 173 employees who joined

Internationally, the Company ascontributes to either plans required by local governments or to various employee annuity plans. Additionally, the Company maintains a resultnon-qualified, unfunded deferred compensation plan that allows eligible members of our acquisitionmanagement to defer a portion of POS Portaltheir compensation in July 2017.addition to receiving discretionary matching contributions from the Company. Employer contributions are vested over a five-year period.

(14)    Income Taxes

Identification76
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

.  To identify
As of fiscal year ended June 30, 2022, the medianCompany maintains the ability to access the earnings of foreign subsidiaries. The Company considered recording a deferred tax liability related to federal, state and withholding tax and determined that no liability should be recorded. There is no certainty as to the timing of the annual total compensationdistributions of allsuch earnings to the U.S. in whole or in part.

Income tax expense (benefit) consists of:
 Fiscal Year Ended June 30,
 202220212020
 (in thousands)
Current:
Federal$16,895 $9,132 $13,892 
State5,238 1,261 3,244 
Foreign3,896 874 1,188 
Total current26,029 11,267 18,324 
Deferred:
Federal3,429 207 (8,526)
State129 (1,297)(2,667)
Foreign338 1,969 320 
Total deferred3,896 879 (10,873)
Provision for income taxes$29,925 $12,146 $7,451 

A reconciliation is provided below of our employees, we reviewed the total cashU.S. Federal income tax expense for the fiscal years ended June 30, 2022, June 30, 2021 and June 30, 2020 with the applicable statutory rate of 21%.
 Fiscal Year Ended June 30,
 202220212020
 (in thousands)
U.S. statutory rate21.0 %21.0 %21.0 %
U.S. Federal income tax at statutory rate$24,911 $12,082 $(15,073)
Increase (decrease) in income taxes due to:
State and local income taxes, net of Federal benefit4,265 996 1,316 
Tax credits(796)(170)(1,419)
Valuation allowance(200)3,472 1,699 
Effect of varying statutory rates in foreign operations, net1,145 1,051 1,374 
Stock compensation(121)1,094 41 
Capitalized acquisition costs— — 59 
Disallowed interest— 86 1,639 
Earnings from foreign subsidiaries928 124 1,661 
Net favorable recovery— — (6,517)
Losses on dispositions— (2,897)— 
Global intangible low taxed income tax
630 (45)(128)
Non-deductible goodwill impairment— — 20,180 
Nontaxable income(2,050)(1,628)— 
Notional interest deduction on net equity(780)(568)— 
Other1,993 (1,451)2,619 
Provision for income taxes$29,925 $12,146 $7,451 

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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
 June 30,
 20222021
 (in thousands)
Deferred tax assets derived from:
Allowance for accounts receivable$3,630 $5,557 
Inventories3,510 5,577 
Nondeductible accrued expenses7,859 8,024 
Net operating loss carryforwards705 892 
Tax credits6,410 7,138 
Deferred compensation6,548 7,893 
Stock compensation4,001 2,977 
Capital loss carryforwards7,831 7,633 
Timing of amortization deduction from intangible assets5,676 4,880 
Total deferred tax assets46,170 50,571 
Valuation allowance(13,181)(13,996)
Total deferred tax assets, net of allowance32,989 36,575 
Deferred tax liabilities derived from:
Timing of depreciation and other deductions from building and equipment(3,035)(3,749)
Timing of amortization deduction from goodwill(5,693)(582)
Timing of amortization deduction from intangible assets(11,737)(14,345)
Total deferred tax liabilities(20,465)(18,676)
Net deferred tax assets$12,524 $17,899 

The components of pretax earnings are as follows:
 Fiscal Year Ended June 30,
 202220212020
 (in thousands)
Domestic$93,586 $39,511 $(83,517)
Foreign25,037 18,024 11,741 
Worldwide pretax earnings$118,623 $57,535 $(71,776)

As of June 30, 2022, the Company will maintain the ability to access the earnings of all employeesforeign subsidiaries. The Company considered recording a deferred tax liability related to federal, state and withholding tax and determined that no liability should be recorded. There is no certainty as to the timing of the distribution of such earnings to the U.S. in whole or in part.

As of June 30, 2022, there were (i) gross net operating loss carryforwards of approximately $1.4 million for U.S. federal income tax purposes; (ii) gross state net operating loss carryforwards of approximately $5.6 million; (iii) foreign gross net operating loss carryforwards of approximately $0.8 million; (iv) state income tax credit carryforwards of approximately $2.5 million that began to expire in the 2021 tax year; (v) withholding tax credits of approximately $4.3 million; (vi) foreign tax credits of $0.1 million, and (vii) gross capital loss carryovers of $30.4 million. The Company maintains a valuation allowance of $0.3 million for U.S. federal income tax purposes, $7.9 million for capital loss carryforwards, $0.2 million for foreign net operating losses, a less than $0.1 million valuation allowance for state net operating losses, a $4.3 million valuation allowance for withholding tax credits, a $0.1 million valuation allowance for foreign tax credits, and a $0.3 million valuation allowance for state income tax credits, where it was determined that, in accordance with ASC 740, it is more likely than not that they cannot be utilized.

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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

The Company adopted ASU 2016-09 during fiscal year 2018 which required the Company to recognize excess tax benefits and tax deficiencies as income tax expense or benefit for stock award settlements. The Company recognized net tax benefit of $0.3 million for the twelve-month period ending onfiscal year ended June 30, 2018 (the “reported compensation”). In making this calculation, we annualized2022, net tax expense of $1.1 million for the reported compensationfiscal year ended June 30, 2021 and net tax expense of all of our employees who were hired during the period. While we did not make any cost of living adjustments to the reported compensation in identifying the median employee, we did convert the reported compensation of our
non-United
States employees to United States dollars using the applicable conversion rate as of June 29, 2018. Using this methodology, we determined that our median employee was a full-time, salaried employee located in the U.S.
COMPENSATION OF DIRECTORS
2020 Director Compensation Table
The following table provides information regarding the compensation paid to each of our
non-employee
directorsless than $0.1 million for the fiscal year ended June 30, 2020.

As of June 30, 2022, the Company had gross unrecognized tax benefits of $1.1 million, $0.8 million of which, if recognized, would affect the effective tax rate. This reflects a decrease of less than $0.1 million on a gross basis over the prior fiscal year. The Company does not expect that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

    Name
  
Fees
Earned
or Paid
in Cash
($)
     
Stock
Awards
($)
(1)
     
Total
($)
  Peter C. Browning
  170,000    130,425    300,425  
  Frank E. Emory, Jr.
(2)
  —          —          —
  Michael J. Grainger
  90,000    130,425    220,425  
  Dorothy F. Ramoneda
(3)
  56,666    155,100    211,766  
  John P. Reilly
  90,000    130,425    220,425  
  Jeffrey R. Rodek
(4)
  14,167    88,478    102,645  
  Elizabeth O. Temple
  90,000    130,425    220,425  
  Charles R. Whitchurch
  110,000    130,425    240,425  
(1) 
Amounts shown are the aggregate grant date fair value of restricted stock awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. For a discussion of the assumptions made in such valuation, see Note 11 to our audited financial statements for the fiscal year ended June 30, 2020, included in our Annual Report on Form
10-K
for the fiscal year ended June 30, 2020. Each then-serving
non-employee
director received a restricted stock award on November 15, 2019 for 3,700 shares that vested in June 2020. Mr. Rodek received his restricted stock award on May 14, 2020 for 4,100 shares, which shares vest on November 14, 2020. Other than 4,100 shares held by Mr. Rodek, none of the directors had any stock awards outstanding at June 30, 2020.
(2) 
Mr. Emory was appointed as a director of the Company effective October 5, 2020.
(3) 
Ms. Ramoneda was appointed as a director of the Company effective November 6, 2019.
(4) 
Mr. Rodek was appointed as a director of the Company effective May 6, 2020.
Cash RetainersThe 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 $1.2 million, $1.1 million and $1.0 million for Fiscalthe fiscal years ended June 30, 2022, 2021 and 2020,
Directors who are not our employees are paid an annual retainer of $85,000. An additional annual retainer of $70,000 is paid, as applicable, to a
non-executive
Chairman or Lead Independent Director respectively. A reconciliation of the Board. An additional annual retainerbeginning and ending amount of $25,000unrecognized tax benefits is paidas follows:
June 30,
202220212020
 (in thousands)
Beginning Balance$1,121 $1,156 $1,234 
Additions based on tax positions related to the current year139 68 137 
Reduction for tax positions of prior years(195)(103)(215)
Ending Balance$1,065 $1,121 $1,156 

The Company conducts business globally and, as a result, one or more of its subsidiaries files income tax returns in the United States federal, various state, local and foreign jurisdictions. 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, 2017.


(15)    Leases

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 whether the Company 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 are operating leases for real estate, warehouse and office equipment ranging 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 through fiscal year 2024. 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 chairfinancial statements at June 30, 2022 and 2021.

Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the net present value of future minimum lease payments over the lease term. The Company generally is not able to determine the rate implicit in its leases and has elected to apply an incremental borrowing rate as 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 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.

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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

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

Operating leasesBalance Sheet locationJune 30, 2022June 30, 2021
(in thousands)
Operating lease right-of-use assetsOther non-current assets$16,217 $19,246 
Current operating lease liabilitiesAccrued expenses and other current liabilities4,499 4,284 
Long-term operating lease liabilitiesOther long-term liabilities13,085 16,550 


The following table presents amounts recorded in operating lease expense as part of selling general and administrative expenses on the Condensed Consolidated Income Statements during the fiscal years ended June 30, 2022, 2021 and 2020. Operating lease costs contain immaterial amounts of short-term lease costs for leases with an initial term of 12 months or less.
Fiscal year ended June 30,
202220212020
(in thousands)
Operating lease cost$5,239 $5,256 $6,135 
Variable lease cost1,208 1,068 1,485 
$6,447 $6,324 $7,620 


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

Fiscal year ended June 30,
202220212020
(in thousands)
Cash paid for amounts in the measurement of lease liabilities$5,182 $5,456 $5,773 
Right-of-use assets obtained in exchange for lease obligations2,313 — 1,672 


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

June 30, 2022June 30, 2021
Weighted-average remaining lease term4.375.22
Weighted-average discount rate3.98 %4.11 %


The following table presents the maturities of the Audit Committee,Company's operating lease liabilities at June 30, 2022:

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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

Operating leases
(in thousands)
2023$5,245 
20244,545 
20253,417 
20262,878 
20272,597 
Thereafter649 
Total future payments19,331 
Less: amounts representing interest1,747 
Present value of lease payments$17,584 


(16)    Commitments and an additional annual retainerContingencies

A majority of $15,000 is paidthe Company’s net revenues in fiscal years 2022, 2021 and 2020 were received from the sale of products purchased from the Company’s 10 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 chairCompany, 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 and results of operations.

Capital Projects

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

Pre-Acquisition Contingencies

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 Compensation Committee. Additional annual retainerspre-acquisition contingency liabilities as the funds were escrowed as part of $5,000
the acquisition. There were paidno deposits into, or releases from the escrow account during the fiscal year ended June 30, 2022. There were no deposits into the escrow account and $1.1 million was released from the escrow account during the fiscal year ended June 30, 2021. The amount available after the impact of foreign currency translation, as of June 30, 2022 and 2021, for future pre-acquisition contingency settlements or to be released to the chairssellers was $4.1 million and $4.0 million, respectively.

The table below summarizes the balances and line item presentation of Network1's pre-acquisition contingencies and corresponding indemnification receivables in the Nominating, Governance and Risk Committees. Annual service for this purpose relates to the approximateCompany's consolidated balance sheet:
12-month
periods between annual meetings of our shareholders. All directors are reimbursed for expenses incurred in connection with the performance of their services as directors as well as the cost of any director education. As of January 1, 2019, directors may elect to receive any portion of their cash fees in shares. In connection with the expense reduction plan effective July 1, 2020, our directors have elected to forego their annual cash retainer fees through December 31, 2020.
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

June 30, 2022June 30, 2021
 (in thousands)
Assets
Prepaid expenses and other assets (current)$15 $16 
Other assets (noncurrent)$3,818 $3,998 
Liabilities
Other current liabilities$15 $16 
Other long-term liabilities$3,818 $3,998 

The amount of reasonably possible undiscounted pre-acquisition contingencies as of June 30, 2022 is estimated to range from $3.8 million to $15.5 million at this time, of which all exposures are indemnifiable under the share purchase agreement.
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

(17)    Segment Information

The Company is a leading provider of technology products and solutions to customers in specialty technology markets. The Company has 2 reportable segments, based on technology.

Specialty Technology Solutions Segment

The Specialty Technology Solutions segment includes the Company’s business in mobility and barcode, POS, payments, security and networking technologies. Mobility and barcode solutions include mobile computing, barcode scanners and imagers, radio frequency identification devices, barcode printing and services. POS and payments solutions include POS systems, integrated POS software platforms, self-service kiosks including self-checkout, payment terminals and mobile payment devices. Security solutions include video surveillance and analytics, video management software and access control. Networking solutions include switching, routing and wireless products and software. The Company has business operations within this segment in the United States, Canada and Brazil.

Modern Communications & Cloud Segment

The Modern Communications & Cloud segment includes the Company’s business in communications and collaboration, connectivity and cloud services. Communications and collaboration solutions, delivered in the cloud, on-premise or hybrid, include voice, video, integration of communication platforms and contact center solutions. The Intelisys connectivity and cloud marketplace offers telecom, cable, Unified Communications as a Service (“UCaaS”), Contact Center as a Service (“CCaaS”), Infrastructure as a Service, Software-Defined Wide-Area Network and other cloud services. This segment includes SaaS and subscription services, which the Company offers using digital tools and platforms. The Company has business operations within this segment in the United States, Canada, Brazil and the UK.
Equity Retainers for Fiscal 202083
Our
non-employeeTable of Contents
directors receive an annual equity retainer under

Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

Selected financial information for each business segment is presented below:
 Fiscal Year Ended June 30,
 202220212020
 (in thousands)
Sales:
Specialty Technology Solutions$2,082,321 $1,815,933 $1,580,441 
Modern Communications & Cloud1,447,614 1,334,873 1,467,293 
$3,529,935 $3,150,806 $3,047,734 
Depreciation and amortization:
Specialty Technology Solutions$11,754 $13,193 $14,453 
Modern Communications & Cloud15,110 17,287 17,696 
Corporate3,020 3,027 3,179 
$29,884 $33,507 $35,328 
Change in fair value of contingent consideration:
Specialty Technology Solutions$— $— $— 
Modern Communications & Cloud— 516 6,941 
$— $516 $6,941 
Operating income:
Specialty Technology Solutions$66,686 $29,566 $(67,706)
Modern Communications & Cloud55,511 43,551 6,739 
Corporate(1)
(30)(11,634)(4,000)
$122,167 $61,483 $(64,967)
Capital expenditures:
Specialty Technology Solutions$(1,667)$(1,282)$(3,171)
Modern Communications & Cloud(5,182)(1,067)(3,216)
Corporate— (14)— 
$(6,849)$(2,363)$(6,387)
Sales by Geography Category:
United States$3,178,829 $2,854,179 $2,787,475 
International356,241 310,075 292,600 
Less intercompany sales(5,135)(13,448)(32,341)
$3,529,935 $3,150,806 $3,047,734 

(1) For the ScanSource, Inc. 2013 Long-Term Incentive Plan (the “2013 Plan”). In addition,
non-employee
directors also may be eligible to receive other awards under our 2013 Plan. As of January 1, 2019,year ended June 30, 2022, the director can elect to receiveamounts shown above include divestiture costs. For the award in restricted stock awards or restricted stock unitsyear ended June 30, 2021, the amounts shown above include acquisition, divestiture, and can elect to defer their equity award under the deferred compensation plan.
The number of shares subject to a director’s annual equity award was determined by dividing $130,000
by the equity award value per share on the grant date. The equity award value means the closing price of the common stock on the grant date. The date of grant of the annual equity awards is the day following each annual shareholders meeting unless the Board modifies, suspends or delays the grant date because the grant date would not occur during an open “window” for stock transactions under the Company’s insider trading compliance program or if the Board otherwise determines that modification, suspension or delay of the grant date is necessary or appropriate.
A person who first becomes a
non-employee
director on a date other than a regularly scheduled annual meeting of shareholders will receive a restricted stock award for a
pro-rated
number of shares of common stock. Restricted stock may not be transferred or sold until it has vested.
Restricted stock granted to directors under the 2013 Plan will 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 of the Company. If a director terminates service for any other reason, he or she will forfeit all of his or her right, title and interest in and to the unvested restricted stock as of the date of termination, unless the Board or the Compensation Committee determines otherwise.
Stock Ownership and Retention Policy
Under the equity ownership policy, directors are expected to hold five times their annual Board cash retainer in Company securities. The policy also incorporates a retention requirement by requiring such persons to retain 50% of the net shares resulting from the vesting of certain awards until the required ownership under the policy is met. As of the end of the 2020 fiscal year, all directors were in compliance with this policy.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Annual Report on Form
10-K
forrestructuring costs. For the year ended June 30, 2020, with management. Based upon such review, the related discussionsamounts shown above include acquisition and such other matters deemed relevant and appropriatedivestiture costs.
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Index to the Compensation Committee, the Compensation Committee has recommendedFinancial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on FormConsolidated Financial Statements—(Continued)
10-K
for the year ended June 30, 20202022

June 30, 2022June 30, 2021
 (in thousands)
Assets:
Specialty Technology Solutions$1,030,538 $775,704 
Modern Communications & Cloud906,890 868,752 
Corporate— 27,228 
$1,937,428 $1,671,684 
Property and equipment, net by Geography Category:
United States$32,715 $39,930 
International4,762 2,906 
$37,477 $42,836 


(18)    Accumulated Other Comprehensive Income

The components of accumulated other comprehensive loss, net of tax, are as follows:
Fiscal Years Ended June 30,
202220212020
 (in thousands)
Currency translation adjustment$(105,899)$(93,561)$(125,974)
Unrealized loss on fair value of interest rate swap, net of tax1,261 (4,572)(6,821)
Accumulated other comprehensive loss$(104,638)$(98,133)$(132,795)

The tax effect of amounts in comprehensive loss reflect a tax expense or benefit as follows:
Fiscal years ended June 30,
202220212020
(in thousands)
Tax expense$1,741 $2,084 $1,025 

(19)    Discontinued Operations

On August 20, 2019, the Company announced plans to divest the product distribution businesses in Europe, the UK, Mexico, Colombia, Chile, Peru and the Miami-based export operations, (the "Divestitures"), as these businesses were performing below management's expectations. The Company continues to operate its digital business in the Proxy Statement for the 2021 Annual Meeting of Shareholders.
Submitted by the Compensation Committee:
Peter C. Browning, Chair
Frank E. Emory, Jr.
Michael J. Grainger
Dorothy F. Ramoneda
John P. Reilly
Jeffrey R. Rodek
Charles R. Whitchurch
The Compensation Committee report does not constitute soliciting material and shall not be deemed to be filed or incorporated by reference into any other filing under the Securities Act of 1933, or the Securities Exchange Act of 1934, except to the extentthese countries. Management determined that the Company specifically incorporatesdid not have sufficient scale in these markets to maximize the Compensation Committee report by reference therein.
value-added model for product distribution, leading the Company to focus and invest in its higher-growth, higher margin businesses. Results from the Divestitures were included within each reportable segment: Specialty Technology Solutions and Modern Communications & Cloud.

31
The Company finalized the sale of the Latin America businesses on October 30, 2020. The Company also finalized the sale of the Europe and UK businesses on November 12, 2020.

COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 2020, Directors Browning, Grainger, Ramoneda, Reilly, Rodek and Whitchurch servedthe Company recorded a pre-tax loss on sale classification of $88.9 million to reduce the Compensation Committee. No membercarrying value of the Compensation CommitteeDivestitures to its estimate of fair value (the net proceeds received at closing), less estimated costs to sell. As this loss was an officer or employeedetermined not to be attributable to any individual components in the Divestitures' net assets, it was reflected as a valuation allowance against the total assets of the Divestitures. During the fiscal year ended June 30, 2021, the Company or anyrecorded an additional pre-tax loss on disposal group of $34.5 million, which was primarily attributable to a reduction in the net proceeds realized at closing for the Divestitures. During the quarter ended December 31, 2021, the
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

Company received the second and final payment of $3.1 million for its businesses in Latin America, outside of Brazil, related to working capital adjustments and in accordance with the Share Purchase Agreement between Intcomex and the Company. The receipt of payment resulted in a gain on disposal group of $0.1 million. Cash received for the sale of the Divestitures totaled $3.1 million and $34.4 million for the fiscal years ended June 30, 2022 and 2021, respectively.

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

Fiscal Year Ended June 30,
202220212020
(in thousands)
Net sales$— $213,373 $561,496 
Cost of goods sold— 198,512 513,003 
Gross profit— 14,861 48,493 
Selling, general and administrative expenses— 17,291 53,946 
Depreciation expense— — 975 
Intangible amortization expense— — 1,403 
Impairment charges— — 13,747 
Operating loss— (2,430)(21,578)
Interest expense, net— 394 1,399 
(Income) loss on held for sale classification(100)34,597 88,923 
Other expense, net— 310 1,124 
Income (loss) from discontinued operations before taxes100 (37,731)(113,024)
Income tax (benefit) expense— (3,137)403 
Net income (loss) from discontinued operations$100 $(34,594)$(113,427)

For fiscal year ended June 30, 2020, the Company allocated goodwill to discontinued operations based on relative fair value of the discontinued operations compared to the consolidated reporting units and impaired such goodwill totaling $1.0 million for the Specialty Technology Solutions segment and $7.5 million for the Modern Communications & Cloud segment. Identifiable intangible assets, including customer relationships and distributor agreements, were also impaired, totaling $5.2 million for fiscal year ended June 30, 2020. The impairment charges are included in net loss from discontinued operations in the Consolidated Income Statements.

Significant non-cash operating items and capital expenditures reflected in the cash flows from discontinued operations for the fiscal years ended June 30, 2022, 2021 and 2020 were as follows:
Fiscal Year Ended June 30,
202220212020
(in thousands)
Loss on held for sale classification$— $34,597 $88,923 
Impairment charges— — 13,747 
Depreciation and amortization— — 2,378 
Capital expenditures— (58)(77)

(20)    Restructuring

In July 2020, as part of a strategic review of organizational structure and operations, the Company announced a global cost reduction and restructuring program. These actions were designed to better align the cost structure for the wholesale distribution
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2022

business with lower sales volumes as a result of the COVID-19 pandemic. The Company also initiated the closure of its subsidiaries during fiscal 2020, or at any time prior thereto. During fiscal 2020, no memberCanpango business, its Salesforce implementation and consulting business. There has been limited adoption by the Company's partner community of the Compensation Committee had any relationshipservices Canpango offers. These actions included entering into severance and termination agreements with employees, legal fees to execute the Company requiring disclosure under Item 404 of Regulationreduction in force and costs associated with lease terminations.
S-K
under
There were no restructuring or severance costs incurred during the Exchange Act, and no executive officers served on the compensation committee (or equivalent)fiscal years ended June 30, 2022 or the board of directors of another entity whose executive officer(s) served on our Board or Compensation Committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management, and Related Shareholder Matters
Equity Compensation Plan Information
2020. The following table provides information aboutpresents the common stock that may be issued uponrestructuring and severance costs incurred for the exercise of options, warrants and rights under all of the Company’s existing equity compensation plans as offiscal year ended June 30, 2020: 
2021:

  Plan Category
  
(a)
Number of
Securities
to be Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
  
(b)
Weighted
Average
Exercise Price of
Outstanding
Options,
Warrants
and Rights
(3)
   
(c)
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column
(a))
 
   Equity Compensation Plans Approved by Shareholders
     
2013 Long-Term Incentive Plan
   1,033,272
(1)
   $22.46    1,536,626 
2002 Long-Term Incentive Plan
   221,395
(2)
   $35.25    — 
Equity Compensation Plans Not Approved by Shareholders
   —   —    — 
TOTAL:
   1,254,667   $24.72    1,536,626 
(1)
ScanSource, Inc. 2013 Long-Term Incentive Plan (“2013 Plan”). At June 30, 2020, approximately 1,536,626 shares remain available for issuance under the 2013 Plan, which allows for grants of incentive stock options,
non-qualified
stock options, stock appreciation rights, performance awards, restricted stock awards, restricted stock units, deferred stock units, dividend equivalent awards and other stock-based awards. Includes restricted stock outstanding, including restricted stock awards, restricted stock units, performance restricted stock awards and performance restricted stock units. Amount includes 438,370 restricted shares outstanding in the form of restricted stock units and performance units.
(2)
ScanSource, Inc. 2002 Long-Term Incentive Plan, as amended. At June 30, 2020, there were no restricted stock units or performance units outstanding under the ScanSource, Inc. 2002 Long-Term Incentive Plan.
(3)
The weighted-average exercise price does not reflect the shares that will be issued upon the payment of outstanding awards of restricted stock, which have no exercise price.
Stock Ownership Information
Principal Shareholders and Beneficial Ownership
The following table sets forth certain information regarding the beneficial ownership of our common stock as of October 12, 2020 by the following: (i) each of our NEOs; (ii) each of our directors and director nominees; (iii) all of our directors and executive officers as a group; and (iv) each person known to own beneficially more than 5% of our common stock. Unless otherwise indicated, each person possesses sole voting and investment power with respect to the shares identified as beneficially owned. The address for each of our directors and executive officers is 6 Logue Court, Greenville, South Carolina 29615.
32
Fiscal year ended June 30, 2021
(in thousands)
Severance and benefit costs$8,824 
Other434 
Total restructuring and other charges$9,258

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

Accrued restructuring and severance costs were included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets. The following table represents activity for the fiscal year ended June 30, 2022:


Accrued Expenses
(in thousands)
Balance at July 1, 2021$1,199
Charged to expense— 
Cash payments(1,199)
Balance at June 30, 2022$—

   Name
  
Number of Shares  
Beneficially Owned  
   
                    Percentage
(1)
   
BlackRock, Inc.
(2)
   4,804,768    18.94  %  
The Vanguard Group, Inc.
(3)
   2,712,184    10.69  %  
Dimensional Fund Advisors LP
(4)
   2,111,172    8.32  %  
FMR LLC
(5)
   1,731,545    6.82  %  
Pzena Investment Management, LLC
(6)
   1,464,078    5.77  %  
Victory Capital Management Inc.
(7)
   1,406,971    5.54  %  
Michael L. Baur
(8)
   729,694    2.80  %  
Peter C. Browning
   19,300    *  
Matthew S. Dean
(9)
   6,790    *  
Frank E. Emory, Jr.
(10)
   —    —  
Michael J. Grainger
   30,200    *  
Gerald Lyons
(11)
   26,134    *  
Dorothy F. Ramoneda
   4,400    *  
John P. Reilly
   22,324    *  
Jeffrey R. Rodek
   4,100    *  
Elizabeth O. Temple
   10,000    *  
Charles R. Whitchurch
   21,000    *  
All directors and executive officers as a group
(11 persons)
(12)
   873,942    3.36  %  
* Amount represents less than 1.0%.
(1)
Applicable percentage of ownership is based upon 25,373,757 shares of our common stock outstanding on October 12, 2020. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to shares shown as beneficially owned. Shares of common stock subject to options currently exercisable or exercisable within 60 days are deemed outstanding for computing the shares and percentage ownership of the person holding such options, but are not deemed outstanding for computing the percentage ownership of any other person or entity. Except as otherwise indicated, the persons or entities listed in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them.
(2)
The information reported is based on a Schedule 13G/A filed with the SEC on February 4, 2020 reporting sole power of BlackRock, Inc. to vote or direct the vote of 4,584,999 shares and sole power to dispose or direct the disposition of 4,804,768 shares. The business address of BlackRock, Inc. is 55 East 52nd St., New York, NY 10055.
(3)
The information is reported based on a Schedule 13G/A filed with the SEC on February 12, 2020 reporting sole power of The Vanguard Group, Inc. (“Vanguard”) to vote or direct the vote of 24,856 shares; shared power of Vanguard to vote or direct the vote of 4,800 shares, sole power of Vanguard to dispose or direct the disposition of 2,685,259 shares; and shared power of Vanguard to dispose or direct the disposition of 26,925 shares. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of Vanguard, is the beneficial owner of 22,125 shares. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of Vanguard, is the beneficial owner of 7,531 shares. The business address of Vanguard is 100 Vanguard Boulevard, Malvern, PA 19355.
(4)
The information is reported based on a Schedule 13G/A filed with the SEC on February 12, 2020 reporting the beneficial ownership of Dimensional Fund Advisors LP (“Dimensional”) and the sole power to vote or direct the vote of 2,033,317 shares and sole power to dispose or direct the disposition of 2,111,172 shares. Dimensional is an investment adviser registered under Section 203 of the Investment Advisors Act of 1940. All securities reported in this schedule are owned by the funds advised by Dimensional. Dimensional disclaims beneficial ownership of such securities. The business address of Dimensional is Building One, 6300 Bee Cave Road, Austin, TX 78746.
(5)
The information reported is based on a Schedule 13G/A filed with the SEC on February 7, 2020 reporting sole power of FMR LLC, the parent holding company of subsidiary companies engaged in the securities business, to vote or direct the vote of 219,515 shares and sole power to dispose or direct the disposition of 1,731,545 shares. A subsidiary of FMR LLC has the sole power to vote or direct the voting of shares directly owned by the funds, and the voting of these shares is carried out under written guidelines established by the board of trustees of the funds advised by the subsidiary of FMR LLC. The business address of FMR LLC is 245 Summer Street, Boston, MA 02210.
(6)
The information reported is based on a Schedule 13G/A filed with the SEC on January 27, 2020 reporting sole power of Pzena Investment Management, LLC (“Pzena”) and the sole power to vote or direct the vote of 1,149,462 shares and sole power to dispose or direct the disposition of 1,464,078 shares. The business address of Pzena is 320 Park Avenue, 8th Floor, New York, NY 10022.
(7)
The information reported is based on a Schedule 13G/A filed with the SEC on January 31, 2020 reporting sole power of Victory Capital Management Inc. (“Victory”) and the sole power to vote or direct the vote of 1,386,996 shares and sole power to dispose or direct the disposition of 1,406,971 shares. The business address of Victory is 4900 Tiedeman Road, 4th Floor, Brooklyn, OH 44144.
(8)
Includes 676,936 shares issuable pursuant to exercisable options. Does not include 56,624 shares underlying unvested restricted stock units that will not vest by December 11, 2020.
(9)
Does not include 3,300 shares issuable pursuant to options granted by the Company that are not currently exercisable and will not become exercisable by December 11, 2020. Does not include 4,924 shares underlying unvested restricted stock units that will not vest by December 11, 2020.
(10)
Mr. Emory was appointed as a director of the Company effective October 5, 2020.
(11)
Includes 8,747 shares issuable pursuant to exercisable options. Does not include 4,067 shares underlying unvested restricted stock units that will not vest by December 11, 2020.
(12)
Includes 685,683 shares issuable pursuant to exercisable options.
33
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Index to Financial Statements


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

Not applicable.

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, 2022, 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, 2022. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission 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, 2022.
The effectiveness of our internal control over financial reporting as of June 30, 2022 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, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.    Other Information.

None.
ITEM 9C.    Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.
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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, 2022, an amendment to this Form 10-K or a definitive Proxy Statement relating to the 2023 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.

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.

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.

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
Independence.
Certain Relationships and Related-Party Transactions

The Audit Committee reviews all related party transactions (as defined by Item 404 of Regulation
S-K)
in accordance with NASDAQ listing standards. In addition, the charter of the Audit Committee requires the Audit Committee to review a summary of any director’s or officer’s related-party transactions and potential conflicts of interest on a yearly basis. The charter also requires the Audit Committee to review our conflict of interest policy (which is part of our Code of Conduct) and compliance with that policy on an annual basis.
We are not aware of any related-party transaction since the beginning of fiscal 2020information required to be reported underincluded by Item 13 of Form 10-K will be included in our policy or applicable SEC rules for which our policiesPart III Filing and procedures did not require review or for which such policies and procedures were not followed.
information is incorporated by reference herein.
There are no family relationships among the executive officers and directors, and there are no arrangements or understandings between any independent director or any other person pursuant to which that independent director was selected as a director.

Director Independence
In accordance with the listing standards of The NASDAQ Stock Market (“NASDAQ”) and our Corporate Governance Guidelines (the “Guidelines”), our Board consists of a majority of independent directors. The Board has determined that all members of the Board, other than Mr. Baur, meet the requirements for being “independent” as defined in the U.S. Securities and Exchange Commission (“SEC”) rules and regulations and NASDAQ listing standards.
The Board maintains an Audit Committee, a Compensation Committee, a Governance Committee, a Nominating Committee and a Risk Committee. Each committee of the Board is comprised only of independent directors.
In addition, under our Corporate Governance Guidelines, executive officers are prohibited from serving as a director of another company that concurrently employs a director of the Company.
ItemITEM 14.    Principal Accountant Fees and ServicesServices.

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.

Fees
As reflected in the table below, we incurred fees in fiscal 2020 and 2019 for services performed by Grant Thornton related to such periods.
   
Year Ended
June 30,
2020
      
Year Ended
June 30,
2019
 
Audit Fees
  $1,899,507             $2,125,646 
Tax Fees
        90,300         118,094 
      
Total Fees
  $  1,989,807     $  2,243,740 
In the above table, in accordance with applicable SEC rules:
●
“Audit Fees” are fees for professional services for the audit of the consolidated financial statements included in our Form
10-K,
the audit of internal control over financial reporting, the review of financial statements included in our Form
10-Qs,
and services that are normally provided by the auditor in connection with statutory and regulatory filings or engagements; and
●
“Tax Fees” are fees for professional services related to foreign tax compliance, tax advice and tax planning.
34
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Audit Committee’s
Pre-Approval
Policies and Procedures
It is the policy of the Audit Committee to
pre-approve
all audit and permitted
non-audit
services proposed to be performed by our independent auditor. All audit and permitted
non-audit
services performed in fiscal 2020 were
pre-approved
by the Audit Committee. The process for such
pre-approval
is typically as follows: Audit Committee
pre-approval
is sought at one of the Audit Committee’s regularly scheduled meetings following the presentation of information at such meeting detailing the particular services proposed to be performed. The authority to
pre-approve
non-audit
services may be delegated by the Audit Committee, pursuant to guidelines approved by the Audit Committee, to one or more members of the Audit Committee. None of the services described above were approved by the Audit Committee pursuant to the exception provided by the Exchange Act rules.
The Audit Committee has reviewed the
non-audit
services provided by Grant Thornton and has determined that the provision of such services is compatible with maintaining Grant Thornton’s independence for the period of time during which it has served as our independent auditor.
PART IV
ItemITEM 15.    Exhibits and Financial Statement Schedules.
(a)(1) and (a)(2): NoFinancial Statements. For a list of the financial statements or schedules are filed withincluded in this reportAnnual Report on Form
10-K/A.
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.Exhibits. See Exhibit Index.
(c) Separate Financial Statements and Schedules.Schedules. None.

35
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ITEM 16.    FORM 10-K SUMMARY
None
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
  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
    
10-K
  4.2  8/22/2019
  
Executive Compensation Plans and Arrangements
        
  10.1  
Nonqualified Deferred Compensation Plan, as amended and restated
    
10-Q
  10.1  2/3/2015
10.2  
Amended and Restated 2002 Long-Term Incentive Plan
    
8-K
  10.1  12/7/2009
10.3  
2013 Long-Term Incentive Plan
    
S-8
  99  12/5/2013
10.4  
Employee Stock Purchase Plan
    
S-8
  99  12/5/2013
10.5  
Founder’s Supplemental Executive Retirement Plan Agreement
    
10-Q
  10.2  5/6/2011
10.6  
Executive Severance Plan
    
8-K
  10.3  6/21/2017
10.7  
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
10.8  
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
10.9  
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
10.10  
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
10.11  
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
10.12  
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
10.13  
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
10.14  
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
36
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10.15  
Form of Other Stock Based Award Certificate under ScanSource, Inc. 2013 Long-Term Incentive Plan
    10-K  10.33  8/28/2014
10.16  
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
10.17  
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
10.18  
Form of Restricted Stock Unit Award (Service-Based) under the 2013 Long-Term Incentive Plan (2017 version)
    8-K  10.2  12/8/2017
10.19  
Form of Non-Qualified Stock Option Agreement under the 2013 Long-Term Incentive Plan (2017 version)
    8-K  10.3  12/8/2017
10.20  
Form of Incentive Stock Option Agreement under the 2013 Long-Term Incentive Plan (2017 version)
    8-K  10.4  12/8/2017
10.21  
Amended and Restated Employment Agreement, effective as of July 1, 2017, of Michael L. Baur
    8-K  10.1  6/21/2017
10.22  
Amended and Restated Employment Agreement, dated June 25, 2014, of Gerald Lyons
    10-K  10.24  8/28/2014
10.23  
First Amendment to Amended and Restated Employment Agreement, effective June 15, 2017, of Gerald Lyons
    8-K  10.2  6/21/2017
10.24  
Employment Letter, dated August 23, 2017, of Gerald Lyons
    8-K  10.1  8/24/2017
10.25  
Employment Letter, dated January 11, 2018 of Matthew S. Dean
    10-K  10.27  8/22/2019
10.26  
Board of Directors Compensation Program effective July 1, 2018
    10-K  10.32  8/28/2018
10.27  
First Amendment to Nonqualified Deferred Compensation Plan
    8-K  10.1  11/30/2018
10.28  
Form of Director Restricted Stock Award Certificate for grants on or after January 1, 2019
    8-K  10.2  11/30/2018
10.29  
Form of Director Restricted Stock Unit Certificate for grants on or after January 1, 2019
    8-K  10.3  11/30/2018
10.30  
Form of Director Restricted Stock Award Certificate
    8-K  10.4  11/30/2018
10.31  
Form of Restricted Stock Unit Award Certificate
    8-K  10.5  11/30/2018
10.32  
Form of Restricted Stock Unit Award Certificate
    8-K  10.1  1/30/2020
  
Bank Agreements
        
10.33  
Second Amended and Restated Credit Agreement
    8-K  10.1  5/1/2019
  
Other Agreements
        
10.34+  
Industrial Lease Agreement dated April 27, 2007 between Registrant and Industrial Developments International, Inc.
    10-K  10.26  8/29/2007
10.35+  
Third Amendment to Industrial Lease Agreement between Registrant and Industrial Developments International, Inc.
    10-K  10.54  8/29/2016
10.36+  
Fourth Amendment to Industrial Lease Agreement
    10-Q  10.1  5/9/2019
10.37++  
Nonexclusive Value Added Distributor Agreement between ScanSource, Inc. and Cisco Systems, Inc.
    10-K  10.38  8/22/2019
10.38++  
Amendment No. 3 to Cisco Nonexclusive Value Added Distributor Agreement
    10-K  10.39  8/22/2019
37
10.39++  
Amendment No. 5 to Cisco Nonexclusive Value Added Distributor Agreement
    10-K  10.40  8/22/2019
10.40++  
Amendment No. 6 to Cisco Nonexclusive Value Added Distributor Agreement
    10-K  10.41  8/22/2019
10.41++  
Amendment No. 7 to Cisco Nonexclusive Value Added Distributor Agreement
    10-K  10.42  8/22/2019
10.42  
Amendment No. 9 to Cisco Nonexclusive Value Added Distributor Agreement
    10-K  10.43  8/22/2019
10.43++  
Amendment No. 11 to Cisco Nonexclusive Value Added Distributor Agreement
    10-K  10.44  8/22/2019
10.44  
Amendment No. 12 to Cisco Nonexclusive Value Added Distributor Agreement
    10-K  10.45  8/22/2019
10.45  
Amendment No. 13 to Cisco Nonexclusive Value Added Distributor Agreement
    10-K  10.46  8/22/2019
10.46  
Amendment No. 14 to Cisco Nonexclusive Value Added Distributor Agreement
    10-K  10.47  8/22/2019
10.47++  
Addendum to Cisco Nonexclusive Value Added Distributor Agreement dated March 25, 2019
    10-K  10.48  8/22/2019
10.48++  
Addendum to Cisco Nonexclusive Value Added Distributor Agreement dated March 2, 2015
    10-K  10.49  8/22/2019
10.49++  
Affiliate Agreement under Cisco Nonexclusive Value Added Distributor Agreement
    10-K  10.50  8/22/2019
10.50+  
Distribution Agreement with US Motorola (f/k/a Symbol Technologies, Inc.).
    10-Q/A  10.1  10/24/2014
10.51+  
Amendment to PartnerEmpower Distribution Agreement with Zebra.
    10-K  10.50  8/29/2016
10.52+  
Participation Agreement Relating to Distribution Agreement with Zebra
    10-K  10.51  8/29/2016
10.53+  
Amendment to PartnerConnect EVM Distributor Agreement
    10-K  10.51  8/29/2017
10.54++  
Addendum to Zebra Partnerconnect Distributor Agreement
    10-Q  10.2  5/9/2019
10.55  
Letter of Agreement to PartnerConnect EVM Distributor Agreement
    10-K  10.55  8/31/2020
21.1  
Subsidiaries of the Company
    10-K  21.1  8/31/2020
23.1  
Consent of Grant Thornton LLP
    10-K  23.1  8/31/2020
31.1  
Certification of the Chief Executive Officer
  X      
31.2  
Certification of the Chief Financial Officer
  X      
32.1  
Certification of the Chief Executive Officer
    10-K  32.1  8/31/2020
32.2  
Certification of the Chief Financial Officer
    10-K  32.2  8/31/2020
101  
The following materials from our Annual Report on Form
10-K
for the year ended June 30, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of June 30, 2020 and June 30, 2019, (ii) the Consolidated Income Statements for the years ended June 30, 2020, June 30, 2019 and June 30, 2018, (iii) the Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2020, June 30, 2019 and June 30, 2018, (iv) the Consolidated Statements of Cash Flows for the years ended June 30, 2020, June 30, 2019 and June 30, 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      
38
+
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.
39
SIGNATURES

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

October 28, 2020
SCANSOURCE, INC.
By:
/s/ Michael L. Baur
SCANSOURCE, INC.
Michael
Date:August 23, 2022By:/s/ MICHAEL L. BaurBAUR
Michael L. Baur
Chairman and Chief Executive Officer and President
(Principal Executive Officer)

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 and Chief Executive OfficerAugust 23, 2022
Michael L. Baur(Principal Executive Officer)
/s/ STEVE JONESSenior Executive Vice President and Chief Financial OfficerAugust 23, 2022
Steve Jones(Principal Financial Officer and Principal Accounting Officer)
/s/ PETER C. BROWNINGLead Independent DirectorAugust 23, 2022
Peter C. Browning
/s/ FRANK E. EMORY, JR.DirectorAugust 23, 2022
Frank E. Emory, Jr.
/s/ MICHAEL J. GRAINGERDirectorAugust 23, 2022
Michael J. Grainger
/s/ CHARLES A. MATHISDirectorAugust 23, 2022
Charles A. Mathis
/s/ DOROTHY F. RAMONEDADirectorAugust 23, 2022
Dorothy F. Ramoneda
/s/ JEFFREY R. RODEKDirectorAugust 23, 2022
Jeffrey R. Rodek
/s/ ELIZABETH O. TEMPLEDirectorAugust 23, 2022
Elizabeth O. Temple
/s/ CHARLES R. WHITCHURCHDirectorAugust 23, 2022
Charles R. Whitchurch

40
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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
2.310-Q10.111/7/2016
2.4+8-K2.111/13/2020
3.18-K3.11/27/2022
3.28-K3.21/27/2022
4.1Form of Common Stock CertificateSB-24.12/7/1994
4.210-K4.28/22/2019
Executive Compensation Plans and Arrangements
10.110-Q10.35/10/2021
10.28-K10.112/7/2009
10.3S-89912/5/2013
10.4DEF14AA12/7/2021
10.5S-89912/5/2013
10.610-Q10.25/6/2011
10.78-K10.36/21/2017
10.88-K10.312/7/2009
10.910-Q10.22/4/2011
10.108-K10.412/7/2009
10.1110-Q10.32/4/2011
10.1210-Q10.12/6/2014
10.1310-Q10.22/6/2014
10.1410-Q10.32/6/2014
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Index to Financial Statements


Exhibit
Number		DescriptionFiled
herewith		FormExhibitFiling
Date
10.1510-Q10.42/6/2014
10.1610-K10.338/28/2014
10.1710-K10.348/28/2014
10.188-K10.112/8/2017
10.198-K10.212/8/2017
10.208-K10.312/8/2017
10.218-K10.412/8/2017
10.228-K10.16/21/2017
10.2310-K10.278/22/2019
10.2410-K10.268/24/2021
10.2510-K10.278/24/2021
10.2610-Q10.12/2/2021
10.2710-K10.298/24/2021
10.28X
10.298-K10.111/30/2018
10.308-K10.211/30/2018
10.318-K10.311/30/2018
10.328-K10.411/30/2018
10.338-K10.511/30/2018
10.348-K10.11/30/2020
10.3510-K/A10.3710/26/2021
10.3610-K10.388/24/2021
10.378-K10.21/27/2022
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Index to Financial Statements


Exhibit
Number		DescriptionFiled
herewith		FormExhibitFiling
Date
10.388-K10.31/27/2022
10.398-K10.41/27/2022
10.408-K10.51/27/2022
10.418-K10.61/27/2022
10.428-K10.71/27/2022
10.438-K10.81/27/2022
10.448-K10.91/27/2022
Bank Agreements
10.458-K10.15/1/2019
10.468-K10.112/23/2021
Other Agreements
10.47+10-K10.408/24/2021
10.48+10-K10.418/24/2021
10.4910-Q10.15/9/2019
10.50+10-K10.388/22/2019
10.51+10-K10.398/22/2019
10.52+10-K10.408/22/2019
10.53+10-K10.418/22/2019
10.54+10-K10.428/22/2019
10.5510-K10.438/22/2019
10.56+10-K10.448/22/2019
10.5710-K10.458/22/2019
10.5810-K10.468/22/2019
10.5910-K10.478/22/2019
10.6010-Q10.15/10/2021
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Index to Financial Statements


Exhibit
Number		DescriptionFiled
herewith		FormExhibitFiling
Date
10.6110-Q10.25/10/2021
10.62+10-K10.488/22/2019
10.63+10-K10.498/22/2019
10.64+10-K10.508/22/2019
10.65+10-K10.588/24/2021
10.66+10-K10.598/24/2021
10.6710-K10.518/29/2016
10.68+10-K10.618/24/2021
10.69+10-Q10.25/9/2019
10.7010-K10.558/31/2020
10.7110-K10.648/24/2021
21.1X
23.1X
31.1X
31.2X
32.1X
32.2X
101The following materials from our Annual Report on Form 10-K for the year ended June 30, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of June 30, 2022 and June 30, 2021, (ii) the Consolidated Income Statements for the years ended June 30, 2022, June 30, 2021 and June 30, 2020, (iii) the Consolidated Statements of Shareholders' Equity for the years ended June 30, 2022, June 30, 2021 and June 30, 2020, (iv) the Consolidated Statements of Cash Flows for the years ended June 30, 2022, June 30, 2021 and June 30, 2020, 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
104Cover page Inline XBRL File (Included in Exhibit 101)X
+Portions of this exhibit have been omitted pursuant to Item 601(b) 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.


96