ScanSource, Inc.

South Carolina

(State of Incorporation)

57-0965380

(I.R.S. Employer Identification No.)

6 Logue Court

Greenville, South Carolina 29615

(864) 288-2432



Securities registered pursuant to Section 12(b) of the Act:
Title of each class:	Trading Symbol:	Name of exchange on which registered:
Common stock, no par value	SCSC	NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes x☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

x☒

Smaller reporting company

☐

Accelerated filer

¨☐

Emerging growth company

☐

Non-accelerated filer

¨☐

~~(Do not check if a smaller reporting company)~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒

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 ~~February 2, 2018~~November 5, 2020
Common Stock, no par value per share						~~25,571,355~~25,364,617 shares

SCANSOURCE, INC.

INDEX TO FORM 10-Q

~~December 31, 2017~~September 30, 2020


						Page #
PART I. FINANCIAL INFORMATION

Item 1.						~~Page #~~
~~PART I. FINANCIAL INFORMATION~~ Financial Statements		45

~~Item 1.~~	~~Financial Statements~~			4
	Condensed Consolidated Balance Sheets ~~as of December 31, 2017~~(unaudited) at September 30, 2020 and June 30, ~~2017~~2020	46
			Condensed Consolidated Income Statements (unaudited) for the ~~Quarter~~Quarters Ended September 30, 2020 and ~~Six Months Ended December 31, 2017 and 2016~~2019			57
			Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss (unaudited) for the ~~Quarter~~Quarters Ended September 30, 2020 and ~~Six Months Ended December 31, 2017 and 2016~~2019			68
			Condensed Consolidated Statements of Shareholders' Equity (unaudited) for the Quarters Ended September 30, 2020 and 2019			9
			Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~Six~~Three Months Ended ~~December 31, 2017~~September 30, 2020 and ~~2016~~2019			711
			Notes to Condensed Consolidated Financial Statements (unaudited)			813
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			2633
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			3948
Item 4.			Controls and Procedures			4049

PART II. OTHER INFORMATION

Item 1			Legal Proceedings			4150

Item 1	~~Legal Proceedings~~1A.	41Risk Factors			50
Item ~~1A.~~2			~~Risk Factors~~			41
~~Item 2~~	Unregistered Sales of Equity Securities and Use of Proceeds	4150
Item 6.			Exhibits			4250

SIGNATURES						4351

Table of Contents

FORWARD-LOOKING STATEMENTS

~~We include forward-looking~~Forward-looking statements are included in the "Risk Factors," "Legal Proceedings," "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and "Quantitative and Qualitative Disclosures About Market Risk" ~~and "Risk Factors"~~ sections and elsewhere herein. ~~These statements generally can be identified by words~~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.~~expressions generally identify such forward-looking statements. Any forward-looking statement made by us in this Form 10-Q 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 Quarterly Report on Form 10-Q, ~~or to reflect the occurrence of unanticipated events.~~except as required by law. Actual results could differ materially from those ~~suggested by~~anticipated in these forward-looking statements as a result of a number of factors including, but not limited to, the impact of the COVID-19 pandemic on the Company's operations and financial condition and the potential prolonged economic weakness brought on by COVID-19, the Company's ability to complete the Divestitures on acceptable terms or otherwise dispose of the operations, 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 ~~our overseas~~the Company's international operations, risk to the ~~impact of tax reform laws, the~~Company's business from a cyber-security attack, a failure of ~~acquisitions to meet our expectations,~~ the Company's IT systems, failure to ~~manage~~hire and ~~implement our organic growth strategy, credit risks involving our larger~~retain quality employees, loss of the Company's major customers, ~~and vendors,~~ termination of ~~our~~the Company's relationship with key ~~vendors~~suppliers or a significant modification of the terms under which ~~we operate~~it operates with a key ~~vendor,~~supplier, changes in the ~~decline in demand for the products~~Company's operating strategy, and ~~services that we provide, reduced prices for the products and services that we provide due both to competitor and customer actions, and the~~ other factors set forth in "Risk Factors" contained in our Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2020.

Table of Contents

PART I. FINANCIAL INFORMATION



Item 1.			Financial Statements

Table of Contents

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share information)


	September 30, 2020		June 30, 2020
Assets
Current assets:
Cash and cash equivalents	$	49,889	$	29,485
Accounts receivable, less allowance of $21,981 at September 30, 2020 and $21,906 at June 30, 2020	509,779		443,185
Inventories	423,088		454,885
Prepaid expenses and other current assets	92,216		94,681
Current assets held for sale	176,903		181,231
Total current assets	1,251,875		1,203,467
Property and equipment, net	52,264		55,641
Goodwill	215,170		214,288
Identifiable intangible assets, net	117,492		121,547
Deferred income taxes	24,366		24,630
Other non-current assets	72,177		72,521

Total assets	$	1,733,344	$	1,692,094
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	544,856	$	454,240
Accrued expenses and other current liabilities	84,537		76,686
Current portion of contingent consideration	46,850		46,334
Income taxes payable	1,820		5,886

Current portion of long-term debt	7,843		7,839
Current liabilities held for sale	152,259		128,022
Total current liabilities	838,165		719,007
Deferred income taxes	4,029		3,884
Long-term debt, net of current portion	140,956		143,175
Borrowings under revolving credit facility	0		67,714

Other long-term liabilities	78,967		80,068

Total liabilities	1,062,117		1,013,848
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, NaN issued	0		0
Common stock, no par value; 45,000,000 shares authorized, 25,361,298 and 25,361,298 shares issued and outstanding at September 30, 2020 and June 30, 2020, respectively	64,945		63,765
Retained earnings	735,457		747,276
Accumulated other comprehensive loss	(129,175)		(132,795)
Total shareholders’ equity	671,227		678,246
Total liabilities and shareholders’ equity	$	1,733,344	$	1,692,094

June 30, 2020 amounts are derived from audited consolidated financial statements.
See accompanying notes to these condensed consolidated financial statements.

December 31, 2017 June 30, 2017
Assets
Current assets:
Cash and cash equivalents $ 35,435
$ 56,094
Accounts receivable, less allowance of $47,264 at December 31, 2017 and $44,434 at June 30, 2017 717,336
637,293
Inventories 581,802
531,314
Prepaid expenses and other current assets 76,667
56,322
Total current assets 1,411,240
1,281,023
Property and equipment, net 76,626
56,566
Goodwill 302,912
200,881
Identifiable intangible assets, net 148,443
101,513
Deferred income taxes 11,794
29,491
Other non-current assets 54,267
48,829
Total assets $ 2,005,282
$ 1,718,303
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt $ 104
$ —
Accounts payable 515,302
513,155
Accrued expenses and other current liabilities 97,597
104,715
Current portion of contingent consideration 38,629
30,675
Income taxes payable 5,086
7,730
Total current liabilities 656,718
656,275
Deferred income taxes 11,110
2,008
Long-term debt 5,325
5,429
Borrowings under revolving credit facility 355,503
91,871
Long-term portion of contingent consideration 58,402
83,361
Other long-term liabilities 57,437
42,214
Total liabilities 1,144,495
881,158
Commitments and contingencies

Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, none issued —
—
Common stock, no par value; 45,000,000 shares authorized, 25,571,355 and 25,431,845 shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively
64,896
61,169
Retained earnings 861,296
849,180
Accumulated other comprehensive income (loss) (65,405 ) (73,204 )
Total shareholders’ equity 860,787
837,145
Total liabilities and shareholders’ equity $ 2,005,282
$ 1,718,303

June 30, 2017 amounts are derived from audited consolidated financial statements.
See accompanying notes to these condensed consolidated financial statements.

Table of Contents

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)

(In thousands, except per share data)

Quarter ended Six months ended
December 31, December 31,
2017 2016 2017 2016
Net sales $ 1,032,212
$ 904,792
$ 1,956,771
$ 1,837,357
Cost of goods sold 919,241
806,258
1,737,883
1,647,289
Gross profit 112,971
98,534
218,888
190,068
Selling, general and administrative expenses 74,763
66,880
147,950
130,145
Depreciation expense 3,467
2,423
6,707
4,492
Intangible amortization expense 5,487
4,165
10,498
7,320
Change in fair value of contingent consideration 6,913
1,791
23,794
1,961
Operating income 22,341
23,275
29,939
46,150
Interest expense 2,285
912
3,870
1,501
Interest income (580 ) (892 ) (1,462 ) (1,908 )
Other (income) expense, net 326
(12,526 ) 441
(11,948 )
Income before income taxes 20,310
35,781
27,090
58,505
Provision for income taxes 12,341
12,745
14,974
20,653
Net income $ 7,969
$ 23,036
$ 12,116
$ 37,852
Per share data:
Net income per common share, basic $ 0.31
$ 0.92
$ 0.48
$ 1.49
Weighted-average shares outstanding, basic 25,506
25,146
25,470
25,334

Net income per common share, diluted $ 0.31
$ 0.91
$ 0.47
$ 1.48
Weighted-average shares outstanding, diluted 25,648
25,285
25,612
25,490


	Quarter ended
	September 30,
	2020		2019
Net sales	$	757,342	$	842,701
Cost of goods sold	676,563		744,176
Gross profit	80,779		98,525
Selling, general and administrative expenses	62,112		68,532
Depreciation expense	3,396		3,301
Intangible amortization expense	4,853		4,538
Restructuring and other charges	8,268		169
Change in fair value of contingent consideration	516		2,472
Operating income	1,634		19,513
Interest expense	1,913		3,317
Interest income	(481)		(807)
Other expense, net	364		374
(Loss) income before income taxes	(162)		16,629
(Benefit) Provision for income taxes	(47)		4,338
Net (loss) income from continuing operations	(115)		12,291
Net loss from discontinued operations	(11,704)		(761)
Net (loss) income	$	(11,819)	$	11,530
Per share data:

Net (loss) income from continuing operations per common share, basic	$	(0.01)	$	0.48
Net loss from discontinued operations per common share, basic	(0.46)		(0.03)
Net (loss) income per common share, basic	$	(0.47)	$	0.45
Weighted-average shares outstanding, basic	25,361		25,539

Net (loss) income from continuing operations per common share, diluted	$	(0.01)	$	0.48
Net loss from discontinued operations per common share, diluted	(0.46)		(0.03)
Net (loss) income per common share, diluted	$	(0.47)	$	0.45
Weighted-average shares outstanding, diluted	25,361		25,617



See accompanying notes to these condensed consolidated financial statements.

Table of Contents

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~LOSS (UNAUDITED)

(In thousands)

Quarter ended Six months ended
December 31, December 31,
2017 2016 2017 2016
Net income $ 7,969
$ 23,036
$ 12,116
$ 37,852
Unrealized gain on hedged transaction, net of tax 320
—
349
—
Foreign currency translation adjustment (2,435 ) (8,625 ) 7,450
(9,563 )
Comprehensive income $ 5,854
$ 14,411
$ 19,915
$ 28,289


	Quarter ended
	September 30,
	2020		2019
Net (loss) income	$	(11,819)	$	11,530
Unrealized gain (loss) on hedged transaction, net of tax	109		(1,071)
Foreign currency translation adjustment	3,511		(14,369)
Comprehensive loss	$	(8,199)	$	(3,910)



See accompanying notes to these condensed consolidated financial statements.

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SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands, except share information)


	Common Stock (Shares)	Common Stock (Amount)		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance at June 30, 2020	25,361,298	$	63,765	$	747,276	$	(132,795)	$	678,246
Net loss	—	—		(11,819)		—		(11,819)
Unrealized gain on hedged transaction, net of tax	—	—		—		109		109
Foreign currency translation adjustment	—	—		—		3,511		3,511


Share-based compensation	—	1,180		—		—		1,180

Balance at September 30, 2020	25,361,298	$	64,945	$	735,457	$	(129,175)	$	671,227
















See accompanying notes to these condensed consolidated financial statements.

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SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands, except share information)


	Common Stock (Shares)	Common Stock (Amount)		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance at June 30, 2019	25,408,397	$	64,287	$	939,930	$	(90,088)	$	914,129
Net income	—	—		11,530		—		11,530
Unrealized loss on hedged transaction, net of tax	—	—		—		(1,071)		(1,071)
Foreign currency translation adjustment	—	—		—		(14,369)		(14,369)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes	786	(12)		—		—		(12)
Common stock repurchased	(168,068)	(5,432)		—		—		(5,432)
Share-based compensation	—	1,246		—		—		1,246
Balance at September 30, 2019	25,241,115	$	60,089	$	951,460	$	(105,528)	$	906,021















See accompanying notes to these condensed consolidated financial statements.

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SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Three months ended
	September 30,
	2020		2019
Cash flows from operating activities:
Net (loss) income	$	(11,819)	$	11,530
Net loss from discontinued operations	(11,704)		(761)
Net (loss) income from continuing operations	(115)		12,291
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:
Depreciation and amortization	8,710		8,518
Amortization of debt issue costs	104		104
Provision for doubtful accounts	(8)		1,225
Share-based compensation	1,168		1,241

Deferred income taxes	139		56

Change in fair value of contingent consideration	516		2,472

Finance lease interest	37		22
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(68,726)		(48,844)
Inventories	31,155		(49,276)
Prepaid expenses and other assets	2,369		306
Other non-current assets	(274)		(7,516)
Accounts payable	92,419		94,587
Accrued expenses and other liabilities	7,827		10,063
Income taxes payable	(4,096)		2,381
Net cash provided by operating activities of continuing operations	71,225		27,630
Cash flows from investing activities of continuing operations:
Capital expenditures	(748)		(939)
Cash paid for business acquisitions, net of cash acquired	0		(49,080)

Net cash used in investing activities of continuing operations	(748)		(50,019)
Cash flows from financing activities of continuing operations:

Borrowings on revolving credit, net of expenses	477,381		476,171
Repayments on revolving credit, net of expenses	(545,095)		(515,772)
Borrowings on long-term debt, net	(2,214)		(1,272)
Repayments of finance lease obligations	(327)		(391)



Taxes paid on settlement of equity awards	0		(12)
Repurchase of common stock	0		(6,077)


Net cash used in financing activities of continuing operations	(70,255)		(47,353)
Cash flows from discontinued operations:
Net cash flows provided by operating activities of discontinued operations	31,853		19,370
Net cash flows used in by investing activities of discontinued operations	(36)		(1)
Net cash flows (used in) provided by financing activities of discontinued operations	(9,488)		52,861
Net cash flows provided by discontinued operations	22,329		72,230
Effect of exchange rate changes on cash and cash equivalents	(1,439)		(429)
Increase in cash and cash equivalents	21,112		2,059
Cash and cash equivalents at beginning of period	34,455		23,818

Table of Contents

Six months ended
December 31,
2017 2016
Cash flows from operating activities:
Net income $ 12,116
$ 37,852
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 18,766
11,812
Amortization of debt issuance costs 158
148
Provision for doubtful accounts 5,331
4,007
Share-based compensation 3,233
3,147
Deferred income taxes (1,540 ) (57 )
Excess tax benefits from share-based payment arrangements —
(88 )
Change in fair value of contingent consideration 23,794
1,961
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (72,975 ) (49,791 )
Inventories (37,749 ) 40,792
Prepaid expenses and other assets (10,081 ) (20,805 )
Other non-current assets (4,775 ) (1,205 )
Accounts payable (11,524 ) (12,863 )
Accrued expenses and other liabilities (5,654 ) 13,892
Income taxes payable (3,283 ) 6,929
Net cash (used in) provided by operating activities (84,183 ) 35,731
Cash flows from investing activities:
Capital expenditures (3,296 ) (3,261 )
Cash paid for business acquisitions, net of cash acquired (143,768 ) (83,804 )
Net cash (used in) investing activities (147,064 ) (87,065 )
Cash flows from financing activities:
Borrowings on revolving credit 1,279,193
829,141
Repayments on revolving credit (1,015,672 ) (764,332 )
Debt issuance costs (296 ) —
Repayments on capital lease obligation (281 ) (123 )
Contingent consideration payments (54,025 ) (10,241 )
Exercise and issuance of equity awards 2,126
4,217
Taxes paid on settlement of equity awards (1,616 ) (1,736 )
Repurchase of common stock —
(20,882 )
Excess tax benefits from share-based payment arrangements —
88
Net cash provided by financing activities 209,429
36,132
Effect of exchange rate changes on cash and cash equivalents 1,159
(1,127 )
Decrease in cash and cash equivalents (20,659 ) (16,329 )
Cash and cash equivalents at beginning of period 56,094
61,400
Cash and cash equivalents at end of period $ 35,435
$ 45,071

See accompanying notes to these condensed consolidated financial statements.


Cash and cash equivalents at end of period	55,567		25,877
Cash and cash equivalents of discontinued operations	5,678		1,526
Cash and cash equivalents of continuing operations	$	49,889	$	24,351

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

SCANSOURCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Business and Summary of Significant Accounting Policies

Business Description

~~ScanSource~~, ~~Inc. is a leading global provider of technology products and solutions.~~ ScanSource, Inc. ~~and~~(together with its subsidiaries ~~(the "Company"~~referred to as “the Company” or “ScanSource”) ~~provide value-added~~is at the center of the solution delivery channel, connecting businesses and providing technology solutions. The Company brings technology solutions and services from ~~technology~~the world’s leading suppliers of mobility and ~~sell~~barcode, point-of-sale (POS), payments, physical security, unified communications and collaboration, and telecom and cloud services to ~~customers in specialty technology markets through its Worldwide Barcode, Networking & Security segment and Worldwide Communications & Services segment.~~

market. The Company operates in the United States, Canada, Brazil, additional Latin American countries, the UK and Europe. However, the Company is in the process of divesting its products distribution business in the UK, Europe and Latin America, outside of Brazil. The Company's 2 operating segments, Worldwide Barcode, Networking & Security and ~~Europe.~~Worldwide Communications & Services, are based on product, customer and service type.

COVID-19

In early March 2020, the World Health Organization characterized COVID-19 as a pandemic. The rapid spread of COVID-19 since December 2019 has resulted in the implementation of numerous measures to contain the virus worldwide, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns. The Company ~~sells products into~~moved quickly to transition our employees, where possible, to a fully remote working environment. The Company took steps to deploy teams to monitor the ~~United States~~rapidly evolving situation and ~~Canada principally~~recommend risk mitigation actions; implement travel restrictions; and have employees follow physical distancing practices. The Company is following guidance from authorities and health officials including, but not limited to, checking the temperature of associates when entering its facilities, requiring associates to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitation routines. All of the Company's distribution facilities have remained open and operational. Most of the Company's office-based employees around the world are working remotely.

The pandemic and these containment measures have had, and are expected to continue to have, a ~~facility located~~substantial impact on businesses around the world, including the Company, and on global, regional and national economies. The Company is unable to predict the ultimate impact that COVID-19 will have on its business due to the inability to predict the duration or magnitude of the virus' impacts. However, the Company has experienced decreased revenue and increased employee-related healthcare and prevention costs. While the Company has made adjustments, including implementing an annualized expense reduction plan for fiscal year 2021, it will continue to monitor and make adjustments to the operating practices that it believes to be in ~~Mississippi; into Latin America principally from facilities located~~the best interests of its employees, customers, suppliers, and shareholders. For further discussion on the potential future impacts of COVID-19, see the Risk Factors presented in ~~Florida, Mexico, Brazil and Colombia; and into Europe from facilities located~~Part I, Item 1A in ~~Belgium, France, Germany and~~ the ~~United Kingdom.~~Company's form 10-K for fiscal year 2020.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared by the Company’s management in accordance with United States generally accepted accounting principles ("U.S. GAAP") for interim financial information and applicable rules and regulations of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring and non-recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position ~~as of~~ ~~December 31, 2017~~at September 30, 2020 and June 30, ~~2017~~,2020, the results of operations for the quarters ended September 30, 2020 and ~~six months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~,2019, the statements of comprehensive (loss) income for the quarters ended September 30, 2020 and ~~six months~~2019, the statements of shareholders' equity for the quarters ended ~~December 31, 2017~~September 30, 2020 and ~~2016~~,2019 and the statements of cash flows for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2020 and ~~2016~~.2019. The results of operations for the quarters ended September 30, 2020 and ~~six months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~2019 are not necessarily indicative of the results to be expected for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017~~.2020.

The Company has reclassified certain prior year amounts for the results of discontinued operations to conform to the current year presentation. Unless otherwise indicated, amounts provided in these Notes pertain to continuing operations only.

Summary of Significant Accounting Policies

Table of Contents

Except as described below, there have been no material changes to the Company’s significant accounting policies for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2020 from the policies described in the notes to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017~~.2020. For a discussion of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017~~.2020.

See Note 2 - Trade Accounts and Notes Receivable for a discussion of the current expected credit loss policy established upon adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (ASC Topic 326) in fiscal year 2021.

Restructuring Costs

The Company groups exit or disposal cost obligations into two categories: employee severance and benefit costs and other. Employee separation costs are recognized upon communication of the restructuring plan to the identified employees. Other associated restructuring costs are expensed as incurred. See Note 14 - Restructuring for further disclosures.

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 honor the checks until sufficient funds are transferred to fund the checks. As a result, checks released but not yet cleared from these accounts in the amounts of ~~$7.5~~$2.2 million and ~~$8.3~~$15.4 million are included in accounts payable ~~as of~~ ~~December 31, 2017~~on the condensed consolidated balance at September 30, 2020 and June 30, ~~2017~~,2020, respectively.

Long-lived Assets

The Company presents depreciation expense and intangible amortization expense ~~individually~~ on the Condensed Consolidated Income Statements. The Company's depreciation expense related to selling, general and administrative costs totaled ~~$3.5~~$3.4 million and ~~$6.7~~$3.3 million for the ~~quarter~~quarters ended September 30, 2020 and ~~six months ended December 31, 2017 and $2.4 million and $4.5 million for the quarter and six months ended December 31, 2016,~~2019, respectively. Depreciation expense reported as part of cost of goods sold on the Condensed Consolidated Income Statements totaled ~~$0.9~~$0.5 million and ~~$1.6~~$0.7 million for the ~~quarter~~quarters ended September 30, 2020 and ~~six months ended December 31, 2017. There was no depreciation expense reported as part of cost of goods sold prior to the acquisition of POS Portal on July 31, 2017.~~2019, respectively. The Company's intangible amortization expense reported on the Condensed Consolidated Income Statements ~~relate~~relates to selling, general and administrative costs, not the cost of selling goods. Intangible amortization expense totaled ~~$5.5~~$4.9 million and ~~$10.5~~$4.5 million for the ~~quarter~~quarters ended September 30, 2020 and ~~six months ended December 31, 2017 and $4.2 million and $7.3 million for the quarter and six months ended December 31, 2016,~~2019, respectively.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued a comprehensive new revenue recognition standard for contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance under Accounting Standards Update ("ASU") 2014-09, ~~Revenue from Contracts with Customers~~ ~~(Topic 606). In March, April, May and December~~June 2016, the FASB issued ~~additional ASUs~~ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326). In November 2018, the FASB issued ASU 2018-19, Codification Improvements to ~~provide~~Topic 326: Financial Instruments - Credit Losses, which provides supplemental ~~adoption~~ guidance and clarification to ASU ~~2014-09.~~2016-13 and must be adopted concurrently. The ~~core principle~~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 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchangeeffective July 1, 2020 and it did not have a material impact on its consolidated financial statements. See Note 2 - Trade Accounts and Notes Receivable for those goods or services. To achieve this core principle, the standard provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. This guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. This guidance will be applicablerelated to the ~~Company for the fiscal year beginning July 1, 2018. The Company is currently in the process~~adoption of evaluating the impact of this guidance on our consolidated financial results to determine the appropriate transition method for the Company. The Company has engaged a third-party consultant to assist with developing a multi-phase plan to assess the impact of adoption and is currently in the process of finalizing its conclusions on several aspects of the standard including principal versus agent considerations, identification of performance obligations, and the determination of when control of goods and services transfers to the Company’s customers. Additionally, the Company is in the process of evaluating the impact of the expanded disclosure requirements.ASU 2016-13.

In ~~February 2016,~~August 2018, the FASB issued ASU ~~2016-02,~~ ~~Leases (Topic 842)~~ ~~requiring lessees~~2018-13, Fair Value Measurement (ASC Topic 820) Disclosure Framework – Changes to ~~reflect most leases on their balance sheets~~the Disclosure Requirements for Fair Value Measurement. The pronouncement eliminates, modifies and ~~recognize expenses on their income statements. Under the new~~adds disclosure requirements for fair value measurements. This guidance lessees will be required to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The asset will be 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. The standard is effective for fiscal years beginning after December 15, ~~2018, including~~2019, and for interim periods within those fiscal ~~years.~~years, with early adoption permitted. This guidance ~~will be~~is applicable to the ~~Company for the~~Company’s fiscal year beginning July 1, ~~2019.~~2020. The ~~guidance must be~~Company adopted ~~using a modified retrospective approach for leases that exist or are entered into after~~this standard effective July 1, 2020 and it had no impact on its consolidated financial statements.

In March 2020, the ~~beginning~~FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the ~~earliest comparative period~~Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”), which provides optional guidance to ease the potential burden in ~~the~~accounting for reference rate reform on financial ~~statements.~~reporting. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. The Company is currently evaluating the potential impact of this guidance on its consolidated financial ~~statements upon the adoption~~statements.

Table of ~~this new guidance.~~Contents

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718)~~ effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This guidance was adopted by the Company prospectively on July 1, 2017. The new standard simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as classification in the statement of cash flows. Under the new guidance, an entity will recognize all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement. This change eliminates the current practice of recognizing excess tax benefits in additional paid-in-capital ("APIC") and tax deficiencies in APIC to the extent that there is a sufficient APIC pool related to previously recognized excess tax benefits. In addition, excess tax benefits and tax deficiencies are considered discrete items in the reporting period they occur and are not included in the estimate of an entity’s annual effective tax rate. As for classification on the statement of cash flows, excess tax benefits will no longer represent a financing activity since they are recognized in the income statement and will appropriately be classified as an operating activity. See the ~~Condensed Consolidated Statements of~~

~~Cash Flows~~ ~~for the six months ended December 31, 2017~~for the prospective presentation of classifying excess tax benefits as an operating activity, not a financing activity as in prior years. The ASU allows an entity to elect as an accounting policy either to continue to estimate the total number of awards for which the requisite service period will not be rendered (as currently required) or to account for forfeitures when they occur. The Company elected to maintain its accounting policy to estimate to the total number of forfeitures for stock awards granted. In regards to statutory withholding requirements, the new guidance stipulates that the net settlement of an award would not result, by itself, in liability classification of the award provided that the amount withheld for taxes does not exceed the maximum statutory tax rate in the employees’ relevant tax jurisdictions.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230)~~ intended to reduce diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The update addresses eight specific cash flow issues, with the treatment of contingent consideration payments made after a business combination being the most directly applicable to the Company. The update requires that cash payments made approximately three months or less after an acquisition's consummation date should be classified as cash outflows for investing activities. Payment made thereafter up to the amount of the original contingent consideration liability should be classified as cash outflows from financing activities. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows from operating activities. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The standard will be applicable to the Company for the fiscal year beginning July 1, 2018. Early adoption is permitted, provided all eight amendments are adopted in the same period. The guidance requires adoption using a retrospective transition method. The Company is currently evaluating the impact on its consolidated financial statements upon the adoption of this new guidance.

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

(2) 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: (1) historical experience, (2) aging of the accounts receivable, (3) specific information obtained by the Company on the financial condition and the current creditworthiness of its customers, (4) the current economic and country-specific environment and (5) 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 over the contractual life are recorded at inception.

The changes in the allowance for doubtful accounts for the three months ended September 30, 2020 are set forth in the table below.


	June 30, 2020		Amounts Charged to Expense		Write-offs		Other (1)		September 30, 2020
	(in thousands)
Trade accounts and current notes receivable allowance	$	21,906	$	(8)	$	(288)	$	371	$	21,981

(1)"Other" amounts include recoveries and the effect of foreign currency fluctuations for three months ended September 30, 2020.

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(3) Revenue Recognition

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

In determining the appropriate amount of revenue to recognize, the Company applies the following five-step model: (i) identify contracts with customers; (ii) identify performance obligations in the contracts; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations per the contracts; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company recognizes revenue as control of products and services are transferred to customers, which is generally at the point of shipment. The Company delivers products to customers in several ways, including: (i) shipment from the Company's warehouse, (ii) drop-shipment directly from the supplier, or (iii) electronic delivery for non-physical products.

Principal versus Agent Considerations

The Company is the principal for sales of all hardware, certain software and certain services, including self-branded warranty programs. The Company considers itself the principal in these transactions as it has control of the product or service before it is transferred to the customer. When the Company provides self-branded warranty programs, it engages a third party, generally the original equipment manufacturer, to cover the fulfillment of any obligations arising from these contracts. These revenues and associated third-party costs are amortized over the life of the contract on a straight-line basis. The Company recognizes the previously described revenue and cost of goods sold on a gross basis.

The Company is the 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.

Related to the Company’s Intelisys business, the Company acts as a master agent connecting independent sales partners with service providers or suppliers who offer telecom and cloud services to end-customers. Intelisys’ sales partners earn commission payments from those service providers or suppliers on end-customer sales. Intelisys provides commission processing services to sales partners, earning a percentage of the commission stream. Because the Company acts as an agent, revenue is recognized on a net basis.

Variable Considerations

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

Contract Balances

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

Disaggregation of Revenue

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

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	Quarter ended September 30, 2020
			(in thousands)
	Worldwide Barcode, Networking & Security Segment		Worldwide Communications & Services Segment		Total
Revenue by product/service:
Technology solutions	$	523,577	$	218,508	$	742,085
Master agency(a)	0		15,257		15,257
	$	523,577	$	233,765	$	757,342











(a) Includes Intelisys Communications, Inc and Intelisys Global Ltd..


	Quarter ended September 30, 2019
			(in thousands)
	Worldwide Barcode, Networking & Security Segment		Worldwide Communications & Services Segment		Total
Revenue by product/service:
Technology solutions	$	581,187	$	247,805	$	828,992
Master agency(a)	0		13,709		13,709
	$	581,187	$	261,514	$	842,701











(a) Includes Intelisys Communications, Inc and Intelisys Global Ltd..

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(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.


	Quarter ended				Six months ended					Quarter ended
	December 31,				December 31,					September 30,
	2017		2016		2017		2016			2020		2019
	(in thousands, except per share data)									(in thousands, except per share data)
Numerator:									Numerator:
Net Income	$	7,969	$	23,036	$	12,116	$	37,852
Net (loss) income from continuing operations									Net (loss) income from continuing operations	$	(115)	$	12,291
Net loss from discontinued operations									Net loss from discontinued operations	(11,704)		(761)
Net (loss) income									Net (loss) income	$	(11,819)	$	11,530
Denominator:									Denominator:
Weighted-average shares, basic	25,506		25,146		25,470		25,334		Weighted-average shares, basic	25,361		25,539
Dilutive effect of share-based payments	142		139		142		156		Dilutive effect of share-based payments	0		78
Weighted-average shares, diluted	25,648		25,285		25,612		25,490
Weighted-average shares, diluted(1)									Weighted-average shares, diluted(1)	25,361		25,617

Net income per common share, basic	$	0.31	$	0.92	$	0.48	$	1.49
Net income per common share, diluted	$	0.31	$	0.91	$	0.47	$	1.48
Net (loss) income from continuing operations per common share, basic									Net (loss) income from continuing operations per common share, basic	$	(0.01)	$	0.48
Net loss from discontinued operations per common share, basic									Net loss from discontinued operations per common share, basic	(0.46)		(0.03)
Net (loss) income per common share, basic									Net (loss) income per common share, basic	$	(0.47)	$	0.45

Net (loss) income from continuing operations per common share, diluted									Net (loss) income from continuing operations per common share, diluted	$	(0.01)	$	0.48
Net loss from discontinued operations per common share, diluted									Net loss from discontinued operations per common share, diluted	(0.46)		(0.03)
Net (loss) income per common share, diluted									Net (loss) income per common share, diluted	$	(0.47)	$	0.45

(1) The Company calculated weighted average shares of common stock in accordance with ASC 260, Earnings per Share. The Company's diluted weighted average shares for the quarter ended September 30, 2020 are the same as basic weighted average shares due to net loss from continuing operations.

For the ~~quarter~~quarters ended September 30, 2020 and ~~six months ended December 31, 2017,~~2019, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were ~~405,159~~1,063,840 and ~~432,846,~~916,875, respectively. For the quarter and six months ended December 31, 2016, there were 568,955 and 517,845, respectively, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive.

~~(3)~~(5) Accumulated Other Comprehensive ~~Income (Loss)~~Loss

Accumulated other comprehensive ~~income (loss)~~loss consists of the following:


	September 30, 2020		June 30, 2020
	(in thousands)
Foreign currency translation adjustment	$	(122,463)	$	(125,974)
Unrealized loss on hedged transaction, net of tax	(6,712)		(6,821)
Accumulated other comprehensive loss	$	(129,175)	$	(132,795)

December 31, 2017 June 30, 2017
(in thousands)
Foreign currency translation adjustment $ (65,767 ) $ (73,217 )
Unrealized gain (loss) on hedged transaction, net of tax 362
13
Accumulated other comprehensive income (loss) $ (65,405 ) $ (73,204 )

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


	Quarter ended September 30,
	2020		2019
	(in thousands)
Tax benefit	$	184	$	290

Quarter ended December 31, Six months ended December 31,
2017 2016 2017 2016
(in thousands)
Tax expense (benefit) $ 75
$ 144
$ 379
$ 92

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~~(4)~~(6) Acquisitions

~~POS Portal~~intY

On July ~~31, 2017,~~1, 2019, the Company acquired all of the outstanding shares of ~~POS Portal, Inc. ("POS Portal") a leading provider of payment devices~~intY and its CASCADE cloud services ~~primarily to the small and midsized ("SMB") market segment in the United States. POS Portal joined the Worldwide Barcode, Networking & Security segment.~~

Under the purchase agreement, the all-cash transaction included an initial purchase price of approximately $144.9 million paid in cash at closing. The Company paid an additional $3.4 million for customary closing adjustments during the six months ended December 31, 2017. The Company acquired $4.6 million in cash, net of debt payoff and other customary closing adjustments, resulting in $143.8 million net cash paid for POS Portal. The agreement also included a cash earn-out payment up to $13.2 million based on POS Portal's earnings before interest expense, taxes, depreciation and amortization (EBITDA) for the trailing twelve months (TTM) ending September 30, 2017, which was paid in full during the quarter ended December 31, 2017. A portion of the purchase price was placed into escrow to indemnify the Company for certain pre-acquisition damages. A portion of the escrow was released during the quarter ended December 31, 2017. As of December 31, 2017, the balance available in escrow was $13.1 million.

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. The goodwill balance is primarily attributed to expanding the Company's high-value capabilities and market reach across all payment channels. Goodwill, identifiable intangible assets and the related deferred tax liability are not deductible for tax purposes. Pro forma results of operations have not been presented for the acquisition of POS Portal because such results are not material to our consolidated results.

POS Portal
(in thousands)
Receivables $ 8,914
Inventory 8,352
Other current assets 917
Property and equipment 24,963
Goodwill 101,198
Identifiable intangible assets 57,000
Other non-current assets 100
$ 201,444

Accounts payable $ 10,897
Accrued expenses and other current liabilities 5,130
Contingent consideration 13,098
Other long-term liabilities 102
Long-term deferred taxes payable 28,449
Consideration transferred, net of cash acquired 143,768
$ 201,444

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

~~Intelisys~~

On August 29, 2016, the Company acquired substantially all the assets of Intelisys, a technology services company with voice, data, cable, wireless, and cloud services. Intelisys is part of the Company's Worldwide Communications and Services operating segment. With this acquisition, the Company broadens its capabilities in the telecom and cloud services market and generates the opportunity for high-growth recurring revenue.

Under the asset purchase agreement, the Company made an initial cash payment of approximately $84.6 million, which consisted of an initial purchase price of $83.6 million and $1.0 million for additional net assets acquired at closing, and agreed to make four additional annual cash installments based on a form of adjusted EBITDA for the periods ending June 30, 2017 through June 30, 2020. The Company acquired $0.8 million of cash as part of the acquisition, resulting in $83.8 million net cash paid for Intelisys initially. A portion of the purchase price was placed into escrow to indemnify the Company for certain pre-acquisition damages. As of December 31, 2017, the balance available in escrow was $8.5 million.

The purchase price of this acquisition was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction date. The goodwill balance is primarily attributed to entering the recurring revenue telecom and cloud services market and expanded market opportunities to grow recurring revenue streams. Goodwill and identifiable intangible assets are expected to be fully deductible for tax purposes.

Intelisys
(in thousands)
Receivables $ 21,655
Other current assets 1,547
Property and equipment 5,298
Goodwill 109,005
Identifiable intangible assets 63,110
Other non-current assets 1,839
$ 202,454

Accounts payable $ 21,063
Accrued expenses and other current liabilities 2,587
Contingent consideration 95,000
Consideration transferred, net of cash acquired 83,804
$ 202,454

Intangible assets acquired include trade names, customer relationships, and ~~non-compete agreements.~~developed technology. Goodwill recognized on this acquisition is not deductible for tax purposes. The ~~weighted-average amortization period~~impact of this acquisition was not material to the consolidated financial statements. The Company recognized $0.3 million for ~~these identified intangible assets after purchase accounting adjustments, other than goodwill, was 10 years.~~the quarter ended September 30, 2019, in acquisition-related costs included in selling, general and administrative expenses on the Condensed Consolidated Income Statements in connection with this acquisition. This acquisition is included in the Worldwide Communications & Services segment.

~~(5)~~

(7) Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the ~~six~~three months ended ~~December 31, 2017~~,September 30, 2020, by reporting segment, are ~~as follows:~~

Barcode, Networking & Security Segment Communications & Services Segment Total
(in thousands)
Balance as of June 30, 2017 $ 36,260
$ 164,621
$ 200,881
Additions 101,198
—
101,198
Foreign currency translation adjustment 146
687
833
Balance as of December 31, 2017 $ 137,604
$ 165,308
$ 302,912

~~The Company completed the acquisition of POS Portal, a leading provider of payment devices and services primarily to the SMB market segment~~set forth in the ~~United States. The addition of goodwill in the Worldwide Barcode, Networking & Security segment is the result of this acquisition.~~table below.


	Worldwide Barcode, Networking & Security Segment		Worldwide Communications & Services Segment		Total
	(in thousands)
Balance at June 30, 2020	$	16,370	$	197,918	$	214,288

Foreign currency translation adjustment	0		882		882
Balance at September 30, 2020	$	16,370	$	198,800	$	215,170

The following table shows changes in the amount recognized for net identifiable intangible assets for the ~~six~~three months ended ~~December 31, 2017~~.September 30, 2020.


	Net Identifiable Intangible Assets
	(in thousands)
Balance at June 30, 2020	$	121,547


Amortization expense	(4,853)
Foreign currency translation adjustment	798
Balance at September 30, 2020	$	117,492

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The table below provides a summary of the changes in fair value of the Company’s contingent considerations (Level 3) for the ~~Network1,~~ Intelisys ~~and POS Portal earnouts~~earnout for the quarter ~~and six months~~ ended ~~December 31, 2017. The contingent consideration due to the former shareholders of POS Portal was paid in full during the quarter ended December 31, 2017.~~September 30, 2019.


	Quarter ended September 30, 2019
	Worldwide Communications & Services Segment
	(in thousands)
Fair value at beginning of period	$	77,925


Change in fair value of contingent consideration	2,472

Fair value at end of period	$	80,397

Contingent consideration for the quarter ended Contingent consideration for the six months ended
December 31, 2017 December 31, 2017
Barcode, Networking & Security Segment Communications & Services Segment Total Barcode, Networking & Security Segment Communications & Services Segment Total
(in thousands)
Fair value at beginning of period $ 13,167
$ 90,326
$ 103,493
$ —
$ 114,036
$ 114,036
Issuance of contingent consideration —
—
—
13,098
—
13,098
Payments (13,167 ) —
(13,167 ) (13,167 ) (40,858 ) (54,025 )
Change in fair value of contingent consideration —
6,913
6,913
69
23,725
23,794
Foreign currency translation adjustment —
(208 ) (208 ) —
128
128
Fair value at end of period $ —
$ 97,031
$ 97,031
$ —
$ 97,031
$ 97,031

The table below provides a summary of the changes in fair value of the Company’s contingent considerations (Level 3) for the Imago, Network1 and Intelisys earnouts for the quarter and six months ended ~~December 31, 2016. The contingent consideration due to the former shareholders of Imago was paid in full during the quarter ended December 31, 2016.~~

Contingent consideration for the quarter ended Contingent consideration for the six months ended
December 31, 2016 December 31, 2016
Communications & Services Segment Communications & Services Segment
(in thousands)
Fair value at beginning of period $ 110,835
$ 24,652
Issuance of contingent consideration —
95,000
Payments (1,607 ) (10,241 )
Change in fair value of contingent consideration 1,791
1,961
Foreign currency translation adjustment (139 ) (492 )
Fair value at end of period $ 110,880
$ 110,880

The fair values of amounts owed are recorded in current portion of contingent consideration and long-term portion of contingent consideration in the Company’s Condensed Consolidated Balance Sheets. ~~The U.S. dollar amounts of actual disbursements made in connection~~In accordance with ~~future earnout payments are subject to change as~~ASC 805, the ~~liability is denominated in currencies other than the U.S. dollar and subject to foreign exchange fluctuation risk. The~~ Company will revalue the contingent consideration ~~liabilities~~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 Condensed Consolidated Income Statements that is included in the calculation of operating income. The fair value of the contingent consideration ~~liabilities~~liability associated with future earnout payments is based on several factors, including:

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

•the probability of achieving these results; and

•a discount rate reflective of the Company’s creditworthiness and market risk premium associated with the United States ~~and Brazilian~~ markets.

A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration. Valuation techniques and significant observable inputs used in recurring Level 3 fair value measurements for ~~our~~the Company's contingent consideration ~~liabilities as of December 31, 2017 and~~liability related to Intelisys at June 30, ~~2017~~2020 were as follows.

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

Reporting Period

Valuation Technique

Significant Unobservable Inputs

Weighted Average Rates(a)

~~December 31, 2017~~

June 30, 2020

Discounted cash flow

Weighted average cost of capital

~~15.4~~3.0

~~Adjusted EBITDA growth rate~~

~~17.9~~

~~June 30, 2017~~

~~Discounted cash flow~~

~~Weighted average cost of capital~~

~~14.2~~

~~Adjusted EBITDA growth rate~~

~~17.0~~

~~Worldwide Barcode, Networking & Security~~

~~POS Portal~~

~~The contingent consideration due~~(a)Weighted average rates identified for each significant unobservable input relate to the ~~former shareholders~~valuation of ~~POS Portal was paid~~the Intelisys contingent consideration. Since the earnout period for Intelisys closed on June 30, 2020, the weighted average cost of capital represents the cost of debt. There is no EBITDA growth or weighted average cost of capital to report in ~~full during~~ the ~~quarter ended December 31, 2017. As such, no liability is recorded as of this reporting date and no change in~~current period.

Intelisys

The fair value of the liability for the contingent consideration related to Intelisys recognized at September 30, 2020 was $46.9 million, all of which is ~~recognized in the Condensed Consolidated Income Statements for the quarter ended December 31, 2017. For the six months ended December 31, 2017,~~classified as current. The expense from the change in fair value of the contingent consideration recognized in the Condensed Consolidated Income ~~Statements contributed a loss~~Statement totaled $0.5 million for the quarter ended September 30, 2020. The change in fair value for the quarter is due to the recurring amortization of ~~less than $0.1 million.~~the unrecognized fair value discount. The liability recognized at September 30, 2020 is undiscounted and expected to be paid in full during the quarter ended December 31, 2020.

~~Worldwide Communications & Services Segment~~

~~Intelisys~~

The ~~discounted~~ fair value of the liability for the contingent consideration ~~due~~related to ~~the former shareholders of~~ Intelisys recognized at ~~December 31, 2017~~September 30, 2019 was ~~$90.7~~$80.4 million, of which ~~$32.3~~$38.5 million iswas classified as current. The expense from the change in fair value of the contingent consideration recognized in the Condensed Consolidated Income Statement ~~contributed a loss of $5.1~~totaled $2.5 million ~~and $9.2 million, respectively,~~ for the quarter ~~and six months~~ ended ~~December 31, 2017.~~September 30, 2019. The change in fair value for the prior-year quarter ~~and six month period~~ is primarily driven by the recurring amortization of the unrecognized fair value discount and an adjustment to the probability weights in the discounted cash flow model. Although there is no contractual limit, total future undiscounted contingent consideration payments are anticipated to range up to $115.2 million, based on the Company’s best estimate of the earnout calculated on a multiple of earnings, before interest expense, income taxes, depreciation and amortization.

The discounted fair value of the liability for the contingent consideration related to Intelisys recognized at December 31, 2016 was $98.2 million, of which $25.5 million is classified as current. The change in fair value of the contingent consideration recognized in the Condensed Consolidated Income Statement contributed a loss of $2.3 million and $3.2 million, respectively, for the quarter and six months ended December 31, 2016, primarily driven by the recurring amortization of the unrecognized fair value discount, partially offset by an increase in the discount rate used.

~~Network I~~

The discounted fair value of the liability for the contingent consideration due to the former shareholders of Network1 recognized at December 31, 2017 was $6.3 million, all of which is classified as current. For the quarter and six months ended December 31, 2017, the change in fair value of the contingent consideration recognized in the Condensed Consolidated Income Statements contributed a loss of $1.8 million and $14.5 million, respectively. The change in fair value for the quarter is primarily due to improvedbetter than expected actual results. The change in fair value for the six month period is primarily driven by a change in estimate of the current year payment to the former shareholders of Network1, additional agreed upon adjustments to the projected final settlement and improved actual results for the second quarter. In addition, volatility in the foreign exchange between the Brazilian real and the U.S. dollar has driven changes in the translation of this Brazilian real denominated liability. Although there is no contractual limit, total future undiscounted contingent consideration payments are anticipated to range up to $7.1 million, based on the Company’s best estimate of the earnout calculated on a multiple of adjusted earnings, before interest expense, income taxes, depreciation and amortization, plus the effects of foreign exchange.

The discounted fair value of the liability for the contingent consideration related to Network1 recognized at December 31, 2016 was $12.7 million, of which $7.3 million is classified as current. For the quarter ended December 31, 2016, the change in fair value of the contingent consideration recognized in the Condensed Consolidated Income Statements contributed a loss of $0.2 million, primarily driven by the recurring amortization of the unrecognized fair value discount, partially offset by an increase in the discount rate used and less-than-expected results. For the six months ended December 31, 2016, the change in fair value of the contingent consideration contributed a gain of $0.1 million, primarily driven by less-than-expected actual results, partially offset by the recurring amortization of the unrecognized fair value discount. In addition, volatility in the foreign exchange between the Brazilian real and the U.S. dollar has driven changes in the translation of this Brazilian real denominated liability.

~~Imago~~

The contingent consideration due to the former shareholders of Imago was paid in full during the quarter ended December 31, 2016. The change in fair value of the contingent consideration recognized in the Consolidated Income Statements contributed a gain of $0.8 million and $1.1 million, respectively, for the quarter and six months ended December 31, 2016. The change in fair value is primarily driven by actual results that were less-than-expected, including special adjustments as determined by the stock purchase agreement. In addition, volatility in the foreign exchange rate between the British pound and the U.S. dollar drove changes in the translation of this British pound-denominated liability.

~~(9)~~(11) Segment Information

The Company is a leading ~~global~~ provider of technology ~~products~~solutions and ~~solutions~~services to customers in specialty technology markets. The Company has ~~two~~2 reportable segments, based on product, customer and service type.

Worldwide Barcode, Networking & Security Segment

The Worldwide Barcode, Networking & Security segment ~~focuses on automatic identification and~~includes a portfolio of solutions primarily for enterprise mobile computing, data capture, ~~("AIDC"), point-of-sale ("POS"),~~barcode printing, POS, payments, networking, electronic physical security, cyber security and other ~~specialty~~

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technologies. ~~We have~~The Company has business ~~units~~operations within this segment in ~~North America, Latin America~~the United States, Canada and ~~Europe. We see~~Brazil. The Company sees adjacencies among these technologies in helping ~~our~~its customers develop ~~solutions, such as with networking products. AIDC~~solutions. Data capture and POS ~~products~~solutions interface with computer systems used to automate the collection, processing and communication of information for commercial and industrial applications, including retail sales, distribution, shipping, inventory control, materials handling, warehouse management and health care applications. Electronic physical security products include identification, access control, video surveillance, intrusion-related and wireless and networking infrastructure products.

Worldwide Communications & Services Segment

The Worldwide Communications & Services segment ~~focuses on~~includes a portfolio of solutions primarily for communications technologies and ~~services. We have~~services and includes the Company's recent acquisition of intY. The Company has business ~~units~~operations within this segment ~~that offer~~in the United States, Canada, Brazil and the UK. These offerings include voice, video conferencing, wireless, data networking, cable, ~~collaboration, converged~~unified communications ~~solutions,~~and collaboration, cloud and ~~telecom~~technology services. ~~We have business units within this segment in North America, Latin America and Europe.~~ As these solutions come together on IP networks, new opportunities are created ~~for customers~~ to move into adjacent solutions for all vertical markets, such as education, healthcare and government. Our teams deliver value-added support programs and services, including education and training, network assessments, custom configuration, implementation and marketing to help customers develop a new technology practice, or to extend their capability and reach.

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Selected financial information for each business segment is presented below:


	Quarter ended
	September 30,
	2020		2019
	(in thousands)
Sales:
Worldwide Barcode, Networking & Security	$	523,577	$	581,187
Worldwide Communications & Services	233,765		261,514
	$	757,342	$	842,701
Depreciation and amortization:
Worldwide Barcode, Networking & Security	$	4,189	$	4,202
Worldwide Communications & Services	3,727		3,308
Corporate	795		1,008
	$	8,711	$	8,518
Change in fair value of contingent consideration:

Worldwide Communications & Services	516		2,472
	$	516	$	2,472
Operating income (loss):
Worldwide Barcode, Networking & Security	$	2,147	$	11,071
Worldwide Communications & Services	8,253		9,199
Corporate(1)	(8,766)		(757)
	$	1,634	$	19,513
Capital expenditures:
Worldwide Barcode, Networking & Security	$	339	$	526
Worldwide Communications & Services	409		413

	$	748	$	939
Sales by Geography Category:
United States and Canada	$	691,080	$	777,969
International(2)	73,739		74,193
Less intercompany sales	(7,477)		(9,461)
	$	757,342	$	842,701

(1) Includes restructuring costs of $8.3 million for the quarter ended September 30, 2020. (2) For the quarters ended September 30, 2020 and 2019, no sales exceeded 10% of consolidated net sales to any single international country.


	September 30, 2020		June 30, 2020
	(in thousands)
Assets:
Worldwide Barcode, Networking & Security	$	749,378	$	766,746
Worldwide Communications & Services	750,832		685,053
Corporate	56,231		59,064
Assets held for sale	176,903		181,231
	$	1,733,344	$	1,692,094
Property and equipment, net by Geography Category:
United States and Canada	$	49,702	$	53,083
International	2,562		2,558
	$	52,264	$	55,641

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Quarter ended Six months ended
December 31, December 31,
2017 2016 2017 2016
(in thousands)
Sales:
Worldwide Barcode, Networking & Security $ 719,786
$ 593,833
$ 1,340,114
$ 1,221,043
Worldwide Communications & Services 312,426
310,959
616,657
616,314
$ 1,032,212
$ 904,792
$ 1,956,771
$ 1,837,357
Depreciation and amortization:
Worldwide Barcode, Networking & Security $ 4,843
$ 1,718
$ 8,584
$ 3,355
Worldwide Communications & Services 4,173
4,051
8,431
6,820
Corporate 885
819
1,751
1,637
$ 9,901
$ 6,588
$ 18,766
$ 11,812
Change in fair value of contingent consideration:
Worldwide Barcode, Networking & Security $ —
$ —
$ 69
$ —
Worldwide Communications & Services 6,913
$ 1,791
$ 23,725
$ 1,961
$ 6,913
$ 1,791
$ 23,794
$ 1,961
Operating income:
Worldwide Barcode, Networking & Security $ 15,542
$ 12,131
$ 29,578
$ 25,554
Worldwide Communications & Services 6,799
11,479
533
21,429
Corporate —
(335 ) (172 ) (833 )
$ 22,341
$ 23,275
$ 29,939
$ 46,150
Capital expenditures:
Worldwide Barcode, Networking & Security $ 919
$ 523
$ 1,740
$ 1,378
Worldwide Communications & Services 367
476
708
1,091
Corporate 699
286
848
792
$ 1,985
$ 1,285
$ 3,296
$ 3,261
Sales by Geography Category:
United States and Canada $ 764,445
$ 676,600
$ 1,458,824
$ 1,396,971
International⁽¹⁾
276,918
236,977
514,827
459,742
Less intercompany sales (9,151 ) (8,785 ) (16,880 ) (19,356 )
$ 1,032,212
$ 904,792
$ 1,956,771
$ 1,837,357

⁽¹⁾ For the quarters and six months ended December 31, 2017 and 2016, there were no sales in excess of 10% of consolidated net sales to any single international country.

(12) Leases

In accordance with ASC 842, 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 in fiscal year 2022. Finance leases are recorded as property and equipment, net, accrued expenses and other current liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets. The gross amount of the balances recorded related to finance leases is immaterial to the financial statements at September 30, 2020 and June 30, 2020.

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.

The following table presents amounts recorded on the Condensed Consolidated Balance Sheet related to operating leases at September 30, 2020:


Operating leases	Balance Sheet location	September 30, 2020		June 30, 2020
		(in thousands)
Operating lease right-of-use assets	Other non-current assets	$	22,440	$	23,581
Current operating lease liabilities	Accrued expenses and other current liabilities	4,395		4,476
Long-term operating lease liabilities	Other long-term liabilities	19,711		20,760

The following table presents amounts recorded in operating lease expense as part of selling general and administrative expenses on the Condensed Consolidated Income Statements during the quarters ended September 30, 2020 and 2019. Operating lease costs contain immaterial amounts of short-term lease costs for leases with an initial term of 12 months or less.


	Quarter ended September 30,
	2020		2019
	(in thousands)
Operating lease cost	$	1,356	$	1,602
Variable lease cost	310		249
	$	1,666	$	1,851

Supplemental cash flow information related to the Company's operating leases for the three months ended September 30, 2020 and 2019 are presented in the table below:

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December 31, 2017 June 30, 2017
(in thousands)
Assets:
Worldwide Barcode, Networking & Security $ 1,103,863
$ 885,786
Worldwide Communications & Services 832,616
769,342
Corporate 68,803
63,175
$ 2,005,282
$ 1,718,303
Property and equipment, net by Geography Category:
United States and Canada $ 72,336
$ 51,853
International 4,290
4,713
$ 76,626
$ 56,566


	Three months ended
	September 30,
	2020		2019
	(in thousands)
Cash paid for amounts in the measurement of lease liabilities	$	1,394	$	1,406
Right-of-use assets obtained in exchange for lease obligations	0		1,533

The weighted-average remaining lease term and discount rate at September 30, 2020 are presented in the table below:

~~(10)~~


	September 30, 2020
Weighted-average remaining lease term	5.80 years
Weighted-average discount rate	4.1	%

The following table presents the maturities of the Company's operating lease liabilities at September 30, 2020:


	Operating leases
	(in thousands)
Remainder of 2021	$	4,035
2022	4,984
2023	4,654
2024	4,158
2025	3,256
Thereafter	5,990
Total future payments	27,077
Less: amounts representing interest	2,971
Present value of lease payments	$	24,106

(13) Commitments and Contingencies

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

In early March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) as a pandemic. The rapid spread of COVID-19 since December 2019 has resulted in the implementation of numerous measures to contain the virus worldwide, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns. The pandemic and these containment measures have had, and are expected to continue to have, a substantial impact on businesses around the world, including the Company’s business, and on global, regional and national economies. The Company ~~expects total capital expenditures~~is unable at this time to ~~range from $8 million~~predict the ultimate impact that COVID-19 will have on its business due to ~~$11 million for fiscal year 2018, primarily for IT investments.~~the inability to predict the duration or magnitude of the virus' impacts.

During the Company's due diligence for the ~~CDC and~~ Network1 ~~acquisitions,~~acquisition, several pre-acquisition contingencies were identified regarding various Brazilian federal and state tax exposures. The Company ~~is able to record~~recorded indemnification receivables that are reported gross of the pre-acquisition contingency liabilities as ~~sufficient~~the funds ~~to pay those obligations~~ were escrowed as part of the acquisition. The amount available after the impact of foreign currency translation for future pre-acquisition contingency settlements or ~~the Company is entitled~~ to ~~offset those obligations against future earnout payments under the share purchase agreements. However, indemnity claims can~~ be ~~made up~~released to the ~~entire purchase price, which includes the initial payment~~sellers was $4.6 million and ~~all future earnout payments.~~ $4.8 million, at September 30, 2020 and June 30, 2020, respectively.

The table below summarizes the balances and line item presentation of ~~these~~Network1's pre-acquisition contingencies and corresponding indemnification receivables in the Company's Condensed Consolidated Balance Sheets ~~as of December 31, 2017~~at September 30, 2020 and June 30, ~~2017:~~2020:

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						September 30, 2020		June 30, 2020
	CDC		Network1			Network1
	(in thousands)					(in thousands)
Assets					Assets
Prepaid expenses and other current assets	$	2,212	$	1,294	Prepaid expenses and other current assets	$	14	$	14
Other non-current assets	$	—	$	8,235	Other non-current assets	$	3,546	$	3,652
Liabilities					Liabilities
Accrued expenses and other current liabilities	$	2,212	$	1,294	Accrued expenses and other current liabilities	$	14	$	14
Other long-term liabilities	$	—	$	8,235	Other long-term liabilities	$	3,546	$	3,652

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

(14) 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 are designed to better align the cost structure for the wholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic. The Company also initiated the closure of its Canpango business, its salesforce implementation and consulting business. There has been limited adoption by the Company's partner community of the services Canpango offers. These actions include entering into severance and termination agreements with employees, legal fees to execute the reduction in force and costs associated with lease terminations.

The following table presents the restructuring and severance costs incurred for the quarter ended September 30, 2020:



	Total
	(in thousands)
Severance and benefit costs	$	8,111
Other	157
Total restructuring and other charges	$	8,268

~~There have been no changes~~

For the quarter ended September 30, 2020, all restructuring costs are recognized in the ~~classifications~~Corporate reporting unit and ~~amounts~~have not been allocated to the Worldwide Communications & Services or Worldwide Barcode, Networking & Security segment. The Company incurred restructuring charges in the prior year that were immaterial to the condensed consolidated financial statements and unrelated to the program described above.

Accrued restructuring and severance costs are included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets. The following table represents activity for the quarter ended September 30, 2020:


	Accrued Expenses
	(in thousands)
Balance at July 1, 2020	$	0
Charged to expense	8,268
Cash payments	(1,436)
Balance at September 30, 2020	$	6,832

The remaining balance as of ~~pre-acquisition contingencies recognized from~~ ~~June~~September 30, ~~2017.~~2020 of $6.8 million, primarily related to Corporate, is expected to be paid through the first quarter of fiscal year 2022.

~~(11)~~

(15) Income Taxes

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act reduces the corporate federal tax rate from 35% to 21% effective January 1, 2018 and implements a territorial tax system. Since the Company has a June 30th fiscal year-end, the lower tax rate will result in a blended U.S. statutory federal rate

Table of approximately 28% for the fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. As part of the Tax Act, U.S. companies are required to pay a one-time transition tax on the deemed repatriation of undistributed foreign earnings and remeasure deferred tax assets and liabilities.Contents

Income taxes for the ~~quarter~~quarters ended September 30, 2020 and ~~six months ended December 31, 2017~~2019 have been included in the accompanying condensed consolidated financial statements using an estimated annual effective tax rate. In addition to applying the estimated annual effective tax rate to pre-tax income, the Company ~~also~~ includes certain items treated as discrete events to arrive at an estimated overall tax provision. ~~The table below summarizes the effect of~~There were no material discrete items ~~on the income tax rate for~~recognized during the quarter ended September 30, 2020 and ~~six months ended December 31, 2017.~~2019.

Quarter ended Six months ended
December 31, 2017 December 31, 2017
(in thousands)
Income before income taxes $ 20,310
$ 27,090
Accrual income tax rate⁽¹⁾
28.0 % 29.8 %
Accrued income tax expense, before discrete items 5,681
8,074
Discrete tax expense (benefit):
Transition tax on repatriation of foreign earnings 9,300
9,300
Remeasurement of deferred taxes (U.S.) (3,510 ) (3,510 )
Remeasurement of deferred taxes (Belgium) 900
900
Other (30 ) 210
Total net discrete tax expense 6,660
6,900
Provision for income taxes $ 12,341
$ 14,974
Effective income tax rate 60.8 % 55.3 %
Income tax rate effect of discrete items 32.8 % 25.5 %

⁽¹⁾~~The estimated effect of the rate change for the quarter and six months ended December 31, 2017 is a benefit of approximately $1.6 million.~~

The Company’s effective tax rate of ~~55.3%~~29.0% and 26.1% for the ~~six months~~quarters ended ~~December 31, 2017~~September 30, 2020 and 2019, respectively, differs from the current federal statutory rate of 21% primarily as a result of ~~items recorded discretely,~~ income derived from tax jurisdictions with varying income tax rates, nondeductible expenses and ~~the application of a blended U.S. federal rate for the current fiscal year as a result of tax reform legislation.~~

As part of transitioning to the territorial tax system the Tax Act includes a mandatory deemed repatriation of all undistributed foreign earnings that are subject to a U.S. income tax. For the quarter ended December 31, 2017, the Company recognized a provisional discrete income tax expense of $9.3 million for a one-time transition tax liability on total post-1986 foreign subsidiaries’ earnings and profits (“E&P”) that were previously deferred from U.S.state income taxes.

The Company has not yet completed the calculation of total post-1986 foreign E&P for foreign subsidiaries and the tax expense currently recognized may change as the value of cash and other specified assets changes, which is part of the basis of the transition tax. No additional income tax expense has been provided for any remaining undistributed foreign earnings not subject to the transition tax and any additional outside basis difference inherent for these entities as such amounts continue to be indefinitely reinvested in foreign operations. Further, the amount of related unrecognized deferred tax liability is under review but not practicable to estimate at this time.

As part of accounting for the Tax Act, the Company remeasured certain deferred tax assets and liabilities based on the rates at which such deferred taxes are expected to reverse in the future, which is generally 21%. For the quarter ended December 31, 2017, the Company recognized a provisional discrete income tax benefit of $3.5 million for the remeasurement of the Company’s net deferred tax liability balance. However, the Company is still analyzing certain aspects of the Tax Act and refining calculations, which are dependent on final results for fiscal year 2018, which could potentially affect the measurement of these deferred taxes or give rise to new deferred tax amounts.

At December 31, 2017, the Company has not completed accounting for the tax effects of the enactment of the Tax Act. The Securities and Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impact. The Company currently anticipates finalizing and recording any resulting adjustments by the end of the current fiscal year 2018. The Company made a reasonable estimate of the one-time transition tax and remeasurement of existing deferred tax balances. The transitional impacts resulted in a provisional income tax expense of $5.8 million as a discrete event for the quarter ended December 31, 2017. The Company has not been able to make a reasonable estimate for any additional outside basis difference inherent for foreign subsidiaries as these amounts continue to be reinvested in foreign operations. The Company continues to account for those items based on existing accounting under ASC 740, ~~Income Taxes. The Company will continue to provide~~ for U.S. income taxes for the current earnings of its Canadian subsidiary and will continue to distribute the earnings of its Canadian subsidiary. ~~The provisional estimates provided may~~Earnings from Brazil will continue to be ~~impacted by a number~~considered retained indefinitely for reinvestment and all other foreign geographies are immaterial. It has been the practice of ~~additional considerations, including, but not limited~~the Company to reinvest those earnings in the businesses outside the United States. For Latin America and Europe, where the Company has discontinued operations, as these entities sell, the Company intends to repatriate the earnings to the ~~issuance~~United States.

The Tax Act created a provision known as global intangible low-tax income ("GILTI") that imposes a tax on certain earnings of ~~final regulations, the Company's ongoing analysis of the new~~foreign subsidiaries. The GILTI tax ~~law and the Company's actual earnings~~became effective for the Company during fiscal year ~~ending June 30, 2018.~~2019 and an accounting policy election was made to treat the tax as a current period expense.

The Company had approximately ~~$2.1 million and $2.2~~$1.2 million of total gross unrecognized tax benefits ~~as of December 31, 2017~~at September 30, 2020 and June 30, ~~2017, respectively.~~2020. Of this total at ~~December 31, 2017,~~September 30, 2020, approximately ~~$1.4~~$0.9 million represents the amount of unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate. The Company does not believe that the total amount of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date.

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. At September 30, 2020 and June 30, 2020, the Company had approximately $1.1 million accrued for interest and penalties.

The Company conducts business globally and one or more of its subsidiaries files income tax returns in the U.S. federal, various state, local and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in countries and states in which it operates. With certain exceptions, the Company is no longer subject to federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before June 30, ~~2012.~~2015.

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(16) Discontinued Operations

On August 20, 2019, the Company announced plans to divest the product distribution businesses in Europe, the UK, Mexico, Colombia, Chile, Peru and the Miami-based export operations as these businesses have been performing below management's expectations. The Company will continue to operate its digital business in these countries. Management determined that the Company did not have sufficient scale in these markets to maximize the value-added model for product distribution, leading the Company to focus and invest in its higher-growth, higher margin businesses. Results from the Divestitures were included within each reportable segment; Worldwide Barcode, Networking & Security segment and Worldwide Communications & Services segment.

During the quarter ended June 30, 2020, the Company recorded a pre-tax loss on held for sale classification of $88.9 million to reduce the carrying value of the Divestitures to its estimate of fair value (the net proceeds expected to be realized at closing), less estimated costs to sell. As this loss was determined not to be attributable to any individual components in the Divestitures' net assets, it was reflected as a valuation allowance against the total assets of the Divestitures. During the quarter ended September 30, 2020, the Company recorded an additional pre-tax loss on held for sale classification of $10.7 million. This additional loss was attributable primarily to a reduction in the net proceeds expected to be realized at closing for the Divestitures.

The Company signed an agreement on July 23, 2020 with Intcomex for its businesses located in Latin America, outside of Brazil. The Company finalized the sale of the Latin America businesses on October 30, 2020. The Company is actively working on sales opportunities for businesses in Europe and the UK.

Major components of net loss from discontinued operations for the quarters ended September 30, 2020 and 2019 were as follows:


	Quarter ended September 30,
	2020		2019
	(in thousands)
Net sales	$	145,049	$	155,716
Cost of goods sold	134,534		142,142
Gross profit	10,515		13,574
Selling, general and administrative expenses	10,913		13,810
Depreciation expense	201		248
Intangible amortization expense	0		424

Operating loss	(599)		(908)
Interest expense, net	125		483
Loss on held for sale classification	10,686		0
Other expense, net	291		(343)
Loss from discontinued operations before taxes	(11,701)		(1,048)
Income tax expense	3		(287)
Net loss from discontinued operations	$	(11,704)	$	(761)

The ~~Company’s policy is to recognize interest~~major classes of assets and ~~penalties related to income tax matters~~liabilities classified as held-for-sale in ~~income tax expense. As~~the accompanying consolidated balance sheets, were as follows as of ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017, the Company had approximately $1.2 million and $1.1 million accrued for interest and penalties, respectively.~~2020:

~~Financial results in Belgium for the quarter and six months ended December 31, 2017 produced a pre-tax loss~~

Table of approximately $1.7 million and $0.8 million, respectively. In the judgment of management, the conditions that gave rise to the recent losses are temporary and that it is more likely than not that the deferred tax asset will be realized. If Belgium business does not return to profitability as expected, this could affect the valuation of certain deferred tax assets. Belgium enacted a corporate tax reform law on December 25, 2017 which reduces the corporate tax rate from 33% to 25% over a three-year period. The Company remeasured certain deferred taxContents



	September 30, 2020		June 30, 2020
	(in thousands)
Assets
Current assets:
Cash and cash equivalents	$	5,678	$	4,970
Accounts receivable, net	130,553		117,200
Inventories, net	95,560		106,779
Prepaid expenses and other current assets	27,465		23,808

Total current assets	259,256		252,757
Property and equipment, net	1,724		1,833


Deferred income taxes	9,633		9,349
Other non-current assets	5,899		6,215
Total assets, before valuation allowance	276,512		270,154
Less: valuation allowance	(99,609)		(88,923)
Total assets, net of valuation allowance (1)	$	176,903	$	181,231
Liabilities
Current liabilities:
Accounts payable	$	84,657	$	56,098
Accrued expenses and other current liabilities	15,834		14,815
Other taxes payable	23,136		20,378
Short-term borrowings	0		3,524
Income tax payable	1,338		1,085
Total current liabilities	124,965		95,900
Borrowings under revolving credit facility	19,932		24,704
Other long-term liabilities	7,362		7,418
Total liabilities(1)	$	152,259	$	128,022

(1) Total assets and liabilities ~~based on~~of discontinued operations are classified in current assets and liabilities, respectively, in the ~~rates at which such deferred taxes~~Company's consolidated balance sheet as of September 30, 2020 and June 30, 2020, as the discontinued operations are expected to ~~reverse~~be disposed of by June 30, 2021.

Significant non-cash operating items and capital expenditures reflected in the ~~future. As a result,~~cash flows from discontinued operations for the three months ended September 30, 2020 and 2019 were as follows:



	Three months ended September 30,
	2020		2019
	(in thousands)
Loss on held for sale classification	$	10,686	$	0

Depreciation and amortization	201		672
Capital expenditures	(36)		(1)

(17) Subsequent Events

The Company ~~recognized income tax expense~~finalized the sale of ~~$0.9 million as a discrete event during the current quarter.~~its Divestitures in Latin America, outside of Brazil, on October 30, 2020. See Note 16 - Discontinued Operations.



Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Overview

ScanSource ~~Inc.~~ is aat the center of the technological solution delivery channel, connecting businesses and institutions and providing solutions for their complex needs. We provide technology solutions and services from leading ~~global provider~~suppliers of ~~technology products~~mobility and solutions. ScanSource, Inc. and its subsidiaries (the "Company") provide value-added solutions from over 500 technology suppliers and sell to over 35,000 customers in the following specialty technology markets:barcode, point-of-sale (POS), payments, ~~barcode,~~ physical security, unified communications and collaboration, telecom and cloud services to our customers. We serve approximately 30,000 sales partners located in the United States, Canada, Brazil, the UK and ~~telecom services.~~Europe and provide solutions and services from over 500 technology suppliers. Unless otherwise indicated, the amounts and analysis provided within Management's Discussion and Analysis of Financial Condition and Results of Operations pertain to our continuing operations only.

We operate our business under a management structure that enhances our ~~worldwide~~ technology market focus and growth strategy. ~~As a part of this structure, ScanSource has~~We segment our business into two ~~technology segments: Worldwide Barcode, Networking & Security and Worldwide Communications & Services. We~~technology-focused areas that each operate in the United States, Canada, ~~Latin America~~Brazil and ~~Europe.~~the UK:

•Worldwide Barcode, Networking & Security

•Worldwide Communications & Services

We sell hardware, software, services and connectivity through channel partners to end-customers. For our hardware distribution, we sell products (i) to the United States and Canada from our facilities located in Mississippi, California and Kentucky and (ii) to Brazil primarily from facilities located in the Brazilian states of Parana, Espirito Santo and Santa Catarina. We also have drop shipment arrangements with some of our suppliers, which allow us to offer products to customers without taking physical delivery at our facilities. We provide some of our digital products, which include Software as a Service (“SaaS”) and subscriptions, through our CASCADE platform.

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

Recent Developments

Impact of COVID-19 on our Business Environment

In early March 2020, the World Health Organization characterized COVID-19 as a pandemic. The ~~Tax Cuts and Jobs Act (the "Tax Act") was enacted~~rapid spread of COVID-19 since December 2019 has resulted in the ~~United States~~implementation of numerous measures to contain the virus worldwide, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns. The pandemic and these containment measures have had, and are expected to continue to have, a substantial impact on ~~December 22, 2017. The Tax Act reduces~~businesses around the ~~U.S. federal corporate tax rate~~world and on global, regional and national economies.

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

We have activated our contingency plans. We have deployed teams to monitor the rapidly evolving situation and recommend risk mitigation actions; we have implemented travel restrictions; and we are following physical distancing guidelines. We are following global guidance from ~~35%~~authorities and health officials including, but not limited to, ~~21% effective January 1,~~checking the temperature of associates when entering our facilities, requiring associates to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitation routines. All of our distribution facilities have remained open and operational. Most of our office-based employees around the world are working remotely. Our employees have remained productive across all areas of our business, even while working remotely, and are committed to providing the high level of customer service our partners have grown to expect from us in order to achieve positive results.

We continue to see significant impact from the COVID-19 pandemic. During the first quarter of our fiscal year, GAAP net sales declined 10.1% year-over-year and non-GAAP net sales, which exclude the negative impact of fluctuations in foreign currency translation, declined 7.1% year-over-year.

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In July 2020, we announced actions to address the business impacts of the COVID-19 pandemic and prepare for the next phase of growth. These actions included a $30 million annualized expense reduction plan. During the quarter ended September 30, 2020, we recognized approximately $8.3 million for Restructuring and Other Charges, largely for severance and employee benefits for employees who left the Company as part of this plan. These actions are designed to better align the cost structure for our wholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic. As part of the plan, we are continuing to invest in our higher growth agency business, Intelisys. Strong growth for the Intelisys business has continued, even with the COVID-19 pandemic.

Closure of the Canpango Professional Services Business

In July 2020, we initiated actions to close Canpango, our salesforce implementation and consulting business. In August 2018, ~~implements~~we acquired Canpango to help partners build out their customer relationship management capabilities as part of a territorial tax system, and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, as well as creates new taxes on certain foreign-sourced earnings. See Note 11 - ~~Income Taxes~~CCaaS solution. There has been limited adoption by our partner community. We are in the ~~Notes~~process of completing existing contracts and expect operations to cease by December 31, 2020.

Divestitures

The Company signed an agreement on July 23, 2020 with Intcomex for its businesses located in Latin America, outside of Brazil. The Company finalized the ~~Consolidated Financial Statements for further discussion.~~

~~On July 31, 2017 we acquired substantially all~~sale of the ~~outstanding shares of POS Portal, a leading provider of payment devices~~Latin America businesses on October 30 2020. The Company is actively working on sales opportunities for businesses in Europe and ~~services primarily to~~ the SMB market segment in the United States. POS Portal joined our Worldwide Barcode, Networking & Security operating segment. With the addition of POS Portal, we believe we have created the industry's leading payments channel, ensuring customers have access to the solutions, services and support that can help them be successful.UK.

Our Strategy

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

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

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

Profitability

Our operating income is driven by gross profits and by control of operating expenses. Our operations feature scalable information systems, streamlined management and centralized distribution, enabling us to achieve the economies of scale necessary for cost-effective solution selling. In doing so, we face numerous challenges that require attention and resources. Certain business units and geographies are experiencing increased competition for the products and services we sell. This competition may come in the form of pricing, credit terms, service levels and product availability. As this competition could affect both our market share and pricing of our products, we may change our strategy in order to ~~effectively compete~~continue to grow in ~~the marketplace.~~our markets, we have continued to invest in new technologies and increased marketing efforts to recruit new customers.

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Results of Operations from Continuing Operations

Net Sales

The following tables summarize ~~the Company’s~~our net sales results by technology segment and by geographic location for our continuing operations for the quarters ended September 30, 2020 and ~~six months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~.2019:


	Quarter ended September 30,								% Change, Constant Currency, Excluding Divestitures and Acquisitions (a)
Net Sales by Segment:	2020		2019		$ Change		% Change
	(in thousands)
Worldwide Barcode, Networking & Security	$	523,577	$	581,187	$	(57,610)	(9.9)	%	(8.6)	%
Worldwide Communications & Services	233,765		261,514		(27,749)		(10.6)	%	(3.9)	%
Total net sales	$	757,342	$	842,701	$	(85,359)	(10.1)	%	(7.1)	%

Quarter ended December 31,
% Change, Constant Currency, Excluding Acquisitions^(a)
Net Sales by Segment: 2017 2016 $ Change % Change
(in thousands)
Worldwide Barcode, Networking & Security $ 719,786
$ 593,833
$ 125,953
21.2 % 16.3 %
Worldwide Communications & Services 312,426
310,959
1,467
0.5 % (0.9 )%
Total net sales $ 1,032,212
$ 904,792
$ 127,420
14.1 % 10.4 %

Six months ended December 31,
% Change, Constant Currency, Excluding Acquisitions ^(a)
2017 2016 $ Change % Change
(in thousands)

Worldwide Barcode, Networking & Security $ 1,340,114
$ 1,221,043
$ 119,071
9.8 % 5.7 %
Worldwide Communications & Services 616,657
616,314
343
0.1 % (2.1 )%
Total net sales $ 1,956,771
$ 1,837,357
$ 119,414
6.5 % 3.1 %

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

Worldwide Barcode, Networking & Security

The Worldwide Barcode, Networking & Security segment consists of sales to customers in North America ~~Europe~~ and ~~Latin America.~~Brazil. For the quarter ~~and six months~~ ended ~~December 31, 2017,~~September 30, 2020, net sales for the Barcode, Networking & Security segment ~~increased $126.0~~decreased $57.6 million, ~~and $119.1 million~~or 9.9%, compared to the prior-year ~~quarter and six month period, respectively.~~quarter. Excluding the foreign exchange ~~positive~~negative impact, ~~and net sales from the POS Portal acquisition,~~ adjusted net sales ~~increased $96.6~~decreased $49.9 million, or ~~16.3%~~8.6%, for the quarter ended ~~December 31, 2017 and $69.5 million, or 5.7%, for~~September 30, 2020 compared to the ~~six months ended December 31, 2017.~~prior-year quarter. The ~~increase~~decrease in net sales and adjusted net sales ~~for the quarter and six month period~~ is primarily due to lower sales volume across North America largely due to the negative impacts of the pandemic, partially offset by growth in ~~North America and Europe.~~Brazil.

Worldwide Communications & Services

The Worldwide Communications & Services segment consists of sales to customers in North America, Brazil, Europe and ~~Latin America.~~the UK. For the quarter ~~and six months~~ ended ~~December 31, 2017,~~September 30, 2020, net sales ~~for~~decreased $27.7 million or 10.6%. Excluding the ~~Communications & Services segment increased $1.5~~foreign exchange negative impact of $17.4 million, ~~and $0.3~~adjusted net sales decreased $10.3 million, or 3.9%, compared to the prior-year ~~quarter and six month period, respectively. Excluding the foreign exchange impact,~~quarter. The decrease in adjusted net sales ~~decreased $2.7 million, or 0.9%, for the quarter ended December 31, 2017 as a result of~~is primarily due to lower sales ~~volume~~volumes in ~~our~~the communications business in North ~~American business, excluding Intelisys,~~America largely due to the negative impacts of the pandemic. This impact was partially offset by sales growth in ~~Brazil. Intelisys sales increased quarter-over-quarter. Excluding the foreign exchange impact~~local currency in Brazil and increases in net sales ~~from the Intelisys acquisition~~ for ~~the three months ended September 30, 2017, adjusted net sales decreased $13.1 million, or 2.1%, for the six months ended December 31, 2017, primarily due to lower sales volume in~~ our ~~North American~~master agency business, ~~partially offset by sales growth in Brazil.~~Intelisys.


	Quarter ended September 30,								% Change, Constant Currency, Excluding Divestitures and Acquisitions (a)
Net Sales by Geography:	2020		2019		$ Change		% Change
	(in thousands)
United States and Canada	$	683,603	$	768,508	$	(84,905)	(11.0)	%	(11.0)	%
International	73,739		74,193		(454)		(0.6)	%	33.3	%
Total net sales	$	757,342	$	842,701	$	(85,359)	(10.1)	%	(7.1)	%

Quarter ended December 31,
% Change, Constant Currency, Excluding Acquisitions^(a)
Net Sales by Geography: 2017 2016 $ Change % Change
(in thousands)
United States and Canada $ 755,312
$ 667,818
$ 87,494
13.1 % 10.2 %
International $ 276,900
$ 236,974
39,926
16.8 % 11.0 %
Total net sales $ 1,032,212
$ 904,792
$ 127,420
14.1 % 10.4 %

Six months ended December 31,
% Change, Constant Currency, Excluding Acquisitions^(a)
2017 2016 $ Change % Change
(in thousands)
United States and Canada $ 1,441,982
$ 1,377,627
$ 64,355
4.7 % 1.7 %
International 514,789
459,730
55,059
12.0 % 7.2 %
Total net sales $ 1,956,771
$ 1,837,357
$ 119,414
6.5 % 3.1 %

^(a)A reconciliation of non-GAAP net sales in constant currency, excluding Divestitures and acquisitions is presented at the end of Results of Operations in the non-GAAP section.

Gross Profit

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The following ~~table summarizes the Company’s~~tables summarize our gross profit for our continuing operations for the quarters ended September 30, 2020 and ~~six months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~:2019:


	Quarter ended September 30,								% of Net Sales September 30,
	2020		2019		$ Change		% Change		2020		2019
	(in thousands)
Worldwide Barcode, Networking & Security	$	41,085	$	50,289	$	(9,204)	(18.3)	%	7.8	%	8.7	%
Worldwide Communications & Services	39,694		48,236		(8,542)		(17.7)	%	17.0	%	18.4	%
Gross profit	$	80,779	$	98,525	$	(17,746)	(18.0)	%	10.7	%	11.7	%

Quarter ended December 31, % of Net Sales December 31,
2017 2016 $ Change % Change 2017 2016
(in thousands)
Worldwide Barcode, Networking & Security $ 61,983
$ 48,956
$ 13,027
26.6 % 8.6 % 8.2 %
Worldwide Communications & Services 50,988
49,578
1,410
2.8 % 16.3 % 15.9 %
Gross profit $ 112,971
$ 98,534
$ 14,437
14.7 % 10.9 % 10.9 %

Six months ended December 31, % of Net Sales December 31,
2017 2016 $ Change % Change 2017 2016
(in thousands)
Worldwide Barcode, Networking & Security $ 119,446
$ 98,207
$ 21,239
21.6 % 8.9 % 8.0 %
Worldwide Communications & Services 99,442
91,861
7,581
8.3 % 16.1 % 14.9 %
Gross profit $ 218,888
$ 190,068
$ 28,820
15.2 % 11.2 % 10.3 %

Worldwide Barcode, Networking & Security

Gross profit dollars and gross profit margin for the Worldwide Barcode, Networking & Security segment ~~increased~~decreased for thequarter ~~and six months~~ ended ~~December 31, 2017,~~September 30, 2020 compared to the prior-year quarter ~~and six month period. For the quarter, gross profit dollars and margin increased~~ primarily ~~as a result of increased~~from lower sales volumes ~~including results contributed by POS Portal. Gross profit dollars~~ and ~~margin increased for the six month period largely due to improved~~lower vendor program recognition ~~and~~than in the ~~addition of POS Portal.~~prior-year quarter.

Worldwide Communications & Services

~~In the Communications & Services segment, gross profit dollars and gross profit margin increased for the quarter and six months endedDecember 31, 2017 compared to the prior-year quarter and six month period. Results for the quarter increased due to higher sales contributed by Intelisys.~~ Gross profit dollars and gross profit margin ~~increased~~decreased for the ~~six months~~Worldwide Communications & Services segment for thequarter ended~~December 31, 2017 largely due~~ September 30, 2020 primarily from lower sales volumes and and lower vendor program recognition compared to ~~improved sales mix.~~the prior-year quarter, partially offset by the results contributed by our Intelisys recurring revenue business.

Operating Expenses

The following ~~table summarizes~~tables summarize our operating expenses for our continuing operations for the quarters ended September 30, 2020 and ~~six months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~:2019:


	Quarter ended September 30,								% of Net Sales September 30,
	2020		2019		$ Change		% Change		2020		2019
	(in thousands)
Selling, general and administrative expenses	$	62,112	$	68,532	$	(6,420)	(9.4)	%	8.2	%	8.1	%
Depreciation expense	3,396		3,301		95		2.9	%	0.4	%	0.4	%
Intangible amortization expense	4,853		4,538		315		6.9	%	0.6	%	0.5	%
Restructuring and other charges	8,268		169		8,099		4,792.3	%	1.1	%	0.0	%
Change in fair value of contingent consideration	516		2,472		(1,956)		(79.1)	%	0.1	%	0.3	%
Operating expenses	$	79,145	$	79,012	$	133	0.2	%	10.5	%	9.4	%

Quarter ended December 31, % of Net Sales December 31,
2017 2016 $ Change % Change 2017 2016
(in thousands)
Selling, general and administrative expenses $ 74,763
$ 66,880
$ 7,883
11.8 % 7.2 % 7.4 %
Depreciation expense 3,467
2,423
1,044
43.1 % 0.3 % 0.3 %
Intangible amortization expense 5,487
4,165
1,322
31.7 % 0.5 % 0.5 %
Change in fair value of contingent consideration 6,913
1,791
5,122
286.0 % 0.7 % 0.2 %
Operating expenses $ 90,630
$ 75,259
$ 15,371
20.4 % 8.8 % 8.3 %

Six months ended December 31, % of Net Sales December 31,
2017 2016 $ Change % Change 2017 2016
(in thousands)

Selling, general and administrative expenses $ 147,950
$ 130,145
$ 17,805
13.7 % 7.6 % 7.1 %
Depreciation expense 6,707
4,492
2,215
49.3 % 0.3 % 0.2 %
Intangible amortization expense 10,498
7,320
3,178
43.4 % 0.5 % 0.4 %
Change in fair value of contingent consideration 23,794
1,961
21,833
1,113.4 % 1.2 % 0.1 %
Operating expenses $ 188,949
$ 143,918
$ 45,031
31.3 % 9.7 % 7.8 %
*nm - percentages are not meaningful

Selling, general and administrative expenses ("SG&A") ~~increased $7.9 million and $17.8~~decreased $6.4 million for the quarter ~~and six months~~ ended ~~December 31, 2017, respectively, as~~September 30, 2020 compared to the ~~prior year.~~prior-year quarter largely due to lower employee costs. The ~~increase~~reduction in SG&A also reflects a partial quarter impact for the Company's expense reduction plan, which was implemented at the end of July 2020.

Depreciation expense remained fairly consistent for the quarter ~~and six months is primarily due to increased employee-related expenses, largely due to recent acquisitions.~~

~~The increase in depreciation expense for the quarter and six months~~ ended ~~December 31, 2017 of $1.0 million and $2.2 million, respectively, is largely due~~September 30, 2020 compared to the ~~depreciation on assets acquired through recent acquisitions and the investments in IT systems.~~prior-year quarter.

~~The increase in amortization~~Amortization expense ~~of $1.3 million and $3.2~~increased $0.3 million for the quarter ~~and six months~~ ended ~~December 31, 2017, respectively, is~~September 30, 2020 compared to the prior-year quarter largely due to intangible amortization expense for assets acquired ~~through our POS Portal~~in the intY acquisition.

~~We present changes in fair value~~Restructuring and other charges incurred for the quarter of the contingent consideration owed to the former shareholders of businesses that we acquire as a separate line item in operating expenses. We recorded fair value adjustment losses of $6.9 million and $23.8$8.3 million for the quarter ended September 30, 2020 primarily relate to employee severance and ~~six months ended December 31, 2017, respectively. The loss~~benefit costs in connection with our expense reduction plan announced in July 2020.

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We recorded expense from change in fair value of contingent consideration of $0.5 million for the quarter ended September 30, 2020, all of which relates to Intelisys. The expense from the change in fair value for the quarter is ~~largely~~ due to the recurring amortization of the unrecognized fair value discount ~~as well as an adjustment~~ for the higher probability of achieving estimated future results for Intelisys. The loss for the six months period is primarily driven by changes in the estimate of the current year payment to Network1, additional agreed upon adjustments to the projected final ~~settlement for Network1 and the recurring amortization of the unrecognized fair value discount. An~~Intelisys earnout payment, which was paid ~~to the former shareholders of POS Portal during the quarter ended December 31, 2017.~~in October 2020.

Operating Income

The following ~~table summarizes~~tables summarize our operating income for our continuing operations for the quarters ended September 30, 2020 and ~~six months ended December 31, 2017 and 2016:~~2019:


	Quarter ended December 31,											% of Net Sales December 31,					Quarter ended September 30,								% of Net Sales September 30,
	2017			2016			$ Change			% Change		2017		2016			2020		2019		$ Change		% Change		2020		2019
	(in thousands)																(in thousands)
Worldwide Barcode, Networking & Security	$	15,542		$	12,131		$	3,411		28.1	%	2.2	%	2.0	%	Worldwide Barcode, Networking & Security	$	2,147	$	11,071	$	(8,924)	(80.6)	%	0.4	%	1.9	%
Worldwide Communications & Services	6,799			11,479			(4,680		)	(40.8	)%	2.2	%	3.7	%	Worldwide Communications & Services	8,253		9,199		(946)		(10.3)	%	3.5	%	3.5	%
Corporate	—			(335		)	335			nm*		nm*		nm*		Corporate	(8,766)		(757)		(8,009)		nm*		nm*		nm*
Operating income	$	22,341		$	23,275		$	(934	)	(4.0	)%	2.2	%	2.6	%	Operating income	$	1,634	$	19,513	$	(17,879)	(91.6)	%	0.2	%	2.3	%

	Six months ended December 31,											% of Net Sales December 31,
	2017			2016			$ Change			% Change		2017		2016
	(in thousands)
Worldwide Barcode, Networking & Security	$	29,578		$	25,554		$	4,024		15.7	%	2.2	%	2.1	%
Worldwide Communications & Services	533			21,429			(20,896		)	(97.5	)%	0.1	%	3.5	%
Corporate	(172		)	(833		)	661			nm*		nm*		nm*
Operating income	$	29,939		$	46,150		$	(16,211	)	(35.1	)%	1.5	%	2.5	%

*nm - percentages are not meaningful

Worldwide Barcode, Networking & Security

For the Worldwide Barcode, Networking & Security segment, operating income decreased $8.9 million and operating margin ~~increased~~decreased to 0.4% for the ~~current~~ quarter ~~and six months~~ ended ~~December 31, 2017~~September 30, 2020 compared to the ~~prior year.~~prior-year quarter. The ~~increase for the quarter is largely~~decreases are primarily due to increased sales volume, partially offset by increased employee-related expenses, bad debt expense and intangible amortization expense. The increase for the six month period is largely due to the improvedlower gross ~~profit margin, partially offset by increased employee-related expenses, bad debt expense and intangible amortization expense.~~profits.

Worldwide Communications & Services

For the Worldwide Communications & Services segment, operating income ~~and operating margin~~ decreased for the quarter ended September 30, 2020 while operating margins remained flat. Lower operating income is primarily from lower gross profits, partially offset by lower SG&A expense and ~~six months ended December 31, 2017 compared to the prior year largely due to the expense recognized from the~~lower change in fair value of contingent consideration. Excluding the change in fair value of contingent consideration, operating income increased $0.4 million and $0.9 million and operating margin increased to 4.4% and 3.9% for the quarter and six months ended December 31, 2017, respectively. The increased operating income and margin is largely due to the positive effect of increased gross profit margin and lower bad debt expense, partially offset by increased employee-related expenses.

Corporate

Corporate ~~did not incur expense relating to acquisition costs~~incurred $8.8 million in restructuring and divestiture expenses for the quarter ended ~~December 31, 2017. Acquisition costs of $0.2 million were incurred for the six months ended December 31, 2017. These costs~~September 30, 2020, compared to ~~$0.3 million and~~ $0.8 million ~~and~~in acquisition expenses for the quarter ~~and six months~~ ended ~~December 31, 2016, respectively.~~September 30, 2019.

Total Other (Income) Expense

The following ~~table summarizes~~tables summarize our total other (income) expense for our continuing operations for the quarters ended September 30, 2020 and ~~six months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~:2019:


	Quarter ended September 30,								% of Net Sales September 30,
	2020		2019		$ Change		% Change		2020		2019
	(in thousands)
Interest expense	$	1,913	$	3,317	$	(1,404)	(42.3)	%	0.3	%	0.4	%
Interest income	(481)		(807)		326		40.4	%	(0.1)	%	(0.1)	%
Net foreign exchange (gains) losses	438		246		192		78.0	%	0.1	%	0.0	%
Other, net	(75)		128		(203)		158.6	%	(0.0)	%	0.0	%
Total other (income) expense, net	$	1,795	$	2,884	$	(1,089)	(37.8)	%	0.2	%	0.3	%

Quarter ended December 31, % of Net Sales December 31,
2017 2016 $ Change % Change 2017 2016
(in thousands)
Interest expense $ 2,285
$ 912
$ 1,373
150.5 % 0.2 % 0.1 %
Interest income (580 ) (892 ) 312
(35.0 )% (0.1 )% (0.1 )%
Net foreign exchange (gains) losses 594
308
286
92.9 % 0.1 % 0.0 %
Other, net (268 ) (12,834 ) 12,566
(97.9 )% (0.0 )% (1.4 )%
Total other (income) expense, net $ 2,031
$ (12,506 ) $ 14,537
(116.2 )% 0.2 % (1.4 )%

Six months ended December 31, % of Net Sales December 31,
2017 2016 $ Change % Change 2017 2016
(in thousands)
Interest expense $ 3,870
$ 1,501
$ 2,369
157.8 % 0.1 % 0.1 %
Interest income (1,462 ) (1,908 ) 446
(23.4 )% (0.1 )% (0.1 )%
Net foreign exchange (gains) losses 782
920
(138 ) (15.0 )% 0.1 % 0.1 %
Other, net (341 ) (12,868 ) 12,527
(97.4 )% (0.7 )% (0.0 )%
Total other (income) expense, net $ 2,849
$ (12,355 ) $ 15,204
(123.1 )% (0.7 )% 0.0 %

Interest expense consists primarily of interest incurred on borrowings, non-utilization fees charged on the revolving credit facility and amortization of debt issuance costs. Interest expense ~~increased~~decreased for the quarter ~~and six months~~ ended ~~December 31, 2017~~September 30, 2020 compared to the prior-year quarter principally ~~due to additional~~from reduced borrowings on our multi-currency revolving credit facility.

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Interest income ~~consists primarily of interest income~~for the quarter ended September 30, 2020 was generated on ~~longer-term interest bearing~~interest-bearing customer receivables and interest earned on cash and cash ~~equivalents,~~equivalents. Interest income decreased for the quarter ended September 30, 2020 compared to the prior-year principally from interest earned on customer receivables in ~~Brazil.~~North America.

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 primarily generated ~~from~~as the result of fluctuations in the value of the U.S. dollar versus the Brazilian real, the ~~U.S. dollar versus the euro, the~~ British pound versus the euro, and the Canadian dollar versus the U.S. ~~dollar, the U.S. dollar versus the Colombian peso and other currencies versus the U.S.~~ dollar. ~~While we utilize foreign exchange contracts and debt in non-functional currencies to hedge~~We partially offset foreign currency exposure our foreign exchange policy prohibits the use of derivative financial instruments for speculative transactions. The Company's net foreign exchange losses are driven by changes in foreign currency exchange rates, partially offset bywith the use of foreign exchange forward contracts to hedge against ~~currency~~these exposures. The costs associated with foreign exchange forward contracts are included in the net foreign exchange losses.

Provision for Income Taxes

For the quarter ~~and six months~~ ended ~~December 31, 2017,~~September 30, 2020, income tax expense was ~~$12.3 million and $15.0~~less than $0.1 million, reflecting an effective tax rate of ~~60.8% and 55.3%, respectively. The~~29.0%. In comparison, income tax expense totaled $4.3 million, reflecting an effective tax rate of 26.1% for the quarter ~~and six months~~ ended ~~December 31, 2016 was 35.6% and 35.3%, respectively.~~September 30, 2019. The increase in the effective tax rate ~~from the prior year quarter~~ is primarily due to the ~~recognition~~impact of ~~a net discrete tax expense of $6.7 million~~lowered forecasted earnings and ~~$6.9 million, respectively. There were no discrete items recognized~~changes in the ~~prior year. Excluding~~geographical mix of income as compared to the ~~recognition of the discrete item, the effective tax rate for the quarter and six months ended December 31, 2017 would have been 28.0% and 29.8%, respectively.~~prior-year. We expect the effective tax rate, excluding discrete items, for fiscal year ~~2018~~2021 to be approximately ~~30%, which reflects the application of the 21% U.S. statutory tax rate effective January 1, 2018.~~28.5% to 29.5%. See Note 11 15 - Income Taxes to the Notes to Consolidated Financial Statements for further discussion.

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 ("~~U.S,~~US GAAP" or "GAAP"), we also disclose certain non-GAAP financial measures. These measures include non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income, non-GAAP EPS, return on invested capital ("ROIC") and "constant currency." Constant currency is a measure that excludes the translation exchange impact from changes in foreign currency exchange rates

between reporting periods. We use non-GAAP financial measures to better understand and evaluate performance, including comparisons from period to period.

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

Return on Invested Capital

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

We calculate ROIC as earnings before interest expense, income taxes, depreciation and amortization, plus change in fair value of contingent consideration and other non-GAAP adjustments ("adjusted EBITDA"), divided by invested capital. Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period. The following table summarizes annualized ROIC for the quarters ended September 30, 2020 and 2019, respectively:


	Quarter ended September 30,
	2020		2019
Return on invested capital ratio, annualized(a)	8.4	%	9.6	%

(a)The annualized EBITDA amount is divided by days in the quarter times 365 days per year, or 366 days for leap year. There were 92 days in the current and prior-year quarter.

The components of this calculation and reconciliation to our financial statements are shown on the following schedule:

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	Quarter ended September 30,
	2020		2019
	(in thousands)
Reconciliation of net income to EBITDA:
Net (loss) income from continuing operations (GAAP)	$	(115)	$	12,291
Plus: Interest expense	1,913		3,317
Plus: Income taxes	(47)		4,338
Plus: Depreciation and amortization	8,710		8,518
EBITDA (non-GAAP)	10,461		28,464
Plus: Change in fair value of contingent consideration	516		2,472

Plus: Acquisition and divestiture costs (a)	498		757
Plus: Restructuring costs	8,268		169


Adjusted EBITDA (numerator for ROIC) (non-GAAP)	$	19,743	$	31,862


	Quarter ended September 30,
	2020		2019
	(in thousands)
Invested capital calculations:
Equity – beginning of the quarter	$	678,246	$	914,129
Equity – end of the quarter	671,227		905,751
Plus: Change in fair value of contingent consideration, net of tax	390		1,869
Plus: Acquisition and divestiture costs (a)	498		757
Plus: Restructuring, net of tax	6,250		128

Plus: Impact of Divestitures, net of tax	11,704		761

Average equity	684,158		911,698
Average funded debt (b)	243,268		407,306
Invested capital (denominator for ROIC) (non-GAAP)	$	927,426	$	1,319,004

(a)Acquisition and divestiture costs are generally nondeductible for tax purposes.

(b)Average funded debt, which includes both continuing operations and discontinued operations, is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt.

Net Sales in Constant Currency, Excluding Acquisitions and Divestitures

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

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Net Sales by Segment:
Quarter ended December 31,
2017 2016 $ Change % Change
Worldwide Barcode, Networking & Security: (in thousands)
Net sales, as reported $ 719,786
$ 593,833
$ 125,953
21.2 %
Foreign exchange impact^(a)
(9,669 ) —

Net sales, constant currency 710,117
593,833
116,284
19.6 %
Less: Acquisitions (19,706 ) —

Net sales, constant currency excluding acquisitions $ 690,411
$ 593,833
$ 96,578
16.3 %

Worldwide Communications & Services:
Net sales, as reported $ 312,426
$ 310,959
$ 1,467
0.5 %
Foreign exchange impact^(a)
(4,162 ) —

Net sales, constant currency 308,264
310,959
(2,695 ) (0.9 )%
Less: Acquisitions —
—

Net sales, constant currency excluding acquisitions $ 308,264
$ 310,959
$ (2,695 ) (0.9 )%

Consolidated:
Net sales, as reported $ 1,032,212
$ 904,792
$ 127,420
14.1 %
Foreign exchange impact^(a)
(13,831 ) —

Net sales, constant currency 1,018,381
904,792
113,589
12.6 %
Less: Acquisitions (19,706 ) —

Net sales, constant currency excluding acquisitions $ 998,675
$ 904,792
$ 93,883
10.4 %


Net Sales by Segment:
	Quarter ended September 30,
	2020		2019		$ Change		% Change
Worldwide Barcode, Networking & Security:	(in thousands)
Non-GAAP net sales, including Divestitures	$	638,385	$	697,791	$	(59,406)	(8.5)	%
Divestitures	(114,808)		(116,604)
Net sales, reported	523,577		581,187		(57,610)		(9.9)	%
Foreign exchange impact(a)	7,724		—

Non-GAAP net sales, constant currency excluding Divestitures	$	531,301	$	581,187	$	(49,886)	(8.6)	%

Worldwide Communications & Services:
Non-GAAP net sales, including Divestitures	$	264,005	$	300,627	$	(36,622)	(12.2)	%
Divestitures	(30,240)		(39,113)
Net sales, reported	233,765		261,514		(27,749)		(10.6)	%
Foreign exchange impact(a)	17,440		—

Non-GAAP net sales, constant currency excluding Divestitures	$	251,205	$	261,514	$	(10,309)	(3.9)	%

Consolidated:
Non-GAAP net sales, including Divestitures	$	902,390	$	998,418	$	(96,028)	(9.6)	%
Divestitures	(145,048)		(155,717)
Net sales, reported	757,342		842,701		(85,359)		(10.1)	%
Foreign exchange impact(a)	25,164		—

Non-GAAP net sales, constant currency excluding Divestitures	$	782,506	$	842,701	$	(60,195)	(7.1)	%

(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 quarter ended ~~December 31, 2017~~September 30, 2020 into U.S. dollars using the average foreign exchange rates for the quarter ended ~~December 31, 2016.~~ September 30, 2019.

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Net Sales by Segment:
Six months ended December 31,
2017 2016 $ Change % Change
Worldwide Barcode, Networking & Security: (in thousands)
Net sales, as reported $ 1,340,114
$ 1,221,043
$ 119,071
9.8 %
Foreign exchange impact^(a)
(15,293 ) —

Net sales, constant currency 1,324,821
1,221,043
103,778
8.5 %
Less: Acquisitions (34,259 ) —

Net sales, constant currency excluding acquisitions $ 1,290,562
$ 1,221,043
$ 69,519
5.7 %

Worldwide Communications & Services:
Net sales, as reported $ 616,657
$ 616,314
$ 343
0.1 %
Foreign exchange impact^(a)
(6,576 ) —

Net sales, constant currency 610,081
616,314
(6,233 ) (1.0 )%
Less: Acquisitions (9,750 ) (2,863 )
Net sales, constant currency excluding acquisitions $ 600,331
$ 613,451
$ (13,120 ) (2.1 )%

Consolidated:
Net sales, as reported $ 1,956,771
$ 1,837,357
$ 119,414
6.5 %
Foreign exchange impact^(a)
(21,869 ) —

Net sales, constant currency 1,934,902
1,837,357
97,545
5.3 %
Less: Acquisitions (44,009 ) (2,863 )
Net sales, constant currency excluding acquisitions $ 1,890,893
$ 1,834,494
$ 56,399
3.1 %


Net Sales by Geography:
	Quarter ended September 30,
	2020		2019		$ Change		% Change
United States and Canada:	(in thousands)
Net sales, as reported	$	683,603	$	768,508	$	(84,905)	(11.0)	%



International:
Non-GAAP net sales, including Divestitures	$	218,787	$	229,910	$	(11,123)	(4.8)	%
Divestitures	(145,048)		(155,717)
Net sales, reported	73,739		74,193		(454)		(0.6)	%
Foreign exchange impact (a)	25,164		—

Non-GAAP net sales, constant currency excluding Divestitures	$	98,903	$	74,193	$	24,710	33.3	%

Consolidated:
Non-GAAP net sales, including Divestitures	$	902,390	$	998,418	$	(96,028)	(9.6)	%
Divestitures	(145,048)		(155,717)
Net sales, reported	757,342		842,701		(85,359)		(10.1)	%
Foreign exchange impact(a)	25,164		—

Non-GAAP net sales, constant currency excluding Divestitures	$	782,506	$	842,701	$	(60,195)	(7.1)	%

(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 quarter ended September 30, 2020 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, 2019.

~~(a)~~ ~~Year-over-year net sales growth rate excluding the translation impact~~

Table of changes in foreign currency exchange rates. Calculated by translating the net sales for the quarter ended December 31, 2017 into U.S. dollars using the average foreign exchange rates for the quarter ended December 31, 2016. Contents



Operating Income by Segment:
	Quarter ended September 30,								% of Net Sales September 30,
	2020		2019		$ Change		% Change		2020		2019
Worldwide Barcode, Networking & Security:	(in thousands)
GAAP operating income	$	2,147	$	11,071	$	(8,924)	(80.6)	%	0.4	%	1.9	%
Adjustments:
Amortization of intangible assets	1,968		1,968		—




Non-GAAP operating income	$	4,115	$	13,039	$	(8,924)	(68.4)	%	0.8	%	2.2	%

Worldwide Communications & Services:
GAAP operating income	$	8,253	$	9,199	$	(946)	(10.3)	%	3.5	%	3.5	%
Adjustments:
Amortization of intangible assets	2,885		2,570		315
Change in fair value of contingent consideration	516		2,472		(1,956)
Restructuring costs	—		169		(169)



Non-GAAP operating income	$	11,654	$	14,410	$	(2,756)	(19.1)	%	5.0	%	5.5	%

Corporate:
GAAP operating income	$	(8,766)	$	(757)	$	(8,009)	nm*		nm*		nm*
Adjustments:
Restructuring costs	8,268		—
Acquisition and divestiture costs	498		757		(259)
Non-GAAP operating income	$	—	$	—	$	—	nm*		nm*		nm*

Consolidated:
GAAP operating income	$	1,634	$	19,513	$	(17,879)	(91.6)	%	0.2	%	2.3	%
Adjustments:
Amortization of intangible assets	4,853		4,538		315
Change in fair value of contingent consideration	516		2,472		(1,956)

Acquisition and divestiture costs	498		757		(259)
Restructuring costs	8,268		169		8,099


Non-GAAP operating income	$	15,769	$	27,449	$	(11,680)	(42.6)	%	2.1	%	3.3	%

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Income Statement Non-GAAP ~~Operating Income, Non-GAAP Pre-Tax Income, Non-GAAP Net Income and Non-GAAP EPS~~Metrics

To evaluate current period performance on a more consistent basis with prior periods, we disclose non-GAAP net sales, non-GAAP gross profit, non-GAAP operating income, non-GAAP net other expense, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to acquisitions, changes in fair value of contingent consideration, acquisition and divestiture costs, restructuring costs, impact of Divestitures and other non-GAAP adjustments. ~~Non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted EPS~~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 ~~operating income, pre-tax income, net income and earnings per share~~the aforementioned metrics adjusted for the costs and charges mentioned above:


	Quarter ended September 30, 2020
	GAAP Measure		Intangible amortization expense		Change in fair value of contingent consideration		Acquisition and divestiture costs		Restructuring costs		Non-GAAP measure
	(in thousands, except per share data)
Net sales	$	757,342	$	—	$	—	$	—	$	—	$	757,342
Gross profit	80,779		—		—		—		—		80,779
Operating (loss) income	1,634		4,853		516		498		8,268		15,769
Other expense, net	1,796		—		—		—		—		1,796
Pre-tax (loss) income	(162)		4,853		516		498		8,268		13,973
Net (loss) income from continuing operations	(115)		3,675		390		498		6,250		10,698
Diluted EPS from continuing operations	$	(0.01)	$	0.14	$	0.02	$	0.02	$	0.25	$	0.42

	Quarter ended September 30, 2019
	GAAP Measure		Intangible amortization expense		Change in fair value of contingent consideration		Acquisition and divestiture		Restructuring costs		Non-GAAP measure
	(in thousands, except per share data)
Net sales	$	842,701	$	—	$	—	$	—	$	—	$	842,701
Gross profit	98,525		—		—		—		—		98,525
Operating income	19,513		4,538		2,472		757		169		27,449
Other expense, net	2,884		—		—		—		—		2,884
Pre-tax income	16,629		4,538		2,472		757		169		24,565
Net income from continuing operations	12,291		3,406		1,869		757		128		18,451
Diluted EPS from continuing operations	$	0.48	$	0.13	$	0.07	$	0.03	$	0.01	$	0.72

Quarter ended December 31, 2017 Quarter ended December 31, 2016
Operating Income Pre-Tax Income Net Income Diluted EPS Operating Income Pre-Tax Income Net Income Diluted EPS
(in thousands, except per share data)
GAAP Measures $ 22,341
$ 20,310
$ 7,969
$ 0.31
$ 23,275
$ 35,781
$ 23,036
$ 0.91
Adjustments:
Amortization of intangible assets 5,487
5,487
3,648
0.14
4,165
4,165
2,740
0.11
Change in fair value of contingent consideration 6,913
6,913
4,742
0.18
1,791
1,791
1,000
0.04
Acquisition costs —
—
—
—
335
335
335
0.01
Tax reform charges^(a)
6,689
0.26
—
—
—
—
Legal settlement, net of attorney fees —
—
—
—
—
(12,777 ) (8,047 ) (0.32 )
Non-GAAP measures $ 34,741
$ 32,710
$ 23,048
$ 0.90
$ 29,566
$ 29,295
$ 19,064
$ 0.75

~~(a)As a result~~

Table of tax reform laws enacted in the United States and Belgium, we recognized a one-time charge of $6.7 million in the quarter ended December 31, 2017 from the estimated impact of the inclusion of foreign earnings and revaluation of deferred tax assets and liabilities.Contents

~~Return on Invested Capital~~

Management uses ROIC as a performance measurement to assess efficiency at allocating capital under our control to generate returns. Management believes this metric balances our operating results with asset and liability management, is not impacted by capitalization decisions and correlates with shareholder value creation. In addition, it is easily computed, communicated and understood. ROIC also provides management a measure of our profitability on a basis more comparable to historical or future periods.

Quarter ended December 31,
2017 2016
Return on invested capital ratio, annualized^(a)
13.3 % 13.8 %


~~(a)~~	~~The annualized EBITDA amount is divided by days in the quarter times 365 days per year (366 during leap years). There were 92 days in the current and prior-year quarter.~~

~~The components of this calculation and reconciliation to our financial statements are shown on the following schedule:~~

Quarter ended December 31,
2017 2016
(in thousands)
Reconciliation of net income to EBITDA:
Net income (GAAP) $ 7,969
$ 23,036
Plus: interest expense 2,285
912
Plus: income taxes 12,341
12,745
Plus: depreciation and amortization 9,901
6,588
EBITDA (non-GAAP) 32,496
43,281
Plus: Change in fair value of contingent consideration 6,913
1,791
Plus: Acquisition costs —
335
Plus: Legal settlement, net of attorney fees —
(12,777 )
Adjusted EBITDA (numerator for ROIC) (non-GAAP) $ 39,409
$ 32,630

Quarter ended December 31,
2017 2016
(in thousands)
Invested capital calculations:
Equity – beginning of the quarter $ 852,976
$ 773,161
Equity – end of the quarter 860,787
787,536
Plus: Change in fair value of contingent consideration, net of tax 4,742
1,000
Plus: Acquisition costs, net of tax ^(a)
—
335
Plus: Legal settlement, net of attorney fees, net of tax —
(8,047 )
Plus: Tax reform charges 6,689
—
Average equity 862,597
776,993
Average funded debt ^(b)
311,327
162,483
Invested capital (denominator for ROIC) (non-GAAP) $ 1,173,924
$ 939,476


~~(a)~~	~~Acquisition costs are nondeductible for tax purposes.~~


~~(b)~~	~~Average funded debt is calculated as the average daily amounts outstanding on our current and long-term interest-bearing debt.~~

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations and borrowings under our ~~$400~~$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 vendors, cash generated from operations and revolving lines of credit. In general, as our sales volumes increase, our net investment in working capital 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.

Our cash and cash equivalents balance totaled ~~$35.4~~$49.9 million at ~~December 31, 2017~~,September 30, 2020, compared to ~~$56.1~~$29.5 million at June 30, ~~2017~~,2020, including ~~$26.8~~$38.2 million and ~~$47.9~~$23.6 million held outside of the United States at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017,~~2020, respectively. Checks released but not yet cleared in the amounts of ~~$7.5~~$2.2 million and ~~$8.3~~$15.4 million are included in accounts payable ~~as of December 31, 2017~~at September 30, 2020 and June 30, ~~2017,~~2020, respectively.

We conduct business in many locations throughout the world where we generate and use cash. We provide for U.S. income taxes for the earnings of our Canadian ~~subsidiary. Earnings~~subsidiary, but earnings from ~~all other geographies~~Brazil will continue to be considered retained indefinitely for reinvestment. ~~Due~~All other foreign geographies are immaterial. It has been our practice to ~~recent tax legislation~~reinvest those earnings in the businesses outside the United ~~States, we are required to estimate a one-time transition tax on repatriation of foreign earnings during the quarter ended December 31, 2017. See Note 11 -~~ ~~Income Taxes~~ ~~in the Notes to the Consolidated Financial Statements for further discussion.~~States.

Our net investment in working capital at ~~December 31, 2017~~September 30, 2020 was ~~$754.5~~$389.1 million compared to ~~$624.7~~$431.3 million at June 30, ~~2017~~2020 and ~~$621.4~~$572.9 million at ~~December 31, 2016.~~September 30, 2019. Our net investment in working capital is affected by several factors such as fluctuations in sales volume, net income, timing of collections from customers, increases and decreases to inventory levels and payments to ~~vendors, as well as cash generated or used by other financing and investing activities.~~vendors.


	Three months ended
	September 30,
	2020		2019
Cash provided by (used in):	(in thousands)
Operating activities	$	71,225	$	27,630
Investing activities	(748)		(50,019)
Financing activities	(70,255)		(47,353)
Effect of exchange rate change on cash and cash equivalents	(1,439)		(429)
Increase in cash and cash equivalents	$	21,112	$	2,059

Six months ended
December 31,
2017 2016
Cash provided by (used in): (in thousands)
Operating activities $ (84,183 ) $ 35,731
Investing activities (147,064 ) (87,065 )
Financing activities 209,429
36,132
Effect of exchange rate change on cash and cash equivalents 1,159
(1,127 )
Increase (decrease) in cash and cash equivalents $ (20,659 ) $ (16,329 )

Net cash ~~used~~provided by operating activities was ~~$84.2~~$71.2 million for the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2020, compared to ~~$35.7~~$27.6 million provided in the ~~prior year~~prior-year period. Cash used in operating activities for the six months ended December 31, 2017 is primarily attributable to increased inventory and accounts receivable balances, partially offset by net income. Changes in working capital balances exclude balances acquired from POS Portal at acquisition for the six months ended December 31, 2017. Cash provided by operating activities for the ~~six~~three months ended ~~December 31, 2016~~September 30, 2020 is primarily ~~from net income~~attributable to cash provided by increased accounts payable and ~~decreases in~~decreased inventory, ~~purchases,~~ partially offset by ~~increases in~~decreased accounts receivable. ~~Changes in working capital balances exclude balances acquired from Intelisys at acquisition~~Cash provided by operating activities for the ~~six~~three months ended ~~December 31, 2016.~~September 30, 2019 is primarily attributable to earnings from operations adjusted for non-cash items and increased accounts payable, partially offset by increased inventory and decreased accounts receivable.

The number of days sales outstanding ("DSO") was 6061 days at ~~December 31, 2017, excluding Intelisys,~~September 30, 2020, compared to 6163 days at June 30, ~~2017~~2020 and 6061 days at ~~December 31, 2016.~~September 30, 2019. Inventory turned 6.2 times during the ~~second~~ quarter ~~of fiscal year 2018~~ended September 30, 2020 compared to ~~5.8~~4.5 for ~~the~~ previous quarter ~~excluding POS Portal,~~ended June 30, 2020 and ~~6.0~~5.2 times in the ~~prior year quarter.~~prior-year quarter ended September 30, 2019.

Cash used in investing activities for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2020 was ~~$147.1~~$0.7 million, compared to ~~$87.1~~$50.0 million used in the ~~prior year~~prior-year period. Cash used in investing activities ~~for~~primarily represents capital expenditures in the ~~six~~three months ended ~~December 31, 2017 primarily represents the~~September 30, 2020. The prior-year period includes cash ~~used to acquire POS Portal, compared to cash~~of $49.1 million used for the ~~initial payment to acquire Intelisys in the prior year.~~acquisition of intY.

Management expects capital expenditures for fiscal year ~~2018~~2021 to range from $8$3 million to ~~$11~~$6 million, primarily for rental equipment investments, IT ~~investments.~~investments and facility improvements.

For the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2020, cash ~~provided by~~used for financing activities totaled ~~to $209.4~~$70.3 million, compared to ~~$36.1~~$47.4 million ~~provided~~used in the ~~prior year~~prior-year period. Cash ~~provided by~~used for financing activities for ~~the six months ended December 31, 2017~~both periods was primarily ~~from~~for net ~~borrowings~~repayments on the revolving credit ~~facility, partially offset by cash used to pay contingent consideration payments~~facility.

~~to the former shareholders~~

Table of Network1, Intelisys and POS Portal. Cash provided by financing activities for the six months ended December 31, 2016 was primarily from net borrowings on the revolving credit facility, partially offset by cash used to repurchase common stock and make contingent consideration payments to the former shareholders of Network1 and Imago.Contents

Credit Facility

~~The Company has~~

We have a multi-currency senior secured ~~revolving~~ credit facility with ~~JP Morgan~~JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of ~~banks that matures on~~banks. On April ~~3, 2022. On August 8, 2017,~~30, 2019, we amended this credit facility to expand the ~~Company amended the~~borrowing capacity and extend its maturity to April 30, 2024. The Amended Credit Agreement ~~to increase the maximum~~established (i) a five-year $350 million multi-currency senior secured revolving credit facility ~~from $300~~and (ii) a five-year $150 million senior secured term loan facility. Pursuant to ~~$400~~an “accordion feature,” we may increase borrowings up to an additional $250 million. The Amended Credit Agreement allows for the issuance of up to $50 million for letters of credit, ~~and has a $200 million accordion feature that allows the Company to increase the availability to~~ ~~$600 million~~, subject to obtaining additional credit commitments from the lenders participating in the increase.

At ~~the Company's~~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 London Interbank Offered Rate ("LIBOR") or alternate base rate depending upon the ~~Company's~~our net leverage ratio, ofcalculated as total debt ~~(excluding accounts payable and accrued liabilities)~~less up to ~~EBITDA, measured as~~$15 million of ~~the end of the most recent year or quarter, as applicable, for which financial statements have been delivered~~unrestricted domestic cash to ~~the Lenders (the "Leverage Ratio").~~ trailing four-quarter adjusted EBITDA.

This spread ranges from 1.00% to ~~2.125%~~1.75% for LIBOR-based loans and 0.00% to ~~1.125%~~0.75% 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. The secured term loan facility will amortize based on the percentage of original principal amount with 2.5% in Year 1, 5.0% in Year 2, 5.0% in Year 3, 7.5% in Year 4 and 10.0% in Year 5. Borrowings under the Amended Credit Agreement are guaranteed by substantially all of the domestic assets of the Company ~~as well as certain foreign subsidiaries determined to be material under the Amended Credit Agreement~~ and a pledge of up to 65% of capital stock or other equity interest in ~~each Guarantor (as~~certain foreign subsidiaries determined to be either material or a subsidiary borrower as defined in the Amended Credit ~~Agreement).~~ Agreement.

The ~~Company was~~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 to 1.00 at the end of each fiscal quarter. In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates. We were in compliance with all covenants under the credit facility ~~as of~~ ~~December 31, 2017~~.

~~There~~at September 30, 2020. Including borrowings for both continuing and discontinued operations, there was ~~$355.5~~$19.9 million and ~~$91.9~~$92.4 million in outstanding borrowings on our ~~$400 million~~ revolving credit facility ~~as of~~ ~~December 31, 2017~~at September 30, 2020 and June 30, ~~2017~~,2020, respectively.

~~On a gross basis, we borrowed $1,279.2 million~~Including borrowings for both continuing and ~~repaid $1,015.7 million on our~~discontinued operations, the average daily balance for the revolving credit facility, inexcluding the ~~six~~ ~~months ended~~ ~~December 31, 2017. In the prior year period, on a gross basis, we borrowed $829.1~~term loan facility, was $91.2 million and ~~repaid $764.3 million. The average daily balance during~~$250.8 million for the ~~six~~three month periods ended ~~December 31, 2017~~September 30, 2020 and ~~2016 was~~ ~~$261.8 million~~ ~~and $129.7 million,~~2019, respectively. There were ~~no stand-by~~ letters of credit issued under the multi-currency revolving credit facility asfor the discontinued operations of ~~December 31, 2017~~$0.3 million at September 30, 2020 and June 30, ~~2017. There~~2020. Taking into consideration outstanding borrowings on the multi-currency revolving credit facility for both continuing and discontinued operations, there was ~~$44.6~~$330.1 million and ~~$208.1~~$257.6 million available for additional borrowings ~~as of December 31, 2017~~at September 30, 2020 and June 30, ~~2017,~~2020, 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 relative to our Credit Facility 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 September 30, 2020, based upon the calculation of our Credit Facility Net Debt relative to our Credit Facility EBITDA, there was $179.9 million available for borrowing. While we were in compliance with the financial covenants contained in the Credit Facility as of September 30, 2020, and currently expect to continue to maintain such compliance, should we encounter difficulties, our historical relationship with our Credit Facility lending group has been strong and we anticipate their continued support of our long-term business.

AsWe have a bank overdraft facility with Bank of ~~December 31, 2017,~~America used by our European subsidiaries. The facility allows us to disburse checks in excess of bank balances up to $14.0 million U.S. dollar equivalent for up to seven days. Borrowings under the ~~Company~~overdraft facility bear interest at a rate equal to a spread of 1.0% over the applicable currency's LIBOR with a zero percent floor. There was no outstanding balance on the overdraft facility at September 30, 2020 and $3.5 million outstanding for the discontinued operations at June 30, 2020.

Earnout Payments

At September 30, 2020, we were obligated to pay ~~certain~~one remaining earnout ~~payments~~payment to the former shareholders of ~~POS Portal,~~ Intelisys ~~and Network1~~ related to ~~their acquisitions~~the acquisition on ~~July 31, 2017,~~ August 29, ~~2016 and January 13, 2015, respectively.~~2016. See Note 810 - Fair Value of Financial Instruments for a discussion on the liabilities recorded. The final earnout payment ~~due to the former shareholders of POS Portal~~for Intelisys, which totaled $46.9 million, was paid in ~~full during the December quarter of the current fiscal year and was~~October 2020, funded by ~~cash from operations and~~borrowings on our ~~existing~~ revolving credit facility. Future earnout payments for Intelisys are expected to be funded by cash from operations and our existing revolving credit facility. Future earnout payments for Network1 are expected to be funded by existing cash balances in Brazil and cash from operations.

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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 the present and future working capital and cash requirements for at least the next twelve months.

Off-Balance Sheet Arrangements and Contractual Obligations

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future ~~affect~~effect or change on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the company is a party, under which the company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

~~As of December 31, 2017,~~At September 30, 2020, we have made adjustments to our contingent consideration owed to the former shareholders ~~Intelisys and Network 1.~~of Intelisys. See Note 810 - Fair Value of Financial Instruments for a discussion on the liabilities recorded. There have been no other material changes in our contractual obligations and commitments disclosed in our Annual Report on Form 10-K filed on August ~~29, 2017.~~31, 2020.

Accounting Standards Recently Issued

See Note 1 of the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including the anticipated dates of adoption and the effects on our consolidated financial position and results of operations.

Critical Accounting Policies and Estimates

Critical accounting policies are those that are important to our financial condition and require management's most difficult, subjective or complex judgments. Different amounts would be reported under different operating conditions or under alternative assumptions. See Management's Discussion and Analysis of Financial Condition and Results from Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017~~2020 for a complete discussion.

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 to estimating allowance for doubtful accounts receivable is described below.

We maintain 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. Management determines the estimate of the allowance for doubtful accounts receivable by considering a number of factors, including: (1) historical experience, (2) aging of the accounts receivable, (3) specific information obtained by the Company on the financial condition and the current creditworthiness of its customers, (4) the current economic and country-specific environment and (5) 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 over the contractual life are recorded at inception.

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Item 3.			Quantitative and Qualitative Disclosures About Market Risk

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

~~Interest Rate Risk~~

We are exposed to changes in interest rates primarily as a result of our borrowing activities, which include revolving credit facilities with a group of banks used to maintain liquidity and fund our business operations. The nature and amount of our debt may vary as a result of future business requirements, market conditions and other factors. A hypothetical 100 basis point increase or decrease in interest rates on borrowings on our revolving credit facility and variable rate long-term debt, netdescription of the ~~impact of the interest rate swap, would have resulted~~Company's market risks, see Part II, Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in ~~approximately $2.2 million and $1.4 million increase or decrease annually in pre-tax income~~our Annual Report on Form 10-K for the ~~periods ending December 31, 2017 and 2016, 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 December 31, 2017 and~~fiscal year ended June 30, 2017 we had $360.9 million and $97.3 million, respectively, in variable rate long-term debt and borrowings under the revolving credit facility. In connection with the borrowings under the credit facility including potential future amendments or extensions of the facility, we entered into an interest rate swap maturing on April 3, 2022 with a notional amount of $50 million2020. No material changes have occurred to ~~receive interest at a floating rate LIBOR and pay interest at a fixed rate. Our use of derivative instruments has the potential to expose us to certain~~our 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, Latin America, Brazil and Europe. These risks include transactions denominated in non-functional currencies and intercompany loans with foreign subsidiaries. In the normal course of the business, foreign exchange risk is managed by the use of currency options and forward contracts to hedge these exposures as well as balance sheet netting of exposures. In addition, exchange rate fluctuations may cause our international results to fluctuate significantly when translated into U.S. dollars. A hypothetical 10% increase or decrease in foreign exchange rates would have resulted in approximately a $0.8 million increase or decrease in pre-tax income from translation for six months ended December 31, 2017 and 2016. These risks may change over time as business practices evolve and could have a material impact on our financial results in the future.

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

We have elected not to designate our foreign currency contracts as hedging instruments, and therefore, the instruments are marked-to-market with changes in their values recorded in the consolidated income statement each period. Our foreign currencies are primarily Brazilian reais, euros, British pounds, Canadian dollars, Mexican pesos, Colombian pesos, Chilean pesos and Peruvian nuevos soles. At December 31, 2017 andsince June 30, ~~2017, the fair value~~2020.

Table of ~~the Company’s currency forward contracts outstanding was a net payable of less than $0.1 million. We do not utilize financial instruments for trading or other speculative purposes.~~

Contents



Item 4.			Controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") of the effectiveness of the Company’s disclosure controls and procedures ~~as of~~ ~~December 31, 2017~~.at September 30, 2020. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures are effective ~~as of~~ ~~December 31, 2017~~.at September 30, 2020. During the quarter ended ~~December 31, 2017~~,September 30, 2020, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION



Item 1.			Legal Proceedings

The Company and ~~its~~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 ~~the Company, the Company believes~~us, we believe that any liability resulting from an adverse determination of such lawsuits would not have a material adverse effect on ~~the Company’s~~our financial condition or results of operations. For a description of our material legal proceedings, see Note 13 - Commitments and Contingencies in the notes to the condensed consolidated financial statements, which is incorporated herein by reference.



Item 1A.			Risk Factors

In addition to the risk factors discussed in our other reports and statements that we file with the SEC, you should carefully consider the factors discussed in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended June 30, ~~2017,~~2020, which could materially affect our business, financial condition and/or future operating results.



Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds

On August 29, 2016, ~~the Company~~we announced a Board of Directors ("BOD") authorization to repurchase shares up to $120 million of ~~the Company's~~our common stock over three years. The ~~following table presents the share-repurchase activity for~~share repurchase authorization expired in August 2019. Final share repurchases under this authorization occurred during the quarter ended ~~December 31, 2017:~~September 30, 2019, totaling 168,068 shares for $5.4 million.

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

Period
Total number of shares purchased^(a)

Average price paid per share^(a)
Total number of shares purchased as part of the publicly announced plan or program Approximate dollar value of shares that may yet be purchased under the plan or program
October 1, 2017 through October 31, 2017

103
$ 43.65
103
$ 99,664,707
November 1, 2017 through November 30, 2017

—
$ —
—
$ 99,664,707
December 1, 2017 through December 31, 2017

45,798
$ 34.35
45,798
$ 99,664,707
Total 45,901
$ 34.37
45,901
$ 99,664,707

(a) Total number of shares purchased represents shares withheld from employees for stock-based awards in order to satisfy the required tax withholding obligations. The purchases of these shares were not made pursuant to any publicly announced repurchase plan. No share repurchases occurred under the BOD authorization for the quarter ended December 31, 2017.


Item 6.			Exhibits


Exhibit Number			Description

~~Item 6.~~			~~Exhibits~~



~~Exhibit~~ ~~Number~~	~~Description~~

~~10.1~~31.1	Form of Restricted Stock Unit Award (Performance and Service-Based) under the 2013 Long-Term Incentive Plan (2017 version) (incorporated by reference to Exhibit 10.1 of the registrant's Current Report filed with the SEC on Form 8-K on December 8, 2017).

~~10.2~~	Form of Restricted Stock Unit Award (Service-Based) under the 2013 Long-Term Incentive Plan (2017 version) (incorporated by reference to Exhibit 10.2 of the registrant's Current Report filed with the SEC on Form 8-K on December 8, 2017).

~~10.3~~	Form of Non-Qualified Stock Option Agreement under the 2013 Long-Term Incentive Plan (2017 version) (incorporated by reference to Exhibit 10.3 of the registrant's Current Report filed with the SEC on Form 8-K on December 8, 2017).

~~10.4~~	Form of Incentive Stock Option Agreement under the 2013 Long-Term Incentive Plan (2017 version) (incorporated by reference to Exhibit 10.4 of the registrant's Current Report filed with the SEC on Form 8-K on December 8, 2017).

~~31.1~~	Certification of the Chief Executive Officer, Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer, Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from our Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2017,~~September 30, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets ~~as of December 31, 2017~~at September 30, 2020 and June 30, ~~2017;~~2020; (ii) the Condensed Consolidated Income ~~Statement~~Statements for the quarter ended September 30, 2020 and ~~six months ended December 31, 2017 and 2016;~~2019; (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income ~~(Loss)~~ for the quarter ended September 30, 2020 and ~~six months ended December 31, 2017~~2019; (iv) the Condensed Consolidated Statements of Shareholder's Equity at September 30, 2020 and ~~2016; (iv)~~2019; (v) the Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2020 and ~~2016;~~2019; and ~~(v)~~(vi) the Notes to the Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			ScanSource, Inc.

			~~ScanSource, Inc.~~

	/s/ MICHAEL L. BAUR
			Michael L. Baur
Date:		~~February 6, 2018~~November 9, 2020	Chairman and Chief Executive Officer (Principal Executive Officer)



	/s/ GERALD LYONS
			Gerald Lyons
Date:		~~February 6, 2018~~November 9, 2020	Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)


	September 30, 2020		June 30, 2020
	(in thousands)
Short-term borrowings(a)	$	0	$	3,524
Current portion of long-term debt	7,843		7,839
Mississippi revenue bond, net of current portion	4,081		4,425
Senior secured term loan facility, net of current portion	136,875		138,750
Borrowings under revolving credit facility(b)	19,932		92,418
Total debt	$	168,731	$	246,956


		September 30, 2020				June 30, 2020
	Balance Sheet Location	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments
		(in thousands)



Derivative liabilities:
Foreign exchange contracts	Accrued expenses and other current liabilities	$	0	$	41	$	0	$	26
Interest rate swap agreement	Other long-term liabilities	$	9,232	$	0	$	9,433	$	0


	Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(in thousands)									(in thousands)
Assets:									Assets:
Deferred compensation plan investments, current and non-current portion	$	23,893	$	23,893	$	—	$	—	Deferred compensation plan investments, current and non-current portion	$	28,687	$	28,687	$	0	$	0
Forward foreign currency exchange contracts	71		—		71		—
Interest rate swap agreement	578		—		578		—

Total assets at fair value	$	24,542	$	23,893	$	649	$	—	Total assets at fair value	$	28,687	$	28,687	$	0	$	0
Liabilities:									Liabilities:
Deferred compensation plan investments, current and non-current portion	$	23,893	$	23,893	$	—	$	—	Deferred compensation plan investments, current and non-current portion	$	28,687	$	28,687	$	0	$	0
Forward foreign currency exchange contracts	169		—		169		—		Forward foreign currency exchange contracts	41		0		41		0
Liability for contingent consideration, current and non-current portion	97,031		—		—		97,031
Interest rate swap agreement									Interest rate swap agreement	9,232		0		9,232		0
Liability for contingent consideration									Liability for contingent consideration	46,850		0		0		46,850
Total liabilities at fair value	$	121,093	$	23,893	$	169	$	97,031	Total liabilities at fair value	$	84,810	$	28,687	$	9,273	$	46,850


	Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(in thousands)									(in thousands)
Assets:									Assets:
Deferred compensation plan investments, current and non-current portion	$	21,439	$	21,439	$	—	$	—	Deferred compensation plan investments, current and non-current portion	$	27,159	$	27,159	$	0	$	0
Forward foreign currency exchange contracts	35		—		35		—
Interest rate swap agreement	21		—		21		—

Total assets at fair value	$	21,495	$	21,439	$	56	$	—	Total assets at fair value	$	27,159	$	27,159	$	0	$	0
Liabilities:									Liabilities:
Deferred compensation plan investments, current and non-current portion	$	21,074	$	21,074	$	—	$	—	Deferred compensation plan investments, current and non-current portion	$	27,159	$	27,159	$	0	$	0
Forward foreign currency exchange contracts	131		—		131		—		Forward foreign currency exchange contracts	26		0		26		0
Liability for contingent consideration, current and non-current portion	114,036		—		—		114,036
Interest rate swap agreement									Interest rate swap agreement	9,433		0		9,433		0
Liability for contingent consideration									Liability for contingent consideration	46,334		0		0		46,334
Total liabilities at fair value	$	135,241	$	21,074	$	131	$	114,036	Total liabilities at fair value	$	82,952	$	27,159	$	9,459	$	46,334


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


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



	December 31, 2017			June 30, 2017
Assets
Current assets:
Cash and cash equivalents	$	35,435		$	56,094
Accounts receivable, less allowance of $47,264 at December 31, 2017 and $44,434 at June 30, 2017	717,336			637,293
Inventories	581,802			531,314
Prepaid expenses and other current assets	76,667			56,322
Total current assets	1,411,240			1,281,023
Property and equipment, net	76,626			56,566
Goodwill	302,912			200,881
Identifiable intangible assets, net	148,443			101,513
Deferred income taxes	11,794			29,491
Other non-current assets	54,267			48,829
Total assets	$	2,005,282		$	1,718,303
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	104		$	—
Accounts payable	515,302			513,155
Accrued expenses and other current liabilities	97,597			104,715
Current portion of contingent consideration	38,629			30,675
Income taxes payable	5,086			7,730
Total current liabilities	656,718			656,275
Deferred income taxes	11,110			2,008
Long-term debt	5,325			5,429
Borrowings under revolving credit facility	355,503			91,871
Long-term portion of contingent consideration	58,402			83,361
Other long-term liabilities	57,437			42,214
Total liabilities	1,144,495			881,158
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, none issued	—			—
Common stock, no par value; 45,000,000 shares authorized, 25,571,355 and 25,431,845 shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively	64,896			61,169
Retained earnings	861,296			849,180
Accumulated other comprehensive income (loss)	(65,405		)	(73,204		)
Total shareholders’ equity	860,787			837,145
Total liabilities and shareholders’ equity	$	2,005,282		$	1,718,303

June 30, 2017 amounts are derived from audited consolidated financial statements.
See accompanying notes to these condensed consolidated financial statements.



	POS Portal
	(in thousands)
Receivables	$	8,914
Inventory	8,352
Other current assets	917
Property and equipment	24,963
Goodwill	101,198
Identifiable intangible assets	57,000
Other non-current assets	100
	$	201,444

Accounts payable	$	10,897
Accrued expenses and other current liabilities	5,130
Contingent consideration	13,098
Other long-term liabilities	102
Long-term deferred taxes payable	28,449
Consideration transferred, net of cash acquired	143,768
	$	201,444



	Barcode, Networking & Security Segment		Communications & Services Segment		Total
	(in thousands)
Balance as of June 30, 2017	$	36,260	$	164,621	$	200,881
Additions	101,198		—		101,198
Foreign currency translation adjustment	146		687		833
Balance as of December 31, 2017	$	137,604	$	165,308	$	302,912



	Contingent consideration for the quarter ended									Contingent consideration for the six months ended
	December 31, 2017									December 31, 2017
	Barcode, Networking & Security Segment			Communications & Services Segment			Total			Barcode, Networking & Security Segment			Communications & Services Segment			Total
	(in thousands)
Fair value at beginning of period	$	13,167		$	90,326		$	103,493		$	—		$	114,036		$	114,036
Issuance of contingent consideration	—			—			—			13,098			—			13,098
Payments	(13,167		)	—			(13,167		)	(13,167		)	(40,858		)	(54,025		)
Change in fair value of contingent consideration	—			6,913			6,913			69			23,725			23,794
Foreign currency translation adjustment	—			(208		)	(208		)	—			128			128
Fair value at end of period	$	—		$	97,031		$	97,031		$	—		$	97,031		$	97,031



	Contingent consideration for the quarter ended			Contingent consideration for the six months ended
	December 31, 2016			December 31, 2016
	Communications & Services Segment			Communications & Services Segment
	(in thousands)
Fair value at beginning of period	$	110,835		$	24,652
Issuance of contingent consideration	—			95,000
Payments	(1,607		)	(10,241		)
Change in fair value of contingent consideration	1,791			1,961
Foreign currency translation adjustment	(139		)	(492		)
Fair value at end of period	$	110,880		$	110,880



	Quarter ended December 31,								% Change, Constant Currency, Excluding Acquisitions^(a)
Net Sales by Segment:	2017		2016		$ Change		% Change		% Change, Constant Currency, Excluding Acquisitions^(a)
	(in thousands)
Worldwide Barcode, Networking & Security	$	719,786	$	593,833	$	125,953	21.2	%	16.3	%
Worldwide Communications & Services	312,426		310,959		1,467		0.5	%	(0.9	)%
Total net sales	$	1,032,212	$	904,792	$	127,420	14.1	%	10.4	%

	Six months ended December 31,								% Change, Constant Currency, Excluding Acquisitions ^(a)
	2017		2016		$ Change		% Change		% Change, Constant Currency, Excluding Acquisitions ^(a)
	(in thousands)
Worldwide Barcode, Networking & Security	$	1,340,114	$	1,221,043	$	119,071	9.8	%	5.7	%
Worldwide Communications & Services	616,657		616,314		343		0.1	%	(2.1	)%
Total net sales	$	1,956,771	$	1,837,357	$	119,414	6.5	%	3.1	%



	Quarter ended December 31, 2017								Quarter ended December 31, 2016
	Operating Income		Pre-Tax Income		Net Income		Diluted EPS		Operating Income		Pre-Tax Income			Net Income			Diluted EPS
	(in thousands, except per share data)
GAAP Measures	$	22,341	$	20,310	$	7,969	$	0.31	$	23,275	$	35,781		$	23,036		$	0.91
Adjustments:
Amortization of intangible assets	5,487		5,487		3,648		0.14		4,165		4,165			2,740			0.11
Change in fair value of contingent consideration	6,913		6,913		4,742		0.18		1,791		1,791			1,000			0.04
Acquisition costs	—		—		—		—		335		335			335			0.01
Tax reform charges^(a)					6,689		0.26		—		—			—			—
Legal settlement, net of attorney fees	—		—		—		—		—		(12,777		)	(8,047		)	(0.32		)
Non-GAAP measures	$	34,741	$	32,710	$	23,048	$	0.90	$	29,566	$	29,295		$	19,064		$	0.75



Period	Total number of shares purchased^(a)	Average price paid per share^(a)		Total number of shares purchased as part of the publicly announced plan or program	Approximate dollar value of shares that may yet be purchased under the plan or program
October 1, 2017 through October 31, 2017	103	$	43.65	103	$	99,664,707
November 1, 2017 through November 30, 2017	—	$	—	—	$	99,664,707
December 1, 2017 through December 31, 2017	45,798	$	34.35	45,798	$	99,664,707
Total	45,901	$	34.37	45,901	$	99,664,707