Securities Information. This website includes forward looking statements regarding a number of different matters, including, from time-to-time, our expectations with respect to future revenue, profits, technological developments, and similar matters. Actual results may differ materially from the results suggested by these statements for a number of reasons, including the reasons set forth below. We disclaim any obligation to update these statements except as required by law.
It is not reasonably possible to itemize all of the many factors and specific events that could affect ScanSource, Inc. and/or the specialty technology logistics industry as a whole. The following risk factors (in addition to other possible factors not listed) could affect ScanSource, Inc.’s actual results and cause such results to differ materially from those projected, forecasted, estimated, budgeted or otherwise expressed in forward-looking statements made by ScanSource, Inc.
Matters relating to the investigation by the Special Committee of the Board of Directors and the restatement of ScanSource, Inc.’s consolidated financial statements may result in additional litigation and governmental enforcement actions and may have an adverse effect on ScanSource, Inc.’s results of operations.
Matters related to the investigation by the Special Committee, and related activities, as described in more detail in Note 1A to the Notes to Consolidated Financial Statements included in Part II, Item 8 of amended Annual Report on Form 10-K/A filed by ScanSource, Inc. for the fiscal year ended June 30, 2006, have required ScanSource, Inc. to incur substantial expenses for legal, accounting, tax and other professional services, have to some extent taken management’s time and attention, and could in the future harm ScanSource, Inc.’s business, financial condition, results of operations and cash flows.
These matters and the restatement of prior financial statements have also exposed ScanSource, Inc. to greater risks associated with litigation, regulatory proceedings and government enforcement actions. As described in Part I, Item 3, “Legal Proceedings” of the Form 10-K recently filed by ScanSource, Inc. for the fiscal year ended June 30, 2007, two derivative complaints have been filed against certain current and former officers and directors of ScanSource, Inc. and nominally against ScanSource, Inc. pertaining to allegations relating to stock option grants. ScanSource, Inc. has also voluntarily provided the information concerning the Special Committee review to the SEC and the Department of Justice, and in that regard ScanSource, Inc. has responded to informal requests for documents and additional information. ScanSource, Inc. intends to continue full cooperation with these inquiries. No assurance can be given regarding the outcomes from litigation, or regulatory or governmental proceedings relating to ScanSource, Inc.’s past stock option grant practices. The resolution of these matters will be time consuming and expensive, and may distract management from the conduct of ScanSource, Inc.’s business. If ScanSource, Inc. is subject to adverse findings in litigation or regulatory proceedings or governmental proceedings, it could be required to pay damages or penalties or have other remedies imposed, which could harm its business, financial condition, results of operations and cash flows.
ScanSource, Inc. believes the Form 10-K/A filed by ScanSource, Inc. for the fiscal year ended June 30, 2006, and the quarterly reports on Form 10-Q filed by ScanSource, Inc. for the quarters ended September 30, 2006, December 31, 2006 and March 31, 2007, corrected the accounting errors arising from ScanSource, Inc.’s past stock option practices. However, if the SEC disagrees with the accounting methods ScanSource, Inc. used, objects to the manner in which ScanSource, Inc. disclosed the restated financial information or related qualitative information, or otherwise imposes additional requirements with respect to ScanSource, Inc.’s restated financial statements or stock option restatements in general, ScanSource, Inc. could be required to further amend these filings. Further restatement could also be required if new facts become available as a result of the SEC inquiry, the derivative litigation or through other means. A further revision of ScanSource, Inc.’s financial statements could result in delays in filing subsequent SEC reports, which could in turn subject ScanSource, Inc. to a delisting of its common stock from The NASDAQ Stock Market.
ScanSource, Inc.’s success is highly dependent on its relationships with vendors and on product supply and availability.
ScanSource, Inc.’s future success is highly dependent on its relationships with vendors. Sales of products from ScanSource, Inc.’s ten largest vendors accounted for approximately 88% of net sales for fiscal 2007. From time to time, ScanSource, Inc. experiences shortages in availability of some products from vendors. ScanSource, Inc.’s business is largely dependent upon the terms provided by its vendors. ScanSource, Inc.’s vendor agreements generally contain provisions for periodic renewals and for termination by the vendor without cause and typically upon short notice. Some of ScanSource, Inc.’s vendor agreements require minimum purchase amounts or the maintenance of a representative assortment of the vendor’s full line of products. Such contract provisions could increase ScanSource, Inc.’s working capital requirements.
As is typical in ScanSource, Inc.’s industry, ScanSource, Inc. receives volume discounts and certain credits for market development from most of its vendors. Any change in the availability of these discounts or credits or ScanSource, Inc.’s failure to obtain vendor financing on satisfactory terms and conditions could have a material adverse effect on ScanSource, Inc.’s business, financial condition, and results of operations.
Although ScanSource, Inc. believes its vendor relationships are good, there can be no assurance that its vendor relationships will continue as currently in effect. The loss or deterioration of ScanSource, Inc.’s relationship with a major vendor, the authorization by vendors of additional wholesale distributors, a change in their strategy (such as increasing direct sales), the merging of significant manufacturers or change of control of a major vendor, the deterioration of a major vendor’s financial condition, the insolvency or bankruptcy of a vendor, the inability of a vendor to continue support of its products, or the failure by ScanSource, Inc. to establish good relationships with major new vendors could have a material adverse effect on its business, financial condition, and results of operations.
ScanSource, Inc.’s ability to compete successfully in a highly competitive market could affect its results of operation.
The markets in which ScanSource, Inc. operates, as identified above, are highly competitive. Competition is based primarily on factors such as price, product availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability, ability to tailor specific solutions to customer needs, quality and breadth of product lines and services, and availability of technical and product information. ScanSource, Inc.’s competitors include regional and national wholesale distributors, as well as hardware manufacturers (including most of ScanSource Inc.’s vendors) that sell directly to resellers and to end-users. In addition, ScanSource Inc. competes with master resellers that sell to franchisees, third-party dealers and end-users. Certain of ScanSource Inc.’s current and potential competitors have greater financial, technical, marketing and other resources than ScanSource Inc. and may be able to respond more quickly to new or emerging technologies and changes in customer requirements. Certain smaller regional competitors, who are specialty two-tier or mixed model master resellers, may also be able to respond more quickly to new or emerging technologies and changes in customer requirements. Such competition could also result in price reductions, reduced margins and loss of market share by ScanSource Inc.
Competition has increased for ScanSource Inc.’s sales units in the last four years as broadline and other value added distributors have entered into the specialty technology markets.
ScanSource, Inc.’s net sales and operating results may fluctuate quarterly.
ScanSource, Inc.’s net sales and operating results may fluctuate quarterly as a result of fluctuations in demand for ScanSource, Inc.’s products and services, the introduction of new hardware and software technologies, the introduction of new services by ScanSource, Inc. and its competitors, changes in manufacturers’ prices or price protection policies, changes in freight rates, disruption of warehousing or shipping channels, changes in the level of operating expenses, the timing of major marketing or other service projects, product supply shortages, inventory adjustments, changes in product mix, entry into new product markets, difficulty in maintaining margins, the economic position of ScanSource, Inc.’s customers, and general competitive and economic conditions. In addition, a substantial portion of ScanSource, Inc.’s net sales in each quarter results from orders booked in that quarter. Accordingly, ScanSource, Inc. believes that period-to-period comparisons of its operating results should not be relied upon as an indication of future performance.
The value of ScanSource, Inc.’s inventory may be adversely affected by market demands and ScanSource, Inc.’s ability to manage its inventories.
ScanSource, Inc.’s business, like that of other wholesale distributors, is subject to the risk that the value of its inventory will be adversely affected by price reductions by manufacturers or by technological changes affecting the usefulness or desirability of its product inventory. Under the terms of most of ScanSource, Inc.’s agreements and the policy of most manufacturers of specialty technology products, ScanSource, Inc. has some price protection and stock rotation opportunities with respect to slow moving or obsolete inventory items. There can be no assurance, however, that, in every instance, ScanSource, Inc. will be able to comply with all necessary conditions or successfully manage such price protection or stock rotation opportunities, if available. Also, these industry practices are sometimes not included in written agreements and do not protect ScanSource, Inc. in all cases from declines in inventory value, excess inventory, or product obsolescence. There can be no assurance that manufacturers will continue such practices or that ScanSource, Inc. will be able to successfully manage its existing and future inventories. Significant declines in inventory value in excess of established inventory reserves or dramatic changes in prevailing technology could have a material adverse effect on ScanSource, Inc.’s business, financial condition, and results of operations.
ScanSource, Inc.’s business is affected by its ability to manage growth to enter new markets.
The growth of ScanSource, Inc.’s business has required it to hire additional personnel and has increased its working capital requirements. Such growth has resulted in new and increased responsibilities for ScanSource, Inc.’s management, operating, financial, and technical resources. ScanSource, Inc. may also in the future require additional equity or debt financing to support its increased working capital needs in connection with any expansion of its business. Such financing may not be available on terms that are favorable to ScanSource, Inc., if at all. Also crucial to ScanSource, Inc.’s success is its ability to achieve additional economies of scale in order to sustain its operating margins. There can be no assurance that ScanSource, Inc. will be able to attract or retain competent personnel and improve its operational status, obtain adequate working capital or achieve the needed economies of scale. The failure to do so could have a material adverse effect on ScanSource, Inc.’s business, financial condition, and results of operations.
ScanSource, Inc.’s growth strategy continues to anticipate the entry into new product markets. Expansion of ScanSource, Inc.’s existing product markets or entry into new product markets could divert the use of its resources and systems, require additional resources that might not be available, result in new or more intense competition, require longer implementation times or greater start-up expenditures than anticipated, or otherwise fail to achieve the desired results in a timely fashion, if at all. ScanSource, Inc.’s ability to successfully manage its growth will require continued enhancement of its operational, management and financial resources and controls. ScanSource, Inc.’s failure to effectively manage its growth could have a material adverse effect on its business, financial condition, and results of operations.
ScanSource, Inc. has made and expects to continue to make strategic acquisitions which could disrupt its business and have an adverse effect on its operating results.
ScanSource, Inc. has in the past pursued, and may pursue in the future, from time to time, strategic or opportunistic acquisitions of companies that either complement or expand its existing business. As a result, ScanSource, Inc. may evaluate potential acquisition opportunities, which may be material in size and scope. Acquisitions involve a number of risks and uncertainties, including expansion into new geographic markets and business areas, the requirement to understand local business practices, the diversion of management’s attention to the assimilation of the operations and personnel of the acquired companies, the possible requirement to upgrade the acquired companies’ management information systems to ScanSource, Inc.’s standards, the logistical difficulties inherent in expanding into new geographic markets and business areas, potential adverse short-term effects on ScanSource, Inc.’s operating results and the amortization or impairment of any acquired intangible assets.
ScanSource, Inc. is subject to risks relating to its centralized functions.
ScanSource, Inc. currently distributes products in North America from a single warehouse (with corresponding arrangements for our Latin American and European markets) and manages most of its operations through a single information system based in Greenville, South Carolina. Repair, replacement, or relocation of such centralized functions could be costly or untimely. Although ScanSource, Inc. has business interruption insurance, an uninsurable loss from electrical or telephone failure, fire or other casualty, or other disruption could have a material adverse effect on its business, financial condition, and results of operations. ScanSource, Inc.’s use of single warehouses to serve North America, Latin America, and Europe also makes it more vulnerable to dramatic changes in freight rates than a competitor with multiple, geographically dispersed warehouse sites. Losses in excess of insurance coverage, an uninsurable loss, or changes in freight rates could have a material adverse effect on ScanSource, Inc.’s business, financial condition, and results of operations.
ScanSource, Inc. is highly dependent on its internal information systems and a failure of these systems could disrupt its business.
ScanSource, Inc. is highly dependent upon a variety of internal computer and telecommunication systems to operate its business. There can be no assurance that ScanSource, Inc.’s information systems will not fail or experience disruptions, that it will be able to attract and retain qualified personnel necessary for the operation of such systems, that it will be able to expand and improve its information systems, that it will be able to convert to new systems efficiently, that it will be able to integrate new programs effectively with its existing programs, or that the information systems of acquired companies will be sufficient to meet its standards or can be successfully converted into an acceptable information system on a timely and cost-effective basis. Any of such problems could have an adverse effect on ScanSource, Inc.’s business.
The success of ScanSource, Inc.’s business is largely dependent on its senior management.
ScanSource, Inc.’s success is largely dependent on the skills, experience and efforts of its senior management, particularly including, but not limited to, Michael L. Baur, our Chief Executive Officer. ScanSource, Inc. has obtained a “key person” insurance policy on the life of Mr. Baur in the amount of $10 million. The loss of services of Mr. Baur or one or more members of ScanSource, Inc.’s senior management team could have a material adverse effect on its business, financial condition, and results of operations.
ScanSource, Inc. is dependent on third-party shippers for the delivery of a majority of its products.
ScanSource, Inc. presently ships the majority of its products from its centralized warehouses by FedEx, United Parcel Service and certain other shipping companies. ScanSource, Inc. also receives the majority of its products by commercial carriers, FedEx, DHL, United Parcel Service and certain other shipping companies. Changes in shipping terms, or the inability of these third-party shippers to perform effectively (whether as a result of mechanical failure, casualty loss, labor stoppage, other disruption, or any other reason), could have a material adverse effect on ScanSource, Inc.’s business, financial condition, and results of operations. There can be no assurance that ScanSource, Inc. can maintain favorable shipping terms or replace such shipping services on a timely or cost-effective basis.
ScanSource, Inc. has credit exposure to its reseller customers and negative trends in their businesses could increase its credit risk.
As a marketing enhancement, ScanSource, Inc. offers unsecured and secured credit terms for qualified resellers. Historically, ScanSource, Inc. has not experienced losses from write-offs materially in excess of established reserves. As ScanSource, Inc. grows its international and communications businesses, typical customer credit terms tend to be longer, and therefore may create more credit risk. While ScanSource, Inc. evaluates resellers’ qualifications for credit and monitors its extensions of credit, defaults by resellers in timely repayment of these extensions of credit could have a material adverse effect on its business, financial condition, and results of operations.
ScanSource, Inc.’s global operations expose it to risks associated with international activities.
ScanSource, Inc.’s international operations are subject to a variety of risks such as the imposition of governmental controls, currency devaluations, export license requirements, restrictions on the export of certain technology, dependence on third party freight forwarders and the third party warehouse in Europe, political instability, trade restrictions, tariff changes, difficulties in staffing and managing international operations, changes in the interpretation and enforcement of laws (in particular related to items such as duty and taxation), difficulties in collecting accounts receivable, longer collection periods and the impact of local economic conditions and practices. As ScanSource, Inc. continues to expand its international business, its success will be dependent, in part, on its ability to anticipate and effectively manage these and other risks. These factors could have a material adverse effect on its business, financial condition, and results of operations.
Because ScanSource, Inc. conducts business in countries outside of the United States, it is exposed to fluctuations in foreign currency exchange rates. Exchange rate fluctuations may cause ScanSource, Inc.’s international revenues to fluctuate significantly when reflected in U.S. dollar terms.
ScanSource, Inc.’s stock price could be volatile.
The market price of ScanSource, Inc.’s common stock may be subject to wide fluctuations in response to quarterly variations in operating results, general market movements, and other events or factors. In addition, in recent years the stock markets in general, and technology-related stocks in particular, have experienced price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These fluctuations, as well as general economic and market conditions, may adversely affect the market price of ScanSource, Inc.’s common stock.
The inability to make accurate forecasts could adversely affect ScanSource, Inc.’s results of operations.
The forecasts of volume and timing of orders are based on many factors and subjective judgments, and ScanSource, Inc. cannot assure that the forecasts are accurate. ScanSource, Inc. makes many management decisions on the basis of its forecasts, including the hiring and training of personnel, which represents a significant portion of ScanSource, Inc.’s overall expenses. Thus, the failure to generate revenue according to expectations could have a material adverse effect on ScanSource, Inc.’s results of operations.
Changes in accounting rules could have an adverse effect on ScanSource, Inc.’s results of operations.
ScanSource, Inc. prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States. These principles are subject to interpretation by various governing bodies, including the Financial Accounting Standards Board, and the SEC, who create and interpret appropriate accounting standards. When new accounting rules are issued, ScanSource, Inc. may need to implement changes to its accounting policies. A change from current accounting standards could have a significant adverse effect on its results of operations.
Exposure to terrorist attacks, military actions, and war could negatively affect ScanSource, Inc.’s operations.
Future terrorist or military actions, in the U.S. or abroad, could result in destruction or seizure of ScanSource, Inc.’s assets or suspension or disruption of its operations. Additionally, such actions could affect the operations of its suppliers or customers, resulting in loss of access to products, potential losses on supplier programs, loss of business, higher losses on receivables or inventory, and/or other disruptions in ScanSource, Inc.’s business, which could directly, or indirectly through reduced demand, adversely affect ScanSource, Inc.’s operations.