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SOMEONE FROM SCANSOURCE SALES OR MERCHANDISING In the 15 years since our founding in 1992, the employees of ScanSource, Inc. have built a strong legacy that continues to guide our company into the future. In the beginning, our mission was clear and precise: to help our manufacturer partners grow by bringing an unprecedented level of efficiency, logistics expertise and value-added services to an area of the technology marketplace that wasn’t currently served by our two-tier distribution model. And in the years since, that idea has served as ScanSource’s “Foundation for Growth” as we have moved from serving the Automatic Identification and Data Capture (AIDC) and Point-of-Sale (POS) markets into new technology segments such as Convergence, Security and Videoconferencing. Each time we bring our brand of distribution into a new technology market, we focus on the same core principles – offering fast, hasslefree delivery, maintaining a large inventory of the best-ofbreed products in the industry, recruiting new resellers to the market and providing them with comprehensive training, technical support, integration capabilities, marketing assistance and other value-added services to help them succeed. This is the foundation that has served our company so well for 15 years and that we believe will continue to offer new opportunities to ScanSource as we look to apply our model to new technologies in the future and expand our current technologies into new geographies. On behalf of all of the employees of ScanSource, Inc., I’m pleased to report that our company’s “Foundation for Growth” helped us once again deliver strong results in Fiscal Year 2007. ScanSource posted record net sales revenues of $1.99 billion this year, up 19% from $1.67 billion for the year ended June 30, 2006. In addition, net income rose to $42.6 million compared to $39.8 million for the previous year. And diluted earnings per share increased to $1.63, moving up from $1.53 per share in Fiscal Year 2006. “ Each time we bring our brand of distribution into a new technology market, we focus on the same core principles-offering fast, hassle-free delivery and maintaining a large inventory of the best-of-breed products in the industry so that our customers can always get what they want, when they want it. ” Mike Baur Chief Executive Officer ScanSource, Inc. page 6
The past year was one of significant progress for our company in a number of areas. We’re excited about two well-deserved promotions on our executive team that will have a significant impact on our future success. In June 2007, Scott Benbenek was named President of Worldwide Operations after serving as Executive Vice President, Corporate Operations, since 2002. Scott will oversee operations for all business units in all geographies under my direction and will be responsible for managing the company’s continued profit in all of its technology segments. In addition, Andrea Meade was promoted to Executive Vice President of Operations and Corporate Development after serving as Executive Vice President, Corporate Operations, since 2002. Both Scott and Andrea possess a wealth of distribution experience and are strategic leaders who will be critical to our growth in the future. Having them in these key positions gives our executive management team increased capacity and leadership. Additionally, our company is building on its “Foundation for Growth” in other ways that will prepare us for future success. In April 2007, we announced the planned relocation of our Memphis distribution center to a facility in Southaven, Mississippi, that will accommodate nearly 600,000 square feet with an optional additional 147,000 square feet of available expansion space – a considerable increase from the 367,000 square feet available in our current distribution center. The new location will be even closer to the Memphis airport and the major freight carrier hubs in the region and ensures that we will continue to have a large inventory that is ready to ship as our company grows. Also in April, we increased our multi-currency credit facility to $200 million under the same terms and conditions as our previous facility. This agreement gives us the flexibility to continue to grow our operations and make strategic investments for the future. Our Automatic Identification and Data Capture and Pointof-Sale business unit continues to take advantage of the many opportunities for growth through the increased adoption of new mobility solutions and other factors. Vendors are continuing to shift more business to the indirect channel, and we look for continued growth in these markets. We strengthened our line card in this segment in 2007, adding wireless solutions from Cisco to our product lineup. This new relationship gives our customers access to leading wireless network products, helping them stay on the leading edge and remain competitive in their offerings. The Catalyst Telecom and Paracon business units continue to deliver solid results, with new opportunities available through the emergence of Voice over IP (VoIP) in the convergence space. Catalyst introduced a comprehensive convergence education program, CommEdge, to help dealers take advantage of this growing technology. CommEdge includes training at sites throughout the country, plus an online web portal with a wide variety of resources for getting started. Paracon will benefit from the renewed focus of one of its leading vendors, which occurred when Eicon purchased the media and signaling business from Intel in October 2006 and re-branded the company as Dialogic. Dialogic is focused exclusively on creating world-class convergence products, and Paracon’s strong partnership with the company bodes well for the future. ScanSource Security continued its rapid growth rate this year, adding a host of new vendors to its line card, including Sony Electronics, Axis Communications, DSC and DVTel, among many others. The company is transforming the way security products are purchased and delivered. When ScanSource Security was founded in late 2004, the bulk of its sales were of card printer solutions, which had previously been part of the ScanSource line card. In the years since, ScanSource Security has experienced tremendous growth in the sales of traditional security products such as surveillance, intrusion and access control solutions, providing powerful evidence that our two-tier model is re-shaping the security marketplace and giving security dealers a viable option for faster delivery and expert logistics. $ 1.47 05 $ 1.67 06 $1.99 07 FiscalNet year ended Sales June 30 ($ in billions) page 7
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