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Acquisitions | 12 Months Ended
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Jun. 30, 2011
Acquisitions |
Acquisitions |
(5) | Acquisitions
Algol Europe,GmbH On November 30, 2009, the Company acquired substantially all of the assets and certain liabilities of Algol Europe, GmbH ("Algol"). Algol, now a part of ScanSource Communications in the international distribution segment, is a value-added distributor of specialty technologies, including voice, data, and video communication products located in Cologne, Germany. This acquisition significantly expanded the footprint of the ScanSource Communications sales unit outside of the United Kingdom and is part of the Company's strategy to become a pan-European distributor of communication products. The purchase price of this acquisition was allocated to the assets acquired and the liabilities assumed based on their estimated fair values on the transaction date, resulting in goodwill and identifiable intangible assets related to non-compete agreements, distributor agreements and customer relationships as of November 30, 2009. These amounts were recorded in the international segment. All professional fees and other costs associated with the acquisition of Algol's assets were expensed as incurred. The purchase price, identified intangibles and goodwill as of the acquisition date were as follows:
|  |  | 0000000000 |  |  |  | 0000000000 |  |  |  | 0000000000 |
|  | Purchase price |  |  | Goodwill |  |  | Identifiable intangible assets |
|  | (in thousands) |
Algol Europe, GmbH |  | $ | 9,965 |  |  | $ | 712 |  |  | $ | 2,287 |
CDC Brasil, S.A. On April 15, 2011, the Company, through its wholly-owned subsidiary, ScanSource do Brasil Participações LTDA, completed its acquisition of 100% of the shares of CDC Brasil S.A., formerly known as CDC Brasil Distribuidora LTDA, Brazil's leading distributor of AIDC and point-of-sale solutions. CDC was a privately-held, value-added distributor that sells only to resellers. This acquisition gives the Company an established presence in South America's largest specialty technology market and will allow the Company to more easily scale its South American operations. The business valuation for the Company is incomplete as of the date of this filing. As such, the value assigned to identifiable intangible assets, the liability for the contingent consideration transferred to the sellers and goodwill are subject to change within the measurement period set forth in ASC 805. In 2011, the Company incurred approximately $1.1 million of acquisition-related costs, primarily for professional fees incurred for due diligence, legal advice and tax planning. These costs are included in selling, general and administrative expenses in the Company's 2011 Consolidated Income Statement. Under the Share Purchase and Sale Agreement, the Company structured the purchase transaction as an all cash share purchase with an initial payment of $36.2 million, net of cash acquired, and assumed working capital payables and debt at closing. The remaining purchase price will be paid in annual cash installments based upon the financial performance of CDC for the twelve month periods ended on June 30 from 2011 through 2015. At the acquisition date, the Company recorded the preliminary fair value of the contingent consideration at $24 million. As the valuation of the business is still in process, this amount is subject to change with a corresponding adjustment to goodwill. The estimated fair value of the liability for the contingent consideration recognized at June 30, 2011 was $23.8 million, of which an estimated $2.4 million is expected to be paid on August 31, 2011. The amount to be paid currently is recorded as "current portion of contingent consideration" in the Company's Consolidated Balance Sheet as of June 30, 2011. The U.S. dollar amounts of actual disbursements made in conjunction with future earnout payments are subject to change as the liability is denominated in Brazilian Real and subject to foreign exchange fluctuation risk. The remaining balance of $21.4 million is recorded in the "long-term portion of contingent consideration" line item on the Company's Consolidated Balance Sheet as of June 30, 2011. As the Company has not finalized its valuation of the contingent consideration, goodwill and the estimated fair value of the liability are subject to change in future filings within the purchase accounting measurement period as set forth in ASC 805. Although there is no contractual limit, total future, undiscounted contingent consideration payments can range between $2.4 million, which is the portion to be paid in August 2011, up to $52.1 million, based on the Company's best estimate as the earnout is based on a multiple of adjusted earnings as defined in the Share Purchase and Sale Agreement. Also in accordance with ASC 805, the Company will revalue the contingent consideration liability driven by the earnout at each reporting date through the last payment with changes in the fair value of the contingent consideration reflected in the "Selling, general and administrative expenses" line item on the Company's Consolidated Income Statement. The fair value of the contingent consideration liability associated with future earnout payments is based on several factors, including:
| • |  | estimated future results, net of pro forma adjustments;
| • |  | the probability of achieving these results; and
| • |  | a discount rate reflective of the Company's creditworthiness and market risk premium associated with the Brazilian market.
The change in fair value of the contingent consideration recognized in the Consolidated Financial Statements for the year ended June 30, 2011 was income of $0.2 million. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition for CDC and were recorded to the Company's international reporting segment:
|  |  | 000000000 |  |  |  | 000000000 |
|  | April 15, 2011 |
Consideration |  | (in thousands) |
Initial cash payment, net of cash acquired |  | $ | 36,228 |  |  |  |  |
Fair value of earnout obligation |  |  | 23,952 |  |  |  |  |
Total consideration |  |  |  |  |  | $ | 60,180 |
Recognized amounts of identifiable assets acquired and liabilities assumed |  |  |  |  |  |  |  |
Accounts receivable, net of allowance |  |  | 21,378 |  |  |  |  |
Inventories |  |  | 30,560 |  |  |  |  |
Prepaid expenses and other assets |  |  | 3,575 |  |  |  |  |
Deferred income taxes |  |  | 1,409 |  |  |  |  |
Property and equipment, net |  |  | 1,741 |  |  |  |  |
Intangible assets |  |  | 18,327 |  |  |  |  |
Other assets |  |  | 16,013 |  |  |  |  |
Short-term borrowings |  |  | (1,277 | ) |  |  |  |
Accounts payable |  |  | (34,006 | ) |  |  |  |
Accrued expenses and other liabilities |  |  | (3,896 | ) |  |  |  |
Income taxes payable |  |  | (2,097 | ) |  |  |  |
Other long-term liabilities |  |  | (16,190 | ) |  |  |  |
Total identifiable net assets |  |  |  |  |  |  | 35,537 |
Goodwill |  |  |  |  |  | $ | 24,643 |
The Company used a combination of the market, cost and income approaches to estimate the fair values of the CDC's assets acquired and liabilities assumed. The Company included an estimated $14.1 million in other long-term liabilities for contingent, indemnification liabilities for provincial and local tax liabilities that were identified in the Company's due diligence process. The Company is able to record equal and offsetting indemnification assets in other assets as the contingencies were escrowed in the Share Purchase and Sale Agreement. As part of the initial payment, the sellers place $27.4 million into a special and exclusive bank account to be released according to the specifications of the Share Purchase and Sale Agreement to provide for potential indemnification liabilities. However, indemnity claims can be made up to the purchase price. The estimated undiscounted range of indemnification assets and corresponding contingent liabilities is between $5.1 million and $22.9 million. CDC contributed revenues of approximately $29.6 million and net income of $0.7 million for the period of April 15, 2011 to June 30, 2011. CDC net income for the period includes approximately $0.1 million of acquisition-related costs as well as $0.7 million of incremental amortization expense related to the portion of the purchase price allocated to the identified intangible assets in the table below:
|  | Amount |
Indentified intangible assets |  | (in thousands) |
Trade names (2 year useful life) |  | $ | 2,746 |
Customer relationships (7 year useful life) |  |  | 14,687 |
Non-compete agreements (5 year useful life) |  |  | 894 |
Total identified intangible assets |  | $ | 18,327 |
The amounts recognized for the abovementioned intangible assets are preliminary and subject to change as the Company is still in process of finalizing its valuation of assets acquired and liabilities assumed. The weighted average amortization period is six years. The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on July 1, 2009 based on the preliminary purchase price allocation:
|  | June 30, |
|  | 2011 |  |  | 2010 |
Unaudited, Supplemental Pro Forma Information |  | (in thousand, except per share information) |
Net sales |  | $ | 2,786,905 |  |  | $ | 2,247,721 |
Net income |  | $ | 75,982 |  |  | $ | 53,232 |
Diluted earnings per share |  | $ | 2.79 |  |  | $ | 1.98 |
These pro forma amounts have been calculated after applying the Company's accounting policies and adjusting CDC's results to reflect the additional amortization that would have been recorded assuming the preliminary fair value of the identified intangibles had been recorded as of July 1, 2009. Also, the pro forma amounts reflect the acquisition-related costs incurred by the Company of approximately $1.1 million in 2011 as incurred in fiscal 2010.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141 -Paragraph 51, 52 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6909870&loc=d3e1500-128463 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6911361&loc=d3e7000-128479 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6911361&loc=d3e6927-128479 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6911361&loc=d3e7008-128479 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6909870&loc=d3e1490-128463 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6911361&loc=d3e6996-128479 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4922-128472 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4934-128472 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141R -Appendix F -Paragraph F4 -Subparagraph e Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4926-128472 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6909870&loc=d3e1383-128463 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6909870&loc=d3e1392-128463 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6909870&loc=d3e1497-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141R -Paragraph 67-73 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=6909870&loc=d3e1524-128463 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Emerging Issues Task Force (EITF) -Number 88-16 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6909870&loc=d3e1486-128463 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4845-128472 + Details
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