FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-14625
TECH DATA CORPORATION
(Exact name of registrant as specified in its charter)
Florida No. 59-1578329
- ----------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5350 Tech Data Drive, Clearwater, Florida 33760
- ----------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(813) 539-7429
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
CLASS November 28, 1997
- ---------------------------------------- --------------------
Common stock, par value $.0015 per share 48,167,757
<PAGE>
TECH DATA CORPORATION AND SUBSIDIARIES
Form 10-Q For The Quarter Ended October 31, 1997
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet as of
October 31, 1997 (unaudited) and
January 31, 1997 3
Consolidated Statement of Income
(unaudited) for the three and nine
months ended October 31, 1997 and 1996 4
Consolidated Statement of Cash Flows
(unaudited) for the nine months
ended October 31, 1997 and 1996 5
Notes to Consolidated Financial Statements
(unaudited) 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
All items required in Part II have been previously filed, have
been included in Part I of this report or are not applicable for
the quarter ended October 31, 1997.
SIGNATURES 11
2
<PAGE>
<TABLE>
<CAPTION>
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
October 31, January 31,
1997 1997
---------- ----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,893 $ 661
Accounts receivable, less allowance for
doubtful accounts of $30,362 and $23,922 890,131 633,579
Inventories 1,014,684 759,974
Prepaid and other assets 68,118 55,796
---------- ----------
Total current assets 1,974,826 1,450,010
Property and equipment, net 82,877 65,597
Excess of cost over acquired net assets, net 46,995 5,922
Other assets, net 23,774 23,765
---------- ----------
$2,128,472 $1,545,294
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans $ 486,353 $ 396,391
Current portion of long-term debt 210 201
Accounts payable 1,006,808 658,732
Accrued expenses 89,048 42,693
---------- ----------
Total current liabilities 1,582,419 1,098,017
Long-term debt 8,737 8,896
---------- ----------
1,591,156 1,106,913
---------- ----------
Minority interest 10,576 -
---------- ----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.02; 226,500 shares
authorized and issued; liquidation
preference $.20 per share 5 5
Common stock, par value $.0015; 200,000,000 and
100,000,000 shares authorized; 44,449,580
and 43,291,423 issued and outstanding 67 65
Additional paid-in capital 253,784 226,577
Retained earnings 273,642 210,283
Cumulative translation adjustment (758) 1,451
---------- ----------
Total shareholders' equity 526,740 438,381
---------- ----------
$2,128,472 $1,545,294
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements
3
<PAGE>
<TABLE>
<CAPTION>
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Three months ended Nine months ended
October 31, October 31,
-------------------------- ------------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $2,021,479 $1,236,650 $4,943,445 $3,285,452
---------- ---------- ---------- ----------
Cost and expenses:
Cost of products sold 1,892,137 1,150,695 4,614,948 3,056,183
Selling, general and
administrative expenses 83,294 54,023 205,938 149,632
---------- ---------- ---------- ----------
1,975,431 1,204,718 4,820,886 3,205,815
---------- ---------- ---------- ----------
Operating profit 46,048 31,932 122,559 79,637
Interest expense 7,991 4,409 20,644 15,211
---------- ---------- ---------- ----------
Income before income taxes 38,057 27,523 101,915 64,426
Provision for income taxes 14,384 10,775 38,556 25,234
---------- ---------- ---------- ----------
Net income $ 23,673 $ 16,748 $ 63,359 $ 39,192
========== ========== ========== ==========
Net income per common share $ .51 $ .38 $ 1.39 $ .95
========== ========== ========== ==========
Weighted average common shares
outstanding 46,483 44,641 45,579 41,046
========== ========== ========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements
4
<PAGE>
<TABLE>
<CAPTION>
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine months ended
October 31,
-----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $4,782,338 $3,125,968
Cash paid to suppliers and employees (4,685,677) (3,215,839)
Interest paid (20,895) (15,197)
Income taxes paid (37,201) (29,521)
---------- ----------
Net cash provided by (used in) operating activities 38,565 (134,589)
---------- ----------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (53,668) -
Capital expenditures (24,430) (13,547)
---------- ----------
Net cash used in investing activities (78,098) (13,547)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock 17,953 94,761
Net borrowings under revolving credit loan 22,962 56,485
Principal payments on long-term debt (150) (438)
---------- ----------
Net cash provided by financing activities 40,765 150,808
---------- ----------
Net increase in cash and cash equivalents 1,232 2,672
Cash and cash equivalents at beginning of period 661 1,154
---------- ----------
Cash and cash equivalents at end of period $ 1,893 $ 3,826
========== ==========
Reconciliation of net income to net cash
provided by (used in) operating activities:
Net income $ 63,359 $ 39,192
---------- ----------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 18,749 14,451
Provision for losses on accounts receivable 19,555 14,534
(Increase) decrease in assets:
Accounts receivable (161,107) (159,484)
Inventories (167,710) (175,781)
Prepaid and other assets (6,212) (18,750)
Increase (decrease) in liabilities:
Accounts payable 262,076 146,110
Accrued expenses 9,855 5,139
---------- ----------
Total adjustments (24,794) (173,781)
---------- ----------
Net cash provided by (used in) operating activities $ 38,565 $ (134,589)
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these
financial statements.
5
<PAGE>
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of presentation
- ---------------------
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the financial position of Tech Data Corporation and subsidiaries
(the "Company") as of October 31, 1997, and the results of their operations and
cash flows for the three and nine months ended October 31, 1997 and 1996. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The results of operations for the nine months ended October 31,
1997 are not necessarily indicative of the results that can be expected for the
entire fiscal year ending January 31, 1998.
Acquisition
- -----------
On July 1, 1997 the Company acquired approximately 77% of the voting common
stock and 7% of the non-voting preferred stock of Macrotron AG ("Mactroton"), a
leading publicly held distributor of personal computer products based in Munich,
Germany. The initial acquisition was completed through an exchange of
approximately $26 million in cash and 406,586 shares of the Company's common
stock, for a combined total value of $35 million. On July 10, 1997, the Company
commenced a tender offer for the remaining shares of Macrotron common and
preferred stock at a price per share of DM730 and DM600, respectively. The
tender offer period ended on September 5, 1997. As of October 31, 1997, the
Company owned or had under option approximately 98% and 61% of Macrotron's
common and preferred stock, respectively. The cash portion of the initial
acquisition and the related tender offer were funded from the Company's
revolving credit loan agreements.
The acquisition of Macrotron will be accounted for under the purchase
method. Consistent with the Company's accounting policy for foreign
subsidiaries, Macrotron's operations will be consolidated into the Company's
consolidated financial statements on a calendar year basis. Consequently, the
Company's fiscal quarter ending October 31, 1997 includes Macrotron's operations
for the three month period beginning July 1, 1997 and ending September 30, 1997.
6
<PAGE>
The following pro forma unaudited results of operations reflects the effect
on the Company's operations, as if the above described acquisition had occurred
at the beginning of each of the periods presented below:
Nine months ended
October 31,
--------------------------------
1997 1996
---------- ------------
Net sales $5,510,678 $3,937,587
Net income $ 64,432 $ 40,569
Net income per common share $ 1.41 $ .98
The unaudited pro forma information is presented for information purposes
only and includes certain pro forma adjustments. Such pro forma information is
not necessarily indicative of the operating results that would have occurred had
the Mactrotron acquisition been consummated as of the beginning of the periods
above, nor are they necessarily indicative of future operating results.
Net income per common share
- ---------------------------
Net income per share of common stock is based on the weighted average
number of shares of common stock and common stock equivalents outstanding during
each period. Fully diluted and primary earnings per share are the same amounts
for each of the periods presented.
Subsequent event
- ----------------
In November 1997, the Company completed a public offering of 3.7 million
shares of its common stock resulting in net proceeds of approximately $149
million.
7
<PAGE>
TECH DATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Three Months Ended October 31, 1997 and 1996
- --------------------------------------------
Net sales increased 63.5% to $2.02 billion in the third quarter of fiscal
1998 compared to $1.24 billion in the third quarter last year. This increase is
attributable to the acquisition of Macrotron AG, the addition of new product
lines and the expansion of existing product lines combined with an increase in
the Company's market share. The Company's domestic sales increased 40% while
international sales advanced 271% in the third quarter of fiscal 1998 compared
to the prior year third quarter. The significant growth in the Company's
international sales is attributable to the acquisition of Macrotron AG, in which
the Company acquired a controlling interest on July 1, 1997. International sales
represented 23% of fiscal 1998 third quarter net sales compared to 10% for the
third quarter of fiscal 1997.
The cost of products sold as a percentage of net sales was 93.6% in the
third quarter of fiscal 1998, compared to 93.0% in the prior year. This increase
is the result of competitive market conditions and the Company's strategy of
lowering selling prices in order to gain market share and to pass on the benefit
of operating efficiencies to its customers.
Selling, general and administrative expenses increased 54.2% to $83.3
million in the third quarter of fiscal 1998 compared to $54.0 million last year
and as a percentage of net sales declined to 4.12%, compared to 4.37% in the
third quarter last year. The decline in selling, general and administrative
expenses as a percentage of sales in the third quarter of fiscal 1998 is
attributable to greater economies of scale realized by the Company in addition
to improved operating efficiencies. The dollar value increase is attributable to
the acquisition of Macrotron AG and the result of expanded employment and
increases in other operating expenses needed to support the increased volume of
business.
As a result of the factors described above, operating profit increased
44.2% to $46.0 million, or 2.3% of net sales, in the third quarter of fiscal
1998, compared to $31.9 million, or 2.6% of net sales for the third quarter last
year.
Interest expense increased in the third quarter of fiscal 1998 due to an
increase in the average outstanding indebtedness related to funding continued
growth and the acquisition of Macrotron AG.
The provision for income taxes increased 33.5% to $14.4 million in the
third quarter of fiscal 1998 compared to $10.8 million last year. This increase
is attributable to an increase in the Company's income before income taxes. The
Company's average income tax rate declined to 37.8% in the third quarter this
year compared with 39.1% in the prior year due to fluctuations in the amount
of federal, state and foreign taxable income reported in each period.
As a result of the factors described above, net income increased 41.3%
to $23.7 million, or $.51 per share, in the third quarter of fiscal 1998
compared to $16.7 million, or $.38 per share, in the prior year comparable
quarter.
8
<PAGE>
Nine Months Ended October 31, 1997 and 1996
- -------------------------------------------
Net sales increased 50.5% to $4.94 billion in the first nine months of
fiscal 1998 compared to $3.29 billion in the same period last year. Net income
for the nine month period this year was $63.4 million, or $1.39 per share, up
61.7% from the $39.2 million, or $.95 per share, in the same period last year.
(The underlying reasons for the fluctuations in the results of operations
for the nine months ended October 31, 1997 are substantially the same as in the
comparative quarterly discussion above and, therefore, will not be repeated
here).
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities of $38.6 million during the first
nine months of fiscal 1998 was primarily attributable to income from operations
$63.4 million combined with an increase in accounts payable, offset by increases
in accounts receivable and inventories.
Net cash used in investing activities of $78.1 million during the first
nine months of fiscal 1998 was attributable to the payment of $53.7 million
related to the acquisition of the common and preferred stock of Macrotron
combined with the Company's continuing investment of $24.4 million in its
management information systems, office facilities and its distribution center
facilities. The Company expects to make capital expenditures of approximately
$45 million during fiscal 1998 to further expand its management information
systems capability, office facilities and distribution centers.
Net cash provided by financing activities of $40.8 million during the first
nine months of fiscal 1998 reflects the net borrowings under the Company's
revolving credit loans of $23.0 million and proceeds from stock option exercises
(including the related income tax benefit) of $18.0 million.
The Company currently maintains domestic and foreign revolving credit
agreements which provide maximum short-term borrowings of approximately $980
million (including local country credit lines), of which $486 million was
outstanding at October 31, 1997. In November 1997, the Company completed a
public offering of 3.7 million shares of its common stock resulting in net
proceeds of approximately $149 million. The Company believes that proceeds from
the common stock offering, along with cash from operations, available and
obtainable bank credit lines, and trade credit from its vendors will be
sufficient to satisfy its working capital and capital expenditure needs through
fiscal 1998.
Asset Management
- ----------------
The Company manages its inventories by maintaining sufficient
quantities to achieve high order fill rates while attempting to stock only those
products in high demand with a rapid turnover rate. Inventory balances fluctuate
as the Company adds new product lines and when appropriate, makes large
purchases, including cash purchases from manufacturers and publishers when the
terms of such purchases are considered advantageous. The Company's contracts
with most of its vendors provide price protection and stock rotation privileges
to reduce the risk of loss due to manufacturer price reductions and slow moving
or obsolete inventory. In the event of a vendor price reduction, the Company
generally receives a credit for the impact on products in inventory. In
addition, the Company has the right to rotate a certain percentage of purchases,
subject to certain limitations. Historically, price protection and stock
rotation privileges, as well as the Company's inventory management procedures
have helped to reduce the risk of loss of carrying inventory.
9
<PAGE>
The Company attempts to control losses on credit sales by closely
monitoring customers' creditworthiness through evaluating detailed information
on customer payment history and other relevant information. In addition, the
Company participates in a national credit association which exchanges credit
information on mutual customers. The Company has credit insurance which insures
a percentage of the credit extended by the Company to international and certain
of its larger domestic customers against possible loss. Customers who qualify
for credit terms are typically granted net 30 day payment terms. The Company
also sells product on a prepay or credit card basis or through commercial
finance companies.
Recent Accounting Pronouncement
- -------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128")
which is effective for financial statements issued for periods ending after
December 15, 1997. SFAS 128 simplifies the previous standards for computing
earnings per share and requires the disclosure of basic and diluted earnings per
share. For the year ended January 31, 1997 and for the subsequent interim
periods reported, the amount reported as net income per common share is not
materially different than that which would have been reported for basic and
diluted earnings per share in accordance with SFAS 128.
Comments on Forward-Looking Information
- ---------------------------------------
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company filed a Form 8-K with the Securities
Exchange Commission (the "Commission") on March 26, 1996 outlining cautionary
statements and identifying important factors that could cause the Company's
actual results to differ materially from those projected in forward-looking
statements made by, or on behalf of, the Company. Such forward-looking
statements, as made within this Form 10-Q, should be considered in conjunction
with the information included within the aforementioned Form 8-K as well as the
Risk Factors included in the Company's registration statement on Form S-3 filed
with the Commission on October 2, 1997.
10
<PAGE>
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.
TECH DATA CORPORATION
(Registrant)
Signature Title Date
- --------- ----- ----
/s/ Steven A. Raymund Chairman of the Board of December 15, 1997
- --------------------- Directors and Chief
Steven A. Raymund Executive Officer
/s/ Jeffery P. Howells Executive Vice President December 15, 1997
- --------------------- of Finance and Chief Financial
Jeffery P. Howells Financial Officer (principal
financial officer)
/s/ Joseph B. Trepani Vice President and Worldwide December 15, 1997
- --------------------- Controller (principal accounting
Joseph B. Trepani officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Tech Data Corporation for the period ended October
31, 1997 and is qualified in its entirety by reference to such financial
statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-1-1997
<PERIOD-END> OCT-31-1997
<CASH> 1,893
<SECURITIES> 0
<RECEIVABLES> 920,493
<ALLOWANCES> 30,362
<INVENTORY> 1,014,684
<CURRENT-ASSETS> 1,974,826
<PP&E> 82,877
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,128,472
<CURRENT-LIABILITIES> 1,582,419
<BONDS> 8,737
0
5
<COMMON> 67
<OTHER-SE> 526,668
<TOTAL-LIABILITY-AND-EQUITY> 2,128,472
<SALES> 4,943,445
<TOTAL-REVENUES> 4,943,445
<CGS> 4,614,948
<TOTAL-COSTS> 4,820,886
<OTHER-EXPENSES> 205,938
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,644
<INCOME-PRETAX> 101,915
<INCOME-TAX> 38,556
<INCOME-CONTINUING> 63,359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,359
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
</TABLE>
