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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-14625
TECH DATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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FLORIDA NO. 59-1578329
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
5350 TECH DATA DRIVE, CLEARWATER, FL 33760
(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (727) 539-7429
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common stock, par value $.0015 per share.
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 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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of regulation S-K is not contained herein, and will not be contained
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 31, 1999: $1,080,900,000
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 MARCH 31, 1999
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Common stock, par value $.0015 per share 51,139,048
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Proxy Statement for use at the Annual Meeting of Shareholders
on June 22, 1999 is incorporated by reference in Part III of this Form 10-K to
the extent stated herein.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Tech Data Corporation ("Tech Data" or the "Company") was incorporated
in 1974 to market data processing supplies such as tape, disk packs, and custom
and stock tab forms for mini and mainframe computers directly to end users. In
1984, the Company began marketing certain of its products to the newly emerging
market of microcomputer dealers and had withdrawn entirely from end-user sales,
broadened its product line to include hardware products, and completed its
transition to a wholesale distributor. The Company has since continually
expanded its product lines, customer base and geographical presence.
On May 31, 1989, the Company entered the Canadian market through the
acquisition of a distributor subsequently named Tech Data Canada Inc. ("Tech
Data Canada"). Tech Data Canada serves customers in all Canadian provinces.
On March 24, 1994, the Company completed the non-cash exchange of
1,144,000 shares of its common stock for all of the outstanding capital stock
of Softmart International, S.A. (subsequently named Tech Data France, SNC)
("Tech Data France"), a privately-held distributor of personal computer
products based in Paris, France. Tech Data France is one of the largest
wholesale distributors of microcomputer products in France, representing
leading manufacturers and publishers such as Compaq, Hewlett-Packard, IBM,
Lotus and Microsoft.
To complement its Miami-based Latin American export business, the
Company opened a 33,000 square-foot distribution center near Sao Paulo, Brazil
in February 1997.
Tech Data expanded its European presence by acquiring a controlling
interest in Macrotron AG ("Macrotron"), a leading publicly held distributor of
personal computer products based in Munich, Germany, on July 1, 1997.
Macrotron's product line included such leading vendors as 3Com, Canon, Compaq,
Corel, Epson, Hewlett-Packard, IBM, Intel, Microsoft, Sony and Toshiba.
Approximately one year later, in July 1998, Tech Data completed the
acquisition of 83% of the voting common stock of Computer 2000 AG ("Computer
2000"), Europe's leading technology products distributor. With a presence in
significant geographic markets in Europe, the Middle East and Latin America, the
purchase of Computer 2000 propelled Tech Data's reach into over 30 countries
worldwide. As a result of this initial purchase, subsequent tender offer, open
market purchases and private purchase transactions, the Company currently owns
approximately 99.3% of Computer 2000's outstanding stock. Computer 2000's
product line includes such leading vendors as Apple, Cisco, Compaq, Epson,
Hewlett-Packard, IBM, Intel, Microsoft, 3Com, and Toshiba.
With technology reseller customers in Germany, Switzerland and
Austria, Computer 2000 had significant market overlap with Macrotron. As a
result of this overlap, as well as the challenge of integrating two large
competitors in the Germanic market, Tech Data chose to sell its majority
interest in Macrotron effective July 1, 1998. Tech Data owned 99% and 91% of
Macrotron's outstanding common and preferred stock, respectively, at the time of
the sale and recorded a $15.7 million pretax gain on the transaction (see Note 2
of Notes to Consolidated Financial Statements).
Tech Data Corporation is the world's second largest distributor of
microcomputer hardware and software products to value-added resellers ("VARs"),
corporate resellers, retailers, direct marketers and internet resellers
(collectively with VARs, "customers"). Tech Data distributes products
throughout the United States, Canada, the Caribbean, Latin America, Europe and
the Middle East. The Company purchases its products directly from more than
1,000 manufacturers of microcomputer hardware and publishers of software in
large quantities, maintains a stocking inventory of more than 75,000 products
and sells to an active base of over 100,000 customers. The Company's broad
assortment of vendors and products meets the customers' need for a cost
effective link to those vendors' products offered through a single source.
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The Company provides its customers with leading products including
systems, peripherals, networking and software, which accounted for 25%, 42%,
18% and 15%, respectively, of sales in fiscal 1999. The Company offers products
from manufacturers and publishers such as Cisco, Compaq, Creative Labs, Epson,
Hewlett-Packard, IBM, Intel, Iomega, Microsoft, Nortel Networks, Novell,
Okidata, Symantec, 3Com, Toshiba, Viewsonic and Western Digital. The Company
generally ships products the same day the orders are received from regionally
located distribution centers. The customers are provided with a high-level of
service through the Company's pre- and post-sale technical support, electronic
commerce tools (including on-line order entry, product configuration services
and electronic data interchange ("EDI") services), customized shipping
documents and flexible financing programs.
INDUSTRY
The wholesale distribution model, like that provided by the Company,
has proven to be well-suited for both manufacturers and publishers of
microcomputer products ("vendors") and resellers of those products. The large
number and diversity of resellers makes it cost efficient for vendors to rely
on wholesale distributors which can leverage distribution costs across multiple
vendors who outsource a portion of their distribution, credit, marketing and
support services. Similarly, due to the large number of vendors and products,
resellers often cannot or choose not to establish direct purchasing
relationships. Instead they rely on wholesale distributors, such as Tech Data,
which can leverage purchasing costs across multiple resellers to satisfy a
significant portion of their product procurement and delivery, financing,
marketing and technical support needs.
The Company believes that the rates of growth of the wholesale
distribution segment of the microcomputer industry and the Company continue to
outpace that of the microcomputer industry as a whole for three principal
reasons. First, as a result of the use of open systems and off-the-shelf
components, hardware and software products are increasingly viewed as
commodities. The resulting price competition coupled with rising selling costs
and shorter product life cycles, make it difficult for manufacturers and
publishers to efficiently sell directly to resellers and has prompted them to
rely on more cost-efficient methods of distribution. Second, resellers are
increasingly relying on wholesale distributors such as Tech Data for product
availability and flexible financing alternatives rather than stocking large
inventories themselves and maintaining credit lines to finance working capital
needs. Third, restrictions by certain major manufacturers on sales through
wholesale distributors were gradually eased commencing in 1991. Since the
beginning of 1995, the Company has been able to sell certain of those
manufacturers' products under more competitive terms and conditions
("open-sourcing"). Historically, these previously restricted product lines were
sold by master resellers, or aggregators, (whose business model was similar to
wholesale distributors, but focused on relatively few product lines) to a
network of franchise dealers. Open-sourcing has virtually eliminated any
advantage that these aggregators enjoyed as a result of the exclusive
arrangements. In addition, consolidation in the wholesale distribution industry
continues as economies of scale and access to financial resources become more
critical. Larger distributors, like the Company, that have been able to utilize
economies of scale to lower costs and pass on the savings to its customers in
the form of reduced prices have continued to take market share.
A number of emerging industry trends are providing new opportunities
and challenges for Tech Data. The advent of the direct sales model and other
industry developments has led many manufacturers and distributors to reevaluate
their business models. Leading systems manufacturers are introducing new
policies, processes, terms and conditions as part of their overall effort to
reduce costs and improve efficiency. Some manufacturers are moving toward
assemble-to-order business models instead of the traditional "build-to-
forecast" approach that requires forecasting market demand and manufacturing a
broad range of systems based on these projections. Under this model, systems
are assembled upon demand and shipped from distribution centers across the
world. The success of this new model will be driven by the extent to which
reseller and manufacturer partners embrace the model and choose to make changes
to their traditional way of doing business.
Consolidation represents a major industry trend in recent years as
many distributors have either exited the market or been purchased by larger
players. The Company believes that the dynamics of the wholesale distribution
industry favor the largest distributors, such as Tech Data, which have access
to financing and are able to achieve economies of scale and breadth of
geographic coverage.
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As resellers continue to seek ways to reduce costs and improve
efficiencies, distributors are responding with a variety of new value-added
services. Tech Data's ability to provide a "virtual warehouse" of products for
resellers means that they no longer need to hold inventory. Configuration and
assembly services can be employed to customize systems. Private Label Delivery
can ensure the product arrives at the customer as it if was shipped directly
from the reseller. The emergence of the Internet, and consequently Internet
resellers, has created one of the industry's fastest-growing business segments.
These resellers, which sell mainly on price and availability, present a new set
of challenges such as advanced use of electronic commerce capabilities.
The increasing utilization of electronic ordering and information
delivery systems, including the ability to transact business over the World
Wide Web has had and is expected to continue to have a significant impact on
the cost efficiency of the wholesale distribution industry. Distributors, such
as Tech Data, with the financial and technical resources to develop, implement
and operate state-of-the-art management information systems have been able to
reduce both their customers' and their own transaction costs through more
efficient purchasing and lower selling costs.
In summary, microcomputer distribution is experiencing rapid growth
and consolidation, creating an environment in which market share and the
resulting cost efficiencies are critical.
BUSINESS STRATEGY
Tech Data, as the world's second largest distributor of microcomputer
products, believes that its infrastructure and the size of its operation
position it to gain share in its current markets as well as continue its
expansion into new geographic markets. The Company's size and performance have
allowed it to make significant investments in personnel, management information
systems, distribution centers and other capital resources. The Company provides
a broad array of products and services for its resellers, which allows them to
satisfy their needs from a single source. The Company's competitive advantage
is the result of its low cost structure, investment in sophisticated management
information systems and its access to capital to finance growth.
To maintain and enhance its leadership position in wholesale
distribution, the Company's business strategy includes the following main
elements:
MAINTAIN LOW COST AND EFFICIENT OPERATIONS. The Company has
pursued a strategy of profitable revenue growth by providing its
customers with the benefit of operating efficiencies achieved through
centralized management and control, stringent cost controls and
automation. The Company strictly controls selling, general and
administrative expenses; utilizes its highly automated order placement
and processing systems to efficiently manage inventory and shipments
and to reduce transaction costs; and realizes economies of scale in
product purchasing, financing and working capital management. The
Company has been successful in reducing selling, general and
administrative expenses as a percentage of net sales from 6.81% for
the fiscal year ended January 31, 1992 to 4.27% for the fiscal year
ended January 31, 1999.
LEVERAGE MANAGEMENT INFORMATION SYSTEMS. In order to further
improve its operating efficiencies and services to its resellers, the
Company invested approximately $30 million in a scaleable,
state-of-the-art computer information system which was implemented in
December 1994. This system, which currently supports the Company's
U.S. and Canadian operations and Latin American export operations,
provides the Company operating efficiencies and allows the Company to
offer additional services such as expansion of its electronic commerce
capabilities, including electronic data interchange and order entry
over the Company's World Wide Web site. Electronic commerce generates
significant cost savings and operational efficiencies for Tech Data
and its customers. By the fourth quarter of fiscal 1999, approximately
25% of the Company's U.S. sales dollar volume originated from orders
received electronically over the Company's World Wide Web site or
other links such as EDI. The Company believes that growth in its
electronic commerce capabilities will provide incremental economies of
scale and further reduce transaction costs.
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OFFER A BROAD AND BALANCED PRODUCT MIX. The Company offers
its resellers a broad assortment of leading technology products.
Currently, the Company offers more than 75,000 products from more than
1,000 manufacturers and publishers. By offering a broad product
assortment, the Company can benefit from its resellers' objective to
procure product more efficiently by reducing the number of their
direct vendor relationships. The Company is continually broadening its
product assortment to ensure it provides its customers with the latest
technology products. The Company maintains a balanced product line of
systems, peripherals, networking products and software to minimize the
effects of fluctuation in supply and demand.
FOSTER CUSTOMER LOYALTY THROUGH SUPERIOR CUSTOMER SERVICE.
Tech Data's sales force provides superior customer service through a
dedicated team approach in order to differentiate itself from its
competitors and foster customer loyalty. The Company provides services
such as flexible customer financing and credit programs, a suite of
electronic commerce tools (including electronic order entry and access
to product specifications), pre- and post-sale technical support,
products configuration, customized shipping documents, flexible
product return policies and customer education programs. The Company
believes its strategy of not competing with its customer base also
promotes customer loyalty.
BROADEN GEOGRAPHIC COVERAGE THROUGH INTERNATIONAL EXPANSION.
The Company plans to take advantage of its strong financial position,
vendor relationships and distribution expertise to continue to expand
its business in the markets it currently serves and additional
markets. The Company's expansion strategy focuses on identifying
companies with significant market positions and quality management
teams in markets where there is developed or emerging demand for
microcomputer products. Following expansion into a new market, Tech
Data enhances its market share by providing capital, adding new
product lines, competitively pricing its products and delivering
value-added services. The Company's operations have expanded from its
North American focus to include Europe with the acquisition in 1994 of
France's largest wholesale microcomputer distributor. In February
1997, the Company continued its international expansion through the
development of an in-country subsidiary which stocks and distributes
products in Brazil. The Company's purchase of Computer 2000 AG,
Germany's largest distributor, in July 1998 established the Company as
the leading European distributor, as well as strengthened its position
in Latin America.
VENDOR RELATIONS
The Company's strong financial and industry positions have enabled it
to obtain contracts with most leading manufacturers and publishers. The Company
purchases products directly from more than 1,000 manufacturers and publishers,
generally on a nonexclusive basis. The Company's vendor agreements are believed
to be in the form customarily used by each manufacturer and typically contain
provisions which allow termination by either party upon 60 days notice.
Generally, the Company's supplier agreements do not require it to sell a
specified quantity of products or restrict the Company from selling similar
products manufactured by competitors. Consequently, the Company has the
flexibility to terminate or curtail sales of one product line in favor of
another product line as a result of technological change, pricing
considerations, product availability, customer demand and vendor distribution
policies. Such agreements generally contain stock rotation and price protection
provisions which, along with the Company's inventory management policies and
practices, reduce the Company's risk of loss due to slow-moving inventory,
vendor price reductions, product updates or obsolescence. Under the terms of
many distribution agreements, suppliers will credit the distributor for declines
in inventory value resulting from the supplier's price reductions if the
distributor complies with certain conditions. In addition, under many such
agreements, the distributor has the right to return for credit or exchange for
other products a portion of those inventory items purchased, within a designated
period of time. A supplier who elects to terminate a distribution agreement
generally will repurchase from the distributor the supplier's products carried
in the distributor's inventory. While the industry practices discussed above are
sometimes not embodied in agreements and do not protect the Company in all cases
from declines in inventory value, management believes that these practices
provide a significant level of protection from such declines. No assurance can
be given, however, that such practices will continue or that they will
adequately protect the Company against declines in inventory value. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset Management."
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Major computer systems manufacturers have begun to re-engineer their
manufacturing processes whereby final assembly will be performed at the
distribution level ("channel assembly") versus the current "build-to-forecast"
methodology employed by these manufacturers. Tech Data expanded its TDEnsemble
services over the past two years to include assemble-to-order capabilities on
behalf of its manufacturing partners, in addition to resellers, seeking custom
configuration of branded and unbranded systems. Tech Data was selected by
Compaq, Hewlett-Packard and IBM to participate in their respective channel
assembly initiatives. In addition to its own ISO 9002-certified centers in
South Bend, Indiana and Swedesboro, New Jersey, Tech Data now offers
custom-configuration at its FactoryDirect locations with Compaq in Houston,
Texas and IBM in Research Triangle Park, North Carolina.
In addition to providing manufacturers and publishers with one of the
largest bases of resellers in the United States, Canada, the Caribbean, Latin
America, Europe and the Middle East, the Company also offers manufacturers and
publishers the opportunity to participate in a number of special promotions,
training programs and marketing services targeted to the needs of its
resellers.
No single vendor accounted for more than 10% of the Company's net
sales during fiscal 1999, 1998 or 1997, except sales of Compaq products which
accounted for 13%, 13% and 12% of net sales in fiscal 1999, 1998 and 1997,
respectively, and sales of Hewlett-Packard products which accounted for 18% and
13% of net sales in fiscal 1999 and 1998, respectively.
CUSTOMERS, PRODUCTS AND SERVICES
The Company sells more than 75,000 microcomputer products including
systems, peripherals, networking and software purchased directly from
manufacturers and publishers in large quantities for sale to an active reseller
base of more than 100,000 VARs, corporate resellers, direct marketers,
retailers and Internet resellers.
The Company's VARs typically do not have the resources to establish a
large number of direct purchasing relationships or stock significant product
inventories. This market is attractive because VARs, which constituted
approximately 56% of Tech Data's net sales in fiscal 1999, generally rely on
distributors as their principal source of computer products and financing.
Corporate resellers, retailers, direct marketers and internet resellers may
establish direct relationships with manufacturers and publishers for their more
popular products, but utilize distributors as the primary source for other
product requirements and the alternative source for products acquired direct.
The Company's Tech Data Elect Program provides cost-plus pricing on certain
high volume products, primarily computer systems and printers, and other
special terms to target corporate resellers. Corporate resellers constituted
approximately 26% of the Company's net sales in fiscal 1999. Tech Data also has
developed special programs to meet the unique needs of retail, direct marketers
and internet resellers, which customers constituted approximately 18% of the
Company's net sales in fiscal 1999. No single customer accounted for more than
5% of the Company's net sales during fiscal 1999, 1998 or 1997.
The Company pursues a strategy of continually expanding its product
line to offer its customers a broad assortment of the latest technology
products. From time to time, the demand for certain products sold by the
Company exceeds the supply available from the manufacturer or publisher. The
Company then receives an allocation of the products available. Management
believes that the Company's ability to compete is not adversely affected by
these periodic shortages and the resulting allocations.
Tech Data provides resellers a high-level of service through the
Company's pre- and post-sale technical support, suite of electronic commerce
tools (including on-line order entry and EDI services), customized shipping
documents, product configuration services and flexible financing programs.
The Company delivers products throughout the United States, Canada,
the Caribbean, Latin America, Europe and the Middle East from its 35 regionally
located distribution centers. Locating distribution centers near its customers
enables the Company to deliver products on a timely basis, thereby reducing
customers' need to invest in inventory. See Item 2 Properties for further
discussion of the Company's locations and distribution centers.
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SALES AND ELECTRONIC COMMERCE
Currently, the Company's sales force consists of approximately 2,000
field and telemarketing sales representatives. Field sales representatives are
located in major metropolitan areas. Each field representative is supported by
inside telemarketing sales teams covering a designated territory. The Company's
team concept provides a strong personal relationship between representatives of
the customers and Tech Data. Territories with no field representation are
serviced exclusively by the inside telemarketing sales teams. Customers
typically call their inside sales teams on dedicated toll-free numbers or
contact the Company through various electronic methods to place orders. If the
product is in stock and the customer has available credit, customer orders are
generally shipped the same day from the distribution facility nearest the
customer.
Increasingly, customers rely upon the Company's electronic ordering
and information systems, in addition to its product catalogs and frequent
mailings as sources for product information, including prices. The Company's
on-line computer system allows the inside sales teams to check for current
stocking levels in each of the six United States distribution centers. Likewise,
inside sales teams in Canada, the Caribbean, Latin America, Europe and the
Middle East can check on stocking levels in their respective distribution
centers. Through "Tech Data On-Line", the Company's proprietary electronic
on-line system, U.S. customers can gain remote access to the Company's data
processing system to check product availability and pricing and to place an
order. Certain of the Company's larger customers have available EDI services
whereby orders, order acknowledgments, invoices, inventory status reports,
customized pricing information and other industry standard EDI transactions are
consummated on-line which improves efficiency and timeliness for both the
Company and the customers. In 1998, the Company launched order entry capability
over the Company's World Wide Web site. By the fourth quarter of fiscal 1999
approximately 25% of the Company's U.S. sales dollar volume originated from
orders received electronically and web orders were reaching approximately $2
million per day.
The Company provides comprehensive training to its field and inside
sales representatives regarding technical characteristics of products and the
Company's policies and procedures. In addition, the Company's ongoing training
program is supplemented by product seminars offered daily by manufacturers and
publishers.
COMPETITION
The Company operates in a market characterized by intense competition.
Competition within the industry is based on product availability, credit
availability, price, delivery and various services and support provided by the
distributor to the customer. The Company believes that it is equipped to
compete effectively with other distributors in these areas. Major competitors
include Ingram Micro, Inc. and CHS Electronics, Inc., as well as a variety of
smaller distributors. The only competitor larger than the Company is Ingram
Micro, Inc.
The Company also competes with manufacturers and publishers who sell
directly to resellers and end-users. The Company nevertheless believes that in
the majority of cases, manufacturers and publishers choose to sell products
through distributors rather than directly because of the relatively small
volume and high selling costs associated with numerous small orders. Management
also believes that the Company's prompt delivery of products and efficient
handling of returns provide an important competitive advantage over
manufacturers' and publishers' efforts to market their products directly.
EMPLOYEES
On January 31, 1999, the Company had approximately 8,240 employees
located as follows: United States - 3,600, Europe - 4,185, and all other regions
- - 455. Certain of the Company's employees in Europe are subject to collective
bargaining or similar arrangements. The Company considers its relations with its
employees to be good.
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FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company operates predominantly in a single industry segment as a
wholesale distributor of computer-based technology products and services. That
is, the principal markets, products and services and methods of distribution
from which each segment derives its revenues are essentially the same. The
principal geographical areas in which the Company operates are the United
States, Europe (including the Middle East) and Other International areas which
include Canada, Brazil, Argentina, Chile, Peru, Uruguay, and export sales to
Latin America and the Caribbean from the U.S. In 1999, 1998 and 1997, 45%, 23%
and 15%, respectively, of the Company's sales were derived from sales outside of
the U.S.
See Note 10 of Notes to Consolidated Financial Statements for further
information regarding the geographical distribution of the Company's net sales,
operating income and identifiable assets.
EXECUTIVE OFFICERS
STEVEN A. RAYMUND, CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF
EXECUTIVE OFFICER, age 43, has been employed by the Company since 1981, serving
as Chief Executive Officer since January 1986 and as Chairman of the Board of
Directors since April 1991. In 1998, Mr. Raymund was appointed Chairman of the
Computer 2000 Management Board. He has a B.S. Degree in Economics from the
University of Oregon and a Masters Degree from the Georgetown University School
of Foreign Service.
ANTHONY A. IBARGUEN, PRESIDENT AND CHIEF OPERATING OFFICER, age 39,
joined the Company in September 1996 as President of the Americas and was
appointed President and Chief Operating Officer in March 1997. In 1998, Mr.
Ibarguen was appointed to the Company's Board of Directors and to the
Supervisory Board of Computer 2000. Prior to joining the Company, he was
employed by ENTEX Information Services, Inc. from August 1993 to August 1996 as
Executive Vice President of Sales and Marketing. From June 1990 to August 1993,
he was employed by JWP, Inc. most recently as a Vice President. Mr. Ibarguen
holds a B.S. Degree in Marketing from Boston College and a Masters in Business
Administration Degree from Harvard University.
JEFFERY P. HOWELLS, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER, age 42, joined the Company in October 1991 as Vice President of
Finance and assumed the responsibilities of Chief Financial Officer in March
1992. In March 1993, he was promoted to Senior Vice President and Chief
Financial Officer and was promoted to Executive Vice President and Chief
Financial Officer in March 1997. In 1998, Mr. Howells was appointed to the
Company's Board of Directors and to the Supervisory Board of Computer 2000.
From June 1991 through September 1991 he was employed as Vice President of
Finance of Inex Vision Systems. From July 1979 to May 1991 he was employed by
Price Waterhouse. Mr. Howells is a Certified Public Accountant and holds a
B.B.A. Degree in Accounting from Stetson University.
NESTOR CANO, EXECUTIVE VICE PRESIDENT OF U.S. SALES AND MARKETING, age
35, joined the Company in July 1998 as a result of the Company's acquisition of
Computer 2000. In March 1999, he was appointed Executive Vice President of
U.S. Sales and Marketing. Prior to his appointment in the U.S., Mr. Cano served
in various management positions with Computer 2000 from 1989 to 1998, most
recently as Regional Managing Director of Spain and Portugal. Mr. Cano holds an
Engineering Degree from Barcelona University.
H. JOHN LOCHOW, EXECUTIVE VICE PRESIDENT OF INFORMATION TECHNOLOGY AND
LOGISTICS, age 46, joined the Company in February 1998 as Senior Vice President
and Chief Information Officer and in February 1999 was promoted to Executive
Vice President of Information Technology and Logistics. Prior to joining the
Company, he served as Chief Information Officer at Bell Canada and Chief
Executive of their international subsidiary Bell Sygma from 1996 to February
1998. From 1994 to 1996, he was employed by AT&T Capital Corporation as Vice
President of Systems and New Business Development and from 1989 to 1994 he was
employed by CNA Insurance Companies as Vice President of Systems. Mr. Lochow
holds a B.A. Degree in Mathematics from Thomas Edison University.
PEGGY K. CALDWELL, SENIOR VICE PRESIDENT OF MARKETING, age 53, joined
the Company in May 1992. Prior to joining the Company, she was employed by
International Business Machines Corporation for 25 years, most recently serving
in a variety of senior management positions in the National Distribution
Division. Ms. Caldwell holds a B.S. Degree in Mathematics and Physics from
Bucknell University. Ms. Caldwell retired from the Company on January 31, 1999.
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TIMOTHY J. CURRAN, SENIOR VICE PRESIDENT OF U.S. SALES, age 47, joined
the Company in April 1997. Prior to joining the Company, he was employed by
Panasonic Communications and Systems Company (including various other Panasonic
affiliates) from 1983 to 1997 serving in a variety of senior management
positions. Mr. Curran holds a B.A. Degree in History from the University of
Notre Dame and a Ph.D. in International Relations from Columbia University.
LAWRENCE W. HAMILTON, SENIOR VICE PRESIDENT OF HUMAN RESOURCES, age
41, joined the Company in August 1993 as Vice President of Human Resources and
was promoted to Senior Vice President in March 1996. Prior to joining the
Company, he was employed by Bristol-Myers Squibb Company from 1985 to August
1993, most recently as Vice President - Human Resources and Administration of
Linvatec Corporation (a division of Bristol-Myers Squibb Company). Mr. Hamilton
holds a B.A. Degree in Political Science from Fisk University and a Masters of
Public Administration, Labor Policy from the University of Alabama.
GERALD M. LABIE, SENIOR VICE PRESIDENT OF U.S. MARKETING, age 55,
joined the Company in November 1997 as President and Managing Director of
European Operations and was appointed Senior Vice President of U.S. Marketing
in February 1999. Prior to joining the Company, he was employed by Corporate
Software Inc. from 1989 to 1997, most recently serving in the role of Senior
Vice President and General Manager, Europe. Mr. Labie holds a B.A. Degree from
Alfred University.
YUDA SAYDUN, SENIOR VICE PRESIDENT AND GENERAL MANAGER - LATIN
AMERICA, age 46, joined the Company in May 1993 as Vice President and General
Manager - Latin America. In March 1997 he was promoted to Senior Vice President
and General Manager - Latin America. Prior to joining the Company, he was
employed by American Express Travel Related Services Company, Inc. from 1982 to
May 1993, most recently as Division Vice President, Cardmember Marketing. Mr.
Saydun holds a B.S. Degree in Political and Diplomatic Sciences from Universite
Libre de Bruxelles and a Masters of Business Administration Degree,
Finance/Marketing from U.C.L.A.
JOSEPH B. TREPANI, SENIOR VICE PRESIDENT AND CORPORATE CONTROLLER, age
38, joined the Company in March 1990 as Controller and held the position of
Director of Operations from October 1991 through January 1995. In February
1995, he was promoted to Vice President and Worldwide Controller and to Senior
Vice President and Corporate Controller in March 1998. Prior to joining the
Company, Mr. Trepani was Vice President of Finance for Action Staffing, Inc.
from July 1989 to February 1990. From 1982 to June 1989, he was employed by
Price Waterhouse. Mr. Trepani is a Certified Public Accountant and holds a B.S.
Degree in Accounting from Florida State University.
PATRICK O. CONNELLY, VICE PRESIDENT OF CREDIT SERVICES, age 53, joined
the Company in August 1994. Prior to joining the Company, he was employed by
Unisys Corporation for nine years as Worldwide Director of Credit. Mr. Connelly
holds a B.A. Degree in History and French from the University of Texas at
Austin.
CHARLES V. DANNEWITZ, VICE PRESIDENT OF TAXES, age 44, joined the
Company in February 1995. Prior to joining the Company, he was employed by
Price Waterhouse for 13 years, most recently as a Tax Partner. Mr. Dannewitz is
a Certified Public Accountant and holds a B.S. Degree in Accounting from
Illinois Wesleyan University.
ARTHUR W. SINGLETON, VICE PRESIDENT, TREASURER AND SECRETARY, age 38,
joined the Company in January 1990 as Director of Finance and was appointed
Treasurer and Secretary in April 1991. In February 1995, he was promoted to
Vice President, Treasurer and Secretary. Prior to joining the Company, Mr.
Singleton was employed by Price Waterhouse from 1982 to December 1989. Mr.
Singleton is a Certified Public Accountant and holds a B.S. Degree in
Accounting from Florida State University.
DAVID R. VETTER, VICE PRESIDENT AND GENERAL COUNSEL, age 40, joined
the Company in June 1993. Prior to joining the Company, he was employed by the
law firm of Robbins, Gaynor & Bronstein, P.A. from 1984 to June 1993, most
recently as a partner. Mr. Vetter is a member of the Florida Bar and holds a
B.A. Degree in English and Economics from Bucknell University and a J.D. Degree
from the University of Florida.
9
<PAGE> 10
ITEM 2. PROPERTIES
Tech Data's executive offices, are located in Clearwater, Florida.
The Company operates a total of 35 distribution centers to provide its
customers timely delivery of products. These distribution centers are located
in the following principal markets: U.S. - 6, Canada - 2, Latin America -5,
Europe - 21 and the Middle East - 1. In addition to the above distribution
centers, the Company operates two distribution facilities in the U.S. which are
located within the manufacturing facilities of Compaq and IBM in connection
with the Company's FactoryDirect program (see Vendor Relations). The Company
also operates training centers in nine cities in the U.S.
The facilities of the Company are substantially utilized, well
maintained and are adequate to conduct the Company's current business.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no matters submitted to a vote of security holders
during the last quarter of the fiscal year ended January 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's common stock is traded on the Nasdaq Stock Market under
the symbol TECD. The Company has not paid cash dividends since fiscal 1983. The
Board of Directors does not intend to institute a cash dividend payment policy
in the foreseeable future. The table below presents the quarterly high and low
sales prices for the Company's common stock as reported by The Nasdaq Stock
Market. The approximate number of shareholders as of January 31, 1999 was
30,000.
<TABLE>
<CAPTION>
Sales Price
----------------------
FISCAL YEAR 1999 High Low
--------- -------
<S> <C> <C>
Fourth quarter $44 1/2 $26 5/8
Third quarter 53 1/8 36 3/4
Second quarter 49 7/8 33 3/4
First quarter 50 5/8 36 1/8
FISCAL YEAR 1998
Fourth quarter $47 3/4 $34 1/8
Third quarter 51 3/4 36 1/4
Second quarter 39 15/16 22 7/8
First quarter 27 1/2 19 3/4
</TABLE>
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR FINANCIAL SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $11,528,999 $7,056,619 $4,598,941 $3,086,620 $2,418,410
----------- ---------- ---------- ---------- ----------
Cost and expenses:
Cost of products sold 10,801,126 6,590,873 4,277,160 2,867,226 2,219,122
Selling, general and
administrative expenses 492,542 293,108 206,770 163,790 127,951
----------- ---------- ---------- ---------- ----------
11,293,668 6,883,981 4,483,930 3,031,016 2,347,073
----------- ---------- ---------- ---------- ----------
Operating profit 235,331 172,638 115,011 55,604 71,337
Interest expense 44,988 29,908 21,522 20,086 13,761
Gain on the sale of Macrotron AG 15,700 -- -- -- --
----------- ---------- ---------- ---------- ----------
Income before income taxes 206,043 142,730 93,489 35,518 57,576
Provision for income taxes 76,215 52,816 36,516 13,977 22,664
----------- ---------- ---------- ---------- ----------
Income before minority interest 129,828 89,914 56,973 21,541 34,912
Minority interest 876 429 -- -- --
----------- ---------- ---------- ---------- ----------
Net income $ 128,952 $ 89,485 $ 56,973 $ 21,541 $ 34,912
=========== ========== ========== ========== ==========
Net income per common share:
Basic $ 2.59 $ 2.00 $ 1.39 $ .57 $ .92
=========== ========== ========== ========== ==========
Diluted $ 2.47 $ 1.92 $ 1.35 $ .56 $ .91
=========== ========== ========== ========== ==========
Weighted average common shares outstanding:
Basic 49,727 44,715 40,870 37,846 37,758
=========== ========== ========== ========== ==========
Diluted 54,161 46,610 42,125 38,138 38,258
=========== ========== ========== ========== ==========
Dividends per common share -- -- -- -- --
=========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Working capital $ 725,057 $ 537,381 $ 351,993 $ 201,704 $ 182,802
Total assets 3,844,987 2,185,383 1,545,294 1,043,879 784,429
Revolving credit loans 817,870 540,177 396,391 283,100 304,784
Long-term debt 308,521 8,683 8,896 9,097 9,682
Shareholders' equity 967,291 702,588 438,381 285,698 260,826
</TABLE>
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the percentage of cost and expenses to
net sales derived from the Company's Consolidated Statement of Income for each
of the three most recent fiscal years.
<TABLE>
<CAPTION>
Percentage of net sales
-----------------------------
Year ended January 31,
-----------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
----- ----- -----
Cost and expenses:
Cost of products sold 93.7 93.4 93.0
Selling, general and administrative expenses 4.3 4.2 4.5
----- ----- -----
98.0 97.6 97.5
----- ----- -----
Operating profit 2.0 2.4 2.5
Interest expense .4 .4 .5
Gain on sale of Macrotron AG .2 -- --
----- ----- -----
Income before income taxes 1.8 2.0 2.0
Provision for income taxes .7 .7 .8
----- ----- -----
Income before minority interest 1.1 1.3 1.2
Minority interest -- -- --
----- ----- -----
Net income 1.1% 1.3% 1.2%
===== ===== =====
</TABLE>
FISCAL YEARS ENDED JANUARY 31, 1999 AND 1998
Net sales increased 63.4% to $11.5 billion in fiscal 1999 compared to
$7.1 billion in the prior year. This increase is attributable to the
acquisition of Computer 2000 AG ("Computer 2000"), as well as the addition of
new product lines and the expansion of existing product lines. Sales for the
fiscal year ended January 31, 1999 include six months of results for Computer
2000, in which the Company acquired a controlling interest in July 1998, and
include six months of results for Macrotron AG, which was acquired in July 1997
and sold in July 1998. The Company's U.S., Europe and other international sales
grew 17.0%, 295.5% and 32.9%, respectively, in fiscal 1999 compared to the
prior year. The significant growth in the Company's international sales is
attributable to the acquisition of Computer 2000. Excluding the effect of
acquisitions and dispositions, sales growth rates in fiscal 1999 were
approximately 17%, 27% and 15% in the U.S., Europe and other international
areas, respectively. Total international sales in fiscal 1999 represent
approximately 45% of consolidated net sales compared with 23% in the prior
year.
The cost of products sold as a percentage of net sales increased from
93.4% in fiscal 1998 to 93.7% in fiscal 1999. This increase is a result of
competitive market prices 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 68.0% from
$293.1 million in fiscal 1998 to $492.5 million in fiscal 1999, and as a
percentage of net sales increased to 4.3% in fiscal 1999 from 4.2% in the prior
year. The increase in selling, general and administrative expenses is
attributable to the acquisitions of Macrotron and Computer 2000, increases in
amortization of intangibles as well as other operating expenses needed to
support the increased volume of business.
As a result of the factors described above, operating profit in fiscal
1999 increased 36.3% to $235.3 million, or 2.0% of net sales, compared to
$172.6 million, or 2.4% of net sales, in fiscal 1998. A factor contributing to
the decrease in the operating profit margin from 2.4% in fiscal 1998 to 2.0% in
fiscal 1999, was ongoing competitive pricing pressure experienced by the
Company in its U.S. business. Additionally contributing to this decrease was
the Company's more significant presence in Europe in fiscal 1999, principally
as a result of the Computer 2000 acquisition. Operating margins in Europe are
typically lower than the Company's U.S. business as a result of higher costs,
partially offset by better asset turnover.
Interest expense increased due to an increase in the Company's average
outstanding indebtedness related to funding the acquisition of Computer 2000,
funding for continued growth and capital expenditures. The increase in interest
expense was partially offset in fiscal 1999 by decreases in average short-term
interest rates on the Company's floating rate indebtedness.
12
<PAGE> 13
The Company's results of operations in fiscal 1999 include a pretax
gain of $15.7 million ($9.6 million net of income taxes) related to the July
1998 sale of Macrotron AG.
The Company's average income tax rate was 37.0% for fiscal 1999 and
fiscal 1998.
Net income in fiscal 1999 increased 44.1% to $129.0 million, or $2.47
per diluted share, compared to $89.5 million, or $1.92 per diluted share, in
the prior year. Excluding the gain on the sale of Macrotron, net income
increased 33.4% to $119.4 million, or $2.29 per diluted share.
FISCAL YEARS ENDED JANUARY 31, 1998 AND 1997
Net sales increased 53.4% to $7.1 billion in fiscal 1998 compared to
$4.6 billion in the prior 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 U.S. and international sales grew 39.1% and 134.6%
respectively, in fiscal 1998 compared to the prior year. 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. The Company's international sales in fiscal 1998 were approximately 23%
of consolidated net sales compared with 15% in the prior year.
The cost of products sold as a percentage of net sales increased from
93.0% in fiscal 1997 to 93.4% in fiscal 1998. This increase is a result of
competitive market prices 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 41.8% from
$206.8 million in fiscal 1997 to $293.1 million in fiscal 1998, and as a
percentage of net sales decreased to 4.2% in fiscal 1998 from 4.5% in the prior
year. This decline in selling, general and administrative expenses as a
percentage of net sales is attributable to greater economies of scale the
Company realized during fiscal 1998 in addition to improved operating
efficiencies. The dollar value increase in selling, general and administrative
expenses is attributable to the acquisition of Macrotron AG and the 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 in fiscal
1998 increased 50.1% to $172.6 million, or 2.4% of net sales, compared to
$115.0 million, or 2.5% of net sales, in fiscal 1997. A factor contributing to
the decrease in the operating profit margin from 2.5% in fiscal 1997 to 2.4% in
fiscal 1998 was the acquisition of Macrotron AG. Macrotron's operating model
employs a lower operating profit margin due to its higher asset turnover, as
compared to the Company's U.S. business.
Interest expense increased due to an increase in the Company's average
outstanding indebtedness related to funding continued growth, the acquisition
of Macrotron AG and capital expenditures. The increase in interest expense was
partially offset in fiscal 1998 by decreases in short-term interest rates on
the Company's floating rate indebtedness and by the receipt of net proceeds of
approximately $149 million from the Company's November 1997 common stock
offering which were used to reduce indebtedness.
The Company's average income tax rate declined to 37.0% for fiscal
1998 as compared to 39.1% for fiscal 1997. This reduction primarily is the
result of a larger portion of the Company's income being subject to lower state
income tax jurisdictions.
Net income in fiscal 1998 increased 57.1% to $89.5 million, or $1.92
per diluted share, compared to $57.0 million, or $1.35 per diluted share, in
the prior year.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of position ("SOP") 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" effective for fiscal years
beginning after December 15, 1998. The Company has elected early
13
<PAGE> 14
implementation of provisions of SOP 98-1 effective for the year ended
January 31, 1999. This statement requires capitalization of certain costs
relating to computer software developed or obtained for internal use. The
impact of adoption was not material to the Company's consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). This statement requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if so, the type of the hedge transaction. The ineffective
portion of all hedge transactions will be recognized in the current-period
earnings. SFAS 133 is effective for fiscal years beginning after June 15, 1999.
The future impact of this statement on the Company's results of operations is
not expected to be material.
IMPACT OF INFLATION
The Company has not been adversely affected by inflation as
technological advances and competition within the microcomputer industry has
generally caused prices of the products sold by the Company to decline.
Management believes that any price increases could be passed on to its
customers, as prices charged by the Company are not set by long-term contracts.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities of $43.5 million in fiscal
1999 was primarily attributable to income from operations of $129.0 million
combined with an increase in accounts payable partially offset by increases in
accounts receivable and inventories.
Net cash provided by investing activities of $60.2 million in fiscal
1999 was attributable to receipt of $227.8 million in proceeds from the sale of
Macrotron (see Note 9 of Notes to Consolidated Financial Statements) offset by
$115.0 million related to the acquisition of Computer 2000 and the Company's
continuing investment of $47.8 million in its management information systems,
office facilities and its distribution center facilities and $4.9 million in
software development costs. The Company expects to make capital expenditures of
approximately $75 - $100 million during fiscal 2000 to further expand its
management information systems, office facilities and distribution centers.
Net cash used in financing activities of $97.8 million in fiscal 1999
reflects the net repayments under the Company's revolving credit loans of
$114.1 million partially offset by proceeds from stock option exercises
(including the related income tax benefit) of $16.5 million.
The Company currently maintains domestic and foreign revolving credit
agreements which provide maximum short-term borrowings of approximately $1.35
billion (including local country credit lines), of which $818 million was
outstanding at January 31, 1999. The Company believes that 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 2000.
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.
14
<PAGE> 15
The Company attempts to control losses on credit sales by closely
monitoring customers' creditworthiness through its computer system which
contains detailed information on each customer's payment history and other
relevant information. The Company has obtained credit insurance which insures a
percentage of the credit extended by the Company to certain of its larger
domestic and international customers against possible loss. Customers who
qualify for credit terms are typically granted net 30-day payment terms. The
Company also sells products on a prepay, credit card, cash on delivery and
floorplan basis.
YEAR 2000
Introduction
The "Year 2000 Problem" arose because many existing computer programs
use only the last two digits to refer to a year. Therefore, these computer
programs do not properly recognize a year that begins with "20" instead of the
familiar "19." If not corrected, many computer applications could fail or
create erroneous results. The problems created by using abbreviated dates
appear in hardware (such as microchips), operating systems and other software
programs. The Company's Year 2000 ("Y2K") compliance project is intended to
determine the readiness of the Company's business for the Year 2000. The
Company defines Y2K "compliance" to mean that the computer code will process
all defined future dates properly and give accurate results.
Description of Areas of Impact and Risk
The Company has identified four areas where the Y2K problem creates
risk to the Company. These areas are: a) internal Information Technology ("IT")
systems; b) non-IT systems with embedded chip technology; c) system
capabilities of third party businesses with relationships with the Company,
including product suppliers, customers, service providers (such as telephone,
power, logistics, financial services) and other businesses whose failure to be
Y2K compliant could have a material adverse effect on the Company's business,
financial condition or results of operations; and d) product liability claims
arising out of the non-performance of computer products distributed by the
Company.
Plan to Address Year 2000 Compliance
In August 1997, the Company formed a Year 2000 compliance project team
and began developing an overall plan to address Y2K readiness issues. This plan
includes five phases as follows: Phase I is to create an inventory of the
Company's IT systems, non-IT systems and service providers (each of these being
referred to as "business components") that need to be analyzed for Y2K
compliance. During Phase I, a priority is established so that the Company will
first address the most important business components to determine Y2K
readiness. Phase II analyzes the identified business components to determine
which of the business components in the inventory require additional effort to
be Y2K compliant. Phase III is the repair, modification or replacement of
business components which the analysis determines are not Y2K compliant
("remediation"). Phase IV consists of various types of testing to confirm that
the remediation process has resulted in the business components being Y2K
compliant. Phase V is the development of contingency plans to address potential
risks that the Y2K compliance project may not fully address.
State of Readiness
IT Systems - U.S. and Canada - The Company is in Phase III and Phase IV
of the Year 2000 project overall. As testing and remediation progress, the
inventory and test plans are refined. Approximately 76% of all identified IT
system business components in the U.S. have been deemed to be Y2K compliant as
of April 15, 1999 with analysis of the remaining 24% continuing. Of the 24%
remaining, remediation will be completed by re-writing and upgrading key
software application systems to incorporate Y2K compliance.
Functional testing of individual components of the Company's business
critical applications has been completed. Fully integrated tests of these
individual components will continue with completion targeted in September 1999.
Completion of full integration testing has moved from July to September in
order to provide adequate time to complete all remediation of business critical
applications outside the mainframe environment and the technology refresh
described in the next paragraph.
15
<PAGE> 16
The expected completion of the testing and remediation of the
Company's desktop hardware and software systems is October 1999. The Company is
addressing the Y2K compliance of these systems by acceleration of a previously
planned desktop technology refresh during which systems that are not Y2K
compliant will be replaced. Internal resources have been reallocated and
external resources have been secured to address these issues by the planned
completion dates. Full integration testing can be completed only after the
applications and systems outside the mainframe environment have also been
remediated.
The on-line portion of the DCS software system (the Company's system
performing the primary business functions of sales order entry, billing,
purchasing, distribution and inventory control) has been determined to be
compliant for the following dates: January 1, February 29, December 31, 2000.
Remaining batch processing portions of the DCS system is still in progress.
User acceptance testing for all portions of the DCS system is targeted to begin
June 1999. In addition to the Company's internal resources, outside consultants
have been secured to focus exclusively on the DCS environment.
IT Systems - Outside the U.S. and Canada - The Company's subsidiaries
located outside of the U.S. and Canada are currently focusing on Phase III and
Phase IV tasks of the Year 2000 project. As of March 29, 1999, approximately
59% of the identified critical business components of all countries have been
determined to be Y2K compliant. Each country is separately reporting on its
progress, with central coordination and management provided by the Y2K
compliance project team.
For the subsidiaries of Computer 2000 ("C2000"), country locations are
divided into two core areas: those using the SAP R/2 system (the Company's
system performing the primary business functions of sales, order entry,
billing, purchasing, distribution and inventory control) and those that use
other systems to provide these business processes. The majority of the
countries use the SAP R/2 system. The version of SAP R/2 in use by C2000, has
received certification from TUV, a German governmental independent testing
authority, that it is Y2K compliant. C2000 is testing these elements and the
custom modifications it has to the system, with completion of this testing
scheduled for completion in September 1999. This testing incorporates related
subsystems and key client/server and desktop systems.
For those countries using non SAP R/2 systems, conversion to SAP R/2
or upgrades to a compliant system are being implemented or the system is being
determined to be Y2K compliant by certification by the vendor and internal
C2000 testing. In France, the Company is consolidating the operations of its
Tech Data subsidiary with C2000's subsidiary. As part of this consolidation,
SAP R/2 systems will be replaced with currently existing enterprise systems
that are not Y2K compliant. For this reason, additional project phases have
been identified which will require the conversion of operations in France to a
single, Y2K compliant, enterprise system. Conversion of this system is
scheduled to begin in July 1999.
Non-IT systems - The non-IT systems (devices which store and report
date-related information, such as access control systems, elevators, conveyors
and other items containing a microprocessor or internal clock) are utilizing the
phased plan approach for the IT systems. Phase I inventory and prioritization
has been completed for non-IT systems in the U.S., and in connection with the
Company's acquisition of Computer 2000 is currently being conducted in the
Company's worldwide locations. Phase II analysis is being performed on systems
material to the Company's operations with the assistance of the Company's
vendors, with completion expected in July 1999. Implementation of Phases III and
IV will continue through August 1999. The Company currently plans to complete
the Y2K compliance program for all material non-IT systems by the end of October
1999.
Material Third Parties - The Company relies on third party suppliers
for many systems, products and services. The Company will be adversely affected
if these third parties are not Y2K compliant. The Company continues to solicit,
receive and review responses to surveys sent to those third parties determined
to be material to the operations of the Company to determine their Y2K
readiness. For those critical third parties that fail to respond to the
Company's survey, the Company is pursuing alternative means of obtaining Y2K
readiness information and is conducting reviews of publicly available
information published by such third parties.
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<PAGE> 17
Product Liability - The Company does not make any representations or
warranties that the products it distributes are or will be Y2K-ready or
compliant. In certain countries where the Company or its subsidiaries
distribute products, the Company may have an obligation to accept returns of
products, which fail because the product is not Y2K ready. In most cases, these
returns may be passed on to the manufacturer. In those countries where product
return obligations may exist, the Company plans to carefully review
manufacturer representations regarding products that are sold in material
volumes by the Company or its subsidiaries.
Cost of Project
The Company has incurred approximately $3.1 million through January 31,
1999 on the Y2K compliance effort, excluding compensation and benefit costs for
associates who do not work full-time on the Y2K project and costs of systems
upgrades that would have normally been made on a similar timetable. The overall
cost of the Y2K compliance effort cannot be accurately estimated until all
inventory and analysis phases associated with the recent acquisition of Computer
2000 have been completed, however, the Company believes the costs will be
approximately $9.1 million.
Contingency Planning and Risks
The Company has begun contingency planning for some of its critical
applications and will be developing additional contingency plans as testing
determines the necessity. While the Company believes that its approach to Y2K
readiness is sound, it is possible that some business components are not
identified in the inventory, or that the scanning or testing process does not
result in analysis and remediation of all source code. The Company will assume
a third party is not Y2K ready if no survey response or an inadequate survey
response is received. The Company's contingency plan will address alternative
providers and processes to deal with business interruptions that may be caused
by internal system or third party providers failure to be Y2K ready to the
extent it is possible.
The failure to correct a material Y2K problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failure could materially and adversely affect the Company's
operations and therefore, could materially and adversely affect the Company's
results of operations, liquidity and financial condition. In addition, the
Company's operating results could be materially adversely affected if it were
to be held responsible for the failure of any products sold by the Company to
be Y2K ready despite the Company's disclaimer of product warranties and the
limitation of liability contained in its sales terms and conditions.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the
European Union commenced a conversion from their existing sovereign currencies
to a new, single currency called the euro. Fixed conversion rates between the
existing currencies, the legacy currencies, and the euro were established and
the euro became the common legal currency of the participating countries on
this date. The euro now trades on currency exchanges and is available for
non-cash transactions. The participants will now issue sovereign debt
exclusively in euro and have redenominated all outstanding sovereign debt.
Following this introduction period, the participating members legacy currencies
will remain legal tender as denominations of euro until January 1, 2002. At
that time, countries will issue new euro-denominated bills for use in cash
transactions. All legacy currency will be withdrawn prior to July 1, 2002
completing the euro conversion on this date. As of January 1, 1999, the
participating countries no longer control their own monetary policies by
directing independent interest rates for the legacy currencies, and instead,
the authority to direct monetary policy, including money supply and official
interest rates for the euro, is exercised by the new European Central Bank.
The Company has implemented a plan to address the issues raised by the
euro conversion. These issues include, but are not limited to; the competitive
impact created by cross-border price transparency; the need for the Company and
its business partners to adapt IT and non-IT systems to accommodate
euro-denominated transactions; and the need to analyze the legal and
contractual implications of the Company's contracts. The Company currently
anticipates that the required modifications to its systems, equipment and
processes will be made on a timely basis and does not expect that the costs of
such modifications will have a material effect on the Company's financial
position or results of operations.
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<PAGE> 18
Since the implementation of the euro on January 1, 1999, the Company
has experienced improved efficiencies in its cash management program in Europe
and has been able to reduce certain hedging activities as a direct result of
the conversion. The Company has not experienced any material adverse effects on
its financial position or results of operations in connection with the initial
roll-out of the euro currency.
MARKET RISK
The Company is exposed to the impact of foreign currency fluctuations
and interest rate changes due to its international sales and global funding. In
the normal course of business, the Company employs established policies and
procedures to manage its exposure to fluctuations in the value of foreign
currencies and interest rates using a variety of financial instruments. It is
the Company's policy to utilize financial instruments to reduce risks where
internal netting cannot be effectively employed. It is the Company's policy not
to enter into foreign currency or interest rate transactions for speculative or
trading purposes.
In addition to product sales and costs, the Company has foreign
currency risk related to debt that is denominated in currencies other than the
dollar and cross-currency swaps hedging intercompany debt. The Company's
foreign currency risk management objective is to protect its earnings and cash
flows resulting from sales, purchases and other transactions from the adverse
impact of exchange rate movements. Foreign exchange risk is managed by using
forward, option and swap contracts to hedge intercompany loans, receivables and
payables. Hedged transactions are denominated primarily in Belgian Franc,
Danish Krone, French Franc, Spanish Peseta, Finnish Markka, Norwegian Krone,
German Mark, Swedish Krona, Swiss Franc and British Pound.
The Company is exposed to changes in interest rates primarily as a
result of its short and long-term debt used to maintain liquidity and finance
inventory, capital expenditures and business expansion. Interest rate risk is
also present in the cross-currency swaps hedging intercompany and third-party
loans. The Company's interest rate risk management objective is to limit the
impact of interest rate changes on earnings and cash flows and to lower overall
borrowing costs. To achieve its objectives the Company uses a combination of
fixed- and variable-rate debt. As of January 31, 1999, approximately 49% of the
outstanding debt had fixed interest rates. The Company finances working capital
needs through various bank loans and commercial paper programs.
Foreign exchange and interest rate risk and related derivatives use is
monitored using a variety of techniques including periodic reviews of market
value and sensitivity analyses. The Company's computations are based on
interrelationships between currencies and interest rates. These
interrelationships are determined by observing foreign currency market changes
and interest rate changes over the preceding 90 days. The value of foreign
currency options does not change on a one-to-one basis with changes in the
underlying currency rate. The model includes all of the Company's forwards,
options and interest rate swaps. The Company believes that the hypothetical
fluctuation in fair value of its derivatives would be offset by
increases/decreases in the value of the underlying transactions being hedged.
COMMENTS ON FORWARD-LOOKING INFORMATION
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company has filed an Exhibit 99A
which outlines cautionary statements and identifies 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 Items 1 and 7 of this Form
10-K, should be considered in conjunction with the aforementioned Exhibit 99A.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants 20
Report of Management 20
Consolidated Balance Sheet at January 31, 1999 and 1998 21
Consolidated Statement of Income for the three years ended January 31, 1999 22
Consolidated Statement of Changes in Shareholders' Equity for the
three years ended January 31, 1999 22
Consolidated Statement of Cash Flows for the three years ended January 31, 1999 23
Notes to Consolidated Financial Statements 24
FINANCIAL STATEMENT SCHEDULE
Report of Independent Certified Public Accountants on Financial Statement Schedule 41
Schedule II. -- Valuation and qualifying accounts 42
</TABLE>
All schedules and exhibits not included are not applicable, not
required or would contain information which is shown in the financial statements
or notes thereto.
19
<PAGE> 20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Tech Data Corporation:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of changes in shareholders' equity
and of cash flows present fairly, in all material respects, the financial
position of Tech Data Corporation and its subsidiaries at January 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended January 31, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
March 19, 1999
REPORT OF MANAGEMENT
To Our Shareholders:
The management of Tech Data Corporation is responsible for the
preparation, integrity and objectivity of the consolidated financial statements
and related financial information contained in this Annual Report. The
financial statements have been prepared by the Company in accordance with
generally accepted accounting principles and, in the judgment of management,
present fairly and consistently the Company's financial position and results of
operations. The financial statements and other financial information in this
report include amounts that are based on management's best estimates and
judgments and give due consideration to materiality.
The Company maintains a system of internal accounting controls to
provide reasonable assurance that assets are safeguarded and that transactions
are executed in accordance with management's authorization and recorded
properly to permit the preparation of financial statements in accordance with
generally accepted accounting principles. The design, monitoring and revisions
of the system of internal accounting controls involves, among other things,
management's judgment with respect to the relative cost and expected benefits
of specific control measures.
The Audit Committee of the Board of Directors is responsible for
recommending to the Board the independent certified public accounting firm to
be retained each year. The Audit committee meets periodically with the
independent accountants and management to review their performance and confirm
that they are properly discharging their responsibilities. The independent
accountants have direct access to the Audit Committee to discuss the scope and
results of their work, the adequacy of internal accounting controls and the
quality of financial reporting.
<TABLE>
<S> <C>
/s/ Steven A. Raymund /s/ Jeffery P. Howells
STEVEN A. RAYMUND JEFFERY P. HOWELLS
Chairman of the Board of Directors Executive Vice President
and Chief Executive Officer and Chief Financial Officer
March 19, 1999
</TABLE>
20
<PAGE> 21
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
January 31,
--------------------------
1999 1998
---------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,615 $ 2,749
Accounts receivable, less allowance
of $60,521 and $29,731 1,796,045 909,426
Inventories 1,369,351 1,028,367
Prepaid and other assets 113,952 65,843
---------- ----------
Total current assets 3,287,963 2,006,385
Property and equipment, net 126,537 100,562
Excess of cost over acquired net assets, net 345,326 55,460
Other assets, net 85,161 22,976
---------- ----------
$3,844,987 $2,185,383
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans $ 817,870 $ 540,177
Accounts payable 1,503,866 850,866
Accrued expenses 241,170 77,961
---------- ----------
Total current liabilities 2,562,906 1,469,004
Long-term debt 308,521 8,683
---------- ----------
Total liabilities 2,871,427 1,477,687
---------- ----------
Minority interest 6,269 5,108
---------- ----------
Commitments and contingencies (Note 9)
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
shares authorized; 51,098,442
and 48,250,349 issued and outstanding 77 72
Additional paid-in capital 505,385 403,880
Retained earnings 428,720 299,768
Cumulative translation adjustment 33,104 (1,137)
---------- ----------
Total shareholders' equity 967,291 702,588
---------- ----------
$3,844,987 $2,185,383
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
21
<PAGE> 22
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended January 31,
-------------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Net sales $11,528,999 $7,056,619 $4,598,941
----------- ---------- ----------
Cost and expenses:
Cost of products sold 10,801,126 6,590,873 4,277,160
Selling, general and administrative expenses 492,542 293,108 206,770
----------- ---------- ----------
11,293,668 6,883,981 4,483,930
----------- ---------- ----------
Operating profit 235,331 172,638 115,011
Interest expense 44,988 29,908 21,522
Gain on sale of Macrotron AG 15,700 -- --
----------- ---------- ----------
Income before income taxes 206,043 142,730 93,489
Provision for income taxes 76,215 52,816 36,516
----------- ---------- ----------
Income before minority interest 129,828 89,914 56,973
Minority interest 876 429 --
----------- ---------- ----------
Net income $ 128,952 $ 89,485 $ 56,973
=========== ========== ==========
Net income per common share:
Basic $ 2.59 $ 2.00 $ 1.39
=========== ========== ==========
Diluted $ 2.47 $ 1.92 $ 1.35
=========== ========== ==========
Weighted average common shares outstanding:
Basic 49,727 44,715 40,870
=========== ========== ==========
Diluted 54,161 46,610 42,125
=========== ========== ==========
</TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Preferred Stock Common Stock Additional Other Total
--------------- ---------------- Paid-In Retained Comprehensive Shareholders'
Shares Amount Shares Amount Capital Earnings Income Equity
------ ------ ------ ------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 31, 1996 227 $5 37,931 $57 $130,045 $153,310 $ 2,281 $285,698
Issuance of common stock for stock
options exercised and related tax
benefit 1 13,223 13,224
760
Issuance of common stock net of
offering costs 4,600 7 83,309 83,316
Comprehensive Income 56,973 (830) 56,143
---- -- ------ --- -------- -------- ------- --------
Balance - January 31, 1997 227 5 43,291 65 226,577 210,283 1,451 438,381
Issuance of common stock in business
purchase 407 1 9,255 9,256
Issuance of common stock for stock
options exercised and related tax
benefit 861 1 19,077 19,078
Issuance of common stock net of
offering costs 3,691 5 148,971 148,976
Comprehensive Income 89,485 (2,588) 86,897
---- -- ------ --- -------- -------- ------- --------
Balance - January 31, 1998 227 5 48,250 72 403,880 299,768 (1,137) 702,588
Issuance of common stock in
business purchase 2,196 3 84,964 84,967
Issuance of common stock for stock
options exercised and related tax
benefit 652 2 16,541 16,543
Comprehensive Income 128,952 34,241 163,193
---- -- ------ --- -------- -------- ------- --------
Balance - January 31, 1999 227 $5 51,098 $77 $505,385 $428,720 $33,104 $967,291
==== == ====== === ======== ======== ======= ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
22
<PAGE> 23
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 11,094,731 $ 6,870,096 $ 4,390,916
Cash paid to suppliers and employees (10,948,414) (6,914,537) (4,513,309)
Interest paid (39,926) (29,909) (21,122)
Income taxes paid (62,895) (51,949) (45,037)
------------ ----------- -----------
Net cash provided by (used in) operating activities 43,496 (126,299) (188,552)
------------ ----------- -----------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (115,000) (68,136) --
Sale of Macrotron AG 227,843 -- --
Expenditures for property and equipment (47,796) (45,900) (19,229)
Software development costs (4,856) (2,216) (2,024)
------------ ----------- -----------
Net cash provided by (used in) investing activities 60,191 (116,252) (21,253)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 16,543 168,054 96,540
Net borrowings (repayments) from revolving credit loans (114,151) 76,786 113,291
Principal payments on long-term debt (213) (201) (519)
------------ ----------- -----------
Net cash (used in) provided by financing activities (97,821) 244,639 209,312
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 5,866 2,088 (493)
Cash and cash equivalents at beginning of year 2,749 661 1,154
------------ ----------- -----------
Cash and cash equivalents at end of year $ 8,615 $ 2,749 $ 661
============ =========== ===========
Reconciliation of net income to net cash provided by (used in)
operating activities:
Net income $ 128,952 $ 89,485 $ 56,973
------------ ----------- -----------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 42,605 26,364 20,011
Provision for losses on accounts receivable 34,810 22,634 19,648
Gain on sale of Macrotron AG (15,700) -- --
Loss on disposal of fixed assets -- -- 446
Deferred income taxes 500 3,720 (5,051)
Changes in assets and liabilities:
(Increase) in accounts receivable (434,268) (183,481) (208,025)
(Increase) in inventories (49,830) (181,393) (294,552)
Decrease (increase) in prepaid and other assets 89,140 (8,317) (13,962)
Increase in accounts payable 387,136 106,134 225,358
(Decrease) increase in accrued expenses (139,849) (1,445) 10,602
------------ ----------- -----------
Total adjustments (85,456) (215,784) (245,525)
------------ ----------- -----------
Net cash provided by (used in) operating activities $ 43,496 $ (126,299) $ (188,552)
============ =========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
23
<PAGE> 24
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Tech
Data Corporation and its subsidiaries ("Tech Data" or the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
METHOD OF ACCOUNTING
The Company prepares its financial statements in conformity with
generally accepted accounting principles. These principles require management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Sales are recorded upon shipment. The Company allows its customers to
return product for exchange or credit subject to certain limitations. Provision
for estimated losses on such returns are recorded at the time of sale (see
product warranty below). Funds received from vendors for marketing programs and
product rebates are accounted for as a reduction of selling, general and
administrative expenses or product cost according to the nature of the program.
INVENTORIES
Inventories (consisting of computer related hardware and software
products) are stated at the lower of cost or market, cost being determined on
the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
over the estimated economic lives (or lease period if shorter) using the
following methods:
<TABLE>
<CAPTION>
METHOD YEARS
------ -----
<S> <C> <C>
Buildings and improvements Straight-line 15 - 39
Leasehold improvements Straight-line 2 - 10
Furniture, fixtures and equipment Accelerated 2 - 10
and straight-line
</TABLE>
Expenditures for renewals and improvements that significantly add to
productive capacity or extend the useful life of an asset are capitalized.
Expenditures for maintenance and repairs are charged to operations when
incurred. When assets are sold or retired, the cost of the asset and the related
accumulated depreciation are eliminated from the accounts and any gain or loss
is recognized at such time.
LONG LIVED ASSETS
Long lived assets are reviewed for potential impairment at such time
when events or changes in circumstances indicate that recovery of the asset is
unlikely. Any impairment loss would be recognized when the sum of the expected,
undiscounted future net cash flows is less than the carrying amount of the
asset.
24
<PAGE> 25
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
EXCESS OF COST OVER ACQUIRED NET ASSETS
The excess of cost over acquired net assets ("goodwill") is being
amortized on a straight-line basis over 15 to 40 years. Amortization expense was
$5,714,000, $1,458,000 and $602,000 in 1999, 1998 and 1997, respectively. The
accumulated amortization of goodwill is approximately $8,651,000 and $3,563,000
at January 31, 1999 and 1998, respectively.
INTANGIBLES
Included within other assets at January 31, 1999 are certain intangible
assets including deferred software costs and the allocation of a portion of the
purchase price of Computer 2000 AG ("Computer 2000") to software used within the
Computer 2000 entity and the value of the customer base acquired (see Note 2 -
Acquisition and Disposition of Subsidiaries). Such deferred costs are being
amortized over three to ten years with amortization expense of $8,442,000,
$4,967,000 and $4,611,000 in 1999, 1998 and 1997, respectively. The accumulated
amortization of such costs was $22,603,000 and $14,160,000 at January 31, 1999
and 1998, respectively. The remaining unamortized balance of such costs was
$39,876,000 and $17,894,000 at January 31, 1999 and 1998, respectively.
PRODUCT WARRANTY
The Company's vendors generally warrant the products distributed by the
Company and allow the Company to return defective products, including those that
have been returned to the Company by its customers. The Company does not
independently warrant the products it distributes; however, the Company does
warrant the following: (1) services with regard to products configured for its
customers, and (2) products it builds to order from components purchased from
other sources. A provision for estimated warranty costs is recorded at the time
of sale and periodically adjusted to reflect actual experience. Warranty expense
was not material to the Company's Consolidated Statement of Income.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred
taxes reflect the tax consequences on future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts.
Deferred taxes have not been provided on the cumulative undistributed earnings
of foreign subsidiaries or the cumulative translation adjustment related to
those investments since such amounts are expected to be reinvested indefinitely.
FOREIGN CURRENCY ACTIVITIES
The assets and liabilities of foreign operations are translated at the
exchange rates in effect at the balance sheet date, with the related translation
gains or losses reported as a separate component of shareholders' equity. The
results of foreign operations are translated at the weighted average exchange
rates during the year. The Company recorded a net gain resulting from foreign
currency transactions (including gains or losses or forward contracts) of
$5,027,000 for the year ended January 31, 1999. The foreign currency gains
(losses) for the fiscal years ended January 31, 1998 and 1997 were immaterial.
CONCENTRATION OF CREDIT RISK
The Company sells its products to a large base of value-added resellers
("VARs"), corporate resellers, retailers, direct marketers and internet
resellers throughout the United States, Canada, the Caribbean, Latin America,
Europe, and the Middle East. The Company also performs ongoing credit
evaluations of its customers and generally does not require collateral. The
Company has obtained credit insurance which insures a percentage of credit
extended by the Company to certain of its larger domestic and international
customers against possible loss. The Company makes provisions for estimated
credit losses at the time of sale.
25
<PAGE> 26
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company operates internationally with distribution facilities in
various locations around the world. The Company reduces its exposure to
fluctuations in interest rates and foreign exchange rates by creating offsetting
positions through the use of derivative financial instruments. The market risk
related to the foreign exchange agreements is offset by changes in the valuation
of the underlying items being hedged. The majority of the Company's derivative
financial instruments have terms of 180 days or less. The Company currently does
not use derivative financial instruments for trading or speculative purposes,
nor is the Company a party to leveraged derivatives.
Derivative financial instruments are accounted for on an accrual basis.
Income and expense are recorded in the same category as that arising from the
related asset or liability being hedged. Gains and losses resulting from
effective hedges of existing assets, liabilities or firm commitments are
deferred and recognized when the offsetting gains and losses are recognized on
the related hedged items.
The notional amount of forward exchange contracts and options is the
amount of foreign currency bought or sold at maturity. The notional amount of
currency interest rate swaps is the underlying principal and currency amounts
used in determining the interest payments exchanged over the life of the swap.
Notional amounts are indicative of the extent of the Company's involvement in
the various types and uses of derivative financial instruments and are not a
measure of the Company's exposure to credit or market risks through its use of
derivatives. The estimated fair value of derivative financial instruments
represents the amount required to enter into like off-setting contracts with
similar remaining maturities based on quoted market prices.
The Company's derivative financial instruments outstanding at January
31, 1999 and 1998 are as follows (derivative instruments outstanding at January
31, 1997 were not material):
<TABLE>
<CAPTION>
January 31, 1999 January 31, 1998
------------------------------- -------------------------------
Notional Estimated Notional Estimated
Amounts Fair Value Amounts Fair Value
-------- ---------- -------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Foreign exchange forward contracts $438,000 $ 130 $ 78,000 $940
Purchased foreign currency options 60,000 90 500 (10)
Currency interest rate swaps 329,000 (2,440) 128,300 400
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments (excluding derivative financial instruments) that
are subject to fair value disclosure requirements are carried in the
consolidated financial statements at amounts that approximate fair value. The
carrying amount of debt outstanding pursuant to bank credit agreements
approximates fair value as interest rates on these instruments approximate
current market rates. The carrying amount of the convertible subordinated notes
approximates fair value based upon available market information. Fair value is
estimated based on discounted cash flows and available market information as
well as other valuation techniques.
COMPREHENSIVE INCOME
Effective for the fiscal year ended January 31, 1999 the Company
adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for reporting and display of comprehensive income and its
components in the Company's consolidated financial statements. Comprehensive
income is defined as the change in equity (net assets) of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. The Company's
26
<PAGE> 27
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
balance of other comprehensive income is comprised exclusively of changes in the
net cumulative translation adjustment. For the year ended January 31, 1999, the
Company has recorded deferred income taxes related to the change in the
cumulative translation adjustment of $4,376,000. The deferred income taxes
related to the cumulative translation adjustment for the years ended January 31,
1998 and 1997 was not significant.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123"). As permitted by this
pronouncement, the Company's measurement of compensation cost continues to be in
accordance with the Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." In accordance with the requirements
of SFAS 123, the appropriate pro forma disclosures relating to net income and
earnings per share are provided. See Note 7 - Employee Benefit Plans.
NET INCOME PER COMMON SHARE
Basic EPS is computed by dividing net income by the weighted average
number of common shares outstanding during the reported period. Diluted EPS
reflects the potential dilution that could occur assuming the conversion of the
convertible subordinated notes and exercise of the stock options using the
if-converted and treasury stock methods, respectively. The composition of basic
and diluted net income per common share is as follows:
<TABLE>
<CAPTION>
Year ended January 31, Year ended January 31, Year ended January 31,
1999 1998 1997
--------------------------------------------------------------------------------------
Weighted Per Weighted Per Weighted Per
Net Average Share Net Average Share Net Average Share
Income Shares Amount Income Shares Amount Income Shares Amount
-------- ------- ------ ------- ------ ------ ------- ------ ------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income per common
Share - basic $128,952 49,727 $2.59 $89,485 44,715 $2.00 $56,973 40,870 $1.39
===== ===== =====
Effect of dilutive securities:
Stock options 1,767 1,895 1,255
5% convertible subordinated
notes 4,726 2,667 -- -- -- --
-------- ------ ------- ------ ------- ------
Net income per common
Share - diluted $133,678 54,161 $2.47 $89,485 46,610 $1.92 $56,973 42,125 $1.35
======== ====== ===== ======= ====== ===== ======= ====== =====
</TABLE>
At January 31, 1999, 1998 and 1997, there were 1,571,000, 98,000 and
26,000 shares, respectively, excluded from the computation of diluted earnings
per share because their effect would have been antidilutive.
CASH MANAGEMENT SYSTEM
Under the Company's cash management system, disbursements cleared by
the bank are reimbursed on a daily basis from the revolving credit loans. As a
result, checks issued but not yet presented to the bank are not considered
reductions of cash or accounts payable. Included in accounts payable are
$95,185,000 and $60,000,000 at January 31, 1999 and 1998 respectively, for which
checks are outstanding.
STATEMENT OF CASH FLOWS
Short-term investments which have an original maturity of ninety days
or less are considered cash equivalents in the statement of cash flows. The
effect of changes in foreign exchange rates on cash balances is not material.
See Note 2 of Notes to Consolidated Financial Statements regarding the non-cash
exchange of common stock and convertible notes in connection with business
combinations.
27
<PAGE> 28
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FISCAL YEAR
The Company and its North American subsidiaries operate on a fiscal
year that ends on January 31. The Company consolidates its European and Latin
American subsidiaries on a fiscal year that ends on December 31. The difference
in year-end dates is primarily attributable to regulatory requirements imposed
on the Company's foreign subsidiaries as well as timing of information
requirements.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of position ("SOP") 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" effective for fiscal years
beginning after December 15, 1998. The Company has elected early implementation
of provisions of SOP 98-1 effective for the year ended January 31, 1999. This
statement requires capitalization of certain costs relating to computer software
developed or obtained for internal use. The impact of adoption was not material
to the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement
requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if so, the type of
the hedge transaction. The ineffective portion of all hedge transactions will be
recognized in the current-period earnings. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. The future impact of this statement on the
Company's results of operations is not expected to be material.
NOTE 2 - ACQUISITION AND DISPOSITION OF SUBSIDIARIES:
Acquisition of Macrotron AG
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
("Macrotron"), a 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. The cash portion of the
initial acquisition, the related tender offer and subsequent purchase of
Macrotron's common and preferred stock were funded from the Company's revolving
credit loan agreements. Prior to the disposition discussed below, the Company
owned approximately 99% and 91% of Macrotron's common and preferred stock,
respectively for a total purchase price of $80,000,000.
The acquisition of Macrotron was accounted for under the purchase
method. The purchase price allocation resulted in approximately $53,500,000 in
excess cost over the net fair market value of tangible assets acquired as of
January 31, 1998 and was being amortized over a period of 20 years. Consistent
with the Company's accounting policy for foreign subsidiaries, Macrotron's
operations were consolidated into the Company's consolidated financial
statements on a calendar year basis. Consequently, the Company's fiscal year
ending January 31, 1998 includes Macrotron's operations for the six month period
beginning July 1, 1997 and ending December 31, 1997.
Disposition of Macrotron AG
Effective July 1, 1998, pursuant to a Share Purchase Agreement dated
June 10, 1998, the Company completed the sale of its majority interest in
Munich-based subsidiary Macrotron AG ("Macrotron") to Ingram Micro, Inc.
("Ingram"). Tech Data owned 99% and 91% of Macrotron's outstanding common and
preferred stock, respectively, at the time of the sale. The sale of Macrotron
was completed through the receipt of approximately $228,000,000 from Ingram
(approximately $100,000,000 for the Company's shares of Macrotron and the
balance of $128,000,000 for the repayment of Macrotron's intercompany
indebtedness). The Company recorded a $15,700,000 gain on the sale, of which
$3,200,000 was recorded in the fourth quarter due to resolution of certain
contingencies.
28
<PAGE> 29
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Acquisition of Computer 2000 AG
On July 1, 1998, Tech Data completed the acquisition of approximately
83% of the voting common stock of Computer 2000, a European distributor of
technology products. The Company acquired 80% of the outstanding voting stock of
Computer 2000 from its parent company, Klockner & Co. AG., a subsidiary of
Munich-based conglomerate VIAG AG, and an additional stake of approximately 3%
of Computer 2000's shares from an institutional investor. The initial
acquisition was completed through an exchange of approximately 2.2 million
shares of Tech Data common stock and $300,000,000 of 5% convertible subordinated
notes, due 2003 (coupon rate of 5.0%, five year term and convertible into shares
of common stock at $56.25 per share). The purchase agreement is subject to
certain contingent payments based upon future events. Any payments made by the
Company relating to this contingency will increase the purchase price and will
result in additional goodwill. The Company commenced a tender offer for the
remaining C2000 shares and, as a result of this tender offer, open market
purchases and private purchase transactions, the Company currently owns
approximately 99.3% of Computer 2000's outstanding stock at January 31, 1999.
The tender offer, open market purchases and private purchase transactions were
funded through the Company's revolving credit loan agreements.
The acquisition of Computer 2000 was accounted for under the purchase
method. The purchase price of approximately $500,000,000 was allocated to the
assets acquired and liabilities assumed based upon their estimated fair values
at the date of acquisition. The excess of the purchase price over the fair value
of net assets acquired of approximately $319,000,000 ($343,000,000 at year end
exchange rates) is being amortized on a straight-line basis over 40 years. The
final allocation of the purchase price has not been finalized due to various
contingent liabilities identified by the Company including costs of
restructuring. To the extent these liabilities are not fully incurred, the
purchase price and related goodwill will be reduced accordingly.
The Company's subsidiaries outside of North America are included in its
consolidated financial statements on a calendar basis. As such, the year ended
January 31, 1999 includes six months results for Computer 2000 (which was
acquired effective July 1, 1998) and includes six months of operating results
for Macrotron (which was sold effective July 1, 1998).
Pro forma information
The following pro forma unaudited results of operations reflect the
effect on the Company's operations as if the above described acquisition of
Macrotron had occurred at the beginning of each of the periods presented below
(in thousands, except per share data):
<TABLE>
<CAPTION>
Year ended January 31,
-------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net sales $7,623,852 $5,571,406
Net income 90,161 60,716
Net income per common share:
Basic 2.01 1.47
Diluted 1.93 1.43
</TABLE>
The following pro forma unaudited results of operations reflect the
effect on the Company's operations as if the above described acquisition of
Computer 2000 and disposition of Macrotron had occurred at the beginning of each
of the periods presented below:
29
<PAGE> 30
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net sales $13,694,426 $11,350,432
Net income 125,954 95,669
Net income per common share:
Basic 2.48 2.04
Diluted 2.34 1.94
</TABLE>
The unaudited pro forma information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisitions and dispositions noted above been
consummated as of the beginning of the respective periods, nor are they
necessarily indicative of future operating results.
Non-cash transactions
The Company issued 406,586 shares of common stock in conjunction with
the purchase of Macrotron in July 1997. Additionally, the Company issued
$300,000,000 convertible subordinated notes and approximately 2,200,000 shares
of common stock in conjunction with its acquisition of Computer 2000 in July
1998.
NOTE 3 - PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
January 31,
------------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Land $ 4,897 $ 7,805
Buildings and improvements 36,995 36,543
Furniture, fixtures and equipment 156,414 112,821
Construction in progress 4,299 12,359
-------- --------
202,605 169,528
Less-accumulated depreciation (76,068) (68,966)
-------- --------
$126,537 $100,562
======== ========
</TABLE>
NOTE 4 - REVOLVING CREDIT LOANS:
<TABLE>
<CAPTION>
January 31,
------------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Receivables Securitization Program, average
interest rate of 5.41% at January 31, 1999,
expiring February 28, 2000 $355,000 $237,420
Multicurrency Revolving Credit Facility, average
interest rate of 4.14% at January 31, 1999,
expiring August 28, 2000 295,539 300,568
Other revolving credit facilities, various interest
rates, expiring on various dates through 1999 167,331 2,189
-------- --------
$817,870 $540,177
======== ========
</TABLE>
30
<PAGE> 31
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company has an agreement (the "Receivables Securitization Program")
with three financial institutions that allows the Company to transfer an
undivided interest in a designated pool of U.S. accounts receivable on an
ongoing basis to provide borrowings up to a maximum of $500,000,000. As
collections reduce accounts receivable balances included in the pool, the
Company may transfer interests in new receivables to bring the amount available
to be borrowed up to the maximum. The Company pays interest on advances under
the Receivables Securitization Program at a designated commercial paper rate,
plus an agreed-upon margin.
Under the terms of the Company's Multicurrency Revolving Credit
Facility with a syndicate of banks, the Company is able to borrow funds in
sixteen major foreign currencies up to a maximum of $550,000,000 on an unsecured
basis. The Company pays interest on advances under this facility at the
applicable eurocurrency rate plus a margin based on certain financial ratios.
The Company can fix the interest rate for periods of 30 to 180 days under
various interest rate options.
In addition to the facilities described above, the Company has
additional lines of credit and overdraft facilities to support its worldwide
operations. Most of these facilities are provided on an unsecured, short-term
basis and are reviewed periodically for renewal. Under the covenants of the
Company's Multicurrency Revolving Credit Facility, indebtedness outstanding
under these facilities may not exceed $300,000,000.
The Company's credit agreements contain warranties and covenants that
must be complied with on a continuing basis, including the maintenance of
certain financial ratios and restrictions on payment of dividends. At January
31, 1999, the Company was in compliance with all such covenants.
NOTE 5 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
January 31,
-----------------------
1999 1998
--------- -------
(In thousands)
<S> <C> <C>
Mortgage note payable, interest at 10.25%, principal
and interest of $85,130 payable monthly, balloon
payment due 2005 $ 8,661 $ 8,788
Mortgage note payable funded through Industrial Revenue
Bond, interest at 6.90%, principal and interest payable
quarterly, through 2000 22 108
Convertible subordinated debentures, interest at 5.00% payable
semi-annually, due 2003 300,000 --
--------- -------
308,683 8,896
Less - current maturities (162) (213)
========= =======
$ 308,521 $ 8,683
========= =======
</TABLE>
Principal maturities of long-term debt at January 31, 1999 for the
succeeding five fiscal years are as follows: 2000 - $162,000; 2001 - $155,000;
2002 - $172,000; 2003 - $191,000; 2004 - $300,211,000.
On July 1, 1998, the Company issued $300,000,000 convertible
subordinated notes due July 1, 2003. The notes bear interest at 5% per year and
are convertible any time prior to maturity, unless previously redeemed or
repurchased, into shares of common stock at a conversion rate of 17.777 shares
per $1,000 principal amount of notes, equivalent to a conversion price of
approximately $56.25 per share. The notes are convertible into approximately
5,300,000 shares of the Company's common stock. The notes are redeemable in
whole or in part, at the option of the Company at any time on or after July 1,
2001. These notes are subordinated in right of payment to all senior
indebtedness of the Company and will be effectively subordinated to all
indebtedness and other liabilities of the Company's subsidiaries.
Mortgage notes payable are guaranteed by property and equipment with an
original cost of approximately $12,000,000. The Industrial Revenue Bond contains
covenants which require the Company to maintain certain financial ratios with
which the Company was in compliance at January 31, 1999.
31
<PAGE> 32
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6 - INCOME TAXES (IN THOUSANDS):
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
January 31,
------------------------
1999 1998
--------- -------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation and amortization $ 19,821 $10,519
Capitalized advertising program costs 2,174 1,630
Other - net 6,242 4,937
--------- -------
Total gross deferred tax liabilities 28,237 17,086
--------- -------
Deferred tax assets:
Accruals not currently deductible 7,880 5,412
Reserves not currently deductible 22,777 21,290
Capitalized inventory costs 2,046 1,959
Foreign loss carryforwards 59,996 --
Other - net 8,934 371
--------- -------
Total gross deferred tax assets 101,633 29,032
Less: valuation allowance (16,037) --
--------- -------
Total net deferred tax assets 85,596 29,032
--------- -------
Net deferred tax asset (included in prepaid and other assets) $ 57,359 $11,946
========= =======
</TABLE>
Significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
Year ended January 31,
----------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 50,153 $ 39,805 $ 32,485
State 6,816 2,469 5,897
Foreign 18,746 6,822 3,185
-------- -------- --------
Total current 75,715 49,096 41,567
-------- -------- --------
Deferred:
Federal (3,093) 3,328 (3,490)
State (424) 507 (451)
Foreign 4,017 (115) (1,110)
-------- -------- --------
Total deferred 500 3,720 (5,051)
-------- -------- --------
$ 76,215 $ 52,816 $ 36,516
======== ======== ========
</TABLE>
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is as
follows:
<TABLE>
<CAPTION>
Year ended January 31,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax at U.S. statutory rates 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 1.5 1.4 3.8
Other - net .5 .6 .3
---- ---- ----
37.0% 37.0% 39.1%
==== ==== ====
</TABLE>
The components of pretax earnings are as follows:
<TABLE>
<CAPTION>
Year ended January 31,
-----------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
United States $140,850 $126,757 $88,536
Foreign 65,193 15,973 4,953
-------- -------- -------
$206,043 $142,730 $93,489
======== ======== =======
</TABLE>
32
<PAGE> 33
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company's foreign subsidiaries had deferred tax assets relating to
net operating loss carryforwards of $145 million. The majority of the net
operating losses have an indefinite carryforward period with the remaining
portion expiring in years 1999 through 2009. A valuation allowance of $16
million has been recognized to offset the deferred tax assets relating to the
net operating loss carryforwards.
The cumulative amount of undistributed earnings of international
subsidiaries for which U.S. income taxes have not been provided was
approximately $59 million at January 31, 1999. It is not practical to estimate
the amount of unrecognized deferred U.S. taxes on these undistributed earnings.
NOTE 7 - EMPLOYEE BENEFIT PLANS:
STOCK COMPENSATION PLANS
At January 31, 1999, the Company had three stock-based compensation
plans as well as an employee stock purchase plan, an employee stock ownership
plan and a retirement savings plan, which are described below. The Company
applies APB Opinion 25 and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its fixed stock option
plans and its stock purchase plan.
FIXED STOCK OPTION PLANS
In August 1985, the Board of Directors adopted the 1985 Incentive Stock
Option Plan (the "1985 Plan"), which covers an aggregate of 1,050,000 shares of
common stock. The options were granted to certain officers and key employees at
or above fair market value; accordingly, no compensation expense has been
recorded with respect to these options. Options are exercisable beginning two
years from the date of grant only if the grantee is an employee of the Company
at that time. No options may be granted under the 1985 Plan after July 31, 1995.
In June 1990, the shareholders approved the 1990 Incentive and
Non-Statutory Stock Option Plan (the "1990 Plan") which covers an aggregate of
10,000,000 shares (as amended in June 1997) of common stock. The 1990 Plan
provides for the granting of incentive and non-statutory stock options, stock
appreciation rights ("SARs") and limited stock appreciation rights ("Limited
SARs") at prices determined by the stock option committee, except for incentive
stock options which are granted at the fair market value of the stock on the
date of grant. Incentive options granted under the 1990 Plan become exercisable
over a five year period while the date of exercise of non-statutory options is
determined by the stock option committee. As of January 31, 1999, no SARs or
Limited SARs had been granted under the 1990 Plan. Options granted under the
1985 Plan and the 1990 Plan expire 10 years from the date of grant, unless a
shorter period is specified by the stock option committee.
In June 1995, the shareholders approved the 1995 Non-Employee
Director's Non-Statutory Stock Option Plan. Under this plan, the Company grants
non-employee members of its Board of Directors stock options upon their initial
appointment to the board and then annually each year thereafter. Stock options,
granted at the fair market value of the stock on the date of grant, are awarded
to members upon their initial appointment and vest and become exercisable at a
rate of 20% per year. Annual awards vest and become exercisable one year from
the date of grant. The number of shares subject to options under this plan
cannot exceed 100,000 and the options expire 10 years from the date of grant.
33
<PAGE> 34
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of the status of the Company's stock option plans is as
follows:
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1999 1998 1997
------------------- ------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,881,545 $19.43 3,285,818 $14.31 3,081,110 $13.31
Granted 1,661,400 40.27 1,643,400 26.65 1,112,000 16.27
Exercised (609,620) 14.24 (720,573) 13.23 (675,492) 13.11
Canceled (569,250) 28.68 (327,100) 17.57 (231,800) 13.72
--------- --------- ---------
Outstanding at year end 4,364,075 26.88 3,881,545 19.43 3,285,818 14.31
========= ========= =========
Options exercisable at year end 768,425 601,895 576,862
Available for grant at year end 3,496,000 4,588,000 905,000
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 1/31/99 Life (years) Price at 1/31/99 Price
--------------- ---------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.56 - 5.04 16,000 2.00 $ 2.43 16,000 $ 2.43
10.62 - 15.13 1,297,725 6.40 13.08 554,225 12.58
19.00 - 27.38 1,348,300 7.31 23.49 189,200 20.51
29.50 - 43.75 1,558,050 8.12 39.80 9,000 31.78
44.50 - 50.38 144,000 9.01 45.93 -- --
---------- ---------
4,364,075 768,425
========== =========
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
Under the 1995 Employee Stock Purchase Plan approved in June 1995, the
Company is authorized to issue up to 1,000,000 shares of common stock to
eligible employees in the Company's U.S. and Canadian subsidiaries. Under the
terms of the plan, employees can choose to have a fixed dollar amount or
percentage deducted from their bi-weekly compensation to purchase the Company's
common stock and/or elect to purchase shares once per calendar quarter. The
purchase price of the stock is 85% of the market value on the exercise date and
employees are limited to a maximum purchase of $25,000 fair market value each
calendar year. Since plan inception, the Company has sold 182,449 shares as of
January 31, 1999. All shares purchased under this plan must be retained for a
period of one year.
34
<PAGE> 35
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
PRO FORMA EFFECT OF STOCK COMPENSATION PLANS
Had the compensation cost for the Company's stock option plans and
employee stock purchase plan been determined based on the fair value at the
grant dates for awards under the plans consistent with the method prescribed by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company's net income and net income per common share on a pro
forma basis would have been (in thousands, except per share data):
<TABLE>
<CAPTION>
Year ended January 31,
----------------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Net income $120,548 $85,344 $55,059
Net income per common share:
Basic 2.42 1.91 1.35
Diluted 2.32 1.83 1.31
</TABLE>
The preceding pro forma results were calculated with the use of the
Black-Scholes option-pricing model. The following assumptions were used for the
years ended January 31, 1999, 1998 and 1997, respectively: (1) risk-free
interest rates of 5.68%, 6.76% and 6.08%; (2) dividend yield of 0.0%; (3)
expected lives of 5.00, 4.87 and 5.08 years; and (4) volatility of 65%, 56% and
56%. Results may vary depending on the assumptions applied within the model.
STOCK OWNERSHIP AND RETIREMENT SAVINGS PLANS
In 1984 the Company established an employee stock ownership plan (the
"ESOP") covering substantially all U.S. employees. The ESOP provides for
distribution of vested percentages of the Company's common stock to
participants. Such benefit becomes fully vested after seven years of qualified
service. At January 31, 1999 and 1998, 813,000 and 780,000 shares, respectively,
were held by the ESOP. The Company also offers its U.S. employees a retirement
savings plan pursuant to section 401(k) of the Internal Revenue Code which
provides for the Company to match 50% of the first $1,000 of each participant's
deferrals annually. Contributions to these plans are made in amounts approved
annually by the Board of Directors. Aggregate contributions made by the Company
to these plans were $1,992,000, $2,460,000 and $2,090,000 for 1999, 1998 and
1997, respectively.
NOTE 8 - CAPITAL STOCK:
Each outstanding share of preferred stock is entitled to one vote on
all matters submitted to a vote of shareholders, except for matters involving
mergers, the sale of all Company assets, amendments to the Company's charter and
exchanges of Company stock for stock of another company which require approval
by a majority of each class of capital stock. In such matters, the preferred and
common shareholders will each vote as a separate class.
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases distribution facilities and certain equipment under
noncancelable operating leases which expire at various dates through 2005.
Future minimum lease payments under all such leases for the succeeding five
fiscal years are as follows: 2000 - $32,514,000; 2001 - $28,857,000; 2002 -
$17,416,000; 2003 - $13,019,000; 2004 - $13,617,000; and $106,000 thereafter.
Rental expense for all operating leases amounted to $27,015,000, $15,704,000 and
$10,160,000 in 1999, 1998 and 1997, respectively.
35
<PAGE> 36
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 10 - SEGMENT INFORMATION:
Effective for the period ended January 31, 1999, the Company has
adopted the disclosure requirements of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which establishes standards for
additional disclosure about operating segments for interim and annual financial
statements. This standard requires financial and descriptive information be
disclosed for segments whose operating results are reviewed by the chief
operating officer for decisions on resource allocation. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers.
The Company operates predominantly in a single industry segment as a
wholesale distributor of computer-based technology products and services. Based
on geographic location, the Company has three principal segments. These
geographical segments are 1) the United States, 2) Europe (includes the Middle
East) and 3) Other International areas (Canada, Brazil, Argentina, Chile, Peru,
Uruguay, and export sales to Latin America and the Caribbean from the U.S.) The
measure of segment profit is income from operations. The accounting policies of
the segments are the same as those described in Note 1--Summary of Significant
Accounting Policies.
Financial information by geographic segments is as follows (in thousands):
<TABLE>
<CAPTION>
Other
United States Europe International Total
------------- ------ ------------- -----
<S> <C> <C> <C> <C>
FISCAL YEAR 1999
Net sales to unaffiliated customers $6,359,124 $4,540,108 $629,767 $11,528,999
========== ========== ======== ===========
Operating income $ 156,142 $ 76,638 $ 2,551 $ 235,331
========== ========== ======== ===========
Identifiable assets $1,555,325 $2,112,546 $177,116 $ 3,844,987
========== ========== ======== ===========
FISCAL YEAR 1998
Net sales to unaffiliated customers $5,434,833 $1,148,036 $473,750 $ 7,056,619
========== ========== ======== ===========
Operating income $ 148,485 $ 20,122 $ 4,031 $ 172,638
========== ========== ======== ===========
Identifiable assets $1,558,337 $ 534,192 $ 92,854 $ 2,185,383
========== ========== ======== ===========
FISCAL YEAR 1997
Net sales to unaffiliated customers $3,907,516 $ 403,030 $288,395 $ 4,598,941
========== ========== ======== ===========
Operating income $ 102,024 $ 8,120 $ 4,867 $ 115,011
========== ========== ======== ===========
Identifiable assets $1,326,531 $ 151,012 $ 67,751 $ 1,545,294
========== ========== ======== ===========
</TABLE>
NOTE 11 - UNAUDITED INTERIM FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
Quarter ended
------------------------------------------------------------
April 30 July 31 October 31 January 31
---------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
FISCAL YEAR 1999
Net sales $2,184,366 $2,213,261 $3,278,401 $3,852,971
Gross profit 139,767 144,748 213,095 230,263
Net income 23,105 35,279 34,088 36,480
Net income per common share:
Basic .48 .73 .67 .71
Diluted .46 .70 .63 .67
</TABLE>
36
<PAGE> 37
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
Quarter ended
------------------------------------------------------------
April 30 July 31 October 31 January 31
---------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
FISCAL YEAR 1998
Net sales $1,370,146 $1,551,820 $2,021,479 $2,113,174
Gross profit 95,177 103,978 129,342 137,249
Net income 18,222 21,464 23,673 26,126
Net income per common share:
Basic .42 .49 .54 .55
Diluted .41 .47 .51 .53
</TABLE>
37
<PAGE> 38
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEMS 10, 11, 12 AND 13.
The information required by Item 10 relating to executive officers of
the registrant is included under the caption "Executive Officers" of Item 1 of
this Form 10-K. The information required by Item 10 relating to Directors of the
registrant and the information required by Items 11, 12 and 13 is incorporated
herein by reference to the registrant's definitive proxy statement for the 1998
Annual Meeting of Shareholders. However, the information included in such
definitive proxy statement under the subcaption entitled "Grant Date Present
Value" in the table entitled "Option Grants in Last Fiscal Year", the
information included under the caption entitled "Compensation Committee Report
on Executive Compensation", and the information included in the "Stock Price
Performance Graph" shall not be deemed incorporated by reference in this Form
10-K and shall not otherwise be deemed filed under the Securities Act of 1933,
as amended, or under the Securities Exchange Act of 1934, as amended. The
definitive proxy statement for the 1999 Annual Meeting of Shareholders will be
filed with the Commission prior to May 31, 1999.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) See index to financial statements and schedules included in Item
8.
(b) The Company filed the following reports on Form 8-K during the
fiscal year ended January 31, 1998:
Current Report on Form 8-K dated July 1, 1998
Current Report on Form 8-K dated July 28, 1998
(c) The exhibit numbers on the following list correspond to the
numbers in the exhibit table required pursuant to Item 601 of
Regulation S-K.
3-A(1) -- Articles of Incorporation of the Company as amended to
April 23, 1986.
3-B(2) -- Articles of Amendment to Articles of Incorporation of the
Company filed on August 27, 1987.
3-C(13) -- By-Laws of the Company as amended to November 28, 1995.
3-F(9) -- Articles of Amendment to Articles of Incorporation of the
Company filed on July 15, 1993.
4-E(15) -- Articles of Amendment to Articles of Incorporation of the
Company filed on June 25, 1997.
10-F(4) -- Incentive Stock Option Plan, as amended, and form of option
agreement.
10-G(10) -- Employee Stock Ownership Plan as amended December 16, 1994.
10-V(5) -- Employment Agreement between the Company and Edward C.
Raymund dated as of January 31, 1991.
10-W(5) -- Irrevocable Proxy and Escrow Agreement dated April 5, 1991.
10-X(6) -- First Amendment to the Employment Agreement between the
Company and Edward C. Raymund dated November 13, 1992.
10-Y(6) -- First Amendment in the nature of a Complete Substitution to
the Irrevocable Proxy and Escrow Agreement dated November
13, 1992.
10-Z(7) -- 1990 Incentive and Non-Statutory Stock Option Plan as
amended.
10-AA(7) -- Non-Statutory Stock Option Grant Form.
10-BB(7) -- Incentive Stock Option Grant Form.
10-CC(8) -- Employment Agreement between the Company and Steven A.
Raymund dated February 1, 1992.
38
<PAGE> 39
10-EE(10)-- Retirement Savings Plan as amended January 26, 1994.
10-FF(9) -- Revolving Credit and Reimbursement Agreement dated
December 22, 1993.
10-GG(9) -- Transfer and Administration Agreement dated December 22,
1993.
10-HH(10)-- Amendments (Nos. 1-4) to the Transfer and Administration
Agreement.
10-II(10)-- Amended and Restated Revolving Credit and Reimbursement
Agreement dated July 28, 1994, as amended.
10-JJ(10)-- Revolving Foreign Currency Agreement dated August 4, 1994,
as amended.
10-KK(13)-- Amendments (Nos. 5,6) to the Transfer and Administration
Agreement
10-LL(13)-- Amendments (Nos. 3-5) to the Amended and Restated
Revolving Credit and Reimbursement Agreement dated July 28,
1994, as amended.
10-MM(13)-- Amendments (Nos. 3-5) to the Revolving Foreign Currency
Agreement dated August 4, 1994, as amended.
10-NN(12)-- Non-Employee Directors' 1995 Non-Statutory Stock Option
Plan.
10-OO(12)-- 1995 Employee Stock Purchase Plan.
10-PP(12)-- Employment Agreement between the Company and A. Timothy
Godwin dated as of December 5, 1995.
10-QQ(14)-- Amended and Restated Transfer and Administration Agreement
dated January 21, 1997.
10-RR(14)-- Amendment Number 1 to the Amended and Restated Transfer
and Administration Agreement dated January 21, 1997, as
amended.
10-SS(14)-- Revolving Credit and Reimbursement Agreement dated May 23,
1996.
10-TT(15)-- Amendment Number 2 to the Amended and Restated Transfer and
Administration Agreement dated January 21, 1997, as
amended.
10-UU(15)-- Revolving Credit and Reimbursement Agreement dated August
28, 1997.
10-VV(16)-- Amendment Number 3 to the Amended and Restated Transfer and
Administration Agreement dated January 21, 1997, as
amended.
10-WW(17)-- Amendments (Nos. 1-2) to the Revolving Credit and
Reimbursement Agreement dated August 28, 1997, as amended.
10-XX(17)-- Amendments (Nos. 4-6) to the Amended and Restated Transfer
and Administration Agreement dated January 21, 1997, as
amended.
21(17) -- Subsidiaries of Registrant.
27(3) -- Financial Data Schedule (included in the electronic version
only.)
99-A(3) -- Cautionary Statement For Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995.
- -------------
(1) Incorporated by reference to the Exhibits included in the Company's
Registration Statement on Form S-1, File No. 33-4135.
(2) Incorporated by reference to the Exhibits included in the Company's
Registration Statement on Form S-1, File No. 33-21997.
(3) Filed herewith.
(4) Incorporated by reference to the Exhibits included in the Company's
Registration Statement on Form S-8, File No. 33-21879.
(5) Incorporated by reference to the Exhibits included in the Company's Form
10-Q for the quarter ended July 31, 1991, File No. 0-14625.
(6) Incorporated by reference to the Exhibits included in the Company's Form
10-Q for the quarter ended October 31, 1992, File No. 0-14625.
(7) Incorporated by reference to the Exhibits included in the Company's
Registration Statement on Form S-8, File No. 33-41074.
39
<PAGE> 40
(8) Incorporated by reference to the Exhibits included in the Company's Form
10-K for the year ended January 31, 1993, File No. 0-14625.
(9) Incorporated by reference to the Exhibits included in the Company's Form
10-K for the year ended January 31, 1994, File No. 0-14625.
(10) Incorporated by reference to the Exhibits included in the Company's Form
10-K for the year ended January 31, 1995, File No. 0-14625.
(11) Incorporated by reference to the Exhibits included in the Company's Form
8-K filed on March 26, 1996, File No. 0-14625.
(12) Incorporated by reference to the Exhibits included in the Company's
Definitive Proxy Statement for the 1995 Annual Meeting of Shareholders,
File No. 0-14625.
(13) Incorporated by reference to the Exhibits included in the Company's Form
10-K for the year ended January 31, 1996, File No. 0-14625.
(14) Incorporated by reference to the Exhibits included in the Company's Form
10-K for the year ended January 31, 1997, File No. 0-14625.
(15) Incorporated by reference to the Exhibits included in the Company's
Registration Statement on Form S-3, File No. 333-36999.
(16) Incorporated by reference to the Exhibits included in the Company's Form
10-K for the year ended January 31, 1998, File No. 0-14625.
(17) To be filed by amendment.
40
<PAGE> 41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of Tech Data Corporation
Our audits of the consolidated financial statements referred to in our
report dated March 19, 1999 appearing on page 20 of this Form 10-K of Tech Data
Corporation also included an audit of the Financial Statement Schedule listed in
Item 14 of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, Florida
March 19, 1999
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8s (Nos. 33-21879, 33-41074, 33-62181 and 33-60479) of Tech
Data Corporation of our report dated March 19, 1999 appearing on page 20 of this
Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule appearing above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, Florida
May 3, 1999
41
<PAGE> 42
SCHEDULE II
TECH DATA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------------------------ BALANCE
BALANCE AT CHARGED TO AT END
BEGINNING COST AND OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OTHER(1) PERIOD
- ----------- --------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable and sales returns:
January 31,
1999 $29,731 $34,810 $(31,707) $27,687 $60,521
1998 23,922 22,634 (26,153) 9,328 29,731
1997 22,669 19,648 (22,685) 4,290 23,922
</TABLE>
- ----------
(1) Other includes recoveries, acquisitions, dispositions and the effect of
fluctuations in foreign currency.
42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 3rd day of May,
1999.
TECH DATA CORPORATION
By /s/ STEVEN A. RAYMUND
---------------------------------------
Steven A. Raymund,
Chairman of the Board of Directors;
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature to this Annual Report on Form 10-K appears
below hereby appoints Jeffery P. Howells and Arthur W. Singleton, or either of
them, as his attorney-in-fact to sign on his behalf individually and in the
capacity stated below and to file all amendments and post-effective amendments
to this Annual Report on Form 10-K, and any and all instruments or documents
filed as a part of or in connection with this Annual Report on Form 10-K or the
amendments thereto, and the attorney-in-fact, or either of them, may make such
changes and additions to this Annual Report on Form 10-K as the
attorney-in-fact, or either of them, may deem necessary or appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEVEN A. RAYMUND Chairman of the Board of Directors; May 3, 1999
- --------------------------- Chief Executive Officer
Steven A. Raymund
/s/ ANTHONY A. IBARGUEN President and Chief Operating May 3, 1999
- --------------------------- Officer; Director
Anthony A. Ibarguen
/s/ JEFFERY P. HOWELLS Executive Vice President and May 3, 1999
- --------------------------- Chief Financial Officer; Director
Jeffery P. Howells (principal financial officer)
/s/ JOSEPH B. TREPANI Senior Vice President and Corporate May 3, 1999
- --------------------------- Controller (principal accounting officer)
Joseph B. Trepani
/s/ ARTHUR W. SINGLETON Vice President, Treasurer and Secretary May 3, 1999
- ---------------------------
Arthur W. Singleton
/s/ CHARLES E. ADAIR Director May 3, 1999
- ---------------------------
Charles E. Adair
/s/ MAXIMILIAN ARDELT Director May 3, 1999
- ---------------------------
Maximilian Ardelt
/s/ DANIEL M. DOYLE Director May 3, 1999
- ---------------------------
Daniel M. Doyle
/s/ DONALD F. DUNN Director May 3, 1999
- ---------------------------
Donald F. Dunn
/s/ EDWARD C. RAYMUND Director; Chairman Emeritus May 3, 1999
- ---------------------------
Edward C. Raymund
/s/ DAVID M. UPTON Director May 3, 1999
- ---------------------------
David M. Upton
/s/ JOHN Y. WILLIAMS Director May 3, 1999
- ---------------------------
John Y. Williams
</TABLE>
43
<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 JANUARY 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-1-1998
<PERIOD-END> JAN-31-1999
<CASH> 8,615
<SECURITIES> 0
<RECEIVABLES> 1,856,566
<ALLOWANCES> 60,521
<INVENTORY> 1,369,351
<CURRENT-ASSETS> 3,287,963
<PP&E> 126,537
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,844,987
<CURRENT-LIABILITIES> 2,562,906
<BONDS> 308,521
0
5
<COMMON> 77
<OTHER-SE> 967,209
<TOTAL-LIABILITY-AND-EQUITY> 3,844,987
<SALES> 11,528,999
<TOTAL-REVENUES> 11,528,999
<CGS> 10,801,126
<TOTAL-COSTS> 11,293,668
<OTHER-EXPENSES> 492,542
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,988
<INCOME-PRETAX> 206,043
<INCOME-TAX> 76,215
<INCOME-CONTINUING> 128,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,952
<EPS-PRIMARY> 2.59
<EPS-DILUTED> 2.47
</TABLE>
<PAGE> 1
EXHIBIT 99A
CAUTIONARY STATEMENTS FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for "forward-looking statements" to encourage companies
to provide prospective information, so long as such information is identified as
forward-looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the forward-looking statement(s). Tech Data
Corporation (the "Company" or "Tech Data") desires to take advantage of the
safe harbor provisions of the Act.
Except for historical information, the Company's Annual Report on Form
10-K for the year ended January 31, 1999 to which this exhibit is appended, the
Company's quarterly reports on Form 10-Q, the Company's current reports on Form
8-K, periodic press releases, as well as other public documents and statements,
may contain forward-looking statements within the meaning of the Act.
In addition, representatives of the Company, from time to time,
participate in speeches and calls with market analysts, conferences with
investors and potential investors in the Company's securities, and other
meetings and conferences. Some of the information presented in such speeches,
calls, meetings and conferences may be forward-looking within the meaning of the
Act.
It is not reasonably possible to itemize all of the many factors and
specific events that could affect the Company and/or the microcomputer products
distribution industry as a whole. In some cases, information regarding certain
important factors that could cause actual results to differ materially from
those projected, forecasted, estimated, budgeted or otherwise expressed in
forward-looking statements made by or on behalf of the Company may appear or be
otherwise conveyed together with such statements. The following additional
factors (in addition to other possible factors not listed) could affect the
Company'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 or on behalf of the Company:
Competition
The Company operates in a highly competitive environment, both in the
United States and internationally. The computer wholesale distribution industry
is characterized by intense competition, based primarily on product
availability, credit availability, price, speed of delivery, ability to tailor
specific solutions to customer needs, quality and depth of product lines and
pre-sale and post-sale training, service and support. The Company competes with
a variety of regional, national and international wholesale distributors, some
of which have greater financial resources than the Company. In addition, the
Company faces competition from direct sales by vendors which may be able to
offer resellers lower prices than the Company.
Narrow Profit Margins
As a result of intense price competition in the industry, the Company
has narrow gross profit and operating profit margins. These narrow margins
magnify the impact on operating results of variations in sales and operating
costs. The Company has partially offset the effects of its low gross profit
margins by increasing sales and reducing operating expenses as a percentage of
sales; however, there can be no assurance that the Company will maintain or
increase sales or further reduce operating expenses as a percentage of sales in
the future. Future gross profit margins may be adversely affected by changes in
product mix, vendor pricing actions and competitive and economic pressures.
44
<PAGE> 2
Risk Of Declines In Inventory Value
The Company is subject to the risk that the value of its inventory will
decline as a result of price reductions by vendors or technological
obsolescence. It is the policy of most vendors of microcomputer products to
protect distributors, such as the Company, which purchase directly from such
vendors, from the loss in value of inventory due to technological change or the
vendors' price reductions. Some vendors, however, may be unwilling or unable to
pay the Company for products returned to them under purchase agreements.
Moreover, industry practices are sometimes not embodied in written agreements
and do not protect the Company in all cases from declines in inventory value. No
assurance can be given that such practices will continue, that unforeseen new
product developments will not adversely affect the Company, or that the Company
will be able to successfully manage its existing and future inventories.
Some major systems vendors are developing programs which will allow the
Company to assemble systems from components provided by the vendors. While the
Company has developed the ability to configure computer products, the process of
assembling large volumes of systems from components will require new business
practices by the Company. It is also uncertain how the vendors will apply
policies related to price protection, stock rotation and other protections
against the decline in inventory value to components.
Dependence On Information Systems
The Company is highly dependent upon its internal computer and
telecommunication systems to operate its business. There can be no assurance
that the Company's information systems will not fail, that the Company will be
able to attract and retain qualified personnel necessary for the operation of
such systems, that the Company will be able to expand and improve its
information systems, or that the information systems of acquired companies will
be sufficient to meet the Company's 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 the Company's business.
The Company is currently addressing Year 2000 system requirements and
anticipates that Year 2000 modifications will be made on a timely basis and does
not believe that the cost of the modifications will have a material effect on
the Company's operating results. There can be no assurance, however, that the
Company will be able to modify successfully and in a timely manner all of its
internal services and systems to comply with Year 2000 requirements, which could
have a material adverse effect on the Company's operating results. In addition,
the Company faces risks to the extent that suppliers of products, services and
business on a worldwide basis may not obtain proper compliance with Year 2000
requirements.
Customer Credit Exposure
The Company sells its products to a large customer base of value-added
resellers, corporate resellers, retailers and direct marketers. A significant
portion of such sales is financed by the Company. As a result, the Company's
business could be adversely affected in the event of the deterioration of the
financial condition of its customers, resulting in the customers' inability to
repay the Company. This risk would be increased in the event of a general
economic downturn affecting a large number of the Company's customers.
Management Of Expansion
The rapid expansion of the Company's business has required the Company
to make significant recent additions in personnel and has significantly
increased the Company's working capital requirements. Although the Company has
experienced rapid expansion in recent years, such expansion should not be
considered indicative of future expansion. Such expansion has resulted in new
and increased responsibilities for management personnel and has placed and
continues to place a strain upon the Company's management, operating and
financial systems and other resources. There can be no assurance that the strain
placed upon the Company's management, operating and financial systems and other
resources will not have an adverse effect on the Company's business, nor can
there be any assurance that the Company will be able to attract or retain
sufficient personnel to continue the expansion of its operations.
45
<PAGE> 3
Liquidity And Capital Resources
The Company's business requires substantial capital to finance accounts
receivable and product inventory that are not financed by trade creditors. The
Company has historically relied upon cash generated from operations, bank credit
lines, trade credit from its vendors and proceeds from public offerings of its
Common Stock to satisfy its capital needs and finance growth. In order to
continue its expansion, the Company will need additional financing, including
debt financing. The inability to obtain such sources of capital could have an
adverse effect on the Company's business.
Acquisitions
As part of its growth strategy, the Company pursues the acquisition of
companies that either complement or expand its existing business. As a result,
the Company regularly evaluates 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 the Company's standards, potential
adverse short-term effects on the Company's operating results and the
amortization of any acquired intangible assets.
Foreign Currency Exchange Risks; Exposure To Foreign Markets
The Company conducts business in countries outside of the United States
which exposes the Company to fluctuations in foreign currency exchange rates.
The Company may enter into short-term forward exchange or option contracts to
hedge this risk according to its outlook on future exchange rates; nevertheless,
fluctuations in foreign currency exchange rates could have an adverse effect on
the Company's business.
The Company's international operations are subject to other risks such
as the imposition of governmental controls, currency devaluations, export
license requirements, restrictions on the export of certain technology,
political instability, trade restrictions, tariff changes, difficulties in
staffing and managing international operations, difficulties in collecting
accounts receivable and longer collection periods and the impact of local
economic conditions and practices. As the Company 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. There can be no
assurance that these and other factors will not have an adverse effect on the
Company's business.
Product Supply Shortages
The Company is dependent upon the supply of products available from its
vendors. The industry is characterized by periods of severe product shortages
due to vendors' difficulty in projecting demand for certain products distributed
by the Company. When such product shortages occur, the Company typically
receives an allocation of product from the vendor. There can be no assurance
that vendors will be able to maintain an adequate supply of products to fulfill
all of the Company's customer orders on a timely basis. Failure to obtain
adequate product supplies, if available to competitors, could have an adverse
effect on the Company's business.
Vendor Relations
The loss of certain key vendors could have an adverse effect on the
Company's business. In addition, the Company relies on various rebate and
cooperative marketing programs offered by its vendors to defray expenses
associated with distributing and marketing the vendors' products. Additionally,
certain of the Company's vendors subsidize floor plan financing arrangements. A
reduction by the Company's vendors in any of these programs could have an
adverse effect on the Company's business.
46
<PAGE> 4
General Economic Conditions
From time to time the markets in which the Company sells its products
experience weak economic conditions that may negatively affect the Company's
sales. Although the Company does not consider its business to be highly
seasonal, it has experienced seasonally higher sales and earnings in the third
and fourth quarters. To the extent that general economic conditions affect the
demand for products sold by the Company, such conditions could have an adverse
effect on the Company's business.
Exposure To Natural Disasters
The Company's headquarters facilities, certain of its distribution
centers as well as certain vendors and customers are located in areas prone to
natural disasters such as floods, hurricanes, tornadoes, earthquakes and other
adverse weather conditions. The Company's business could be adversely affected
should its ability to distribute products be impacted by such an event.
Labor Strikes
The Company's labor force is currently non-union with the exception of
employees of certain European subsidiaries which are subject to collective
bargaining on similar arrangements. Additionally, Company, however, does
business in certain foreign countries where labor disruption is more common than
is experienced in the United States. The majority of the freight carriers used
by the Company are unionized. A labor strike by a group of the Company's
employees, one of the Company's freight carriers, one of its vendors, a general
strike by civil service employees, or a governmental shutdown could have an
adverse effect on the Company's business.
Volatility Of Common Stock
Because of the foregoing factors, as well as other variables affecting
the Company's operating results, past financial performance should not be
considered a reliable indicator of future performance, and investors should not
use historical trends to anticipate results or trends in future periods. In
addition, the Company's participation in a highly dynamic industry often results
in significant volatility of the Common Stock price.
47
