FISCAL 1998
ANNUAL REPORT
Delivering New Products
Defining New Markets
Developing New Opportunities
Demonstrating New Value
YEAR ENDED JANUARY 31, 1998
Tech Data Corporation is
a leading full-line distributor
of personal computer
products, serving more than
70,000 resellers throughout
the United States, Canada,
Latin America, Germany,
France, Switzerland and
Austria. The Fortune 500
company distributes more
than 45,000 products from
over 900 manufacturers and
publishers. Tech Data also
provides extensive pre- and
post-sale training, service
and support as well as
high-quality configuration
and assembly services and
a full range of electronic
commerce solutions.
TECH DATA CORPORATION
CONTENTS
1
2
9
14
17
18
19
23
23
24
27
Financial highlights
Letter to shareholders
Description of business
Executive officers
Stock price history
Selected financial data
Management’s discussion and analysis of financial
condition and results of operations
Report of independent certified public accountants
Report of management
Consolidated financial statements
Notes to consolidated financial statements
Financial Highlights u
Tech Data Corporation And Subsidiaries
For the year ended January 31:
1998
1997
1996
1995
1994
(In thousands, except per share data)
Net sales . . . . . . . . . . . . . . . .
$7,056,619
$ 4,598,941
$ 3,086,620
$ 2,418,410
$ 1,532,352
Gross profit . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . .
Net income per common share:
Basic . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . .
At year end:
465,746
89,485
321,781
56,973
219,394
21,541
199,288
34,912
134,385
30,213
2.00
1.92
1.39
1.35
.57
.56
.92
.91
.83
.83
Working capital . . . . . . . . . . .
$ 537,381
$ 351,993
$ 201,704
$ 182,802
$ 165,366
Total assets . . . . . . . . . . . . . . .
2,185,383
Shareholders’ equity . . . . . . . .
702,588
1,545,294
438,381
1,043,879
285,698
784,429
260,826
506,760
213,326
Net Sales
$ millions
Net Income
$ millions
1994 1995 1996 1997 1998
1994 1995 1996 1997 1998
1994 1995 1996 1997 1998
Shareholders’ Equity
$ millions
Basic Earnings Per Share
1994 1995 1996 1997 1998
1994 1995 1996 1997 1998
1994 1995 1996 1997 1998
1994 1995 1996 1997 1998
FISCAL 1998 ANNUAL REPORT
1
Integrity
The foundation of our
To our shareholders:
Tech Data Corporation delivered exceptional results in the 1998
fiscal year. In addition to a record-breaking financial performance, we
made great strides in customer service and positioned the company for
future domestic and international growth. u
For the year ended
business is based upon
January 31, 1998, net sales increased 53.4% to $7.1 billion, and net
integrity. All interactions
with customers, vendors,
income grew 57.1% to $89.5 million, or $1.92 per diluted share.
Through improved operating efficiency and increased business volume,
our selling, general and administrative expenses as a percentage of
net sales declined to a record low 4.15% compared with 4.50% last
suppliers, shareholders
year. A well-balanced sales mix characterized overall results, with
and fellow employees will
products 18% and software 16%.
u With our acquisition of a
peripherals representing 42% of the total, systems 24%, networking
be conducted with integrity
controlling interest in Macrotron AG, we took another major step
forward in our pan-European expansion strategy. This Munich-based
and mutual respect. u
distributor brought Tech Data a leadership position in the German mar-
ket as well as a presence in Switzerland and Austria. Although our
1998 fiscal year reflects only six months of results from Macrotron, inter-
Customers across all markets segments
are working with Tech Data in
innovative ways that extend well
beyond our traditional role as a
value-added, full-line distributor.
national
sales
have
grown to represent more
than 20% of Tech Data’s
overall business. This
compares to 13% in our
last fiscal year.
u
All of Tech Data’s international operations
experienced strong growth. In Canada, we continued to gain market
share and capitalize on new opportunities. Our substantial export sales
into Latin America and the Caribbean are now complemented by our first
2
TECH DATA CORPORATION
Letter to Shareholders u
in-country distribution center operations in the region. This facility, which
includes a dedicated sales organization, opened last year near
São Paulo to serve our customers in Brazil—Latin
America’s largest technology market. In Europe,
the addition of Macrotron was only one of the
major highlights. Our Paris-based subsidiary
again finished the year as a leading computer
products distributor in France. u Although
our
international developments
attracted
significant attention last year, Tech Data
Of all the reasons
that continue to
distinguish Tech Data
in the eyes
of customers
and vendors,
none shines any
brighter than
our people.
enjoyed profound success in the U.S. market. As in each of the past
five years, our sales growth in the critical U.S. market has outpaced
that of the microcomputer distribution industry as a whole, according
to MSI, a leading industry research firm.
Bringing new value to the supply chain
Customers across all markets segments are working with Tech Data
in innovative ways that extend well beyond our traditional role as a
Employees
Our employees make
the difference! We will
value-added, full-line distributor. Vendors have also turned to us for help
invest in the development
in strengthening their business models. We are addressing the
complete spectrum of needs. u Electronic commerce and assemble-
to-order services are among our most dynamic strategic initiatives.
We are fortunate to have the resources, leadership and ingenuity to
of our employees and
provide a professionally
respond to these market requirements that are revolutionizing the
challenging and rewarding
industry.
u
Our Internet site advances and other electronic
commerce innovations were recently recognized by CIO magazine,
which awarded Tech Data one of its prestigious Enterprise Value
Awards. Configuration and assembly capabilities also progressed
environment. u
FISCAL 1998 ANNUAL REPORT
3
markedly as we obtained ISO 9002 certification and began assembly of
IBM systems at our South Bend facility. In addition, Compaq
Technical support,
education, credit and
other Tech Data offerings
are bringing remarkable
value to both our
customer and
vendor partnerships.
and Hewlett-Packard have selected
Tech Data as a distribution partner to
provide these services.
u
Tech
Data’s unparalleled commitment to
customer service excellence is also
taking the company to new frontiers
in the distribution model. For example, we recently established our
own state-of-the-art distribution and logistics capabilities at IBM’s
Research Triangle Park, N.C., manufacturing
facility. This
“FactoryDirect” approach enables Tech Data to provide the fastest
delivery possible of IBM products. u
Today’s hardware and
software vendors not only rely on Tech Data to help them get
Partners
Strategic business
partnerships with
product to the right destinations, they are also looking for other
customers, vendors and
suppliers produce benefits
high-quality services that support their sales. Technical support,
education, credit and other Tech Data offerings are bringing
remarkable value to both our customer and vendor partnerships. All
of these services were greatly enhanced last year, and we
for all of our business
continue to make investments to ensure they remain the best in the
partners. We will conduct
industry.
The right formula
our business in a manner
Reaching the right customers with the right products and services is
another Tech Data advantage. Through dedicated sales divisions,
which supports our
targeted marketing programs and many specialized services, the com-
business partners. u
pany has optimized its support for resellers across all market
segments
including government, retail, direct reseller, original
4
TECH DATA CORPORATION
Letter to Shareholders u
equipment manufacturer (OEM), and value-added reseller (VAR)
Shareholders
channels. As vendors strive to further differentiate their product lines
according to specific customer requirements, it is imperative that they
Shareholders deserve a
do business with a distributor
that understands
these
markets and can help them get the job done. u
In addition to the
thousands of products we helped our existing vendor partners intro-
duce last year, we also welcomed many new manufacturers and pub-
reasonable return on
their investment in our
lishers to our line card. These agreements included major players in
company. We are
the corporate market such as JVC, Siemens and Tektronix as well as
some of
the biggest names on
retail
shelves: Casio,
Dr. Solomon’s Software and Hasbro Interactive. From long-term
industry leaders to rising stars, the consensus is clear; Tech Data is a
focused on profitability
in order to attract
preferred business partner with a great future. u
Of all the
sufficient capital for our
reasons that continue to distinguish Tech Data in the eyes of
customers and vendors, none shines any brighter than our people.
Our employee family grew last year to more than 5,000 associates
worldwide. At our corporate headquarters alone, where we opened
a new 240,000 square-foot facility, we created more than 300 new
employment opportunities. u
Our management team also
became stronger than
ever. Key executive
In every respect, Tech Data is a company
appointments over the
past year
included
that represents value … to its customers,
vendors and shareholders.
Gerald M. Labie to president and managing director of European
operations, and H. John Lochow to senior vice president and chief
information officer. These industry veterans have the experience,
leadership qualities and insight to provide tremendous contributions.
continued growth. u
FISCAL 1998 ANNUAL REPORT
5
Change
Jerry brings more than 30 years of domestic and international
computer industry experience to his newly created position. He was
Our business continues
most recently senior vice president and general manager, Europe, at
to evolve based on
ever-changing market
Stream International, a global software reseller. John most recently
served as CIO of Bell Canada, Canada’s largest company, where he was
credited with increasing efficiency and introducing an enterprise-
wide IS architecture to modernize their legacy environment.
conditions. Our
Financial review
willingness to embrace
change will be key
to our success. u
With sales of $7.1 billion and net income of $89.5 million, Tech Data’s
fiscal 1998 financial results were by far the best in company history.
These outstanding results were particularly impressive considering
the intense competition in the computer industry and unique business
challenges we faced. The UPS strike, for example, affected our service
levels to many U.S. customers during the third quarter. u
In
November 1997, we overcame another type of challenge—difficult
stock market conditions—as we completed a secondary offering of
Reaching the right
customers with
the right products
and services
is another
Tech Data
advantage.
3.7 million shares of common stock. The total
net proceeds of approximately $149 million
gave us an even stronger balance sheet to
finance our planned growth. u
Over the
past two years, Tech Data has more than
doubled its revenue through substantial market
share gains and international expansion. Our
return on invested shareholders’ equity reached 17.1% in fiscal 1998,
the highest level we have achieved in the past five years.
6
TECH DATA CORPORATION
Letter to Shareholders u
A tribute to our people
Tech Data’s success has been measured and recognized in many ways
throughout the years. For example, our ranking on the Fortune 500
moved up from 398th in fiscal 1996 to 224th this year. Our increase in
revenue in fiscal 1998 represented the 34th biggest gain among
Fortune 500 companies. As an investor, however, you may be more
impressed by our ranking 27th among Fortune 500 companies in the
Steven A. Raymund
highest total return to investors over the past ten years, achieving an
annual return of 30.9% for this period. u Our history also includes
numerous
awards
and
honors
for
customer
service
excellence, but we take just as much pride in the words of
appreciation we hear every day from the technology resellers we serve.
Everything we accomplish is clearly the result of hard work
and dedication from people who have the utmost integrity and
professionalism. The daily contributions of our associates make us what
we are today. u
In every respect, Tech Data is a company
that represents value … to its customers, vendors and shareholders. We
thank all of these business partners for their continued support.
Sincerely,
Steven A. Raymund
Chairman of the Board of Directors
and Chief Executive Officer
April 10, 1998
FISCAL 1998 ANNUAL REPORT
7
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1998
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)
Florida
(State or other jurisdiction
of incorporation or organization)
No. 59-1578329
(I.R.S. Employer Identification Number)
5350 Tech Data Drive, Clearwater, FL
(Address of principal executive offices)
33760
(Zip Code)
Registrant’s telephone number including area code: (813) 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___
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. nn
Aggregate market value of the voting stock held by non-affiliates of the registrant as of March
31, 1998:
$1,698,978,000
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, 1998
Common stock, par value $.0015 per share
48,267,064
DOCUMENTS INCORPORATED BY REFERENCE
The registrant’s Proxy Statement for use at the Annual Meeting of Shareholders on June 23, 1998
is incorporated by reference in Part III of this Form 10-K to the extent stated herein.
8
ITEM 1. Business
PART I
(a)
General development of business
Tech Data Corporation (the “Company” or “Tech Data”) 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 and carries many of the same products offered by the
Company.
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. The acquisition was accounted for as a pooling-of-interests effective
February 1, 1994; however, due to the immaterial size of the acquisition in relation to the consolidated
financial statements, prior period financial statements were not restated.
To complement its Miami-based Latin American export business, the Company opened a
33,000 square-foot distribution center near São Paulo, Brazil in February 1997.
On July 1, 1997, Tech Data acquired a controlling interest in Macrotron AG (“Macrotron”), a
leading publicly held distributor of personal computer products based in Munich, Germany. Macrotron
is one of the largest computer products wholesale distributors in Germany whose product line includes
such leading vendors as 3Com, Canon, Compaq, Corel, Epson, Hewlett-Packard, IBM, Intel, Microsoft,
Sony and Toshiba. As of January 31, 1998, the Company owned approximately 98% and 82% of
Macrotron’s common and preferred stock, respectively. The acquisition has been accounted for under the
purchase method.
(b)
Financial information about industry segments
The Company operates in only one business segment.
(c)
Narrative description of business
The Company is the world’s second largest distributor of microcomputer hardware and software
products to value-added resellers (“VARs”), corporate resellers, retailers and direct marketers (collectively
with VARs, “customers”). Tech Data distributes products throughout the United States, Canada, Latin
America, Germany, France, Switzerland and Austria. The Company purchases its products directly from
more than 900 manufacturers of microcomputer hardware and publishers of software in large quantities,
maintains a stocking inventory of more than 45,000 products and sells to an active base of over 70,000
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.
The Company provides its customers with leading products including systems, peripherals,
networking, and software, which accounted for 24%, 42%, 18% and 16%, respectively, of sales in fiscal
1998. The Company offers products from manufacturers and publishers such as Bay Networks, Cisco,
Compaq, Corel, Creative Labs, Digital Equipment, Epson, Hewlett-Packard, IBM, Intel, Microsoft, Novell,
Okidata, Seagate, 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
9
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.
Recent trends in wholesale distribution include the final assembly of certain products by the
distributor and continued expansion of electronic commerce. In order to compete more effectively and
lower their costs, major computer systems manufacturers which rely on the two-tier distribution model
have begun to take steps to reduce their own inventories and the inventories of their distributors and
resellers by implementing a build-to-order manufacturing process. They have also begun to re-engineer
their distribution by developing programs 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 has been selected by Compaq, Hewlett-Packard and IBM to participate in their
respective channel assembly programs. Tech Data began performing assembly services for IBM in October
1997 and expects to begin performing such services for Compaq and Hewlett-Packard in fiscal 1999.
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.
10
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 regulates 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 6.8% for the fiscal
year ended January 31, 1992 to 4.2% for the fiscal year ended January 31, 1998.
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, allows the Company to improve operating efficiencies and
to offer additional services such as expanding its electronic commerce capabilities, including
electronic data interchange and Tech Data On-Line electronic ordering and information systems.
The Company’s ordering system will be available on its World Wide Web site in the near future.
The Company believes that growth in its electronic commerce capabilities will provide
incremental economies of scale and further reduce transaction costs.
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 45,000
products from more than 900 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 and has recently expanded its offerings of
communication products as a result of the convergence of the computing and telecommunication
markets. 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.
11
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. In July 1997, Tech Data broadened its European presence with the acquisition of a majority
interest in one of Germany’s largest wholesale microcomputer distributors, Macrotron AG.
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
900 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 written 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.”
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 has been selected
by Compaq, Hewlett-Packard and IBM to participate in their respective channel assembly programs. The
Company currently performs configuration services at its South Bend distribution center which has been
ISO 9002 certified. Tech Data began performing assembly services for IBM in October 1997 and expects
to begin performing such services for Compaq and Hewlett-Packard in fiscal 1999. The Company plans
to expand its configuration and final assembly services capabilities into its Fontana, California and
Swedesboro, New Jersey distribution centers later this year.
In addition to providing manufacturers and publishers with one of the largest bases of resellers
in the United States, Canada, Latin America, Germany, France, Switzerland and Austria, 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 1998,
1997 or 1996, except sales of Compaq products which accounted for 13% and 12% of net sales in fiscal
1998 and 1997, respectively, and sales of Hewlett-Packard products which accounted for 13% of net sales
in fiscal 1998.
12
Customers, Products and Services
The Company sells more than 45,000 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 70,000 VARs, corporate resellers, direct marketers and retailers.
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 segment is attractive
because VARs, which constituted approximately 53% of Tech Data’s net sales in fiscal 1998, generally rely
on distributors as their principal source of computer products and financing. Corporate resellers, retailers
and direct marketers 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 30% of the
Company’s net sales in fiscal 1998. Tech Data also has developed special programs to meet the unique
needs of retail and direct marketers, which customers constituted approximately 17% of the Company’s
net sales in fiscal 1998. No single customer accounted for more than 5% of the Company’s net sales
during fiscal 1998, 1997 or 1996.
The Company pursues a strategy of expanding its product line to offer its customers a broad
assortment of products. Based upon the convergence of computing and communication technologies,
the Company has also expanded its offering of communication 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, Latin America, Germany,
France, Switzerland and Austria from its distribution centers in Miami, Florida; Atlanta, Georgia;
Paulsboro, New Jersey; Ft. Worth, Texas; South Bend, Indiana; Ontario, California; Union City, California;
Mississauga, Ontario (Canada); Richmond, British Columbia (Canada); São Paulo, Brazil; Munich,
Germany; Bobigny (Paris), France; Hünenberg, Switzerland and Vienna, Austria. 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.
Sales and Electronic Commerce
Currently, the Company’s sales force consists of approximately 80 field sales representatives
and 1,054 inside 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 to place orders. If the product is in stock and the customer has available
credit, customer orders received by 5:00 p.m. local time are generally shipped the same day from the
distribution facility nearest the customer.
13
Customers rely upon the Company's electronic ordering and information systems, 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 seven
United States distribution centers. Likewise, inside sales teams in Canada, Brazil, Germany, France,
Switzerland and Austria 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. The Company anticipates providing customers with access to
order entry capabilities on the World Wide Web in the near future.
The Company provides comprehensive training to its field and inside sales representatives
regarding technical characteristics of products and the Company’s policies and procedures. Each new
domestic sales representative attends a four to six-week course provided in-house by the Company. 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
Merisel, Inc. in North America, Computer 2000 and CHS Electronics, Inc. in Europe and 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, 1998, the Company had approximately 5,075 full-time employees. The
Company enjoys excellent relations with its employees, all of whom are non-union.
(d) Financial information about foreign and domestic operations and export sales
The geographic areas in which the Company operates are the United States (including exports
to Latin America and the Caribbean) and International (Germany, France, Canada, Switzerland, Austria
and Brazil). See Note 9 and Note 10 of Notes to Consolidated Financial Statements regarding the
geographical distribution of the Company’s net sales, operating income and identifiable assets and the
acquisition of Macrotron AG.
Executive Officers
Steven A. Raymund, Chairman of the Board of Directors and Chief Executive Officer,
age 42, 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. 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.
14
Anthony A. Ibargüen, President and Chief Operating Officer, age 38, joined the Company
in September 1996 as President of the Americas and was appointed President and Chief Operating Officer
in March 1997. 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. Ibargüen 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 41, 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 of Finance
and Chief Financial Officer and was promoted to Executive Vice President and Chief Financial Officer in
March 1997. From June 1991 through September 1991 he was employed as Vice President of Finance
of Inex Vision Systems. From 1979 to May 1991 he was employed by Price Waterhouse, most recently
as a Senior Audit Manager. Mr. Howells is a Certified Public Accountant and holds a B.B.A. Degree in
Accounting from Stetson University.
Peggy K. Caldwell, Senior Vice President of Marketing, age 52, 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.
Timothy J. Curran, Senior Vice President of Sales, age 46, 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 40, 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, President and Managing Director of European Operations, age 54,
joined the Company in November 1997. 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.
H. John Lochow, Senior Vice President and Chief Information Officer, age 45, joined the
Company in February 1998. 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.
Yuda Saydun, Senior Vice President and General Manager - Latin America, age 44, 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.
15
Joseph B. Trepani, Senior Vice President and Corporate Controller, age 37, 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 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.
Theodore F. Augustine, Vice President of Distribution and Logistics, age 51, joined the
Company in July 1996. Prior to joining the Company he served as President of M-Group Logistics, Inc.
from June 1995 to July 1996. From 1989 to June 1995 he was employed by The Eli Witt Company as
Executive Vice President and Chief Operations Officer. Mr. Augustine holds a Masters of Business
Administration Degree from Loyola College.
Patrick O. Connelly, Vice President of Worldwide Credit Services, age 52, 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 43, 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 37, 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, most recently
as an Audit Manager. 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 39, 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.
ITEM 2. Properties
Tech Data’s executive offices, are located in Clearwater, Florida, all of which buildings, except for
one, are owned by the Company. In addition, the Company maintains distribution centers in Miami,
Florida; Atlanta, Georgia; Paulsboro, New Jersey; Ft. Worth, Texas; South Bend, Indiana; Ontario,
California; Union City, California; Mississauga, Ontario (Canada); Richmond, British Columbia (Canada);
Bobigny (Paris), France; São Paulo, Brazil; Munich, Germany; Hünenberg, Switzerland; and Vienna,
Austria. The Company leases all of the preceding distribution centers with the exception of one of its
Munich locations. The Company also operates training centers in nine cities in the U.S.
The Company is nearing completion of a project to significantly expand five of its seven U.S.
distribution centers which will encompass a total of 2.2 million square-feet when completed later this year
as compared to the former capacity of 800,000 square feet. Four of the five new U.S. distribution center
locations include adjacent land which provides enough space to double the capacity of each of these
locations to meet future growth requirements. 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.
16
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, 1998.
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 quarter-
ly 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, 1998 was 17,000.
Sales Price
High
Low
Fiscal year 1998
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47 3/4
51 3/4
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39 15/16
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27 1/2
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year 1997
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36 3/8
30 3/8
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24 3/4
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19 1/2
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 34 1/8
36 1/4
22 7/8
19 3/4
$ 21 5/8
22 1/8
18 1/4
13
17
ITEM 6. Selected Financial Data
FIVE YEAR FINANCIAL SUMMARY
(In thousands, except per share data)
1998
Year ended January 31,
1996
1995
1997
1994
Income statement data:
Net sales . . . . . . . . . . . . . . . . . . . $ 7,056,619 $ 4,598,941 $ 3,086,620 $ 2,418,410 $ 1,532,352
Cost and expenses:
Cost of products sold . . . . . . . .
Selling, general and
administrative expenses . . . . .
Operating profit . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . .
Income before income taxes . . . . .
Provision for income taxes . . . . . .
Income before minority interest . .
Minority interest . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . $
Net income per common share:
6,590,873
4,277,160
2,867,226
2,219,122
1,397,967
293,108
6,883,981
172,638
29,908
142,730
52,816
89,914
429
89,485 $
206,770
4,483,930
115,011
21,522
93,489
36,516
56,973
—mn
56,973 $
163,790
3,031,016
55,604
20,086
35,518
13,977
21,541
—mn
21,541 $
127,951
2,347,073
71,337
13,761
57,576
22,664
34,912
—mn
34,912 $
79,390
1,477,357
54,995
5,008
49,987
19,774
30,213
—mn
30,213
Basic . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . $
2.00 $
1.92 $
1.39 $
1.35 $
.57 $
.56 $
.92 $
.91 $
.83
.83
Weighted average common
shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . .
Dividends per common share . . .
44,715
46,610
—mn
40,870
42,125
—mn
37,846
38,138
—mn
37,758
38,258
—mn
36,196
36,590
—mn
Balance sheet data:
Working capital . . . . . . . . . . . . . . $ 537,381 $
Total assets . . . . . . . . . . . . . . . . .
Revolving credit loans . . . . . . . . .
Long-term debt . . . . . . . . . . . . . .
Shareholders' equity . . . . . . . . . .
2,185,383
540,177
8,683
702,588
351,993 $
201,704 $
1,545,294
396,391
8,896
438,381
1,043,879
283,100
9,097
285,698
182,802 $
784,429
304,784
9,682
260,826
165,366
506,760
153,105
9,467
213,326
18
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 preceding fiscal years.
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost and expenses:
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Years Ended January 31, 1998 and 1997
Percentage of net sales
Year ended January 31,
1996
1997
1998
100.0% 100.0% 100.0%
93.4
4.2
97.6
2.4
.4
2.0
.7
1.3
–
1.3%
93.0
4.5
97.5
2.5
.5
2.0
.8
1.2
–
1.2%
92.9
5.3
98.2
1.8
.6
1.2
.5
.7
–
.7%
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 40.3% and 143.1% 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 20% of consolidated net sales compared with 13%
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.
19
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.
Fiscal Years Ended January 31, 1997 and 1996
Net sales increased 49.0% to $4.6 billion in fiscal 1997 compared to $3.1 billion in the prior
year. This increase is attributable to the addition of new product lines and the expansion of existing product
lines combined with an increase in the Company’s market share. The rate of growth in fiscal year 1997
was also positively impacted by a lower growth rate in the prior comparable period as the Company was
recovering from the effects of the business interruptions caused by the conversion to a new computer
system in December 1994. The Company’s U.S. and international sales grew 51% and 36% respectively,
in fiscal 1997 compared to the prior year. The Company’s international sales in fiscal 1997 were
approximately 13% of consolidated net sales.
The cost of products sold as a percentage of net sales increased from 92.9% in fiscal 1996 to
93.0% in fiscal 1997. 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 by 26.2% from $163.8 million in fiscal
1996 to $206.8 million in fiscal 1997, and as a percentage of net sales decreased to 4.5% in fiscal 1997
from 5.3% 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 1997 in addition
to improved operating efficiencies. The dollar value increase in selling, general and administrative
expenses is primarily a result of expanded employment and increases in other administrative expenses
needed to support the increased volume of business.
As a result of the factors described above, operating profit in fiscal 1997 increased 106.8% to
$115.0 million, or 2.5% of net sales, compared to $55.6 million, or 1.8% of net sales, in fiscal 1996.
Interest expense increased due to an increase in the Company’s average outstanding indebtedness,
partially offset by decreases in short-term interest rates on the Company’s floating rate indebtedness.
Interest expense was further moderated in fiscal 1997 by the receipt of net proceeds of approximately $83.3
million from the Company’s July 1996 common stock offering which were used to reduce indebtedness.
Net income in fiscal 1997 increased 164.5% to $57.0 million, or $1.35 per diluted share,
compared to $21.5 million, or $.56 per diluted share, in the prior year.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income” (“SFAS 130”). SFAS 130
establishes standards for reporting and display of comprehensive income and its components and is effective
for financial statements for fiscal years beginning after December 15, 1997. This standard addresses
disclosure issues and therefore will not affect the Company’s financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, “Disclosures about Segments of an Enterprise and
Related Information” (“SFAS 131”). SFAS 131 requires that companies disclose segment data based
on how management makes decisions about allocating resources to segments and measuring their
performance. SFAS 131 will be effective for fiscal years beginning after December 15, 1997. This standard
addresses disclosure issues and therefore will not affect the Company’s financial position or results of
operations.
20
Impact of Inflation
The Company has not been adversely affected by inflation as technological advances and
competition within the microcomputer industry have 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.
Year 2000 Compliance
The Company has conducted a comprehensive audit of the “Year 2000” issues affecting its operations
and is in the process of implementing required modifications to its systems. The underlying issues are
not expected to have a material adverse affect on the Company’s operations or financial position. The cost
of addressing “Year 2000” issues has not been material to the Company to date and is not expected to be
in future periods.
Liquidity and Capital Resources
Net cash used in operating activities of $126.3 million in fiscal 1998 was primarily attributable
to growth in sales and the resulting increases in accounts receivable and inventories.
Net cash used in investing activities of $116.3 million in fiscal 1998 was a result of the payment
of $68.1 million related to the acquisition of the common and preferred stock of Macrotron combined
with the Company’s continuing investment of $48.1 million in its management information system
capability, office facilities and equipment for distribution centers. The Company expects to make capital
expenditures of approximately $75 - $100 million during fiscal 1999 to further expand its management
information systems, office facilities and distribution centers.
Net cash provided by financing activities of $244.6 million in fiscal 1998 was provided by additional
borrowings of $76.8 million under the Company’s revolving credit loans in addition to net proceeds of
approximately $149 million from the November 1997 common stock offering and approximately $19
million of proceeds from other issuance of the Company’s common stock.
The Company currently maintains domestic and foreign revolving credit agreements which provide
maximum short-term borrowings of approximately $907 million (including local country credit lines), of
which $540 million was outstanding at January 31, 1998. In November 1997, the Company completed
a public offering of 3.7 million shares of its common stock resulting in net proceeds of approximately
$149 million. The Company believes that proceeds from the common stock offering, along with cash
from operations, available and obtainable bank credit lines and trade credit from its vendors will be
sufficient to satisfy its working capital and capital expenditure needs through fiscal 1999.
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.
21
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 floor-
plan basis.
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 Exhibit 99A as part of this Form 10-K 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.
22
ITEM 8. Financial Statements
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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in the period ended January 31,
1998, 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.
Price Waterhouse LLP
Tampa, Florida
March 18, 1998
To Our Shareholders:
REPORT OF MANAGEMENT
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,
subject to shareholder approval, 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.
Steven A. Raymund
Chairman of the Board Directors
and Chief Executive Officer
March 18, 1998
Jeffery P. Howells
Executive Vice President
and Chief Financial Officer
23
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowance
of $29,731 and $23,922 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess of cost over acquired net assets, net . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 31,
1998
1997
$
2,749 $
661
909,426
1,028,367
65,843
2,006,385
100,562
55,460
22,976
633,579
759,974
55,796
1,450,010
65,597
5,922
23,765
$ 2,185,383 $ 1,545,294
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 540,177 $
850,866
77,961
1,469,004
8,683
1,477,687
5,108
396,391
658,732
42,894
1,098,017
8,896
1,106,913
–mn
Commitments and contingencies (Note 8)
Shareholders’ equity:
Preferred stock, par value $.02; 226,500 shares
authorized and issued; liquidation
preference $.20 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $.0015; 200,000,000
and 100,000,000 shares authorized; 48,250,349
and 43,291,423 issued and outstanding . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
5
72
403,880
299,768
(1,137)
702,588
65
226,577
210,283
1,451
438,381
$ 2,185,383 $ 1,545,294
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
24
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost and expenses:
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share: . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding: . . . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
Year ended January 31,
1997
1998
1996
$ 7,056,619 $ 4,598,941 $ 3,086,620
6,590,873
293,108
6,883,981
172,638
29,908
142,730
52,816
89,914
429
89,485 $
4,277,160
206,770
4,483,930
115,011
21,522
93,489
36,516
56,973
–mn
56,973 $
2,867,226
163,790
3,031,016
55,604
20,086
35,518
13,977
21,541
–mn
21,541
2.00 $
1.92 $
1.39 $
1.35 $
.57
.56
44,715
46,610
40,870
42,125
37,846
38,138
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
Preferred Stock
Shares Amount
Common Stock
Shares Amount
Additional
Paid-In
Capital
Retained
Earnings
Cumulative
Translation
Adjustment
Total
Shareholders’
Equity
Balance – January 31, 1995 . . . . . . . . . . 227
$5 37,808 $57
$127,947
$131,769
$1,048
$260,826
Issuance of common stock for stock
options exercised and related tax
benefit . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Translation adjustments . . . . . . . . . . .
123
2,098
21,541
Balance -- January 31, 1996 . . . . . . . . . 227
5 37,931
57
130,045
153,310
Issuance of common stock for stock
options exercised and related tax
benefit . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock net of
offering costs . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Translation adjustments . . . . . . . . . . .
760
4,600
1
7
13,223
83,309
56,973
Balance – January 31, 1997 . . . . . . . . . . 227
5 43,291
65
226,577
210,283
Issuance of common stock in
business purchase . . . . . . . . . . . . . .
Issuance of common stock for stock
options exercised and related tax
benefit . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock net of
offering costs . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Translation adjustments . . . . . . . . . . .
407
861
3,691
1
1
5
Balance – January 31, 1998 . . . . . . . . . . 227 $5 48,250 $72
9,255
19,077
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
25
1,233
2,281
(830)
1,451
2,098
21,541
1,233
285,698
13,224
83,316
56,973
(830)
438,381
9,256
19,078
148,971
148,976
89,485
(2,588)
$403,880 $299,768 $(1,137) $702,588
(2,588)
89,485
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Year ended January 31,
1997
1998
1996
Cash flows from operating activities:
Cash received from customers . . . . . . . . . . . . . . . . . . . $ 6,870,096 $ 4,390,916 $ 2,933,831
(2,854,653)
Cash paid to suppliers and employees . . . . . . . . . . . . .
(20,276)
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11,628)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,274
Net cash (used in) provided by operating activities . . .
(6,914,537)
(29,909)
(51,949)
(126,299)
(4,513,309)
(21,122)
(45,037)
(188,552)
Cash flows from investing activities:
Acquisition of business, net of cash acquired . . . . . . . .
Expenditures for property and equipment . . . . . . . . . .
Software development costs . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . .
Cash flows from financing activities:
Proceeds from issuance of common stock . . . . . . . . . .
Net borrowings (repayments) from revolving credit loans . .
Principal payments on long-term debt . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . .
(68,136)
(45,900)
(2,216)
(116,252)
168,054
76,786
(201)
244,639
–mn
(19,229)
(2,024)
(21,253)
96,540
113,291
(519)
209,312
–mn
(23,596)
(2,826)
(26,422)
2,098
(21,684)
(608)
(20,194)
Net increase (decrease) in cash and cash equivalents . .
Cash and cash equivalents at beginning of year . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . $
2,088
661
2,749 $
(493)
1,154
661 $
658
496
1,154
Reconciliation of net income to net cash (used in)
provided by operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
89,485 $
56,973 $
21,541
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . .
Provision for losses on accounts receivable . . . . . . . . .
Loss on disposal of fixed assets . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:
(Increase) in accounts receivable . . . . . . . . . . . . . . . .
(Increase) in inventories . . . . . . . . . . . . . . . . . . . . . .
(Increase) in prepaid and other assets . . . . . . . . . . . .
Increase in accounts payable . . . . . . . . . . . . . . . . . . .
(Decrease) increase in accrued expenses . . . . . . . . . . .
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . .
26,364
22,634
–mn
3,720
(183,481)
(181,393)
(8,317)
106,134
(1,445)
(215,784)
20,011
19,648
446
(5,051)
(208,025)
(294,552)
(13,962)
225,358
10,602
(245,525)
Net cash (used in) provided by operating activities . . . $ (126,299) $ (188,552) $
17,364
17,433
603
(5,603)
(152,789)
(100,891)
(7,254)
239,161
17,709
25,733
47,274
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
26
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 (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:
Method
Buildings and improvements . . . . . . . . . Straight-line
Leasehold improvements . . . . . . . . . . . . . Straight-line
Furniture, fixtures and equipment . . . . . . Accelerated
and straight-line
Years
15 - 39
2 - 5
2 - 7
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.
Excess of cost over acquired net assets
The excess of cost over acquired net assets is being amortized on a straight-line basis over 15 to
35 years. Amortization expense was $1,458,000, $602,000 and $646,000 in 1998, 1997 and 1996,
respectively. The accumulated amortization of goodwill is approximately $3,563,000 and $2,264,000 at
January 31, 1998 and 1997, respectively. The Company evaluates, on a regular basis, whether events and
circumstances have occurred that indicate the carrying amount of goodwill may warrant revision or may
not be recoverable. At January 31, 1998, the net unamortized balance of goodwill is not considered to
be impaired.
27
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Capitalized deferred software costs
Deferred software costs are included in other assets and represent internal development costs and
payments to vendors for the design, purchase and implementation of the computer software for the
Company’s operating and financial systems. Such deferred costs are being amortized over three to seven
years with amortization expense of $4,967,000, $4,611,000 and $4,253,000 in 1998, 1997 and 1996,
respectively. The accumulated amortization of such costs was $14,160,000 and $9,193,000 at January
31, 1998 and 1997, respectively. The remaining unamortized balance of such costs was $17,894,000 and
$20,645,000 at January 31, 1998 and 1997, respectively.
Product warranty
The Company does not offer warranty coverage. However, to maintain customer goodwill, the
Company facilitates vendor warranty policies by accepting for exchange (with the Company’s prior
approval) defective products within 60 days of invoicing. Defective products received by the Company
are subsequently returned to the vendor for credit or replacement.
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 since such amounts are expected to be reinvested indefinitely.
Foreign currency translation
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 share-
holders’ equity. The results of foreign operations are translated at the weighted average exchange rates for
the year. Gains or losses resulting from foreign currency transactions are included in the statement of
income.
Concentration of credit risk
The Company sells its products to a large base of value-added resellers (“VARs”), corporate
resellers, retailers and direct marketers throughout the United States, Canada, Latin America, Germany,
France, Switzerland and Austria. 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.
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.
28
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 1998 are as follows:
(Derivative instruments outstanding at January 31, 1997 were not material)
January 31, 1998
Notional
Amounts
Estimated
Fair Value
(In thousands)
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . .
Purchased foreign currency options . . . . . . . . . . . . . . . . . . . .
Currency interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 78,043
500
128,300
$ 939
(12)
377
Disclosures about 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.
Net income per common share
Effective for the fiscal year ended January 31, 1998, the Company has adopted Statement of
Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS 128”) and related interpretations.
SFAS 128 requires dual presentation of Basic Earnings per Share (“Basic EPS”) and Diluted Earnings per
Share (“Diluted EPS”). 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 if stock options were exercised using the treasury stock method. Earnings per share for all
prior periods have been restated to reflect the adoption of SFAS 128. The composition of basic and
diluted net income per common share is as follows:
Year ended January 31,
1997
(In thousands, except per share amounts)
1998
1996
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,485
44,715
Weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share - basic . . . . . . . . . . . . . . . . . $
2.00
Weighted average shares including the dilutive
effect of stock options (1,895, 1,255 and 292
for fiscal 1998, 1997 and 1996, respectively) . . . . . . . . . . .
Net income per common share - diluted . . . . . . . . . . . . . . . $
46,610
1.92
$ 56,973
40,870
1.39
$
$ 21,541
37,846
.57
$
42,125
1.35
$
38,138
.56
$
29
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 $60,000,000 and $111,826,000 at January 31, 1998 and 1997, 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 9 of Notes to Consolidated Financial Statements regarding the
non-cash exchange of common stock in connection with a business combination.
Fiscal year
The Company and its subsidiaries operate on a fiscal year that ends on January 31, except for
the Company’s French, German and Brazilian subsidiaries which operate on a fiscal year that ends on
December 31.
NOTE 2 - PROPERTY AND EQUIPMENT:
January 31,
1998
1997
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less-accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(In thousands)
7,805
36,543
112,821
12,359
169,528
(68,966)
$ 100,562
3,898
29,155
75,982
629
109,664
(44,067)
$ 65,597
NOTE 3 - REVOLVING CREDIT LOANS:
The Company has an agreement (the “Receivables Securitization Program”) with a financial institution
that allows the Company to transfer an undivided interest in a designated pool of accounts receivable on an
ongoing basis to provide borrowings up to a maximum of $325,000,000. 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 $325,000,000 maximum. The Company pays interest on advances
under the Receivables Securitization Program at a designated commercial paper rate, plus an agreed-upon
spread. At January 31, 1998, the Company had a $237,420,000 outstanding balance under this program
which is included in the balance sheet caption “Revolving Credit Loans”. This agreement expires December
31, 1998.
In August 1997, the Company entered into a new three-year unsecured $550,000,000 multi-
currency revolving credit facility replacing its former $290,000,000 facility. The Company and its subsidiaries
are able to borrow funds in sixteen major foreign currencies under this agreement.
As of January 31, 1998, the Company maintained domestic and foreign revolving credit loan
agreements (including the Receivables Securitization Program) with a total of twenty financial institutions which
provide for maximum short-term borrowings of approximately $907,000,000 (including local country credit
loans). At January 31, 1998, the weighted average interest rate on all short-term borrowings was 4.89%. The
Company can fix the interest rate for periods of 30 to 180 days under various interest rate options. The credit
agreements contain warranties and covenants that must be complied with on a continuing basis, including the
maintenance of certain financial ratios. At January 31, 1998, the Company was in compliance with all such
covenants.
30
DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4 - LONG-TERM DEBT:
January 31,
1998
1997
(In thousands)
Mortgage note payable, interest at 10.25%, principal
and interest of $85,130 payable monthly, balloon
payment due 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,788
$ 8,902
Mortgage note payable funded through Industrial Revenue
Bond, interest at 7.5%, principal and interest payable
quarterly, through 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less - current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108
8,896
(213)
$ 8,683
195
9,097
(201)
$ 8,896
Principal maturities of long-term debt at January 31, 1998 for the succeeding five fiscal years are
as follows: 1999 - $213,000; 2000 - $162,000; 2001 - $155,000; 2002 - $172,000; 2003 - $191,000.
Mortgage notes payable are secured 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,
1998.
NOTE 5 - 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:
January 31,
Deferred tax liabilities:
1998
Accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,519
1,630
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,937
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,086
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets:
Accruals not currently deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves not currently deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized inventory costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,412
21,290
1,959
371
29,032
Net deferred tax assets (included in prepaid and other assets) . . . . . . . . . . . $ 11,946
$
1997
6,863
2,811
3,525
13,199
5,092
21,340
2,220
213
28,865
$ 15,666
31
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Significant components of the provision for income taxes are as follows:
Current:
Federal ................................................................................
State ....................................................................................
Foreign ................................................................................
Total current ......................................................................
Deferred:
Federal ................................................................................
State ....................................................................................
Foreign ................................................................................
Total deferred ....................................................................
Year ended January 31,
1997
$ 32,485
5,897
3,185
41,567
1998
$ 39,805
2,469
6,822
49,096
1996
$ 15,107
2,932
1,541
19,580
3,328
507
(115)
3,720
$ 52,816
(3,490)
(451)
(1,110)
(5,051)
$ 36,516
(4,656)
(625)
(322)
(5,603)
$ 13,977
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:
Tax at U.S. statutory rates........................................................
State income taxes, net of federal tax benefit ..........................
Other - net ...............................................................................
The components of pretax earnings are as follows:
Year ended January 31,
1997
1998
1996
35.0%
1.4
.6
37.0%
35.0%
3.8
.3
39.1%
35.0%
4.2
.2
39.4%
United States .......................................................................... $ 126,757
15,973
Foreign ....................................................................................
$ 142,730
1998
Year ended January 31,
1997
$ 88,536
4,953
$ 93,489
1996
$ 33,164
2,354
$ 35,518
The cumulative amount of undistributed earnings of international subsidiaries for which U.S.
income taxes have not been provided was approximately $10 million at January 31, 1998. It is not practical
to estimate the amount of unrecognized deferred U.S. taxes on these undistributed earnings.
NOTE 6 - EMPLOYEE BENEFIT PLANS:
Stock compensation plans
At January 31, 1998, the Company had four stock-based compensation plans, 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.
32
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 1998, 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 there-
after. Stock options granted to members upon their initial appointment 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.
A summary of the status of the Company’s stock option plans is as follows:
January 31,
1998
January 31,
1997
January 31,
1996
Weighted
Average
Exercise
Shares Price
Weighted
Average
Exercise
Shares Price
Weighted
Average
Exercise
Shares Price
Outstanding at beginning of year . . 3,285,818 $ 4.31
26.65
Granted . . . . . . . . . . . . . . . . . . . . 1,643,400
13.23
(720,573)
Exercised . . . . . . . . . . . . . . . . . . .
17.57
(327,100)
Canceled . . . . . . . . . . . . . . . . . . .
19.43
Outstanding at year end . . . . . . . . 3,881,545
2,644,056 $ 15.62
3,081,110 $ 13.31
12.91
1,683,450
16.27
1,112,000
8.53
13.11
(675,492)
(79,800)
18.45
13.72 (1,166,596)
(231,800)
13.31
3,081,110
14.31
3,285,818
Options exercisable at year end . .
601,895
Available for grant at year end . . . 4,588,000
576,862
905,000
494,460
1,785,000
Range of
Exercise Prices
$ 1.50 - $ 10.99
11.00 - 15.99
16.00 - 29.99
30.00 - 51.00
Number
Outstanding
at 1/31/98
562,150
1,386,195
1,597,900
335,300
3,881,545
Options Outstanding
Options Exercisable
Weighted-
Average
Remaining
Contractual
Life (years)
6.4
7.7
8.4
9.6
Weighted-
Average
Exercise
Price
$ 10.24
14.20
23.59
36.62
Weighted-
Average
Exercise
Price
$ 9.72
13.94
20.23
–mn
Number
Exercisable
at 1/31/98
250,400
221,495
130,000
0
601,895
33
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. Under the terms of the plan,
employees can choose to have a fixed dollar amount or percentage deducted from their 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 137,246 shares as of January 31, 1998. All shares purchased under this plan must be
retained for a period of one year.
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):
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share:
Year ended January 31,
1997
$ 55,059
1998
$ 85,344
1996
$ 19,937
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.91
1.83
1.35
1.31
.53
.52
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, 1998, 1997 and 1996,
respectively: (1) risk-free interest rates of 6.76%, 6.08% and 6.96%; (2) dividend yield of 0.0%, 0.0% and
0.0%; (3) expected lives of 4.87, 5.08 and 5.08 years; and (4) volatility of 56%, 56% and 39%. Results
may vary depending on the assumptions applied within the model.
Stock ownership and retirement savings plans
In February 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, 1998 and 1997, 780,000 and 717,000 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
$2,460,000, $2,090,000 and $1,659,000 for 1998, 1997 and 1996, respectively.
NOTE 7 - 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 share-
holders will each vote as a separate class.
In November 1997, the Company completed a public offering of 3.7 million shares of common
stock resulting in net proceeds to the Company of approximately $149,000,000.
34
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 8 - 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: 1999 - $15,145,000; 2000 - $13,604,000; 2001 -
$10,079,000; 2002 - $4,278,000; 2003 - $1,601,000 and $4,294,000 thereafter. Rental expense for all
operating leases amounted to $15,704,000, $10,160,000 and $7,547,000 in 1998, 1997 and 1996,
respectively.
NOTE 9 - ACQUISITIONS:
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. On July 10, 1997, the Company commenced a tender offer for the remaining shares of
Macrotron common and preferred stock at a price per share of DM730 and DM600, respectively. The
tender offer period ended on September 5, 1997. As of January 31, 1998, the Company owned approximately
98% and 82% of Macrotron’s common and preferred stock, respectively. 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.
The acquisition of Macrotron is accounted for under the purchase method. The preliminary purchase
price allocation has resulted in approximately $51,000,000 in excess cost over the net fair market value
of tangible assets acquired as of January 31, 1998. The Company is currently implementing its acquisition
strategy which may result in an adjustment to the net assets acquired. Consistent with the Company’s
accounting policy for foreign subsidiaries, Macrotron’s operations will be consolidated into the Company’s
consolidated financial statements on a calendar year basis. Consequently, the Company’s fiscal year ending
January 31, 1998 includes Macrotron’s operations for the six month period beginning July 1, 1997 and
ending December 31, 1997.
The following pro forma unaudited results of operations reflects the effect on the Company’s
operations, as if the above described acquisition had occurred at the beginning of each of the periods
presented below:
Year ended January 31,
1997
1998
(In thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,623,852
90,161
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.01
1.93
$ 5,571,406
60,716
1.47
1.43
The unaudited pro forma information is presented for informational purposes only and includes
certain pro forma adjustments. Such pro forma information is not necessarily indicative of the operating
results that would have occurred had the Macrotron acquisition been consummated as of the beginning
of the periods above, nor are they necessarily indicative of future operating results.
35
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 10 - SEGMENT INFORMATION:
The Company is engaged in one business segment, the wholesale distribution of microcomputer
hardware and software products. The geographic areas in which the Company operates are the United
States (United States including exports to Latin America and the Caribbean) and International (Germany,
France, Canada, Switzerland, Austria and Brazil). The geographical distribution of net sales, operating
income and identifiable assets are as follows (in thousands):
United States
International
Eliminations
Consolidated
Fiscal year 1998
Net sales to unaffiliated customers . .
Operating income . . . . . . . . . . . .
Identifiable assets . . . . . . . . . . . . .
Fiscal year 1997
Net sales to unaffiliated customers . .
Operating income . . . . . . . . . . . .
Identifiable assets . . . . . . . . . . . . .
Fiscal year 1996
Net sales to unaffiliated customers . .
Operating income . . . . . . . . . . . .
Identifiable assets . . . . . . . . . . . . .
$ 5,624,891
$ 151,887
$ 1,568,458
$ 1,431,728
20,751
$
$ 616,925
$ 4,009,924
$
105,330
$ 1,327,156
$ 2,654,750
48,419
$
868,910
$
$
$
$
$
$
$
589,017
9,681
218,138
431,870
7,185
174,969
$ –
$ –
$ –
$ –
$ –
$ –
$7,056,619
$ 172,638
$2,185,383
$ 4,598,941
$
115,011
$ 1,545,294
$ –
$ –
$ –
$ 3,086,620
$
55,604
$ 1,043,879
NOTE 11 - UNAUDITED INTERIM FINANCIAL INFORMATION:
Fiscal year 1998
Net sales . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . .
Net income per common share:
Basic . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . .
Fiscal year 1997
Net sale . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . .
Net income per common share:
Basic . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . .
Quarter ended
April 30
July 31
October 31
January 31
(In thousands, except per share amounts)
$ 1,370,146
95,177
18,222
$ 1,551,820
103,978
21,464
$ 2,021,479
129,342
23,673
$2,113,174
137,249
26,126
.42
.41
.49
.47
.54
.51
.55
.53
Quarter ended
April 30
July 31
October 31
January 31
(In thousands, except per share amounts)
$
985,574
69,012
10,428
$ 1,063,228
74,302
12,016
$ 1,236,650
85,955
16,748
$ 1,313,489
92,512
17,781
.27
.27
.31
.30
.39
.38
.41
.40
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
36
OFFICERS
Steven A. Raymund
Chairman of the Board of Directors
and Chief Executive Officer
Anthony A. Ibargüen
President and Chief Operating Officer
Jeffery P. Howells
Executive Vice President
and Chief Financial Officer
Peggy K. Caldwell
Senior Vice President of Marketing
Timothy J. Curran
Senior Vice President of Sales
Lawrence W. Hamilton
Senior Vice President of Human Resources
H. John Lochow
Senior Vice President
and Chief Information Officer
Yuda Saydun
Senior Vice President
and General Manager - Latin America
Joseph B. Trepani
Senior Vice President and Corporate Controller
Theodore F. Augustine
Vice President of Distribution and Logistics
Patrick O. Connelly
Vice President of Worldwide Credit Services
Charles V. Dannewitz
Vice President of Taxes
Arthur W. Singleton
Vice President, Treasurer and Secretary
David R. Vetter
Vice President and General Counsel
DIRECTORS
Steven A. Raymund
Chairman of the Board of Directors
and Chief Executive Officer
Charles E. Adair
President, Kowaliga Capital, Inc.
Daniel M. Doyle
Chief Executive Officer
Danka Business Systems PLC
Donald F. Dunn
Former Chairman, Maas Brothers/Jordan Marsh
Edward C. Raymund
Chairman Emeritus
David M. Upton
Professor, Harvard Business School
John Y. Williams
Managing Director, Equity-South Advisors, LLC
Tech Data Corporation u
SUBSIDIARIES
Macrotron
Heisenbergbogen 3
85609 Dornach, Germany
Tech Data France
26, avenue Henri Barbusse
93012 Bobigny, France
Tech Data Canada
6895 Columbus Road
Mississauga, Ontario
L5T 2G9 Canada
Tech Data Latin America
8501 N.W. 17th Street, Suite 101
Miami, Florida 33126
Tech Data Brasil
Rua São Paulo, 137
06465-130 Barueri – SP
São Paulo, Brasil
Tech Data Education
5350 Tech Data Drive
Clearwater, Florida 33760
Tech Data Finance
5000 Executive Parkway, Suite 490
San Ramon, CA 94583
ANNUAL MEETING
The annual meeting of shareholders of the
Company will be held at 3:30 p.m. on Tuesday,
June 23, 1998, at Tech Data’s headquarters:
5350 Tech Data Drive Clearwater, FL 33760
(813) 539-7429
SHAREHOLDER INQUIRIES
Tech Data Corporation welcomes inquiries from its share-
holders and other interested investors. For
further information on the activities of the Company, addi-
tional copies of this report, or other financial information,
contact our Investor Relations
department at the address above or our web site
at www.techdata.com. Communications regarding lost
stock certificates and address changes should
be directed to Tech Data’s transfer agent, Chase Mellon
Shareholder Services.
QUARTERLY REPORTS
In the Company’s effort to provide financial information
on a timely basis, the quarterly earnings release will be made
available to shareholders through the Company’s fax-on-
demand service by calling 800-758-5804
(Access #841125). Alternatively, you may receive the quar-
terly earnings release by mail by contacting our Investor
Relations department.
TRANSFER AGENT
Chase Mellon Shareholder Services
Four Station Square, Third Floor, Pittsburgh, PA 15219
(800) 756-3353
SECURITIES COUNSEL
Schifino & Fleischer, P.A., Tampa, Florida
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, Tampa, Florida
STOCK LISTING
The Company’s common stock is traded on The Nasdaq
Stock Market under the symbol TECD.
FISCAL 1998 ANNUAL REPORT
TECH DATA CORPORATION
5350 Tech Data Drive Clearwater, FL 33760
www.techdata.com
© 1998 Tech Data Corporation. All rights reserved.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
___________________________
(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, 1998
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)
_____________________________________________
Florida
(State or other jurisdiction
of incorporation or organization)
No. 59-1578329
(I.R.S. Employer Identification Number)
5350 Tech Data Drive, Clearwater, FL
(Address of principal executive offices)
33760
(Zip Code)
_____________________________________________
Registrant’s telephone number including area code: (813) 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 ____
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.
Aggregate market value of the voting stock held by non-affiliates of the registrant as of March
31, 1998:
$1,698,978,000
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, 1998
Common stock, par value $.0015 per share
48,267,064
DOCUMENTS INCORPORATED BY REFERENCE
The registrant’s Proxy Statement for use at the Annual Meeting of Shareholders on June 23,
1998 is incorporated by reference in Part III of this Form 10-K to the extent stated herein.
ITEM 1. Business
PART I
(a) General development of business
Tech Data Corporation (the "Company" or "Tech Data") 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 and carries many of the same products offered by the
Company.
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. The acquisition was accounted for as a pooling-of-interests
effective February 1, 1994; however, due to the immaterial size of the acquisition in relation to the
consolidated financial statements, prior period financial statements were not restated.
To complement its Miami-based Latin American export business, the Company opened a 33,000
square-foot distribution center near São Paulo, Brazil in February 1997.
On July 1, 1997, Tech Data acquired a controlling interest in Macrotron AG (“Macrotron”), a
leading publicly held distributor of personal computer products based in Munich, Germany. Macrotron is
one of the largest computer products wholesale distributors in Germany whose product line includes such
leading vendors as 3Com, Canon, Compaq, Corel, Epson, Hewlett-Packard, IBM, Intel, Microsoft, Sony
and Toshiba. As of January 31, 1998, the Company owned approximately 98% and 82% of Macrotron’s
common and preferred stock, respectively. The acquisition has been accounted for under the purchase
method.
(b) Financial information about industry segments
The Company operates in only one business segment.
(c) Narrative description of business
The Company is the world’s second largest distributor of microcomputer hardware and software
products to value-added resellers ("VARs"), corporate resellers, retailers and direct marketers
(collectively with VARs, “customers”). Tech Data distributes products throughout the United States,
Canada, Latin America, Germany, France, Switzerland and Austria. The Company purchases its
products directly from more than 900 manufacturers of microcomputer hardware and publishers of
software in large quantities, maintains a stocking inventory of more than 45,000 products and sells to an
active base of over 70,000 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.
The Company provides its customers with leading products including systems, peripherals,
networking, and software, which accounted for 24%, 42%, 18% and 16%, respectively, of sales in fiscal
1998. The Company offers products from manufacturers and publishers such as Bay Networks, Cisco,
Compaq, Corel, Creative Labs, Digital Equipment, Epson, Hewlett-Packard, IBM, Intel, Microsoft, Novell,
Okidata, Seagate, 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
2
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.
Recent trends in wholesale distribution include the final assembly of certain products by the
distributor and continued expansion of electronic commerce. In order to compete more effectively and
lower their costs, major computer systems manufacturers which rely on the two-tier distribution model
have begun to take steps to reduce their own inventories and the inventories of their distributors and
resellers by implementing a build-to-order manufacturing process. They have also begun to re-engineer
their distribution by developing programs 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 has been selected by Compaq, Hewlett-Packard and IBM to participate in
their respective channel assembly programs. Tech Data began performing assembly services for IBM in
October 1997 and expects to begin performing such services for Compaq and Hewlett-Packard in fiscal
1999.
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.
3
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 regulates 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 6.8% for the fiscal
year ended January 31, 1992 to 4.2% for the fiscal year ended January 31, 1998.
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, allows the Company to improve operating efficiencies and to
offer additional services such as expanding its electronic commerce capabilities, including
electronic data interchange and Tech Data On-Line electronic ordering and information systems.
The Company’s ordering system will be available on its World Wide Web site in the near future.
The Company believes that growth in its electronic commerce capabilities will provide incremental
economies of scale and further reduce transaction costs.
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 45,000
products from more than 900 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 and has recently expanded its offerings of communication
products as a result of the convergence of the computing and telecommunication markets. 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.
4
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. In July 1997, Tech Data broadened its European presence with the acquisition of a majority
interest in one of Germany’s largest wholesale microcomputer distributors, Macrotron AG.
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
900 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 written 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.”
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 has been selected by
Compaq, Hewlett-Packard and IBM to participate in their respective channel assembly programs. The
Company currently performs configuration services at its South Bend distribution center which has been
ISO 9002 certified. Tech Data began performing assembly services for IBM in October 1997 and
expects to begin performing such services for Compaq and Hewlett-Packard in fiscal 1999. The
Company plans to expand its configuration and final assembly services capabilities into its Fontana,
California and Swedesboro, New Jersey distribution centers later this year.
In addition to providing manufacturers and publishers with one of the largest bases of resellers in
the United States, Canada, Latin America, Germany, France, Switzerland and Austria, 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 1998,
1997 or 1996, except sales of Compaq products which accounted for 13% and 12% of net sales in fiscal
1998 and 1997, respectively, and sales of Hewlett-Packard products which accounted for 13% of net
sales in fiscal 1998.
5
Customers, Products and Services
The Company sells more than 45,000 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 70,000 VARs, corporate resellers, direct marketers and
retailers.
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 segment is attractive
because VARs, which constituted approximately 53% of Tech Data’s net sales in fiscal 1998, generally
rely on distributors as their principal source of computer products and financing. Corporate resellers,
retailers and direct marketers 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 30% of
the Company’s net sales in fiscal 1998. Tech Data also has developed special programs to meet the
unique needs of retail and direct marketers, which customers constituted approximately 17% of the
Company’s net sales in fiscal 1998. No single customer accounted for more than 5% of the Company’s
net sales during fiscal 1998, 1997 or 1996.
The Company pursues a strategy of expanding its product line to offer its customers a broad
assortment of products. Based upon the convergence of computing and communication technologies,
the Company has also expanded its offering of communication 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, Latin America, Germany,
France, Switzerland and Austria from its distribution centers in Miami, Florida; Atlanta, Georgia;
Paulsboro, New Jersey; Ft. Worth, Texas; South Bend, Indiana; Ontario, California; Union City,
California; Mississauga, Ontario (Canada); Richmond, British Columbia (Canada); São Paulo, Brazil;
Munich, Germany; Bobigny (Paris), France; Hünenberg, Switzerland and Vienna, Austria. 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.
Sales and Electronic Commerce
Currently, the Company's sales force consists of approximately 80 field sales representatives
and 1,054 inside 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 to place orders. If the product is in stock and the customer has available
credit, customer orders received by 5:00 p.m. local time are generally shipped the same day from the
distribution facility nearest the customer.
6
Customers rely upon the Company's electronic ordering and information systems, 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
seven United States distribution centers. Likewise, inside sales teams in Canada, Brazil, Germany,
France, Switzerland and Austria 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. The Company anticipates providing customers with
access to order entry capabilities on the World Wide Web in the near future.
The Company provides comprehensive training to its field and inside sales representatives
regarding technical characteristics of products and the Company's policies and procedures. Each new
domestic sales representative attends a four to six-week course provided in-house by the Company. 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
Merisel, Inc. in North America, Computer 2000 and CHS Electronics, Inc. in Europe and 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, 1998, the Company had approximately 5,075 full-time employees. The
Company enjoys excellent relations with its employees, all of whom are non-union.
(d) Financial information about foreign and domestic operations and export sales
The geographic areas in which the Company operates are the United States (including exports to
Latin America and the Caribbean) and International (Germany, France, Canada, Switzerland, Austria and
Brazil). See Note 9 and Note 10 of Notes to Consolidated Financial Statements regarding the
geographical distribution of the Company’s net sales, operating income and identifiable assets and the
acquisition of Macrotron AG.
Executive Officers
Steven A. Raymund, Chairman of the Board of Directors and Chief Executive Officer, age
42, 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. 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.
7
Anthony A. Ibargüen, President and Chief Operating Officer, age 38, joined the Company in
September 1996 as President of the Americas and was appointed President and Chief Operating Officer
in March 1997. 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. Ibargüen 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 41, 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. From June 1991 through September 1991 he was employed as Vice President of Finance of Inex
Vision Systems. From 1979 to May 1991 he was employed by Price Waterhouse, most recently as a
Senior Audit Manager. Mr. Howells is a Certified Public Accountant and holds a B.B.A. Degree in
Accounting from Stetson University.
Peggy K. Caldwell, Senior Vice President of Marketing, age 52, 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.
Timothy J. Curran, Senior Vice President of Sales, age 46, 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 40, 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, President and Managing Director of European Operations, age 54, joined
the Company in November 1997. 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.
H. John Lochow, Senior Vice President and Chief Information Officer, age 45, joined the
Company in February 1998. 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.
Yuda Saydun, Senior Vice President and General Manager - Latin America, age 44, 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.
8
Joseph B. Trepani, Senior Vice President and Corporate Controller, age 37, 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 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.
Theodore F. Augustine, Vice President of Distribution and Logistics, age 51, joined the
Company in July 1996. Prior to joining the Company he served as President of M-Group Logistics, Inc.
from June 1995 to July 1996. From 1989 to June 1995 he was employed by The Eli Witt Company as
Executive Vice President and Chief Operations Officer. Mr. Augustine holds a Masters of Business
Administration Degree from Loyola College.
Patrick O. Connelly, Vice President of Worldwide Credit Services, age 52, 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 43, 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 37, 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, most
recently as an Audit Manager. 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 39, 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.
ITEM 2. Properties
Tech Data’s executive offices, are located in Clearwater, Florida, all of which buildings, except
for one, are owned by the Company. In addition, the Company maintains distribution centers in Miami,
Florida; Atlanta, Georgia; Paulsboro, New Jersey; Ft. Worth, Texas; South Bend, Indiana; Ontario,
California; Union City, California; Mississauga, Ontario (Canada); Richmond, British Columbia (Canada);
Bobigny (Paris), France; São Paulo, Brazil; Munich, Germany; Hünenberg, Switzerland; and Vienna,
Austria. The Company leases all of the preceding distribution centers with the exception of one of its
Munich locations. The Company also operates training centers in nine cities in the U.S.
The Company is nearing completion of a project to significantly expand five of its seven U.S.
distribution centers which will encompass a total of 2.2 million square-feet when completed later this year
as compared to the former capacity of 800,000 square feet. Four of the five new U.S. distribution center
locations include adjacent land which provides enough space to double the capacity of each of these
locations to meet future growth requirements. The facilities of the Company are substantially utilized,
well-maintained and are adequate to conduct the Company's current business.
9
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, 1998.
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 National Market tier of 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, 1998
was 17,000.
Sales Price
High
Fiscal year 1998
Fourth quarter........................................................................................................... $47 3/4
51 3/4
Third quarter.............................................................................................................
39 15/16
Second quarter .........................................................................................................
27 1/2
First quarter ..............................................................................................................
Low
$34 1/8
36 1/4
22 7/8
19 3/4
Fiscal year 1997
Fourth quarter........................................................................................................... $36 3/8
30 3/8
Third quarter.............................................................................................................
24 3/4
Second quarter .........................................................................................................
19 1/2
First quarter ..............................................................................................................
$21 5/8
22 1/8
18 1/4
13
10
ITEM 6. Selected Financial Data
FIVE YEAR FINANCIAL SUMMARY
(In thousands, except per share data)
Year ended January 31,
1998
1997
1996
1995
1994
$7,056,619
$4,598,941
$3,086,620
$2,418,410 $1,532,352
6,590,873
4,277,160
2,867,226
2,219,122
1,397,967
293,108
6,883,981
172,638
29,908
142,730
52,816
89,914
429
$ 89,485
206,770
4,483,930
115,011
21,522
93,489
36,516
56,973
163,790
3,031,016
55,604
20,086
35,518
13,977
21,541
127,951
2,347,073
71,337
13,761
57,576
22,664
34,912
79,390
1,477,357
54,995
5,008
49,987
19,774
30,213
$ 56,973 $ 21,541
$ 34,912 $ 30,213
$ 2.00
$ 1.39 $ .57 $ .92 $ .83
$ 1.92
$ 1.35 $ .56 $ .91 $ .83
44,715
46,610
40,870
42,125
37,846
38,138
37,758
38,258
36,196
36,590
$ 537,381
2,185,383
540,177
8,683
702,588
$ 351,993
1,545,294
396,391
8,896
438,381
$ 201,704
1,043,879
283,100
9,097
285,698
$ 182,802
784,429
304,784
9,682
260,826
$ 165,366
506,760
153,105
9,467
213,326
Income statement data:
Net sales
Cost and expenses:
Cost of products sold
Selling, general and
administrative expenses
Operating profit
Interest expense
Income before income taxes
Provision for income taxes
Income before minority interest
Minority interest
Net income
Net income per common share:
Basic
Diluted
Weighted average common
shares outstanding:
Basic
Diluted
Dividends per common share
Balance sheet data:
Working capital
Total assets
Revolving credit loans
Long-term debt
Shareholders' equity
_________
11
-
-
-
-
-
-
-
-
-
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 preceding fiscal years.
Net sales .............................................................................................
Cost and expenses:
Cost of products sold ........................................................................
Selling, general and administrative expenses ...................................
Operating profit....................................................................................
Interest expense ..................................................................................
Income before income taxes................................................................
Provision for income taxes ..................................................................
Income before minority interest............................................................
Minority interest ...................................................................................
Net income ..........................................................................................
Fiscal Years Ended January 31, 1998 and 1997
Percentage of net sales
Year ended January 31,
1997
1998
1996
100.0% 100.0% 100.0%
93.4
4.2
97.6
2.4
.4
2.0
.7
1.3
-
1.3%
93.0
4.5
97.5
2.5
.5
2.0
.8
1.2
-
1.2%
92.9
5.3
98.2
1.8
.6
1.2
.5
.7
-
.7%
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 40.3% and 143.1% 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 20% of consolidated net sales
compared with 13% 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.
12
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.
Fiscal Years Ended January 31, 1997 and 1996
Net sales increased 49.0% to $4.6 billion in fiscal 1997 compared to $3.1 billion in the prior year.
This increase is attributable to the addition of new product lines and the expansion of existing product
lines combined with an increase in the Company’s market share. The rate of growth in fiscal year 1997
was also positively impacted by a lower growth rate in the prior comparable period as the Company was
recovering from the effects of the business interruptions caused by the conversion to a new computer
system in December 1994. The Company’s U.S. and international sales grew 51% and 36%
respectively, in fiscal 1997 compared to the prior year. The Company’s international sales in fiscal 1997
were approximately 13% of consolidated net sales.
The cost of products sold as a percentage of net sales increased from 92.9% in fiscal 1996 to
93.0% in fiscal 1997. 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 by 26.2% from $163.8 million in fiscal
1996 to $206.8 million in fiscal 1997, and as a percentage of net sales decreased to 4.5% in fiscal 1997
from 5.3% 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 1997 in
addition to improved operating efficiencies. The dollar value increase in selling, general and
administrative expenses is primarily a result of expanded employment and increases in other
administrative expenses needed to support the increased volume of business.
As a result of the factors described above, operating profit in fiscal 1997 increased 106.8% to
$115.0 million, or 2.5% of net sales, compared to $55.6 million, or 1.8% of net sales, in fiscal 1996.
Interest expense increased due to an increase in the Company’s average outstanding
indebtedness, partially offset by decreases in short-term interest rates on the Company’s floating rate
indebtedness. Interest expense was further moderated in fiscal 1997 by the receipt of net proceeds of
approximately $83.3 million from the Company’s July 1996 common stock offering which were used to
reduce indebtedness.
Net income in fiscal 1997 increased 164.5% to $57.0 million, or $1.35 per diluted share,
compared to $21.5 million, or $.56 per diluted share, in the prior year.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income” (“SFAS 130”). SFAS 130
establishes standards for reporting and display of comprehensive income and its components and is
effective for financial statements for fiscal years beginning after December 15, 1997. This standard
addresses disclosure issues and therefore will not affect the Company’s financial position or results of
operations.
In June 1997, the FASB issued SFAS No. 131, “Disclosures about Segments of an Enterprise
and Related Information” (“SFAS 131”). SFAS 131 requires that companies disclose segment data
based on how management makes decisions about allocating resources to segments and measuring
their performance. SFAS 131 will be effective for fiscal years beginning after December 15, 1997. This
standard addresses disclosure issues and therefore will not affect the Company’s financial position or
results of operations.
13
Impact of Inflation
The Company has not been adversely affected by inflation as technological advances and
competition within the microcomputer industry have 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.
Year 2000 Compliance
The Company has conducted a comprehensive audit of the “Year 2000” issues affecting its
operations and is in the process of implementing required modifications to its systems. The underlying
issues are not expected to have a material adverse affect on the Company’s operations or financial
position. The cost of addressing “Year 2000” issues has not been material to the Company to date and is
not expected to be in future periods.
Liquidity and Capital Resources
Net cash used in operating activities of $126.3 million in fiscal 1998 was primarily attributable to
growth in sales and the resulting increases in accounts receivable and inventories.
Net cash used in investing activities of $116.3 million in fiscal 1998 was a result of the payment
of $68.1 million related to the acquisition of the common and preferred stock of Macrotron combined with
the Company’s continuing investment of $48.1 million in its management information system capability,
office facilities and equipment for distribution centers. The Company expects to make capital
expenditures of approximately $75 - $100 million during fiscal 1999 to further expand its management
information systems, office facilities and distribution centers.
Net cash provided by financing activities of $244.6 million in fiscal 1998 was provided by
additional borrowings of $76.8 million under the Company’s revolving credit loans in addition to net
proceeds of approximately $149 million from the November 1997 common stock offering and
approximately $19 million of proceeds from other issuance of the Company’s common stock.
The Company currently maintains domestic and foreign revolving credit agreements which
provide maximum short-term borrowings of approximately $907 million (including local country credit
lines), of which $540 million was outstanding at January 31, 1998. In November 1997, the Company
completed a public offering of 3.7 million shares of its common stock resulting in net proceeds of
approximately $149 million. The Company believes that proceeds from the common stock offering,
along with cash from operations, available and obtainable bank credit lines and trade credit from its
vendors will be sufficient to satisfy its working capital and capital expenditure needs through fiscal 1999.
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.
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
14
net 30-day payment terms. The Company also sells products on a prepay, credit card, cash on delivery
and floorplan basis.
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 Exhibit 99A as part of this Form 10-K 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.
15
ITEM 8. Financial Statements
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, 1998 and
1997, and the results of their operations and their cash flows for each of the three years in the period
ended January 31, 1998, 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.
PRICE WATERHOUSE LLP
Tampa, Florida
March 18, 1998
To Our Shareholders:
REPORT OF MANAGEMENT
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,
subject to shareholder approval, 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.
STEVEN A. RAYMUND
Chairman of the Board Directors
and Chief Executive Officer
March 18, 1998
JEFFERY P. HOWELLS
Executive Vice President
and Chief Financial Officer
16
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance
of $29,731 and $23,922
Inventories
Prepaid and other assets
Total current assets
Property and equipment, net
Excess of cost over acquired net assets, net
Other assets, net
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans
Accounts payable
Accrued expenses
Total current liabilities
Long-term debt
Total liabilities
Minority interest
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, par value $.02; 226,500 shares
authorized and issued; liquidation
preference $.20 per share
Common stock, par value $.0015; 200,000,000
and 100,000,000 shares authorized; 48,250,349
and 43,291,423 issued and outstanding
Additional paid-in capital
Retained earnings
Cumulative translation adjustment
Total shareholders' equity
January 31,
1998
1997
$ 2,749
$ 661
909,426
1,028,367
65,843
2,006,385
100,562
55,460
22,976
633,579
759,974
55,796
1,450,010
65,597
5,922
23,765
$2,185,383 $1,545,294
$ 540,177 $ 396,391
658,732
42,894
1,098,017
8,896
1,106,913
-
850,866
77,961
1,469,004
8,683
1,477,687
5,108
5
5
72
403,880
299,768
(1,137 )
702,588
65
226,577
210,283
1,451
438,381
$2,185,383 $1,545,294
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
17
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
Net sales
Cost and expenses:
Cost of products sold
Selling, general and administrative expenses
Operating profit
Interest expense
Income before income taxes
Provision for income taxes
Income before minority interest
Minority interest
Net income
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Year ended January 31,
1998
1997
1996
$7,056,619
$4,598,941 $3,086,620
6,590,873
293,108
6,883,981
172,638
29,908
142,730
52,816
89,914
429
$ 89,485
4,277,160
206,770
4,483,930
115,011
21,522
93,489
36,516
56,973
2,867,226
163,790
3,031,016
55,604
20,086
35,518
13,977
21,541
-
$ 56,973 $ 21,541
-
$ 2.00
$ 1.92
$ 1.39 $ .57
$ 1.35 $ .56
44,715
46,610
40,870
42,125
37,846
38,138
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
Preferred Stock
Shares Amount
Common Stock
Shares Amount
Additional
Paid-In
Capital
Retained
Earnings
Cumulative
Translation
Adjustment
Total
Shareholders’
Equity
Balance – January 31, 1995
227
$5
37,808
$57
$127,947
$131,769
$1,048
$260,826
Issuance of common stock for stock
options exercised and related tax
benefit
Net income
Translation adjustments
123
2,098
21,541
Balance -- January 31, 1996
227
5
37,931
57
130,045
153,310
Issuance of common stock for stock
options exercised and related tax
benefit
Issuance of common stock net of
offering costs
Net income
Translation adjustments
Balance – January 31, 1997
Issuance of common stock in
business purchase
Issuance of common stock for stock
options exercised and related tax
benefit
Issuance of common stock net of
offering costs
Net income
Translation adjustments
Balance – January 31, 1998
760
4,600
1
7
13,223
83,309
56,973
227
5
43,291
65
226,577
210,283
407
861
3,691
1
1
5
9,255
19,077
148,971
227
$5
48,250
$72
$403,880
$299,768
(2,588 )
$(1,137 )
89,485
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
18
1,233
2,281
(830 )
1,451
2,098
21,541
1,233
285,698
13,224
83,316
56,973
(830 )
438,381
9,256
19,078
148,976
89,485
(2,588 )
$702,588
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Cash received from customers
Cash paid to suppliers and employees
Interest paid
Income taxes paid
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Acquisition of business, net of cash acquired
Expenditures for property and equipment
Software development costs
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock
Net borrowings (repayments) from revolving credit loans
Principal payments on long-term debt
Net cash provided by (used in) financing activities
Year ended January 31,
1997
1996
1998
$6,870,096
(6,914,537)
(29,909)
(51,949)
(126,299)
$4,390,916
(4,513,309)
(21,122)
(45,037)
(188,552)
$2,933,831
(2,854,653 )
(20,276 )
(11,628 )
47,274
(68,136)
(45,900)
(2,216)
(116,252)
168,054
76,786
(201)
244,639
-
(19,229)
(2,024)
(21,253)
96,540
113,291
(519)
209,312
-
(23,596 )
(2,826 )
(26,422 )
2,098
(21,684 )
(608 )
(20,194 )
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2,088
661
$ 2,749
(493)
1,154
$ 661
658
496
$ 1,154
Reconciliation of net income to net cash (used in) provided by
operating activities:
Net income
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization
Provision for losses on accounts receivable
Loss on disposal of fixed assets
Deferred income taxes
Changes in assets and liabilities:
(Increase) in accounts receivable
(Increase) in inventories
(Increase) in prepaid and other assets
Increase in accounts payable
(Decrease) increase in accrued expenses
Total adjustments
Net cash (used in) provided by operating activities
$ 89,485
$ 56,973
$ 21,541
26,364
22,634
-
3,720
(183,481 )
(181,393 )
(8,317 )
106,134
(1,445 )
(215,784 )
$ (126,299 )
20,011
19,648
446
(5,051)
17,364
17,433
603
(5,603 )
(208,025 )
(294,552 )
(13,962 )
225,358
10,602
(245,525 )
$ (188,552 )
(152,789 )
(100,891 )
(7,254 )
239,161
17,709
25,733
$ 47,274
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
19
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 (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:
Buildings and improvements
Leasehold improvements
Furniture, fixtures and equipment
Method
Straight-line
Straight-line
Accelerated
Years
15 - 39
2 - 5
2 - 7
and straight-line
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.
Excess of cost over acquired net assets
The excess of cost over acquired net assets is being amortized on a straight-line basis over 15 to
35 years. Amortization expense was $1,458,000, $602,000 and $646,000 in 1998, 1997 and 1996,
respectively. The accumulated amortization of goodwill is approximately $3,563,000 and $2,264,000 at
January 31, 1998 and 1997, respectively. The Company evaluates, on a regular basis, whether events
and circumstances have occurred that indicate the carrying amount of goodwill may warrant revision or
may not be recoverable. At January 31, 1998, the net unamortized balance of goodwill is not considered
to be impaired.
20
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Capitalized deferred software costs
Deferred software costs are included in other assets and represent internal development costs
and payments to vendors for the design, purchase and implementation of the computer software for the
Company’s operating and financial systems. Such deferred costs are being amortized over three to
seven years with amortization expense of $4,967,000, $4,611,000 and $4,253,000 in 1998, 1997 and
1996, respectively. The accumulated amortization of such costs was $14,160,000 and $9,193,000 at
January 31, 1998 and 1997, respectively. The remaining unamortized balance of such costs was
$17,894,000 and $20,645,000 at January 31, 1998 and 1997, respectively.
Product warranty
The Company does not offer warranty coverage. However, to maintain customer goodwill, the
Company facilitates vendor warranty policies by accepting for exchange (with the Company's prior
approval) defective products within 60 days of invoicing. Defective products received by the Company
are subsequently returned to the vendor for credit or replacement.
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 since such amounts are expected to be reinvested indefinitely.
Foreign currency translation
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 for the year. Gains or losses resulting from foreign currency transactions are included in the
statement of income.
Concentration of credit risk
The Company sells its products to a large base of value-added resellers (“VARs”), corporate
resellers, retailers and direct marketers throughout the United States, Canada, Latin America, Germany,
France, Switzerland and Austria. 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.
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.
21
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 1998 are as
follows: (Derivative instruments outstanding at January 31, 1997 were not material)
Foreign exchange forward contracts
Purchased foreign currency options
Currency interest rate swaps
January 31, 1998
Notional
Amounts
Estimated
Fair Value
(In thousands)
$ 78,043
500
128,300
$939
(12)
377
Disclosures about 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.
Net income per common share
Effective for the fiscal year ended January 31, 1998, the Company has adopted Statement of
Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS 128”) and related interpretations.
SFAS 128 requires dual presentation of Basic Earnings per Share (“Basic EPS”) and Diluted Earnings
per Share (“Diluted EPS”). 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 if stock options were exercised using the treasury stock method. Earnings per
share for all prior periods have been restated to reflect the adoption of SFAS 128. The composition of
basic and diluted net income per common share is as follows:
Year ended January 31,
1997
(In thousands, except per share amounts)
1998
1996
Net income
Weighted average shares
Net income per common share - basic
Weighted average shares including the dilutive
effect of stock options (1,895, 1,255 and 292
for fiscal 1998, 1997 and 1996, respectively)
Net income per common share - diluted
$ 89,485
44,715
$ 2.00
$ 56,973
40,870
$ 1.39
$ 21,541
37,846
$ .57
46,610
$ 1.92
42,125
$ 1.35
38,138
$ .56
22
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 $60,000,000 and $111,826,000 at January 31, 1998 and 1997, 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 9 of Notes to Consolidated Financial Statements regarding the
non-cash exchange of common stock in connection with a business combination.
Fiscal year
The Company and its subsidiaries operate on a fiscal year that ends on January 31, except for
the Company’s French, German and Brazilian subsidiaries which operate on a fiscal year that ends on
December 31.
NOTE 2 - PROPERTY AND EQUIPMENT:
Land
Buildings and improvements
Furniture, fixtures and equipment
Construction in progress
Less-accumulated depreciation
NOTE 3 - REVOLVING CREDIT LOANS:
January 31,
1998
1997
(In thousands)
$ 7,805
36,543
112,821
12,359
169,528
(68,966)
$100,562
$ 3,898
29,155
75,982
629
109,664
(44,067)
$65,597
The Company has an agreement (the “Receivables Securitization Program”) with a financial
institution that allows the Company to transfer an undivided interest in a designated pool of accounts
receivable on an ongoing basis to provide borrowings up to a maximum of $325,000,000. 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 $325,000,000 maximum. The
Company pays interest on advances under the Receivables Securitization Program at a designated
commercial paper rate, plus an agreed-upon spread. At January 31, 1998, the Company had a
$237,420,000 outstanding balance under this program which is included in the balance sheet caption
“Revolving Credit Loans”. This agreement expires December 31, 1998.
In August 1997, the Company entered into a new three-year unsecured $550,000,000 multi-
currency revolving credit facility replacing its former $290,000,000 facility. The Company and its
subsidiaries are able to borrow funds in sixteen major foreign currencies under this agreement.
As of January 31, 1998, the Company maintained domestic and foreign revolving credit loan
agreements (including the Receivables Securitization Program) with a total of twenty financial institutions
which provide for maximum short-term borrowings of approximately $907,000,000 (including local
country credit loans). At January 31, 1998, the weighted average interest rate on all short-term
borrowings was 4.89%. The Company can fix the interest rate for periods of 30 to 180 days under
various interest rate options. The credit agreements contain warranties and covenants that must be
complied with on a continuing basis, including the maintenance of certain financial ratios. At January 31,
1998, the Company was in compliance with all such covenants.
23
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4 - LONG-TERM DEBT:
Mortgage note payable, interest at 10.25%, principal
and interest of $85,130 payable monthly, balloon
payment due 2005
Mortgage note payable funded through Industrial Revenue
Bond, interest at 7.5%, principal and interest payable
quarterly, through 1999
Less - current maturities
January 31,
1998
1997
(In thousands)
$8,788
$8,902
108
8,896
(213)
$8,683
195
9,097
(201)
$8,896
Principal maturities of long-term debt at January 31, 1998 for the succeeding five fiscal years are
as follows: 1999 - $213,000; 2000 - $162,000; 2001 - $155,000; 2002 - $172,000; 2003 - $191,000.
Mortgage notes payable are secured 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,
1998.
NOTE 5 - 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:
Deferred tax liabilities:
Accelerated depreciation
Deferred revenue
Other - net
Total deferred tax liabilities
Deferred tax assets:
Accruals not currently deductible
Reserves not currently deductible
Capitalized inventory costs
Other - net
Total deferred tax assets
Net deferred tax assets (included in prepaid and other assets)
January 31,
1998
$10,519
1,630
4,937
17,086
5,412
21,290
1,959
371
29,032
$11,946
1997
$ 6,863
2,811
3,525
13,199
5,092
21,340
2,220
213
28,865
$15,666
24
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Significant components of the provision for income taxes are as follows:
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Year ended January 31,
1997
$32,485
5,897
3,185
41,567
1998
$39,805
2,469
6,822
49,096
1996
$15,107
2,932
1,541
19,580
3,328
507
(115)
3,720
$52,816
(3,490)
(451)
(1,110)
(5,051)
$36,516
(4,656)
(625)
(322)
(5,603)
$13,977
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:
Tax at U.S. statutory rates
State income taxes, net of federal tax benefit
Other - net
The components of pretax earnings are as follows:
United States
Foreign
1996
Year ended January 31,
1997
35.0%
3.8
.3
39.1%
1998
35.0%
1.4
.6
37.0%
35.0%
4.2
.2
39.4%
Year ended January 31,
1997
$88,536
4,953
$93,489
1996
$33,164
2,354
$35,518
1998
$126,757
15,973
$142,730
The cumulative amount of undistributed earnings of international subsidiaries for which U.S.
income taxes have not been provided was approximately $10 million at January 31, 1998. It is not
practical to estimate the amount of unrecognized deferred U.S. taxes on these undistributed earnings.
NOTE 6 - EMPLOYEE BENEFIT PLANS:
Stock compensation plans
At January 31, 1998, the Company had four stock-based compensation plans, 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.
25
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 1998, 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 to members upon their initial appointment 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.
A summary of the status of the Company’s stock option plans is as follows:
January 31,
1998
Weighted
Average
Exercise
Price
Shares
$14.31
3,285,818
1,643,400
26.65
(720,573) 13.23
(327,100) 17.57
19.43
3,881,545
January 31,
1997
Weighted
Average
Exercise
Price
Shares
$13.31
3,081,110
1,112,000
16.27
(675,492) 13.11
(231,800) 13.72
3,285,818 14.31
Outstanding at beginning of year
Granted
Exercised
Canceled
Outstanding at year end
Options exercisable at year end
601,895
Available for grant at year end
4,588,000
576,862
905,000
January 31,
1996
Weighted
Average
Exercise
Price
$15.62
12.91
8.53
18.45
13.31
Shares
2,644,056
1,683,450
(79,800)
(1,166,596)
3,081,110
494,460
1,785,000
Range of
Exercise Prices
$ 1.50 - $10.99
11.00 - 15.99
16.00 - 29.99
30.00 - 51.00
Number
Outstanding
at 1/31/98
562,150
1,386,195
1,597,900
335,300
3,881,545
Options Outstanding
Options Exercisable
Weighted-
Average
Remaining
Contractual
Life (years)
6.4
7.7
8.4
9.6
Weighted-
Average
Exercise
Price
$ 10.24
14.20
23.59
36.62
Number
Exercisable
at 1/31/98
250,400
221,495
130,000
0
601,895
Weighted-
Average
Exercise
Price
$ 9.72
13.94
20.23
-
26
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. Under the terms of
the plan, employees can choose to have a fixed dollar amount or percentage deducted from their
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 137,246 shares as of January 31, 1998. All shares purchased
under this plan must be retained for a period of one year.
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):
Net income
Net income per common share:
Basic
Diluted
Year ended January 31,
1997
$55,059
1.35
1.31
1998
$85,344
1.91
1.83
1996
$19,937
.53
.52
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, 1998, 1997 and 1996,
respectively: (1) risk-free interest rates of 6.76%, 6.08% and 6.96%; (2) dividend yield of 0.0%, 0.0% and
0.0%; (3) expected lives of 4.87, 5.08 and 5.08 years; and (4) volatility of 56%, 56% and 39%. Results
may vary depending on the assumptions applied within the model.
Stock ownership and retirement savings plans
In February 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, 1998 and 1997, 780,000 and 717,000 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 $2,460,000, $2,090,000 and $1,659,000 for 1998, 1997 and 1996, respectively.
NOTE 7 - 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.
In November 1997, the Company completed a public offering of 3.7 million shares of common
stock resulting in net proceeds to the Company of approximately $149,000,000.
27
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 8 - 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: 1999 - $15,145,000; 2000 - $13,604,000; 2001
- $10,079,000; 2002 - $4,278,000; 2003 - $1,601,000 and $4,294,000 thereafter. Rental expense for all
operating leases amounted to $15,704,000, $10,160,000 and $7,547,000 in 1998, 1997 and 1996,
respectively.
NOTE 9 - ACQUISITIONS:
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. On July 10, 1997, the Company commenced a tender offer for the remaining
shares of Macrotron common and preferred stock at a price per share of DM730 and DM600,
respectively. The tender offer period ended on September 5, 1997. As of January 31, 1998, the
Company owned approximately 98% and 82% of Macrotron’s common and preferred stock, respectively.
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.
The acquisition of Macrotron is accounted for under the purchase method. The preliminary
purchase price allocation has resulted in approximately $51,000,000 in excess cost over the net fair
market value of tangible assets acquired as of January 31, 1998. The Company is currently
implementing its acquisition strategy which may result in an adjustment to the net assets acquired.
Consistent with the Company’s accounting policy for foreign subsidiaries, Macrotron’s operations will be
consolidated into the Company’s consolidated financial statements on a calendar year basis.
Consequently, the Company’s fiscal year ending January 31, 1998 includes Macrotron’s operations for
the six month period beginning July 1, 1997 and ending December 31, 1997.
The following pro forma unaudited results of operations reflects the effect on the Company’s
operations, as if the above described acquisition had occurred at the beginning of each of the periods
presented below:
Net sales
Net income
Net income per common share:
Basic
Diluted
Year ended January 31,
1997
1998
(In thousands)
$7,623,852
90,161
$5,571,406
60,716
2.01
1.93
1.47
1.43
The unaudited pro forma information is presented for informational purposes only and includes
certain pro forma adjustments. Such pro forma information is not necessarily indicative of the operating
results that would have occurred had the Macrotron acquisition been consummated as of the beginning of
the periods above, nor are they necessarily indicative of future operating results.
28
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 10 - SEGMENT INFORMATION:
The Company is engaged in one business segment, the wholesale distribution of microcomputer
hardware and software products. The geographic areas in which the Company operates are the United
States (United States including exports to Latin America and the Caribbean) and International (Germany,
France, Canada, Switzerland, Austria and Brazil). The geographical distribution of net sales, operating
income and identifiable assets are as follows (in thousands):
Fiscal year 1998
Net sales to unaffiliated customers
Operating income
Identifiable assets
Fiscal year 1997
Net sales to unaffiliated customers
Operating income
Identifiable assets
Fiscal year 1996
Net sales to unaffiliated customers
Operating income
Identifiable assets
United States
International Eliminations Consolidated
$5,624,891
$ 1,431,728
$ 151,887
$1,568,458
$
20,751
$ 616,925
$ -
$ -
$ -
$7,056,619
$ 172,638
$2,185,383
$4,009,924
$ 589,017
$ -
$ 105,330
$ 9,681
$1,327,156
$ 218,138
$ -
$ -
$2,654,750
$ 431,870
$ 48,419
$ 7,185
$ 868,910
$ 174,969
$ -
$ -
$ -
$4,598,941
$ 115,011
$1,545,294
$3,086,620
$ 55,604
$1,043,879
NOTE 11 - UNAUDITED INTERIM FINANCIAL INFORMATION:
Fiscal year 1998
Net sales
Gross profit
Net income
Net income per common share:
Basic
Diluted
Fiscal year 1997
Net sales
Gross profit
Net income
Net income per common share:
Basic
Diluted
Quarter ended
April 30
July 31
October 31
January 31
(In thousands, except per share amounts)
$1,370,146
95,177
18,222
$1,551,820
103,978
21,464
$2,021,479
129,342
23,673
$2,113,174
137,249
26,126
.42
.41
.49
.47
.54
.51
.55
.53
Quarter ended
April 30
July 31
October 31
January 31
(In thousands, except per share amounts)
$ 985,574
69,012
10,428
$1,063,228
74,302
12,016
$1,236,650
85,955
16,748
$1,313,489
92,512
17,781
.27
.27
.31
.30
.39
.38
.41
.40
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
29
ITEMS 10, 11, 12 and 13.
PART III
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 1998 Annual Meeting of Shareholders will be filed with the Commission
prior to May 31, 1998.
ITEM 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) Listed below are the financial statements and the schedule filed as part of this report:
Financial Statements
Report of Independent Certified Public Accountants .....................................................................
Page
16
Consolidated Balance Sheet at January 31, 1998 and 1997..........................................................
Consolidated Statement of Income for the three years ended January 31, 1998 ...........................
Consolidated Statement of Changes in Shareholders' Equity for the
three years ended January 31, 1998 ..........................................................................................
Consolidated Statement of Cash Flows for the three years ended January 31, 1998.....................
Notes to Consolidated Financial Statements.................................................................................
Financial Statement Schedule
Report of Independent Certified Public Accountants on Financial Statement Schedule.................
Consent of Independent Certified Public Accountants...................................................................
Schedule II. -- Valuation and qualifying accounts..........................................................................
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.
17
18
18
19
20
33
33
34
(b) The Company was not required to file a report on Form 8-K during the fiscal year ended
January 31, 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.
30
3-F(9)
4-E(15)
-- Articles of Amendment to Articles of Incorporation of the Company filed on July
15, 1993.
-- 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)
10-Y(6)
-- First Amendment to the Employment Agreement between the Company and
Edward C. Raymund dated November 13, 1992.
-- 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.
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 March 3, 1997.
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 July 29, 1997.
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 December 18, 1997.
21(16)
-- Subsidiaries of Registrant.
27(3)
-- Financial Data Schedule (included in the electronic version only.)
31
(2)
(5)
(6)
(7)
(8)
(9)
99-A(3)
-- Cautionary Statement For Purposes of the “Safe Harbor” Provisions of the Private
Securities Litigation Reform Act of 1995.
Incorporated by reference to the Exhibits included in the Company’s Registration Statement on
Form S-1, File No. 33-4135.
Incorporated by reference to the Exhibits included in the Company’s Registration Statement on
Form S-1, File No. 33-21997.
_____________
(1)
(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.
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.
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.
Incorporated by reference to the Exhibits included in the Company’s Registration Statement on
Form S-8, File No. 33-41074.
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.
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) To be filed by amendment.
32
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 18,
1998 appearing on page 16 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.
Price Waterhouse LLP
Tampa, Florida
March 18, 1998
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 18, 1998 appearing on page 16 of this Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule appearing above.
Price Waterhouse LLP
Tampa, Florida
April 8, 1998
33
SCHEDULE II
TECH DATA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Description
Allowance for doubtful accounts
receivable and sales returns:
January 31,
1998
1997
1996
__________
Additions
Charged to
Balance at
cost and
beginning
expenses
of period
Other(1)
Deductions
Balance
at end
of
period
$23,922
22,669
16,580
$22,634
19,648
17,433
$9,328
4,290
4,538
$(26,153)
(22,685)
(15,882)
$29,731
23,922
22,669
(1) Other includes recoveries, acquisitions and the effect of fluctuations in foreign currency.
34
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 8th day of April, 1998.
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.
Signature
Title
/s/ STEVEN A. RAYMUND
Steven A. Raymund
Chairman of the Board of Directors;
Chief Executive Officer
/s/ JEFFERY P. HOWELLS
Jeffery P. Howells
Executive Vice President;
Chief Financial Officer
(principal financial officer)
Date
April 8, 1998
April 8, 1998
/s/ JOSEPH B. TREPANI
Joseph B. Trepani
Senior Vice President and Corporate
Controller (principal accounting officer)
April 8, 1998
/s/ ARTHUR W. SINGLETON
Vice President, Treasurer and Secretary
April 8, 1998
Arthur W. Singleton
/s/ CHARLES E. ADAIR
Charles E. Adair
/s/ DANIEL M. DOYLE
Daniel M. Doyle
/s/ DONALD F. DUNN
Donald F. Dunn
/s/ EDWARD C. RAYMUND
Edward C. Raymund
/s/ DAVID M. UPTON
David M. Upton
/s/ JOHN Y. WILLIAMS
John Y. Williams
Director
Director
Director
April 8, 1998
April 8, 1998
April 8, 1998
Director; Chairman Emeritus
April 8, 1998
Director
Director
35
April 8, 1998
April 8, 1998