1999
Annual Report
Year Ended January 31, 1999
Technology Products and
Services Worldwide
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ech Data Corporation,
founded in 1974, is a
leading full-line distributor of
technology products worldwide.
The Fortune 500 company and
its subsidiaries operate in over
30 countries, serving more than
100,000 resellers in the United
States, Canada, the Caribbean,
Latin America, Europe and
the Middle East. In addition to
distributing more than 75,000
products from over 1,000
manufacturers and publishers,
Tech Data 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‘s Business Values
integrity
upon integrity. All interactions with customers,
The foundation of our business is based
vendors, suppliers, shareholders and fellow
employees will be conducted with integrity and
mutual respect.
employees
invest in the development of our employees
Our employees make the difference! We will
and provide a professionally challenging
and rewarding environment.
partners
customers, vendors and suppliers produce
Strategic business partnerships with
benefits for all of our business partners. We
will conduct our business in a manner which
supports our business partners.
shareholders
their investment in our company. We are
Shareholders deserve a reasonable return on
focused on profitability in order to attract
sufficient capital for our continued growth.
change
ever-changing market conditions. Our
Our business continues to evolve based on
willingness to embrace change will be key
to our success.
Contents
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
i.
ii.
2.
8.
10.
11.
12.
19.
19.
20.
23.
Tech Data Corporation and Subsidiaries
(In thousands, except per-share data)
For the
year ended
January 31:
1999
1998
1997
1996
1995
Net sales
$11,528,999 $ 7,056,619
$ 4,598,941
$ 3,086,620 $ 2,418,410
Gross profit
727,873
465,746
321,781
219,394
199,288
Net income
128,952
89,485
56,973
21,541
34,912
Net income per
common share:
Basic
Diluted
2.59
2.47
2.00
1.92
1.39
1.35
.57
.56
.92
.91
At year end:
1999
1998
1997
1996
1995
Working capital
$ 725,057 $ 537,381
$ 351,993
$ 201,704 $
182,802
Total assets
3,844,987
2,185,383
1,545,294
1,043,879
784,429
Shareholders’ equity
967,291
702,588
438,381
285,698
260,826
Financial Highlights
$ millions
Net Sales
$12,000
10,000
8,000
6,000
4,000
2,000
'95
'96
'97
'98
'99
$ millions
Net Income
$150
120
90
60
30
'95
'96
'97
'98
'99
$ millions
Shareholders’ Equity
$1,000
800
600
400
200
$3.00
2.50
2.00
1.50
1.00
.50
'95
'96
'97
'98
'99
Diluted Earnings Per Share
'95
'96
'97
'98
'99
Tech Data Corporation
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T
he past year was a busy and
employee base. We continually
exciting one for Tech Data. It
drove down selling, general and
was both a year of dramatic global
administrative expenses as a
growth for the company and of many
percentage of sales, with our fourth
changes within our industry. Our agile
quarter at just 4.13%. u Tech Data
response to these evolving market
has never been in a better position
conditions — the new requirements of
relative to competitors. Although
our customers and vendor partners —
margins have been under intense
significantly contributed to our record-
pressure, we are emerging as a
breaking financial performance. u
stronger company while others now
For the year ended January 31, 1999,
face significant challenges. There is
net sales increased 63.4% to $11.5
no doubt that Tech Data will be
billion, up from $7.1 billion the
among the victors as the industry
previous year, and net income grew
further consolidates, with weaker
44.1% to $129.0 million, or $2.47
players pursuing suitors, alternative
per diluted share, compared with
business models or perhaps even
$89.5 million, or $1.92 per diluted
exiting the business altogether. u
share, in the prior year. This includes a
We anticipated many of the changes
pre-tax gain of $15.7 million related
affecting our market over the past
to the July 1998 sale of our former
year and took steps early in 1998
German subsidiary, Macrotron AG.
that helped mitigate the impact of
Excluding the effect of acquisitions,
new terms and conditions introduced
sales growth rates for the fiscal year
by key vendor partners. We managed
were approximately 17% in the U.S.,
inventory levels with unparalleled
27% in Europe and 15% in other
precision in this era of reduced price
international markets. Our record
protection. We responded aggressively
results were particularly remarkable
to competitor pricing strategies aimed
considering our ability to achieve U.S.
at taking market share, and we
sales without increasing our domestic
introduced the year’s most innovative
To our shareholders:
Steven A. Raymund
Chairman of the Board of Directors
and Chief Executive Officer
ii
service: FactoryDirect shipping from
distribution centers co-located within
the manufacturing facilities of
Compaq and IBM. u A recent
cover story in Computer Reseller
News, our industry’s leading trade
Letter to shareholders
Munich-based
Computer 2000 AG
plays a vital role in
Tech Data’s global
strategy.
publication, declared co-location the
AG, due to market overlap in
“most efficient” means of shipping
Germany. We completed that sale in
computers, inspiring an altogether
July 1998, realizing a $15.7 million
new business concept: integrated
pre-tax gain. Computer 2000’s
distribution. u You’ll learn more
financial results were included in the
about FactoryDirect developments
second half of our fiscal year, and the
later in this letter, but first let’s review
company has already contributed
Tech Data has never
some of the other strategies we
substantially to overall revenue and
implemented in the past year to ensure
earnings. International sales accounted
continuing growth and profitability —
for approximately 45% of our business,
as well as continuing value to you, our
up from just approximately 23% the
been in a better position
relative to competitors.
Although margins have
shareholders. u Our international
prior year. u I have spent most of
been under intense
expansion strategy advanced
the past year residing in Europe to
exponentially with the July 1998
help guide the integration of Tech
acquisition of a majority interest in
Data and Computer 2000. It’s been a
pressure, we are
emerging as a stronger
Munich-based Computer 2000 AG,
great experience and an education
company while
Europe’s leading technology
on how to build further on Computer
others now face
distributor, operating in more than 30
2000’s achievements. In conjunction
nations including four Latin American
with this strategy, we appointed former
countries. With the purchase of
managing director of Computer 2000
Computer 2000, we opted to divest
Iberia, Néstor Cano, to executive
our interest in our 1997 acquisition,
vice president of U.S. sales and
Munich-based subsidiary Macrotron
marketing. In this newly created
significant challenges.
Tech Data Corporation
1999 a n n u a l
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position, Néstor brings additional
positioned within this booming
depth to our excellent executive
market. We are not only becoming
management team at corporate
a premier provider of products and
We are not only becoming
a premier provider of
headquarters. At Computer 2000, his
services to the online reseller channel,
achievements included establishing
we are doing business with thousands
a dominant market position in Spain
of other resellers via our Web site,
products and services to
and Portugal. u Gerald Labie,
which approached $2 million in
the online reseller channel,
we are doing business
formerly president and managing
average daily sales in the fourth
director of European operations, has
quarter. u Using our Web
returned to the States as senior vice
Customization Toolkit, more than
with thousands of other
president of U.S. marketing, replacing
200 resellers are also conducting
resellers via our Web site,
Peg Caldwell, who retired in January
business electronically with their end
which approached
after an illustrious 33-year industry
users — yet another example of our
career. John Lochow, previously Tech
Internet ingenuity at work. Our
$2 million in average daily
Data’s senior vice president and chief
entire electronic catalog is made
sales in the fourth quarter.
information officer, is taking on
available this way and through API
additional responsibilities as executive
connections that streamline orders
vice president of IT
and logistics.
A thriving Internet business
As you probably
observed, 1998 saw
from reseller Web
sites directly to
Tech Data. Late
last year we
announced
another industry-
an impressive uptick in both
first: our electronic software
consumer and business
buying from Internet
resellers. Tech
Data is ideally
distribution (ESD)
initiative, which
allows resellers
iv
and vendors to easily access software
titles directly from a secure location
on our Web site. Our breakthroughs
also included the release of a new
Web-based configuration tool,
TDXpert, which allows resellers to
easily review all available
component options and quickly
Letter to shareholders
TDEnsemble configuration
and assembly services offer
the capacity to build 80,000
computer systems monthly.
check compatibility for custom system
pace with the trends and constantly
building. This too was an industry
revitalize our product line further
first, being the first tool of its kind to
solidifies Tech Data’s industry position.
support the channel assembly
programs of leading computer
manufacturers. u Our Web-
Building on the past and the present
Last year Tech Data made significant
based commerce services, online
strides in the computer assembly
interactive content and information
business. Although manufacturer
delivery options comprise only one
channel assembly programs have
side of the Internet equation. Internet
fallen short of expectations, we have
plumbing products and enabling
been able to steadily grow our
technologies that we distribute
build-to-order volume with each of
represent another driver of current
the industry leaders in the systems
and future growth. Computer
market: Compaq, Hewlett-Packard
telephony, thin client/server solutions,
and IBM. With the opening of our
imaging and document management,
state-of-the-art configuration and
storage area networks, and many
assembly facility in Swedesboro,
other emerging technologies are also
N.J., last year, we increased our
among our growing new business
total assembly capacity to 80,000
opportunities. Our ability to keep
systems monthly. This capacity is also
Tech Data’s 435,000-square-
foot distribution center in
Swedesboro, N.J., represents
the state of the art in
logistics and automation.
Tech Data Corporation
1999 a n n u a l
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being used to support our new
end users. u The direct model
“white box” line of desktop comput-
also fails to fully leverage the services
We see a new
ers, workstations and servers. These
and sales potential of today’s
computers were introduced for
value-added resellers who do
paradigm emerging
resellers who prefer unbranded
business with Tech Data. Although
in lockstep with
systems, which we can also private
direct-only manufacturers often
label upon request. Nonbranded
engage resellers, the relationships
our strategic direction.
products collectively outsell each of
are not as strong as they are
Our logistics expertise
industry research. With our
channel programs. We acknowledged
the major brands, according to
through distributors with dedicated
and expansive
TDEnsemble services, Tech Data can
the efficiencies of the direct model
breadth of services are
taking center stage.
now configure and assemble
and embarked on a response last
unbranded or branded systems in
year that capitalizes on its strengths
48 to 72 hours — a significant
without sacrificing inherent reseller
advantage over
value: FactoryDirect shipping. It’s
timeframes of
become the talk of our industry.
manufacturers
Among the more recent developments,
who sell their
Compaq selected Tech Data and
systems directly to
one other distributor to apply this
innovative shipping approach to its
Prosignia product line,
which was initially launched
with minimal distributor
involvement. u At the time
Compaq announced its new
PartnerDirect strategy, Tech Data
was completing the first year
of our FactoryDirect co-location
vi
Letter to shareholders
Letter to shareholders
program with Compaq in Houston, TX
power of this capability — a new
and IBM in Research Triangle Park,
advantage that the other direct
N.C. At both facilities we established
approach cannot match in versatility
our Private Label Delivery service in
or leveraging of the reseller channel.
which we customize shipping labels
We believe our implementation of
and packing list documentation with
channel assembly combines with
reseller logos and other personalized
FactoryDirect options to fully optimize
touches. This always keeps the
delivery of customized systems.
reseller’s identity in front of the
end-user customer. u With
The new logistics paradigm
FactoryDirect, Tech Data gained the
Technology distribution went through
ability to ship systems fresh from the
an exciting, albeit challenging,
Rankings, Honors and Awards
assembly line and remove up to
transformation last year.
two weeks from traditional delivery
Only the most nimble
cycles. Considering the rapid pace of
and best-capitalized
u No. 145 on Fortune 500
u No. 47 in Fortune 500 10-year return to investors
u No. 22 in Fortune 500 earnings-per-share growth
innovation in the systems category,
players are realistically
over the past 10 years
FactoryDirect shipping gives us a
positioned for long-term
significant competitive advantage.
prosperity. We see a
u No. 13 in Fortune 500 increase in year-over-year
profits, multi-industry wholesalers category
u Novell’s 1999 Service Excellence Award for
We’ve even taken the concept a step
new paradigm emerging
exceptional sales and service support
further. Now, with FactoryDirectPlus,
in lockstep with our
we’ve put our own configuration and
strategic direction. Our
u Named “Most Preferred Distributor” for peripherals,
mass storage and networking products in Computer
Reseller News’ 1998 Preferred Distributor Study
assembly specialists on site at the
logistics expertise and
u Named to ComputerWorld’s 1998 Premier 100
Compaq and IBM facilities to
expansive breadth of
incorporate virtually any component,
services are taking
software or other product required
center stage. u The
for electronic commerce innovation
u Named to Business 2.0 magazine’s 1999 Business
2.0 Hundred, recognizing companies with significant
Web-based strategies and revenues
in a solution. With over 75,000
traditional reseller channel remains
products shipped by Tech Data
strong, but it too is going through
across the world, it’s easy to see the
changes — changes that we believe
Tech Data Corporation
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Fiscal 1999 was a year
of record-breaking
favor Tech Data. Many of the same
reseller’s one-stop source for the
issues facing manufacturers and
most popular technology products,
publishers apply to resellers, who
we are now an instrumental
also want to reduce costs through
provider of credit, pre- and
outsourcing agreements with
post-sale technical support, training,
financial performance:
Tech Data. Our infrastructure is
configuration and assembly,
u Sales – $11.5 billion
ever. u In the past, technology
invaluable services. u In essence,
being leveraged in more ways than
electronic commerce and other
u Net Income – $129 million
distributors like Tech Data were
as we now celebrate our 25th year
labeled as the “middleman,”
in business, it’s safe to say we are
perceived primarily as box movers
squarely in the middle: We’re in the
with little added value. That view
middle of more opportunity than
u Shareholders’ Equity at
was probably fairly accurate when
we’ve ever seen. We hope you’re
year end – $967 million
we evolved from a reseller business
there with us as a current or future
model into wholesale distribution in
investor. The center of the global
the 1980s. Over the past decade
technology logistics supply chain is
we became much more than a
a good place to be.
distributor. Besides serving as the
Steven A. Raymund
Chairman of the Board of Directors
and Chief Executive Officer
May 3, 1999
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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, 1999
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from
to
Commission file number 0-14625
TECH DATA CORPORATION
(Exact name of registrant as specified in its charter)
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: (727) 539-7429
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.0015 per share.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___
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.
1999:
Aggregate market value of the voting stock held by non-affiliates of the registrant as of March 31,
$1,080,900,000
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of
the latest practicable date.
Class
Outstanding at March 31, 1999
Common stock, par value $.0015 per share
51,139,048
DOCUMENTS INCORPORATED BY REFERENCE
The registrant’s Proxy Statement for use at the Annual Meeting of Shareholders on June 22, 1999
is incorporated by reference in Part III of this Form 10-K to the extent stated herein.
ITEM 1. Business
Overview
PART I
Tech Data Corporation (“Tech Data” or the “Company”) was incorporated in 1974 to market data
processing supplies such as tape, disk packs, and custom and stock tab forms for mini and mainframe
computers directly to end users.
In 1984, the Company began marketing certain of its products to the
newly emerging market of microcomputer dealers and had withdrawn entirely from end-user sales,
broadened its product line to include hardware products, and completed its transition to a wholesale
distributor.
The Company has since continually expanded its product lines, customer base and
geographical presence.
On May 31, 1989, the Company entered the Canadian market through the acquisition of a
distributor subsequently named Tech Data Canada Inc., (“Tech Data Canada”). Tech Data Canada serves
customers in all Canadian provinces.
On March 24, 1994, the Company completed the non-cash exchange of 1,144,000 shares of its
common stock for all of the outstanding capital stock of Softmart International, S.A. (subsequently named
Tech Data France, SNC) (“Tech Data France”), a privately-held distributor of personal computer products
based in Paris, France. Tech Data France is one of the largest wholesale distributors of microcomputer
products in France, representing leading manufacturers and publishers such as Compaq, Hewlett-Packard,
IBM, Lotus and Microsoft.
To complement its Miami-based Latin American export business, the Company opened a 33,000
square-foot distribution center near São Paulo, Brazil in February 1997.
Tech Data expanded its European presence by acquiring a controlling interest in Macrotron AG
(“Macrotron”), a leading publicly held distributor of personal computer products based in Munich, Germany,
on July 1, 1997. Macrotron’s product line included such leading vendors as 3Com, Canon, Compaq, Corel,
Epson, Hewlett-Packard, IBM, Intel, Microsoft, Sony and Toshiba.
Approximately one year later, in July 1998, Tech Data completed the acquisition of 83% of the
voting common stock of Computer 2000 AG (“Computer 2000”), Europe’s leading technology products
distributor. With a presence in significant geographic markets in Europe, the Middle East and Latin America,
the purchase of Computer 2000 propelled Tech Data’s reach into over 30 countries worldwide. As a result
of this initial purchase, subsequent tender offer, open market purchases and private purchase
transactions, the Company currently owns approximately 99.3% of Computer 2000’s outstanding stock.
Computer 2000’s product line includes such leading vendors as Apple, Cisco, Compaq, Epson,
Hewlett-Packard, IBM, Intel, Microsoft, 3Com, and Toshiba.
With technology reseller customers in Germany, Switzerland and Austria, Computer 2000 had
significant market overlap with Macrotron. As a result of this overlap, as well as the challenge of integrating
two large competitors in the Germanic market, Tech Data chose to sell its majority interest in Macrotron
effective July 1, 1998. Tech Data owned 99% and 91% of Macrotron’s outstanding common and preferred
stock, respectively, at the time of the sale and recorded a $15.7 million pretax gain on the transaction (see
Note 2 of Notes to Consolidated Financial Statements).
Tech Data Corporation is the world’s second largest distributor of microcomputer hardware and
software products to value-added resellers (“VARs”), corporate resellers, retailers, direct marketers and
internet resellers (collectively with VARs, “customers”). Tech Data distributes products throughout the
United States, Canada, the Caribbean, Latin America, Europe and the Middle East. The Company
purchases its products directly from more than 1,000 manufacturers of microcomputer hardware and
publishers of software in large quantities, maintains a stocking inventory of more than 75,000 products
and sells to an active base of over 100,000 customers. The Company’s broad assortment of vendors and
products meets the customers’ need for a cost effective link to those vendors’ products offered through a
single source.
2
The Company provides its customers with leading products including systems, peripherals,
networking, and software, which accounted for 25%, 42%, 18% and 15%, respectively, of sales in fiscal
1999. The Company offers products from manufacturers and publishers such as Cisco, Compaq,
Creative Labs, Epson, Hewlett-Packard, IBM, Intel, Iomega, Microsoft, Nortel Networks, Novell, Okidata,
Symantec, 3Com, Toshiba, Viewsonic and Western Digital. The Company generally ships products the
same day the orders are received from regionally located distribution centers. The customers are
provided with a high-level of service through the Company’s pre- and post-sale technical support,
electronic commerce tools (including on-line order entry, product configuration services and electronic
data interchange (“EDI”) services), customized shipping documents and flexible financing programs.
Industry
The wholesale distribution model, like that provided by the Company, has proven to be well-suited
for both manufacturers and publishers of microcomputer products (“vendors”) and resellers of those
products. The large number and diversity of resellers makes it cost efficient for vendors to rely on
wholesale distributors which can leverage distribution costs across multiple vendors who outsource a
portion of their distribution, credit, marketing and support services. Similarly, due to the large number of
vendors and products, resellers often cannot or choose not to establish direct purchasing relationships.
Instead they rely on wholesale distributors, such as Tech Data, which can leverage purchasing costs
across multiple resellers to satisfy a significant portion of their product procurement and delivery,
financing, marketing and technical support needs.
The Company believes that the rates of growth of the wholesale distribution segment of the
microcomputer industry and the Company continue to outpace that of the microcomputer industry as a
whole for three principal reasons. First, as a result of the use of open systems and off-the-shelf
components, hardware and software products are increasingly viewed as commodities. The resulting
price competition coupled with rising selling costs and shorter product life cycles, make it difficult for
manufacturers and publishers to efficiently sell directly to resellers and has prompted them to rely on more
cost-efficient methods of distribution. Second, resellers are increasingly relying on wholesale distributors
such as Tech Data for product availability and flexible financing alternatives rather than stocking large
inventories themselves and maintaining credit lines to finance working capital needs. Third, restrictions by
certain major manufacturers on sales through wholesale distributors were gradually eased commencing in
1991. Since the beginning of 1995, the Company has been able to sell certain of those manufacturers’
products under more competitive terms and conditions (“open-sourcing”). Historically, these previously
restricted product lines were sold by master resellers, or aggregators, (whose business model was similar
to wholesale distributors, but focused on relatively few product lines) to a network of franchise dealers.
Open-sourcing has virtually eliminated any advantage that these aggregators enjoyed as a result of the
In addition, consolidation in the wholesale distribution industry continues as
exclusive arrangements.
economies of scale and access to financial resources become more critical. Larger distributors, like the
Company, that have been able to utilize economies of scale to lower costs and pass on the savings to its
customers in the form of reduced prices have continued to take market share.
A number of emerging industry trends are providing new opportunities and challenges for Tech
Data. The advent of the direct sales model and other industry developments has led many manufacturers
and distributors to reevaluate their business models. Leading systems manufacturers are introducing new
policies, processes, terms and conditions as part of their overall effort to reduce costs and improve
efficiency. Some manufacturers are moving toward “assemble-to-order” business models instead of the
traditional “build-to-forecast” approach that requires forecasting market demand and manufacturing a
broad range of systems based on these projections. Under this model, systems are assembled upon
demand and shipped from distribution centers across the world. The success of this new model will be
driven by the extent to which reseller and manufacturer partners embrace the model and choose to make
changes to their traditional way of doing business.
Consolidation represents a major industry trend in recent years as many distributors have either
exited the market or been purchased by larger players. The Company believes that the dynamics of the
wholesale distribution industry favor the largest distributors, such as Tech Data, which have access to
financing and are able to achieve economies of scale and breadth of geographic coverage.
3
As resellers continue to seek ways to reduce costs and improve efficiencies, distributors are
responding with a variety of new value-added services. Tech Data’s ability to provide a “virtual
warehouse” of products for resellers means that they no longer need to hold inventory. Configuration and
assembly services can be employed to customize systems. Private Label Delivery can ensure the product
arrives at the customer as it if was shipped directly from the reseller. The emergence of the Internet, and
consequently Internet resellers, has created one of the industry’s fastest-growing business segments.
These resellers, which sell mainly on price and availability, present a new set of challenges such as
advanced use of electronic commerce capabilities.
The increasing utilization of electronic ordering and information delivery systems, including the
ability to transact business over the World Wide Web has had and is expected to continue to have a
significant impact on the cost efficiency of the wholesale distribution industry. Distributors, such as Tech
Data, with the financial and technical resources to develop, implement and operate state-of-the-art
management information systems have been able to reduce both their customers’ and their own
transaction costs through more efficient purchasing and lower selling costs.
In summary, microcomputer distribution is experiencing rapid growth and consolidation, creating
an environment in which market share and the resulting cost efficiencies are critical.
Business Strategy
Tech Data, as the world’s second largest distributor of microcomputer products, believes that its
infrastructure and the size of its operation position it to gain share in its current markets as well as
continue its expansion into new geographic markets. The Company’s size and performance have allowed
it to make significant investments in personnel, management information systems, distribution centers and
other capital resources. The Company provides a broad array of products and services for its resellers,
which allows them to satisfy their needs from a single source. The Company’s competitive advantage is
the result of its low cost structure, investment in sophisticated management information systems and its
access to capital to finance growth.
To maintain and enhance its leadership position in wholesale distribution, the Company’s
business strategy includes the following main elements:
Maintain low cost and efficient operations. The Company has pursued a strategy of
profitable revenue growth by providing its customers with the benefit of operating efficiencies
achieved through centralized management and control, stringent cost controls and automation. The
Company strictly controls selling, general and administrative expenses; utilizes its highly automated
order placement and processing systems to efficiently manage inventory and shipments and to
reduce transaction costs; and realizes economies of scale in product purchasing, financing and
working capital management. The Company has been successful in reducing selling, general and
administrative expenses as a percentage of net sales from 6.81% for the fiscal year ended January
31, 1992 to 4.27% for the fiscal year ended January 31, 1999.
Leverage management information systems. In order to further improve its operating
efficiencies and services to its resellers, the Company invested approximately $30 million in a
scaleable, state-of-the-art computer information system which was implemented in December 1994.
This system, which currently supports the Company’s U.S. and Canadian operations and Latin
American export operations, provides the Company operating efficiencies and allows the Company
to offer additional services such as expansion of its electronic commerce capabilities, including
electronic data interchange and order entry over the Company’s World Wide Web site. Electronic
commerce generates significant cost savings and operational efficiencies for Tech Data and its
customers. By the fourth quarter of fiscal 1999, approximately 25% of the Company’s U.S. sales
dollar volume originated from orders received electronically over the Company’s World Wide Web
site or other links such as EDI. The Company believes that growth in its electronic commerce
capabilities will provide incremental economies of scale and further reduce transaction costs.
4
Offer a broad and balanced product mix. The Company offers its resellers a broad
assortment of leading technology products. Currently, the Company offers more than 75,000
products from more than 1,000 manufacturers and publishers. By offering a broad product
assortment, the Company can benefit from its resellers’ objective to procure product more efficiently
by reducing the number of their direct vendor relationships. The Company is continually broadening
its product assortment to ensure it provides its customers with the latest technology products. The
Company maintains a balanced product line of systems, peripherals, networking products and
software to minimize the effects of fluctuation in supply and demand.
Foster customer loyalty through superior customer service. Tech Data’s sales force
provides superior customer service through a dedicated team approach in order to differentiate itself
from its competitors and foster customer loyalty. The Company provides services such as flexible
customer financing and credit programs, a suite of electronic commerce tools (including electronic
order entry and access to product specifications), pre- and post-sale technical support, products
configuration, customized shipping documents, flexible product return policies and customer
education programs. The Company believes its strategy of not competing with its customer base
also promotes customer loyalty.
Broaden geographic coverage through international expansion. The Company plans to
take advantage of its strong financial position, vendor relationships and distribution expertise to
continue to expand its business in the markets it currently serves and additional markets. The
Company’s expansion strategy focuses on identifying companies with significant market positions
and quality management teams in markets where there is developed or emerging demand for
microcomputer products. Following expansion into a new market, Tech Data enhances its market
share by providing capital, adding new product lines, competitively pricing its products and
delivering value-added services.
The Company’s operations have expanded from its North
American focus to include Europe with the acquisition in 1994 of France’s largest wholesale
microcomputer distributor.
In February 1997, the Company continued its international expansion
through the development of an in-country subsidiary which stocks and distributes products in Brazil.
The Company’s purchase of Computer 2000 AG, Germany’s largest distributor, in July 1998
established the Company as the leading European distributor, as well as strengthened its position in
Latin America.
Vendor Relations
The Company’s strong financial and industry positions have enabled it to obtain contracts with
most leading manufacturers and publishers. The Company purchases products directly from more than
The Company’s vendor
1,000 manufacturers and publishers, generally on a nonexclusive basis.
agreements are believed to be in the form customarily used by each manufacturer and typically contain
provisions which allow termination by either party upon 60 days notice. Generally, the Company’s supplier
agreements do not require it to sell a specified quantity of products or restrict the Company from selling
similar products manufactured by competitors. Consequently, the Company has the flexibility to terminate
or curtail sales of one product line in favor of another product line as a result of technological change,
pricing considerations, product availability, customer demand and vendor distribution policies. Such
agreements generally contain stock rotation and price protection provisions which, along with the
Company’s inventory management policies and practices, reduce the Company’s risk of loss due to slow-
moving inventory, vendor price reductions, product updates or obsolescence. Under the terms of many
distribution agreements, suppliers will credit the distributor for declines in inventory value resulting from
the supplier’s price reductions if the distributor complies with certain conditions.
In addition, under many
such agreements, the distributor has the right to return for credit or exchange for other products a portion
of those inventory items purchased, within a designated period of time. A supplier who elects to terminate
a distribution agreement generally will repurchase from the distributor the supplier’s products carried in the
distributor’s inventory. While the industry practices discussed above are sometimes not embodied in
agreements and do not protect the Company in all cases from declines in inventory value, management
believes that these practices provide a significant level of protection from such declines. No assurance
can be given, however, that such practices will continue or that they will adequately protect the Company
against declines in inventory value. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations - Asset Management.”
5
Major computer systems manufacturers have begun to re-engineer their manufacturing processes
whereby final assembly will be performed at the distribution level (“channel assembly”) versus the current
“build-to-forecast” methodology employed by these manufacturers. Tech Data expanded its TDEnsemble
services over the past two years to include “assemble-to-order” capabilities on behalf of its manufacturing
partners, in addition to resellers, seeking custom configuration of branded and unbranded systems. Tech
Data was selected by Compaq, Hewlett-Packard and IBM to participate in their respective channel
In addition to its own ISO 9002-certified centers in South Bend, Indiana and
assembly initiatives.
Swedesboro, New Jersey, Tech Data now offers custom-configuration at its FactoryDirect locations with
Compaq in Houston, Texas and IBM in Research Triangle Park, North Carolina.
In addition to providing manufacturers and publishers with one of the largest bases of resellers in
the United States, Canada, the Caribbean, Latin America, Europe and the Middle East, the Company also
offers manufacturers and publishers the opportunity to participate in a number of special promotions,
training programs and marketing services targeted to the needs of its resellers.
No single vendor accounted for more than 10% of the Company’s net sales during fiscal 1999, 1998
or 1997, except sales of Compaq products which accounted for 13%, 13% and 12% of net sales in fiscal
1999, 1998 and 1997, respectively, and sales of Hewlett-Packard products which accounted for 18% and
13% of net sales in fiscal 1999 and 1998, respectively.
Customers, Products and Services
The Company sells more than 75,000 microcomputer products including systems, peripherals,
networking and software purchased directly from manufacturers and publishers in large quantities for sale
to an active reseller base of more than 100,000 VARs, corporate resellers, direct marketers, retailers and
Internet resellers.
The Company’s VARs typically do not have the resources to establish a large number of direct
purchasing relationships or stock significant product inventories. This market is attractive because VARs,
which constituted approximately 56% of Tech Data’s net sales in fiscal 1999, generally rely on distributors
as their principal source of computer products and financing. Corporate resellers, retailers, direct
marketers and internet resellers may establish direct relationships with manufacturers and publishers for
their more popular products, but utilize distributors as the primary source for other product requirements
and the alternative source for products acquired direct. The Company’s Tech Data Elect Program
provides cost-plus pricing on certain high volume products, primarily computer systems and printers, and
other special terms to target corporate resellers. Corporate resellers constituted approximately 26% of the
Company’s net sales in fiscal 1999. Tech Data also has developed special programs to meet the unique
needs of retail, direct marketers and internet resellers, which customers constituted approximately 18% of
the Company’s net sales in fiscal 1999. No single customer accounted for more than 5% of the
Company’s net sales during fiscal 1999, 1998 or 1997.
The Company pursues a strategy of continually expanding its product line to offer its customers a
broad assortment of the latest technology products. From time to time, the demand for certain products
sold by the Company exceeds the supply available from the manufacturer or publisher. The Company
then receives an allocation of the products available. Management believes that the Company’s ability to
compete is not adversely affected by these periodic shortages and the resulting allocations.
Tech Data provides resellers a high-level of service through the Company’s pre- and post-sale
technical support, suite of electronic commerce tools (including on-line order entry and EDI services),
customized shipping documents, product configuration services and flexible financing programs.
The Company delivers products throughout the United States, Canada, the Caribbean, Latin
America, Europe and the Middle East from its 35 regionally located distribution centers.
Locating
distribution centers near its customers enables the Company to deliver products on a timely basis, thereby
reducing customers’ need to invest in inventory. See Item 2 - Properties for further discussion of the
Company’s locations and distribution centers.
6
Sales and Electronic Commerce
Currently, the Company’s sales force consists of approximately 2,000 field and 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
or contact the Company through various electronic methods to place orders.
If the product is in stock
and the customer has available credit, customer orders are generally shipped the same day from the
distribution facility nearest the customer.
Increasingly, customers rely upon the Company’s electronic ordering and information systems, in
addtion to product catalogs and frequent mailings as sources for product information, including prices. The
Company’s on-line computer system allows the inside sales teams to check for current stocking levels in
each of the six United States distribution centers. Likewise, inside sales teams in Canada, the Caribbean,
Europe, Latin America and the Middle East can check on stocking levels in their respective distribution
centers. Through “Tech Data On-Line”, the Company’s proprietary electronic on-line system, U.S.
customers can gain remote access to the Company’s data processing system to check product availability
and pricing and to place an order. Certain of the Company’s larger customers have available EDI services
whereby orders, order acknowledgments, invoices, inventory status reports, customized pricing information
and other industry standard EDI transactions are consummated on-line which improves efficiency and
timeliness for both the Company and the customers.
In 1998, the Company launched order entry
capability over the Company’s World Wide Web site. By the fourth quarter of fiscal 1999 approximately 25%
of the Company’s U.S. sales dollar volume originated from orders received electronically and web orders
were reaching approximately $2 million per day.
The Company provides comprehensive training to its field and inside sales representatives
In addition,
regarding technical characteristics of products and the Company’s policies and procedures.
the Company’s ongoing training program is supplemented by product seminars offered daily by
manufacturers and publishers.
Competition
The Company operates in a market characterized by intense competition. Competition within the
industry is based on product availability, credit availability, price, delivery and various services and support
provided by the distributor to the customer. The Company believes that it is equipped to compete
effectively with other distributors in these areas. Major competitors include Ingram Micro, Inc. and CHS
Electronics, Inc., as well as a variety of smaller distributors. The only competitor larger than the Company
is Ingram Micro, Inc.
The Company also competes with manufacturers and publishers who sell directly to resellers and
end-users. The Company nevertheless believes that in the majority of cases, manufacturers and
publishers choose to sell products through distributors rather than directly because of the relatively small
volume and high selling costs associated with numerous small orders. Management also believes that the
Company’s prompt delivery of products and efficient handling of returns provide an important competitive
advantage over manufacturers’ and publishers’ efforts to market their products directly.
Employees
On January 31, 1999, the Company had approximately 8,240 employees located as follows:
United States – 3,600, Europe – 4,185, and all other regions - 455. Certain of the Company’s employees
in Europe are subject to collective bargaining or similar arrangements. The Company considers its
relations with its employees to be good.
7
Foreign and domestic operations and export sales
The Company operates predominantly in a single industry segment as a wholesale distributor of
computer-based technology products and services. That is, the principal markets, products and services
and methods of distribution from which each segment derives its revenues are essentially the same. The
principal geographical areas in which the Company operates are the United States, Europe (including the
Middle East) and Other International areas which include Canada, Brazil, Argentina, Chile, Peru, Uruguay,
and export sales to Latin America and the Caribbean from the U.S.
In 1999, 1998 and 1997, 45%, 23%
and 15%, respectively, of the Company’s sales were derived from sales outside of the U.S.
See Note 10 of Notes to Consolidated Financial Statements for further information regarding the
geographical distribution of the Company’s net sales, operating income and identifiable assets.
Executive Officers
Steven A. Raymund, Chairman of the Board of Directors and Chief Executive Officer, age 43,
has been employed by the Company since 1981, serving as Chief Executive Officer since January 1986
and as Chairman of the Board of Directors since April 1991.
In 1998, Mr. Raymund was appointed
Chairman of the Computer 2000 Management Board. He has a B.S. Degree in Economics from the
University of Oregon and a Masters Degree from the Georgetown University School of Foreign Service.
Anthony A. Ibargüen, President and Chief Operating Officer, age 39, joined the Company in
September 1996 as President of the Americas and was appointed President and Chief Operating Officer in
March 1997.
In 1998, Mr. Ibargüen was appointed to the Company’s Board of Directors and to the
Supervisory Board of Computer 2000. Prior to joining the Company, he was employed by ENTEX
Information Services, Inc. from August 1993 to August 1996 as Executive Vice President of Sales and
Marketing. From June 1990 to August 1993, he was employed by JWP, Inc. most recently as a Vice
President. Mr. 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 42, joined the
Company in October 1991 as Vice President of Finance and assumed the responsibilities of Chief Financial
Officer in March 1992.
In March 1993, he was promoted to Senior Vice President and Chief Financial
Officer and was promoted to Executive Vice President and Chief Financial Officer in March 1997. In 1998,
Mr. Howells was appointed to the Company’s Board of Directors and to the Supervisory Board of Computer
2000. From June 1991 through September 1991 he was employed as Vice President of Finance of Inex
Vision Systems. From July 1979 to May 1991 he was employed by Price Waterhouse., 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.
Néstor Cano, Executive Vice President of U.S. Sales and Marketing, age 35, joined the Company
in July 1998 as a result of the Company’s acquisition of Computer 2000.
In March 1999, he was appointed
Executive Vice President of U.S. Sales and Marketing. Prior to his appointment in the U.S., Mr. Cano served
in various management positions with Computer 2000 from 1989 to 1998, most recently as Regional
Managing Director of Spain and Portugal. Mr. Cano holds an Engineering Degree from Barcelona University.
H. John Lochow, Executive Vice President of Information Technology and Logistics, age 46,
joined the Company in February 1998 as Senior Vice President and Chief Information Officer and in
February 1999 was promoted to Executive Vice President of Information Technology and Logistics. Prior
to joining the Company, he served as Chief Information Officer at Bell Canada and Chief Executive of their
international subsidiary Bell Sygma from 1996 to February 1998. From 1994 to 1996, he was employed by
AT&T Capital Corporation as Vice President of Systems and New Business Development and from 1989 to
1994 he was employed by CNA Insurance Companies as Vice President of Systems. Mr. Lochow holds a
B.A. Degree in Mathematics from Thomas Edison University.
Peggy K. Caldwell, Senior Vice President of Marketing, age 53, joined the Company in May
1992 and retired on January 31, 1999 after 7 years. Prior to joining the Company, she was employed by
International Business Machines Corporation for 25 years, most recently serving in a variety of senior man-
agement positions in the National Distribution Division. Ms. Caldwell holds a B.S. Degree in Mathematics
and Physics from Bucknell University. Ms. Caldwell retired from the Company on January 31, 1999.
8
Timothy J. Curran, Senior Vice President of U.S. Sales, age 47, joined the Company in April
1997. Prior to joining the Company, he was employed by Panasonic Communications and Systems
Company (including various other Panasonic affiliates) from 1983 to 1997 serving in a variety of senior
management positions. Mr. Curran holds a B.A. Degree in History from the University of Notre Dame and
a Ph.D. in International Relations from Columbia University.
Lawrence W. Hamilton, Senior Vice President of Human Resources, age 41, joined the
Company in August 1993 as Vice President of Human Resources and was promoted to Senior Vice
President in March 1996. Prior to joining the Company, he was employed by Bristol-Myers Squibb
Company from 1985 to August 1993, most recently as Vice President - Human Resources and
Administration of Linvatec Corporation (a division of Bristol-Myers Squibb Company). Mr. Hamilton holds a
B.A. Degree in Political Science from Fisk University and a Masters of Public Administration, Labor Policy
from the University of Alabama.
Gerald M. Labie, Senior Vice President of U.S. Marketing, age 55, joined the Company in
November 1997 as President and Managing Director of European Operations and was appointed Senior
Vice President of U.S. Marketing in February 1999. Prior to joining the Company, he was employed by
Corporate Software Inc. from 1989 to 1997, most recently serving in the role of Senior Vice President and
General Manager, Europe. Mr. Labie holds a B.A. Degree from Alfred University.
Yuda Saydun, Senior Vice President and General Manager - Latin America, age 46, joined the
Company in May 1993 as Vice President and General Manager - Latin America.
In March 1997 he was
promoted to Senior Vice President and General Manager - Latin America. Prior to joining the Company, he
was employed by American Express Travel Related Services Company, Inc. from 1982 to May 1993, most
recently as Division Vice President, Cardmember Marketing. Mr. Saydun holds a B.S. Degree in Political
and Diplomatic Sciences from Universite Libre de Bruxelles and a Masters of Business Administration
Degree, Finance/Marketing from U.C.L.A.
Joseph B. Trepani, Senior Vice President and Corporate Controller, age 38, joined the
Company in March 1990 as Controller and held the position of Director of Operations from October 1991
through January 1995. In February 1995, he was promoted to Vice President and Worldwide Controller and
to Senior Vice President and Corporate Controller in March 1998. Prior to joining the Company, Mr. Trepani
was Vice President of Finance for Action Staffing, Inc. from July 1989 to February 1990. From 1982 to June
1989, he was employed by Price Waterhouse. Mr. Trepani is a Certified Public Accountant and holds a B.S.
Degree in Accounting from Florida State University.
Patrick O. Connelly, Vice President of Credit Services, age 53, joined the Company in August
1994. Prior to joining the Company, he was employed by Unisys Corporation for nine years as Worldwide
Director of Credit. Mr. Connelly holds a B.A. Degree in History and French from the University of Texas at
Austin.
Charles V. Dannewitz, Vice President of Taxes, age 44, joined the Company in February 1995.
Prior to joining the Company, he was employed by Price Waterhouse for 13 years, most recently as a Tax
Partner. Mr. Dannewitz is a Certified Public Accountant and holds a B.S. Degree in Accounting from Illinois
Wesleyan University.
Arthur W. Singleton, Vice President, Treasurer and Secretary, age 38, joined the Company in
January 1990 as Director of Finance and was appointed Treasurer and Secretary in April 1991. In February
1995, he was promoted to Vice President, Treasurer and Secretary. Prior to joining the Company, Mr.
Singleton was employed by Price Waterhouse from 1982 to December 1989. Mr. Singleton is a Certified
Public Accountant and holds a B.S. Degree in Accounting from Florida State University.
David R. Vetter, Vice President and General Counsel, age 40, joined the Company in June 1993.
Prior to joining the Company, he was employed by the law firm of Robbins, Gaynor & Bronstein, P.A. from
1984 to June 1993, most recently as a partner. Mr. Vetter is a member of the Florida Bar and holds a B.A.
Degree in English and Economics from Bucknell University and a J.D. Degree from the University of Florida.
9
ITEM 2. Properties
Tech Data’s executive offices are located in Clearwater, Florida. The Company operates a total of 35
distribution centers to provide its customers timely delivery of products. These distribution centers are
located in the following principal markets: U.S. – 6, Canada – 2, Latin America – 5, Europe – 21 and the
Middle East - 1.
In addition to the above distribution centers, the Company operates two distribution
facilities in the U.S. which are located within the manufacturing facilities of Compaq and IBM in connection
with the Company’s FactoryDirect program (see Vendor Relations). The Company also operates training
centers in nine cities in the U.S.
The facilities of the Company are substantially utilized, well maintained and are adequate to conduct
the Company’s current business.
ITEM 3. Legal Proceedings
There are no material legal proceedings pending against the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
There have been no matters submitted to a vote of security holders during the last quarter of the
fiscal year ended January 31, 1999.
PART II
ITEM 5. Market for the Registrant’s Common Stock and Related Shareholder Matters
The Company’s common stock is traded on the Nasdaq Stock Market under the symbol TECD.
The Company has not paid cash dividends since fiscal 1983. The Board of Directors does not intend to
institute a cash dividend payment policy in the foreseeable future. The table below presents the quarterly
high and low sales prices for the Company’s common stock as reported by The Nasdaq Stock Market.
The approximate number of shareholders as of January 31, 1999 was 30,000.
Fiscal year 1999
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44 1/2
53 1/8
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49 7/8
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50 5/8
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 26 5/8
36 3/4
33 3/4
36 1/8
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 34 1/8
36 1/4
22 7/8
19 3/4
10
ITEM 6. Selected Financial Data
FIVE YEAR FINANCIAL SUMMARY
(In thousands, except per share data)
1999
Income statement data:
Net sales . . . . . . . . . . . . . . . . . . . . . . $11,528,999
Cost and expenses:
Year ended January 31,
1997
1998
1996
1995
$ 7,056,619
$ 4,598,941
$ 3,086,620 $ 2,418,410
Cost of products sold . . . . . . . . . . .
Selling, general and
administrative expenses . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . .
Gain on the sale of Macrotron AG . . . .
Income before income taxes . . . . . . . .
Provision for income taxes . . . . . . . . .
Income before minority interest . . . . . .
Minority interest . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . $
Net income per common share:
10,801,126
6,590,873
4,277,160
2,867,226
2,219,122
492,542
11,293,668
235,331
44,988
15,700
206,043
76,215
129,828
876
128,952
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
—
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
—
21,541 $ 34,912
$
Basic . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . $
2.59
2.47
$ 2.00
$ 1.92
$ 1.39
$ 1.35
$ .57
$ .56
$ .92
$ .91
Weighted average common
shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . .
Dividends per common share . . . . . . .
49,727
54,161
—
44,715
46,610
—
40,870
42,125
—
37,846
38,138
—
37,758
38,258
—
Balance sheet data:
Working capital . . . . . . . . . . . . . . . . . . $
Total assets . . . . . . . . . . . . . . . . . . . .
Revolving credit loans . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . .
725,057
3,844,987
817,870
308,521
967,291
$
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
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 most recent fiscal years.
Percentage of net sales
Year ended January 31,
1998
1999
1997
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost and expenses:
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of Macrotron AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Years Ended January 31, 1999 and 1998
93.7
4.3
98.0
2.0
.4
.2
1.8
.7
1.1
—
1.1%
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%
Net sales increased 63.4% to $11.5 billion in fiscal 1999 compared to $7.1 billion in the prior year.
This increase is attributable to the acquisition of Computer 2000 AG (“Computer 2000”), as well as the
addition of new product lines and the expansion of existing product lines. Sales for the fiscal year ended
January 31, 1999 include six months of results for Computer 2000, in which the Company acquired a
controlling interest in July 1998, and include six months of results for Macrotron AG, which was acquired
in July 1997 and sold in July 1998. The Company’s U.S., Europe and other international sales grew
17.0%, 295.5% and 32.9%, respectively, in fiscal 1999 compared to the prior year. The significant growth
in the Company’s international sales is attributable to the acquisition of Computer 2000. Excluding the
effect of acquisitions and dispositions, sales growth rates in fiscal 1999 were approximately 17%, 27% and
15% in the U.S., Europe and other international areas, respectively. Total international sales in fiscal 1999
represent approximately 45% of consolidated net sales compared with 23% in the prior year.
The cost of products sold as a percentage of net sales increased from 93.4% in fiscal 1998 to 93.7%
in fiscal 1999. This increase is a result of competitive market prices and the Company’s strategy of lowering
selling prices in order to gain market share and to pass on the benefit of operating efficiencies to its customers.
Selling, general and administrative expenses increased 68.0% from $293.1 million in fiscal 1998 to
$492.5 million in fiscal 1999, and as a percentage of net sales increased to 4.3% in fiscal 1999 from
4.2% in the prior year. The increase in selling, general and administrative expenses is attributable to the
acquisitions of Macrotron and Computer 2000, increases in amortization of intangibles as well as other
operating expenses needed to support the increased volume of business.
As a result of the factors described above, operating profit in fiscal 1999 increased 36.3% to
$235.3 million, or 2.0% of net sales, compared to $172.6 million, or 2.4% of net sales, in fiscal 1998. A
factor contributing to the decrease in the operating profit margin from 2.4% in fiscal 1998 to 2.0% in fiscal
1999, was ongoing competitive pricing pressure experienced by the Company in its U.S. business.
Additionally contributing to this decrease was the Company’s more significant presence in Europe in fiscal
1999, principally as a result of the Computer 2000 acquisition. Operating margins in Europe are typically
lower than the Company’s U.S. business as a result of higher costs, partially offset by better asset turnover.
Interest expense increased due to an increase in the Company’s average outstanding
indebtedness related to funding the acquisition of Computer 2000, funding for continued growth and
capital expenditures. The increase in interest expense was partially offset in fiscal 1999 by decreases in
average short-term interest rates on the Company’s floating rate indebtedness.
12
The Company’s results of operations in fiscal 1999 include a pretax gain of $15.7 million ($9.6
million net of income taxes) related to the July 1998 sale of Macrotron AG.
The Company’s average income tax rate was 37.0% for fiscal 1999 and fiscal 1998.
Net income in fiscal 1999 increased 44.1% to $129.0 million, or $2.47 per diluted share, compared
to $89.5 million, or $1.92 per diluted share, in the prior year. Excluding the gain on the sale of Macrotron,
net income increased 33.4% to $119.4 million, or $2.29 per diluted share.
Fiscal Years Ended January 31, 1998 and 1997
Net sales increased 53.4% to $7.1 billion in fiscal 1998 compared to $4.6 billion in the prior year. This
increase is attributable to the acquisition of Macrotron AG, the addition of new product lines and the expansion
of existing product lines combined with an increase in the Company’s market share. The Company’s U.S. and
international sales grew 39.1% and 134.6% respectively, in fiscal 1998 compared to the prior year. The
significant growth in the Company’s international sales is attributable to the acquisition of Macrotron AG, in
which the Company acquired a controlling interest on July 1, 1997. The Company’s international sales in fiscal
1998 were approximately 23% of consolidated net sales compared with 15% in the prior year.
The cost of products sold as a percentage of net sales increased from 93.0% in fiscal 1997 to 93.4%
in fiscal 1998. This increase is a result of competitive market prices and the Company’s strategy of lowering
selling prices in order to gain market share and to pass on the benefit of operating efficiencies to its customers.
Selling, general and administrative expenses increased 41.8% from $206.8 million in fiscal 1997 to
$293.1 million in fiscal 1998, and as a percentage of net sales decreased to 4.2% in fiscal 1998 from
4.5% in the prior year. This decline in selling, general and administrative expenses as a percentage of net
sales is attributable to greater economies of scale the Company realized during fiscal 1998 in addition to
improved operating efficiencies. The dollar value increase in selling, general and administrative expenses
is attributable to the acquisition of Macrotron AG and the expanded employment and increases in other
operating expenses needed to support the increased volume of business.
As a result of the factors described above, operating profit in fiscal 1998 increased 50.1% to
$172.6 million, or 2.4% of net sales, compared to $115.0 million, or 2.5% of net sales, in fiscal 1997. A
factor contributing to the decrease in the operating profit margin from 2.5% in fiscal 1997 to 2.4% in fiscal
1998 was the acquisition of Macrotron AG. Macrotron’s operating model employs a lower operating profit
margin due to its higher asset turnover, as compared to the Company’s U.S. business.
Interest expense increased due to an increase in the Company’s average outstanding
indebtedness related to funding continued growth, the acquisition of Macrotron AG and capital
expenditures. The increase in interest expense was partially offset in fiscal 1998 by decreases in
short-term interest rates on the Company’s floating rate indebtedness and by the receipt of net proceeds
of approximately $149 million from the Company’s November 1997 common stock offering which were used
to reduce indebtedness.
The Company’s average income tax rate declined to 37.0% for fiscal 1998 as compared to 39.1%
for fiscal 1997. This reduction primarily is the result of a larger portion of the Company’s income being
subject to lower state income tax jurisdictions.
Net income in fiscal 1998 increased 57.1% to $89.5 million, or $1.92 per diluted share, compared
to $57.0 million, or $1.35 per diluted share, in the prior year.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued Statement of position
(“SOP”) 98-1 “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”
effective for fiscal years beginning after December 15, 1998.
The Company has elected early
implementation of provisions of SOP 98-1 effective for the year ended January 31, 1999. This statement
requires capitalization of certain costs relating to computer software developed or obtained for internal
use. The impact of adoption was not material to the Company’s consolidated financial statements.
13
In June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). This statement requires that
all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if so, the type of the hedge
transaction. The ineffective portion of all hedge transactions will be recognized in the current-period
earnings. SFAS 133 is effective for fiscal years beginning after June 15, 1999. The future impact of this
statement on the Company’s results of operations is not expected to be material.
Impact of Inflation
The Company has not been adversely affected by inflation as technological advances and
competition within the microcomputer industry has generally caused prices of the products sold by the
Company to decline. Management believes that any price increases could be passed on to its customers,
as prices charged by the Company are not set by long-term contracts.
Liquidity and Capital Resources
Net cash provided by operating activities of $43.5 million in fiscal 1999 was primarily attributable
to income from operations of $129.0 million combined with an increase in accounts payable partially offset
by increases in accounts receivable and inventories.
Net cash provided by investing activities of $60.2 million in fiscal 1999 was attributable to receipt
of $227.8 million in proceeds from the sale of Macrotron (see Note 9 of Notes to Consolidated Financial
Statements) offset by $115.0 million related to the acquisition of Computer 2000 and the Company’s
continuing investment of $47.8 million in its management information systems, office facilities and its
distribution center facilities and $4.9 million in software development costs. The Company expects to
make capital expenditures of approximately $75 - $100 million during fiscal 2000 to further expand its
management information systems, office facilities and distribution centers.
Net cash used in financing activities of $97.8 million in fiscal 1999 reflects the net repayments
under the Company’s revolving credit loans of $114.1 million partially offset by proceeds from stock option
exercises (including the related income tax benefit) of $16.5 million.
The Company currently maintains domestic and foreign revolving credit agreements which
provide maximum short-term borrowings of approximately $1.35 billion (including local country credit
lines), of which $818 million was outstanding at January 31, 1999. The Company believes that cash from
operations, available and obtainable bank credit lines and trade credit from its vendors will be sufficient to
satisfy its working capital and capital expenditure needs through fiscal 2000.
Asset Management
The Company manages its inventories by maintaining sufficient quantities to achieve high order fill
rates while attempting to stock only those products in high demand with a rapid turnover rate.
Inventory
balances fluctuate as the Company adds new product lines and when appropriate, makes large
purchases, including cash purchases from manufacturers and publishers when the terms of such
purchases are considered advantageous. The Company’s contracts with most of its vendors provide price
protection and stock rotation privileges to reduce the risk of loss due to manufacturer price reductions and
In the event of a vendor price reduction, the Company generally
slow moving or obsolete inventory.
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 net 30-day payment terms.
The Company also sells products on a prepay, credit card, cash on delivery and floorplan basis.
14
Year 2000
Introduction
The “Year 2000 Problem” arose because many existing computer programs use only the last two
digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins
with “20” instead of the familiar “19.”
If not corrected, many computer applications could fail or create
erroneous results. The problems created by using abbreviated dates appear in hardware (such as
microchips), operating systems and other software programs.
The Company’s Year 2000 (“Y2K”)
compliance project is intended to determine the readiness of the Company’s business for the Year 2000.
The Company defines Y2K “compliance” to mean that the computer code will process all defined future
dates properly and give accurate results.
Description of Areas of Impact and Risk
The Company has identified four areas where the Y2K problem creates risk to the Company.
These areas are: a) internal Information Technology (“IT”) systems; b) non-IT systems with embedded
chip technology; c) system capabilities of third party businesses with relationships with the Company,
including product suppliers, customers, service providers (such as telephone, power, logistics, financial
services) and other businesses whose failure to be Y2K compliant could have a material adverse effect on
the Company’s business, financial condition or results of operations; and d) product liability claims arising
out of the non-performance of computer products distributed by the Company.
Plan to Address Year 2000 Compliance
In August 1997, the Company formed a Year 2000 compliance project team and began developing
an overall plan to address Y2K readiness issues. This plan includes five phases as follows: Phase I is to
create an inventory of the Company’s IT systems, non-IT systems and service providers (each of these
being referred to as “business components”) that need to be analyzed for Y2K compliance. During Phase
I, a priority is established so that the Company will first address the most important business components
to determine Y2K readiness. Phase II analyzes the identified business components to determine which of
the business components in the inventory require additional effort to be Y2K compliant. Phase III is the
repair, modification or replacement of business components which the analysis determines are not Y2K
compliant (“remediation”). Phase IV consists of various types of testing to confirm that the remediation
process has resulted in the business components being Y2K compliant. Phase V is the development of
contingency plans to address potential risks that the Y2K compliance project may not fully address.
State of Readiness
IT Systems – U.S. and Canada – The Company is in Phase III and Phase IV of the Year 2000
project overall. As testing and remediation progress, the inventory and test plans are refined. Approximately
76% of all identified IT system business components in the U.S. have been deemed to be Y2K compliant as of
April 15, 1999 with analysis of the remaining 24% continuing. Of the 24% remaining, remediation will be
completed by re-writing and upgrading key software application systems to incorporate Y2K compliance.
Functional testing of individual components of the Company’s business critical applications has been
completed. Fully integrated tests of these individual components will continue with completion targeted in
September 1999. Completion of full integration testing has moved from July to September in order to provide
adequate time to complete all remediation of business critical applications outside the mainframe environment
and the technology refresh described in the next paragraph.
The expected completion of the testing and remediation of the Company’s desktop hardware and
software systems is October 1999. The Company is addressing the Y2K compliance of these systems by
acceleration of a previously planned desktop technology refresh during which systems that are not Y2K
compliant will be replaced.
Internal resources have been reallocated and external resources have been
secured to address these issues by the planned completion dates. Full integration testing can be completed
only after the applications and systems outside the mainframe environment have also been remediated.
The on-line portion of the DCS software system (the Company’s system performing the primary
business functions of sales order entry, billing, purchasing, distribution and inventory control) has been
determined to be compliant for the following dates:
January 1, February 29, December 31, 2000.
Remaining batch processing portions of the DCS system is still in progress. User acceptance testing for
In addition to the Company’s internal
all portions of the DCS system is targeted to begin June 1999.
resources, outside consultants have been secured to focus exclusively on the DCS environment.
15
IT Systems – Outside the U.S. and Canada – The Company’s subsidiaries located outside of the
U.S. and Canada are currently focusing on Phase III and Phase IV tasks of the Year 2000 project. As of
March 29, 1999, approximately 59% of the identified critical business components of all countries have
been determined to be Y2K compliant. Each country is separately reporting on its progress, with central
coordination and management provided by the Y2K compliance project team.
For the subsidiaries of Computer 2000 (“C2000”), country locations are divided into two core areas:
those using the SAP R/2 system (the Company’s system performing the primary business functions of
sales, order entry, billing, purchasing, distribution and inventory control) and those that use other systems
to provide these business processes. The majority of the countries use the SAP R/2 system. The version
of SAP R/2 in use by C2000, has received certification from TUV, a German governmental independent
testing authority, that it is Y2K compliant. C2000 is testing these elements and the custom modifications it
has to the system, with completion of this testing scheduled for September 1999. This testing incorporates
related subsystems and key client/server and desktop systems.
For those countries using non SAP R/2 systems, conversion to SAP R/2 or upgrades to a compliant
system are being implemented or the system is being determined to be Y2K compliant by certification by the
vendor and internal C2000 testing.
In France, the Company is consolidating the operations of its Tech Data
subsidiary with C2000’s subsidiary. As part of this consolidation, SAP R/2 systems will be replaced with
currently existing enterprise systems that are not Y2K compliant. For this reason, additional project phases
have been identified which will require the conversion of operations in France to a single, Y2K compliant,
enterprise system. Conversion of this system is scheduled to begin in July 1999.
Non-IT systems – The non-IT systems (devices which store and report date-related information, such
as access control systems, elevators, conveyors, escalators and other items containing a microprocessor or
internal clock) are utilizing the phased plan approach for the IT systems. Phase I inventory and prioritization
has been completed for non-IT systems in the U.S., and in connection with the Company’s acquisition of
Computer 2000, is currently being conducted in the Company’s worldwide locations. Phase II analysis is
being performed on systems material to the Company’s operations with the assistance of the Company’s
vendors, with completion expected in July 1999.
Implementation of Phases III and IV will continue through
August 1999. The Company currently plans to complete the Y2K compliance program for all material non-IT
systems by the end of October 1999.
Material Third Parties – The Company relies on third party suppliers for many systems, products
and services. The Company will be adversely affected if these third parties are not Y2K compliant. The
Company continues to solicit, receive and review responses to surveys sent to those third parties
determined to be material to the operations of the Company to determine their Y2K readiness. For those
critical third parties that fail to respond to the Company’s survey, the Company is pursuing alternative
means of obtaining Y2K readiness information and is conducting reviews of publicly available information
published by such third parties.
Product Liability – The Company does not make any representations or warranties that the
products it distributes are or will be Y2K-ready or compliant.
In certain countries where the Company or
its subsidiaries distribute products, the Company may have an obligation to accept returns of products
which fail because the product is not Y2K ready.
In most cases, these returns may be passed on to the
In those countries where product return obligations may exist, the Company plans to
manufacturer.
carefully review manufacturer representations regarding products that are sold in material volumes by the
Company or its subsidiaries.
Cost of Project
The Company has incurred approximately $3.1 million through January 31, 1999, on the Y2K
compliance effort, excluding compensation and benefit costs for associates who do not work full-time on
the Y2K project and costs of systems upgrades that would have normally been made on a similar timetable.
The overall cost of the Y2K compliance effort cannot be accurately estimated until all inventory and
analysis phases associated with the recent acquisition of Computer 2000 have been completed, however,
the Company believes the cost will be approximately $9.1 million.
16
Contingency Planning and Risks
The Company has begun contingency planning for some of its critical applications and will be
developing additional contingency plans as testing determines the necessity. While the Company believes
that its approach to Y2K readiness is sound, it is possible that some business components are not
identified in the inventory, or that the scanning or testing process does not result in analysis and
remediation of all source code. The Company will assume a third party is not Y2K ready if no survey
response or an inadequate survey response is received. The Company’s contingency plan will address
alternative providers and processes to deal with business interruptions that may be caused by internal
system or third party provider’s failure to be Y2K ready to the extent it is possible.
The failure to correct a material Y2K problem could result in an interruption in, or a failure of,
certain normal business activities or operations. Such failure could materially and adversely affect the
Company’s operations and therefore, could materially and adversely affect the Company’s results of
operations, liquidity and financial condition.
In addition, the Company’s operating results could be
materially adversely affected if it were to be held responsible for the failure of any products sold by the
Company to be Y2K ready despite the Company’s disclaimer of product warranties and the limitation of
liability contained in its sales terms and conditions.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European Union commenced a
conversion from their existing sovereign currencies to a new, single currency called the euro. Fixed
conversion rates between the existing currencies, the legacy currencies, and the euro were established and
the euro became the common legal currency of the participating countries on this date. The euro now
trades on currency exchanges and is available for non-cash transactions. The participants will now issue
sovereign debt exclusively in euro and have redenominated all outstanding sovereign debt. Following this
introduction period, the participating members legacy currencies will remain legal tender as denominations
of euro until January 1, 2002. At that time, countries will issue new euro-denominated bills for use in cash
transactions. All legacy currency will be withdrawn prior to July 1, 2002 completing the euro conversion on
this date. As of January 1, 1999, the participating countries no longer control their own monetary policies
by directing independent interest rates for the legacy currencies, and instead, the authority to direct
monetary policy, including money supply and official interest rates for the euro, is exercised by the new
European Central Bank.
The Company has implemented a plan to address the issues raised by the euro conversion. These
issues include, but are not limited to; the competitive impact created by cross-border price transparency;
the need for the Company and its business partners to adapt IT and non-IT systems to accommodate euro-
demoninated transactions; and the need to analyze the legal and contractual implications of the Company’s
contracts. The Company currently anticipates that the required modifications to its systems, equipment and
processes will be made on a timely basis and does not expect that the costs of such modifications will have
a material effect on the Company’s financial position or results of operations.
Since the implementation of the euro on January 31, 1999, the Company has experienced
improved efficiencies in its cash management program in Europe and has been able to reduce certain
hedging activities as a direct result of the conversion. The Company has not experienced any material
adverse effects on its financial position or results of operations in connection with the initial roll-out of the
euro currency.
Market Risk
The Company is exposed to the impact of foreign currency fluctuations and interest rate changes
due to its international sales and global funding.
In the normal course of business, the Company employs
established policies and procedures to manage its exposure to fluctuations in the value of foreign
It is the Company’s policy to utilize
currencies and interest rates using a variety of financial instruments.
financial instruments to reduce risks where internal netting cannot be effectively employed.
It is the
Company’s policy not to enter into foreign currency or interest rate transactions for speculative or trading
purposes.
17
In addition to product sales and costs, the Company has foreign currency risk related to debt that
is denominated in currencies other than the dollar and cross-currency swaps hedging intercompany debt.
The Company’s foreign currency risk management objective is to protect its earnings and cash flows
resulting from sales, purchases and other transactions from the adverse impact of exchange rate
movements. Foreign exchange risk is managed by using forward, option and swap contracts to hedge
intercompany loans, receivables and payables. Hedged transactions are denominated primarily in Belgian
Franc, Danish Krone, French Franc, Spanish Peseta, Finnish Markka, Norwegian Krone, German Mark,
Swedish Krona, Swiss Franc and British Pound.
The Company is exposed to changes in interest rates primarily as a result of its short and long-
term debt used to maintain liquidity and finance inventory, capital expenditures and business expansion.
Interest rate risk is also present in the cross-currency swaps hedging intercompany and third-party loans.
The Company’s interest rate risk management objective is to limit the impact of interest rate changes on
earnings and cash flows and to lower overall borrowing costs. To achieve its objectives the Company
uses a combination of fixed- and variable-rate debt. As of January 31, 1999, approximately 49% of the
outstanding debt had fixed interest rates. The Company finances working capital needs through various
bank loans and commercial paper programs.
Foreign exchange and interest rate risk and related derivatives use is monitored using a
variety of techniques including periodic review of market value and sensitivity analyses. The Company’s
These
computations are based on interrelationships between currencies and interest rates.
interrelationships are determined by observing foreign currency market changes and interest rate changes
over the preceding 90 days. The value of foreign currency options does not change on a one-to-one basis
with changes in the underlying currency rate. The model includes all of the Company’s forwards, options
and interest rate swaps. The Company believes that the hypothetical fluctuation in fair value of its
derivatives would be offset by increases/decreases in the value of the underlying transactions being
hedged.
Comments on Forward-Looking Information
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of
1995, the Company has filed an Exhibit 99A which outlines cautionary statements and identifies important
factors that could cause the Company’s actual results to differ materially from those projected in forward-
looking statements made by, or on behalf of, the Company. Such forward-looking statements, as made
within Items 1 and 7 of this Form 10-K, should be considered in conjunction with the aforementioned
Exhibit 99A.
18
ITEM 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Tech Data Corporation:
In our opinion, the accompanying consolidated balance sheet and the related consolidated
statements of income, of changes in shareholders’ equity and of cash flows present fairly, in all material
respects, the financial position of Tech Data Corporation and its subsidiaries at January 31, 1999 and
1998, and the results of their operations and their cash flows for each of the three years in the period
ended January 31, 1999, in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company’s management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits of these statements
in accordance with generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Tampa, Florida
March 19, 1999
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 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 of Directors
and Chief Executive Officer
March 19, 1999
Jeffery P. Howells
Executive Vice President
and Chief Financial Officer
19
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
ASSETS
January 31,
1999
1998
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts receivable, less allowance
8,615
$
2,749
of $60,521 and $29,731 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess of cost over acquired net assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,796,045
1,369,351
113,952
3,287,963
126,537
345,326
85,161
$ 3,844,987
909,426
1,028,367
65,843
2,006,385
100,562
55,460
22,976
$ 2,185,383
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Revolving credit loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 817,870
1,503,866
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
241,170
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,562,906
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
308,521
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,871,427
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,269
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 540,177
850,866
77,961
1,469,004
8,683
1,477,687
5,108
Commitments and contingencies (Note 9)
Shareholders’ equity:
Preferred stock, par value $.02; 226,500 shares
Authorized and issued; liquidation
Preference $.20 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
5
Common stock, par value $.0015; 200,000,000
shares authorized; 51,098,442
and 48,250,349 issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77
505,385
428,720
33,104
967,291
$ 3,844,987
72
403,880
299,768
(1,137)
702,588
$ 2,185,383
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
20
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
Year ended January 31,
1999
1998
1997
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,528,999
Cost and expenses:
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,801,126
492,542
Selling, general and administrative expenses . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,293,668
235,331
44,988
15,700
206,043
76,215
129,828
876
128,952
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of Macrotron AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income per common share:
$ 7,056,619
$ 4,598,941
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
—
56,973
$
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2.59
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.47
$ 2.00
$ 1.92
$
$
1.39
1.35
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,727
54,161
44,715
46,610
40,870
42,125
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
Preferred Stock
Shares Amount
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Total
Retained
Earnings
Comprehensive Shareholders’
Income
Equity
Balance – January 31, 1996 . . . . . . . . . . . . . . 227
$5
37,931
$57
$130,045
$153,310
$ 2,281
$ 285,698
Issuance of common stock for stock
options exercised and related tax
benefit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock net of
offering costs . . . . . . . . . . . . . . . . . . . . . .
Comprehensive Income . . . . . . . . . . . . . . .
760
4,600
1
7
13,223
83,309
Balance – January 31, 1997 . . . . . . . . . . . . . . 227
5
43,291
65
226,577
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 . . . . . . . . . . . . . . . . . . . . . .
Comprehensive Income . . . . . . . . . . . . . . .
407
861
3,691
1
1
5
9,255
19,077
148,971
Balance – January 31, 1998 . . . . . . . . . . . . . . 227
5
48,250
72
403,880
Issuance of common stock in
business purchase . . . . . . . . . . . . . . . . . .
Issuance of common stock for stock
options exercised and related tax
benefit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive Income . . . . . . . . . . . . . . .
2,196
652
3
2
84,964
16,541
Balance – January 31, 1999 . . . . . . . . . . . . . . 227
$5
51,098
$77
$505,385
56,973
210,283
(830)
1,451
89,485
299,768
(2,588)
(1,137)
13,224
83,316
56,143
438,381
9,256
19,078
148,976
86,897
702,588
84,967
128,952
$428,720
34,241
$ 33,104
16,543
163,193
$ 967,291
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
21
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Year ended January 31,
1999
1998
1997
Cash flows from operating activities:
Cash received from customers . . . . . . . . . . . . . . . . . . . . . . . . . . $11,094,731
Cash paid to suppliers and employees . . . . . . . . . . . . . . . . . . . . (10,948,414)
(39,926)
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(62,895)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,496
Net cash provided by (used in) operating activities . . . . . . . . . . .
$ 6,870,096
(6,914,537)
(29,909)
(51,949)
(126,299)
$ 4,390,916
(4,513,309)
(21,122)
(45,037)
(188,552)
Cash flows from investing activities:
Acquisition of business, net of cash acquired . . . . . . . . . . . . . . .
Sale of Macrotron AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenditures for property and equipment . . . . . . . . . . . . . . . . . .
Software development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (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 (used in) provided by financing activities . . . . . . . . . . .
(115,000)
227,843
(47,796)
(4,856)
60,191
16,543
(114,151)
(213)
(97,821)
(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
Net increase (decrease) in cash and cash equivalents . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . $
5,866
2,749
8,615
$
2,088
661
2,749
$
(493)
1,154
661
Reconciliation of net income to net cash provided by (used in)
operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
128,952
$
89,485
$
56,973
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for losses on accounts receivable . . . . . . . . . . . . . . . .
Gain on sale of Macrotron AG . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:
(Increase) in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (Increase) in prepaid and other assets . . . . . . . . . . . .
Increase in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) increase in accrued expenses . . . . . . . . . . . . . . . . .
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(434,268)
(49,830)
89,140
387,136
(139,849)
(85,456)
Net cash (used in) provided by operating activities . . . . . . . . . . . . . $ 43,496
42,605
34,810
(15,700)
—
500
26,364
22,634
—
—
3,720
20,011
19,648
—
446
(5,051)
(183,481)
(181,393)
(8,317)
106,134
(1,445)
(215,784)
(208,025)
(294,552)
(13,962)
225,358
10,602
(245,525)
$ (126,299) $ (188,552)
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
22
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements include the accounts of Tech Data Corporation and its
subsidiaries (“Tech Data” or the “Company”). All significant intercompany accounts and transactions have
been eliminated in consolidation.
Method of accounting
The Company prepares its financial statements in conformity with generally accepted accounting
principles. These principles require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue recognition
Sales are recorded upon shipment. The Company allows its customers to return product for
exchange or credit subject to certain limitations. Provision for estimated losses on such returns are
recorded at the time of sale (see product warranty below). Funds received from vendors for marketing
programs and product rebates are accounted for as a reduction of selling, general and administrative
expenses or product cost according to the nature of the program.
Inventories
Inventories (consisting of computer related hardware and software products) are stated at the
lower of cost or market, cost being determined on the first-in, first-out (FIFO) method.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed over the estimated economic
lives (or lease period if shorter) using the following methods:
Buildings and improvements
Leasehold improvements
Furniture, fixtures and equipment
Method
Straight-line
Straight-line
Accelerated
and straight-line
Years
15 - 39
2 - 10
2 - 10
Expenditures for renewals and improvements that significantly add to productive capacity or
extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged
to operations when incurred. When assets are sold or retired, the cost of the asset and the related
accumulated depreciation are eliminated from the accounts and any gain or loss is recognized at such time.
Long lived assets
Long lived assets are reviewed for potential impairment at such time when events or changes in
circumstances indicate that recovery of the asset is unlikely. Any impairment loss would be recognized
when the sum of the expected, undiscounted future net cash flows is less than the carrying amount of the
asset.
23
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Excess of cost over acquired net assets
The excess of cost over acquired net assets (“goodwill”) is being amortized on a straight-line
basis over 15 to 40 years. Amortization expense was $5,714,000, $1,458,000 and $602,000 in 1999,
1998 and 1997, respectively. The accumulated amortization of goodwill is approximately $8,651,000 and
$3,563,000 at January 31, 1999 and 1998, respectively.
Intangibles
Included within other assets at January 31, 1999 are certain intangible assets including deferred
software costs and the allocation of a portion of the purchase price of Computer 2000 AG (“Computer
2000”) to software used within the Computer 2000 entity and the value of the customer base acquired
(see Note 2 – Acquisition and Disposition of Subsidiaries). Such deferred costs are being amortized over
three to ten years with amortization expense of $8,442,000, $4,967,000 and $4,611,000 in 1999, 1998 and
1997, respectively. The accumulated amortization of such costs was $22,603,000 and $14,160,000 at
January 31, 1999 and 1998, respectively. The remaining unamortized balance of such costs was
$39,876,000 and $17,894,000 at January 31, 1999 and 1998, respectively.
Product warranty
The Company’s vendors generally warrant the products distributed by the Company and allow the
Company to return defective products, including those that have been returned to the Company by its
customers. The Company does not independently warrant the products it distributes; however, the
Company does warrant the following: (1) services with regard to products configured for its customers,
and (2) products it builds to order from components purchased from other sources. A provision for
estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual
experience. Warranty expense was not material to the Company’s Consolidated Statement of Income.
Income taxes
Income taxes are accounted for under the liability method. Deferred taxes reflect the tax
consequences on future years of differences between the tax bases of assets and liabilities and their
financial reporting amounts. Deferred taxes have not been provided on the cumulative undistributed
earnings of foreign subsidiaries or the cumulative translation adjustment related to those investments
since such amounts are expected to be reinvested indefinitely.
Foreign currency activities
The assets and liabilities of foreign operations are translated at the exchange rates in effect at the
balance sheet date, with the related translation gains or losses reported as a separate component of
shareholders’ equity. The results of foreign operations are translated at the weighted average exchange
rates during the year. The Company recorded a net gain resulting from foreign currency transactions
(including gains or losses or forward contracts) of $5,027,000 for the year ended January 31, 1999. The
foreign currency gains (losses) for the fiscal years ended January 31, 1998 and 1997 were immaterial.
Concentration of credit risk
The Company sells its products to a large base of value-added resellers (“VARs”), corporate
resellers, retailers, direct marketers and internet resellers throughout the United States, Canada, the
Caribbean, Latin America, Europe, and the Middle East. The Company also performs ongoing credit
evaluations of its customers and generally does not require collateral. The Company has obtained credit
insurance which insures a percentage of credit extended by the Company to certain of its larger domestic
and international customers against possible loss. The Company makes provisions for estimated credit
losses at the time of sale.
24
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Derivative financial instruments
The Company operates internationally with distribution facilities in various locations around the
world. The Company reduces its exposure to fluctuations in interest rates and foreign exchange rates by
creating offsetting positions through the use of derivative financial instruments. The market risk related to
the foreign exchange agreements is offset by changes in the valuation of the underlying items being
hedged. The majority of the Company’s derivative financial instruments have terms of 180 days or less.
The Company currently does not use derivative financial instruments for trading or speculative purposes,
nor is the Company a party to leveraged derivatives.
Derivative financial instruments are accounted for on an accrual basis. Income and expense are
recorded in the same category as that arising from the related asset or liability being hedged. Gains and
losses resulting from effective hedges of existing assets, liabilities or firm commitments are deferred and
recognized when the offsetting gains and losses are recognized on the related hedged items.
The notional amount of forward exchange contracts and options is the amount of foreign currency
bought or sold at maturity. The notional amount of currency interest rate swaps is the underlying principal
and currency amounts used in determining the interest payments exchanged over the life of the swap.
Notional amounts are indicative of the extent of the Company’s involvement in the various types and uses
of derivative financial instruments and are not a measure of the Company’s exposure to credit or market
risks through its use of derivatives. The estimated fair value of derivative financial instruments represents
the amount required to enter into like off-setting contracts with similar remaining maturities based on
quoted market prices.
The Company’s derivative financial instruments outstanding at January 31, 1999 and 1998 are as
follows (derivative instruments outstanding at January 31, 1997 were not material):
January 31,
1999
Notional Estimated
Fair Value
Amounts
1998
Notional
Amounts
Estimated
Fair Value
(In thousands)
Foreign exchange forward contracts . . . . . . . . $438,000
Purchased foreign currency options . . . . . . . .
60,000
Currency interest rate swaps . . . . . . . . . . . . . 329,000
$
130
90
(2,440)
$ 78,000
500
128,300
$ 940
(10)
400
Fair value of financial instruments
Financial instruments (excluding derivative financial instruments) that are subject to fair value
disclosure requirements are carried in the consolidated financial statements at amounts that approximate
fair value. The carrying amount of debt outstanding pursuant to bank credit agreements approximates fair
value as interest rates on these instruments approximate current market rates. The carrying amount of
the convertible subordinated notes approximates fair value based upon available market information. Fair
value is estimated based on discounted cash flows and available market information as well as other
valuation techniques.
Comprehensive income
Effective for the fiscal year ended January 31, 1999 the Company adopted SFAS No. 130,
“Reporting Comprehensive Income” (“SFAS 130”). SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in the Company’s consolidated financial statements.
Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a
period from transactions and other events and circumstances from non-owner sources. The Company’s
25
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
balance of other comprehensive income is comprised exclusively of changes in the net cumulative
translation adjustment. For the year ended January 31, 1999, the company has recorded defered income
taxes related to the change in the cumulative translation adjustment of $4,376,000. The defered income
taxes related to the cumulative translation adjustments for the years ended January 31, 1998 and 1997 was
not significant.
Stock-based compensation
The Company has adopted the disclosure requirements of SFAS No. 123, “Accounting for Stock
Based Compensation” (“SFAS 123”). As permitted by this pronouncement, the Company’s measurement of
compensation cost continues to be in accordance with the Accounting Principles Board (“APB”) Opinion No.
In accordance with the requirements of SFAS 123, the
25, “Accounting for Stock Issued to Employees.”
appropriate pro forma disclosures relating to net income and earnings per share are provided. See Note 7
– Employee Benefit Plans.
Net income per common share
Basic EPS is computed by dividing net income by the weighted average number of common
shares outstanding during the reported period. Diluted EPS reflects the potential dilution that could occur
assuming the conversion of the convertible subordinated notes and exercise of the stock options using the
if-converted and treasury stock methods, respectively. The composition of basic and diluted net income
per common share is as follows:
1999
Weighted
Average
Shares
Per
Share
Amount
Net
Income
Year ended January 31,
1998
Weighted
Average
Shares
(In thousands, except per share amounts)
Per
Share
Amount
Net
Income
1997
Weighted
Average
Shares
Per
Share
Amount
Net
Income
Net income per common
Share – basic . . . . . . . . . . . . $128,952
49,727
$2.59
$89,485
44,715
$2.00
$56,973
40,870
$1.39
Effect of dilutive securities:
Stock options . . . . . . . . . . . .
—
1,767
5% convertible subordinated
notes . . . . . . . . . . . . . . . . . .
4,726
2,667
Net income per common
—
—
1,895
—
—
—
1,255
—
Share – diluted . . . . . . . . . . . $133,678
54,161
$2.47
$89,485
46,610
$1.92
$56,973
42,125
$1.35
At January 31, 1999, 1998 and 1997, there were 1,571,000, 98,000 and 26,000 shares, respectively,
excluded from the computation of diluted earnings per share because their effect would have been
antidilutive.
Cash management system
Under the Company’s cash management system, disbursements cleared by the bank are
reimbursed on a daily basis from the revolving credit loans. As a result, checks issued but not yet
presented to the bank are not considered reductions of cash or accounts payable.
Included in accounts
payable are $95,185,000 and $60,000,000 at January 31, 1999 and 1998 respectively, for which checks
are outstanding.
Statement of cash flows
Short-term investments which have an original maturity of ninety days or less are considered cash
equivalents in the statement of cash flows. The effect of changes in foreign exchange rates on cash
balances is not material. See Note 2 of Notes to Consolidated Financial Statements regarding the non-
cash exchange of common stock and convertible notes in connection with business combinations.
26
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fiscal year
The Company and its North American subsidiaries operate on a fiscal year that ends on January 31.
The Company consolidates its European and Latin American subsidiaries on a fiscal year that ends
on December 31. The difference in year-end dates is primarily attributable to regulatory requirements
imposed on the Company’s foreign subsidiaries as well as timing of information requirements.
Recent accounting pronouncements
In March 1998, the Accounting Standards Executive Committee issued Statement of position
(“SOP”) 98-1 “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”
The Company has elected early
effective for fiscal years beginning after December 15, 1998.
implementation of provisions of SOP 98-1 effective for the year ended January 31, 1999. This statement
requires capitalization of certain costs relating to computer software developed or obtained for internal
use. The impact of adoption was not material to the Company’s consolidated financial statements.
In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS 133”). This statement requires that all derivative instruments be recorded on the balance sheet at fair
value. Changes in the fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of a hedge transaction
and, if so, the type of the hedge transaction. The ineffective portion of all hedge transactions will be
recognized in the current-period earnings. SFAS 133 is effective for fiscal years beginning after June 15, 1999.
The future impact of this statement on the Company’s results of operations is not expected to be material.
NOTE 2 – ACQUISITION AND DISPOSITION OF SUBSIDIARIES:
Acquisition of Macrotron AG
On July 1, 1997, the Company acquired approximately 77% of the voting common stock and 7%
of the non-voting preferred stock of Macrotron AG (“Macrotron”), a distributor of personal computer
products based in Munich, Germany. The initial acquisition was completed through an exchange of
approximately $26 million in cash and 406,586 shares of the Company’s common stock, for a combined
total value of $35 million. The cash portion of the initial acquisition, the related tender offer and subsequent
purchase of Macrotron’s common and preferred stock were funded from the Company’s revolving credit loan
agreements. Prior to the disposition discussed below, the Company owned approximately 99% and 91% of
Macrotron’s common and preferred stock, respectively for a total purchase price of $80,000,000.
The acquisition of Macrotron was accounted for under the purchase method. The purchase price
allocation resulted in approximately $53,500,000 in excess cost over the net fair market value of tangible
assets acquired as of January 31, 1998 and was being amortized over a period of 20 years. Consistent
with the Company’s accounting policy for foreign subsidiaries, Macrotron’s operations were consolidated
into the Company’s consolidated financial statements on a calendar year basis. Consequently, the
Company’s fiscal year ending January 31, 1998 includes Macrotron’s operations for the six month period
beginning July 1, 1997 and ending December 31, 1997.
Disposition of Macrotron AG
Effective July 1, 1998, pursuant to a Share Purchase Agreement dated June 10, 1998, the
Company completed the sale of its majority interest in Munich-based subsidiary Macrotron AG (“Macrotron”)
to Ingram Micro, Inc. (“Ingram”). Tech Data owned 99% and 91% of Macrotron’s outstanding common and
preferred stock, respectively, at the time of the sale. The sale of Macrotron was completed through the
receipt of approximately $228,000,000 from Ingram (approximately $100,000,000 for the Company’s
shares of Macrotron and the balance of $128,000,000 for the repayment of Macrotron’s intercompany
indebtedness). The Company recorded a $15,700,000 gain on the sale, of which $3,200,000 was
recorded in the fourth quarter due to resolution of certain contingencies.
27
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Acquisition of Computer 2000 AG
On July 1, 1998, Tech Data completed the acquisition of approximately 83% of the voting common
stock of Computer 2000, a European distributor of technology products. The Company acquired 80% of the
outstanding voting stock of Computer 2000 from its parent company, Klöckner & Co. AG., a subsidiary of
Munich-based conglomerate VIAG AG, and an additional stake of approximately 3% of Computer 2000’s
shares from an institutional investor. The initial acquisition was completed through an exchange of
approximately 2.2 million shares of Tech Data common stock and $300,000,000 of 5% convertible
subordinated notes, due 2003 (coupon rate of 5.0%, five year term and convertible into shares of common
stock at $56.25 per share). The purchase agreement is subject to certain contingent payments based on
future events. Any payments made by the Company relating to this contingency will increase the purchase
price and will result in additional goodwill. The Company commenced a tender offer for the remaining C2000
shares and, as a result of this tender offer, open market purchases and private purchase
transactions, the Company currently owns approximately 99.3% of Computer 2000’s outstanding stock at
January 31, 1999. The tender offer, open market purchases and private purchase transactions were
funded through the Company’s revolving credit loan agreements.
The acquisition of Computer 2000 was accounted for under the purchase method. The purchase
price of approximately $500,000,000 was allocated to the assets acquired and liabilities assumed based on
their estimated fair values at the date of acquisition. The excess of the purchase price over fair value of
net assets acquired of approximately $319,000,000 ($343,000,000 at year end exchange rates) is being
amortized on a straight-line basis over 40 years. The final allocation of the purchase price has not been
finalized due to various contingent liabilities identified by the Company including costs of restructuring. To the
extent these liabilities are not fully incurred, the purchase price and related goodwill will be reduced accordingly.
The Company’s subsidiaries outside of North America are included in its consolidated financial
statements on a calendar basis. As such, the year ended January 31, 1999 includes six months results for
Computer 2000 (which was acquired effective July 1, 1998) and includes six months of operating results for
Macrotron (which was sold effective July 1, 1998).
Pro forma information
The following unaudited pro forma results of operations reflect the effect on the Company’s
operations as if the above described acquisition of Macrotron had occurred at the beginning of each of the
periods presented below (in thousands, except per share amounts):
Year ended January 31,
1997
1998
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,623,852
90,161
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share:
$ 5,571,406
60,716
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.01
1.93
1.47
1.43
The following unaudited pro forma results of operations reflect the effect on the Company’s
operations as if the above described acquisition of Computer 2000 and disposition of Macrotron had
occurred at the beginning of each of the periods presented below:
28
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Year ended January 31,
1998
1999
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,694,426
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125,954
Net income per common share:
$11,350,432
95,669
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.48
2.34
2.04
1.94
The unaudited pro forma information is presented for informational purposes only and is not
necessarily indicative of the operating results that would have occurred had the acquisitions and
dispositions noted above been consummated as of the beginning of the respective periods, nor are they
necessarily indicative of future operating results.
Non-cash transactions
The Company issued 406,586 shares of common stock in conjunction with the purchase of
Macrotron in July 1997. Additionally, the Company issued $300,000,000 convertible subordinated notes
and approximately 2,200,000 shares of common stock in conjunction with its acquisition of Computer 2000
in July 1998.
NOTE 3 - PROPERTY AND EQUIPMENT:
January 31,
1999
1998
$
(In thousands)
4,897
36,995
156,414
4,299
202,605
(76,068)
$ 126,537
7,805
36,543
112,821
12,359
169,528
(68,966)
$100,562
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less-accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 4 - REVOLVING CREDIT LOANS:
January 31,
1999
1998
(In thousands)
Receivables Securitization Program, average
interest rate of 5.41% at January 31, 1999
expiring February 28, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 355,000
$237,420
Multicurrency Revolving Credit Facility, average
interest rate of 4.14% at January 31, 1999,
expiring August 28, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other revolving credit facilities, various interest
rates, expiring on various dates through 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . .
295,539
300,568
167,331
$ 817,870
2,189
$540,177
29
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company has an agreement (the “Receivables Securitization Program”) with three financial
institutions that allows the Company to transfer an undivided interest in a designated pool of U.S. accounts
receivable on an ongoing basis to provide borrowings up to a maximum of $500,000,000. As collections reduce
accounts receivable balances included in the pool, the Company may transfer interests in new receivables to
bring the amount available to be borrowed up to the maximum. The Company pays interest on advances under
the Receivables Securitization Program at a designated commercial paper rate, plus an agreed-upon margin.
Under the terms of the Company’s Multicurrency Revolving Credit Facility with a syndicate of
banks, the Company is able to borrow funds in sixteen major foreign currencies up to a maximum of
$550,000,000 on an unsecured basis. The Company pays interest on advances under this facility at the
applicable eurocurrency rate plus a margin based on certain financial ratios. The Company can fix the
interest rate for periods of 30 to 180 days under various interest rate options.
In addition to the facilities described above, the Company has additional lines of credit and overdraft
facilities to support its worldwide operations. Most of these facilities are provided on an unsecured, short-term
basis and are reviewed periodically for renewal. Under the covenants of the Company’s Multicurrency Revolving
Credit Facility, indebtedness outstanding under these facilities may not exceed $300,000,000.
The Company’s credit agreements contain warranties and covenants that must be complied with
on a continuing basis, including the maintenance of certain financial ratios and restrictions on payment of
dividends. At January 31, 1999, the Company was in compliance with all such covenants.
NOTE 5 - LONG-TERM DEBT:
January 31,
1999
1998
(In thousands)
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 6.90%, principal and interest payable
quarterly, through 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,661
$ 8,788
22
108
Convertible subordinated debentures, interest at 5.00% payable
semi-annually, due 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less - current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
300,000
308,683
(162)
$ 308,521
—
8,896
(213)
$ 8,683
Principal maturities of long-term debt at January 31, 1999 for the succeeding five fiscal years are
as follows: 2000 - $162,000; 2001 - $155,000; 2002 - $172,000; 2003 - $191,000; 2004 - $300,211,000.
On July 1, 1998, the Company issued $300,000,000 convertible subordinated notes due July 1,
2003. The notes bear interest at 5% per year and are convertible any time prior to maturity, unless
previously redeemed or repurchased, into shares of common stock at a conversion rate of 17.777 shares
per $1,000 principal amount of notes, equivalent to a conversion price of approximately $56.25 per share.
The notes are convertible into approximately 5,300,000 shares of the Company’s common stock. The notes
are redeemable in whole or in part, at the option of the Company at any time on or after July 1, 2001. These
notes are subordinated in right of payment to all senior indebtedness of the Company and will be effectively
subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.
Mortgage notes payable are guaranteed by property and equipment with an original cost of
approximately $12,000,000. The Industrial Revenue Bond contains covenants which require the Company to
maintain certain financial ratios with which the Company was in compliance at January 31, 1999.
30
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 - INCOME TAXES (in thousands):
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company’s deferred tax liabilities and assets are as follows:
January 31,
Deferred tax liabilities:
1999
Accelerated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,821
2,174
Capitalized advertising program costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other – net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,242
28,237
Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets:
Accruals not currently deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves not currently deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized inventory costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other – net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,880
22,777
2,046
59,996
8,934
Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,633
(16,037)
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85,596
Net deferred tax asset (included in prepaid and other assets) . . . . . . . . . . . . . . . . . . $ 57,359
1998
$ 10,519
1,630
4,937
17,086
5,412
21,290
1,959
—
371
29,032
—
29,032
$ 11,946
Significant components of the provision for income taxes are as follows:
Current:
1999
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,153
6,816
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,746
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75,715
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended January 31,
1998
$ 39,805
2,469
6,822
49,096
1997
$ 32,485
5,897
3,185
41,567
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,093)
(424)
4,017
500
$ 76,215
3,328
507
(115)
3,720
$ 52,816
(3,490)
(451)
(1,110)
(5,051)
$ 36,516
The reconciliation of income tax attributable to continuing operations computed at the U.S. federal
statutory tax rates to income tax expense is as folloiws:
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,
1998
1999
1997
35.0%
1.5
.5
37.0%
35.0%
1.4
.6
37.0%
35.0%
3.8
.3
39.1%
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $140,850
65,193
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$206,043
1999
Year ended January 31,
1998
$126,757
15,973
$142,730
1997
$ 88,536
4,953
$ 93,489
31
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company’s foreign subsidiaries had deferred tax assets relating to net operating loss
carryforwards of $145 million. The majority of the net operating losses have an indefinite carryforward
period with the remaining portion expiring in years 1999 through 2009. A valuation allowance of
$16 million has been recognized to offset the deferred tax assets relating to the net operating loss
carryforwards.
The cumulative amount of undistributed earnings of international subsidiaries for which U.S.
It is not
income taxes have not been provided was approximately $59 million at January 31, 1999.
practical to estimate the amount of unrecognized deferred U.S. taxes on these undistributed earnings.
NOTE 7 - EMPLOYEE BENEFIT PLANS:
Stock compensation plans
At January 31, 1999, the Company had three stock-based compensation plans, as well as a
employee stock purchase plan, an employee stock ownership plan and a retirement savings plan, which are
described below. The Company applies APB Opinion 25 and related interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans and its
stock purchase plan.
Fixed stock option plans
In August 1985, the Board of Directors adopted the 1985 Incentive Stock Option Plan (the “1985
Plan”), which covers an aggregate of 1,050,000 shares of common stock. The options were granted to
certain officers and key employees at or above fair market value; accordingly, no compensation expense
has been recorded with respect to these options. Options are exercisable beginning two years from the
date of grant only if the grantee is an employee of the Company at that time. No options may be granted
under the 1985 Plan after July 31, 1995.
In June 1990, the shareholders approved the 1990 Incentive and Non-Statutory Stock Option Plan
(the “1990 Plan”) which covers an aggregate of 10,000,000 shares (as amended in June 1997) of
common stock. The 1990 Plan provides for the granting of incentive and non-statutory stock options,
stock appreciation rights (“SARs”) and limited stock appreciation rights (“Limited SARs”) at prices
determined by the stock option committee, except for incentive stock options which are granted at the fair
market value of the stock on the date of grant.
Incentive options granted under the 1990 Plan become
exercisable over a five year period while the date of exercise of non-statutory options is determined by the
stock option committee. As of January 31, 1999, no SARs or Limited SARs had been granted under the
1990 Plan. Options granted under the 1985 Plan and the 1990 Plan expire 10 years from the date of
grant, unless a shorter period is specified by the stock option committee.
In June 1995, the shareholders approved the 1995 Non-Employee Director’s Non-Statutory Stock
Option Plan. Under this plan, the Company grants non-employee members of its Board of Directors stock
options upon their initial appointment to the board and then annually each year thereafter. Stock options,
granted at the fair market value of the stock on the date of grant, are awarded to members upon their
initial appointment and vest and become exercisable at a rate of 20% per year. Annual awards vest and
become exercisable one year from the date of grant. The number of shares subject to options under this
plan cannot exceed 100,000 and the options expire 10 years from the date of grant.
32
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of the status of the Company’s stock option plans is as follows:
January 31,
1998
1997
1999
Weighted
Average
Exercise
Price
Shares
Outstanding at beginning of year . . 3,881,545
Granted . . . . . . . . . . . . . . . . . . . . . 1,661,400
(609,620)
Exercised . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . .
(569,250)
Outstanding at year end . . . . . . . . . 4,364,075
$ 19.43
40.27
14.24
28.68
26.88
Weighted
Average
Exercise
Price
$ 14.31
26.65
13.23
17.57
19.43
Shares
3,285,818
1,643,400
(720,573)
(327,100)
3,881,545
Options exercisable at year end . .
768,425
601,895
Available for grant at year end . . . . 3,496,000
4,588,000
Weighted
Average
Exercise
Price
$ 13.31
16.27
13.11
13.72
14.31
Shares
3,081,110
1,112,000
(675,492)
(231,800)
3,285,818
576,862
905,000
Options Outstanding
Options Exercisable
Weighted-
Average
Remaining
Contractual
Life (years)
2.00
6.40
7.31
8.12
9.01
Weighted-
Average
Exercise
Price
$ 2.43
13.08
23.49
39.80
45.93
Number
Exercisable
at 1/31/99
16,000
554,225
189,200
9,000
—
768,425
Weighted-
Average
Exercise
Price
$ 2.43
12.58
20.51
31.78
—
Range of
Exercise Prices
Number
Outstanding
at 1/31/99
$ 1.56 - 5.04 . . . . . . . . .
16,000
10.62 - 15.13 . . . . . . . . . . 1,297,725
19.00 - 27.38 . . . . . . . . . . 1,348,300
29.50 - 43.75 . . . . . . . . . . 1,558,050
144,000
44.50 - 50.38 . . . . . . . . . .
4,364,075
Employee stock purchase plan
Under the 1995 Employee Stock Purchase Plan, approved in June 1995, the Company is
authorized to issue up to 1,000,000 shares of common stock to eligible employees in the Company’s U.S.
and Canadian subsidiaries. Under the terms of the plan, employees can choose to have a fixed dollar
amount or percentage deducted from their bi-weekly compensation to purchase the Company’s common
stock and/or elect to purchase shares once per calendar quarter. The purchase price of the stock is 85%
of the market value on the exercise date and employees are limited to a maximum purchase of $25,000
fair market value each calendar year. Since plan inception, the Company has sold 182,449 shares as of
January 31, 1999. All shares purchased under this plan must be retained for a period of one year.
33
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pro forma effect of stock compensation plans
Had the compensation cost for the Company’s stock option plans and employee stock purchase
plan been determined based on the fair value at the grant dates for awards under the plans consistent
with the method prescribed by Statement of Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation”, the Company’s net income and net income per common share on a pro
forma basis would have been (in thousands, except per share data):
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,548
Net income per common share:
1999
Year ended January 31,
1998
$ 85,344
1997
$ 55,059
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.42
2.32
1.91
1.83
1.35
1.31
The preceding pro forma results were calculated with the use of the Black-Scholes option-pricing
model. The following assumptions were used for the years ended January 31, 1999, 1998 and 1997,
respectively: (1) risk-free interest rates of 5.68%, 6.76% and 6.08%; (2) dividend yield of 0.0% (3)
expected lives of 5.00, 4.87 and 5.08 years; and (4) volatility of 65%, 56% and 56%. Results may vary
depending on the assumptions applied within the model.
Stock ownership and retirement savings plans
In 1984 the Company established an employee stock ownership plan (the “ESOP”) covering
substantially all U.S. employees. The ESOP provides for distribution of vested percentages of the
Company’s common stock to participants. Such benefit becomes fully vested after seven years of
qualified service. At January 31, 1999 and 1998, 813,000 and 780,000 shares, respectively, were held by
the ESOP. The Company also offers its U.S. employees a retirement savings plan pursuant to section
401(k) of the Internal Revenue Code which provides for the Company to match 50% of the first $1,000 of
each participant’s deferrals annually. Contributions to these plans are made in amounts approved
annually by the Board of Directors. Aggregate contributions made by the Company to these plans were
$1,992,000, $2,460,000 and $2,090,000 for 1999, 1998 and 1997, respectively.
NOTE 8 - CAPITAL STOCK:
Each outstanding share of preferred stock is entitled to one vote on all matters submitted to a vote
of shareholders, except for matters involving mergers, the sale of all Company assets, amendments to the
Company’s charter and exchanges of Company stock for stock of another company which require
approval by a majority of each class of capital stock.
In such matters, the preferred and common
shareholders will each vote as a separate class.
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
Operating leases
The Company leases distribution facilities and certain equipment under noncancelable operating
leases which expire at various dates through 2005. Future minimum lease payments under all such
leases for the succeeding five fiscal years are as follows: 2000 - $32,514,000; 2001 - $28,857,000; 2002 -
$17,416,000; 2003 - $13,019,000; 2004 - $13,617,000; and $106,000 thereafter. Rental expense for all
operating leases amounted to $27,015,000, $15,704,000 and $10,160,000 in 1999, 1998 and 1997, respectively.
34
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 10 - SEGMENT INFORMATION:
Effective for the period ended January 31, 1999, the Company has adopted the disclosure
requirements of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” which
establishes standards for additional disclosure about operating segments for interim and annual financial
statements. This standard requires financial and descriptive information be disclosed for segments whose
It also
operating results are reviewed by the chief operating officer for decisions on resource allocation.
establishes standards for related disclosures about products and services, geographic areas, and major
customers.
The Company operates predominantly in a single industry segment as a wholesale distributor of
computer-based technology products and services. Based on geographic location, the Company has three
principal segments. These geographical segments are 1) the United States, 2) Europe (includes the Middle
East) and 3) Other International areas (Canada, Brazil, Argentina, Chile, Peru, Uruguay, and export sales to
Latin America and the Caribbean from the U.S.). The measure of segment profit is income from operations.
The accounting policies of the segments are the same as those described in Note 1 – Summary of Significant
Accounting Policies.
Financial information by geographic segments is as follows (in thousands):
United States
Europe
Other
International
Total
Fiscal year 1999
Net sales to unaffiliated customers . . . . . . . . . $ 6,359,124
Operating income . . . . . . . . . . . . . . . . . . . . . . $
156,142
Identifiable assets . . . . . . . . . . . . . . . . . . . . . . $ 1,555,325
Fiscal year 1998
Net sales to unaffiliated customers . . . . . . . . . $ 5,434,833
148,485
Operating income . . . . . . . . . . . . . . . . . . . . . . $
Identifiable assets . . . . . . . . . . . . . . . . . . . . . . $ 1,558,337
Fiscal year 1997
Net sales to unaffiliated customers . . . . . . . . . $ 3,907,516
Operating income . . . . . . . . . . . . . . . . . . . . . . $
102,024
Identifiable assets . . . . . . . . . . . . . . . . . . . . . . $ 1,326,531
$ 4,540,108
$
76,638
$ 2,112,546
$ 1,148,036
20,122
$
534,192
$
$
$
$
403,030
8,120
151,012
$
$
$
$
$
$
$
$
$
629,767
2,551
177,116
$11,528,999
$
235,331
$ 3,844,987
473,750
4,031
92,854
$ 7,056,619
172,638
$
$ 2,185,383
288,395
4,867
67,751
$ 4,598,941
$
115,011
$ 1,545,294
NOTE 11 - UNAUDITED INTERIM FINANCIAL INFORMATION:
April 30
July 31
October 31
January 31
Quarter ended
Fiscal year 1999
Net sales . . . . . . . . . . . . . . . . . . . . . . . $ 2,184,366
139,767
Gross profit . . . . . . . . . . . . . . . . . . . . . .
23,105
Net income . . . . . . . . . . . . . . . . . . . . . .
Net income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . .
.48
.46
(In thousands, except per share amounts)
$ 2,213,261
144,748
35,279
$ 3,278,401
213,095
34,088
$ 3,852,971
230,263
36,480
.73
.70
.67
.63
.71
.67
35
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
April 30
July 31
October 31
January 31
Quarter ended
Fiscal year 1998
Net sales . . . . . . . . . . . . . . . . . . . . . . . $ 1,370,146
95,177
Gross profit . . . . . . . . . . . . . . . . . . . . . .
18,222
Net income . . . . . . . . . . . . . . . . . . . . . .
Net income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . .
.42
.41
(In thousands, except per share amounts)
$ 1,551,820
103,978
21,464
$ 2,021,479
129,342
23,673
$ 2,113,174
137,249
26,126
.49
.47
.54
.51
.55
.53
36
BOARD OF DIRECTORS
Steven A. Raymund
Chairman of the Board of Directors
and Chief Executive Officer
Charles E. Adair
Partner, Cordova Ventures
Maximilian Ardelt
Member of the Board of Management
VIAG, AG
Daniel M. Doyle
Former Chief Executive Officer
Danka Business Systems PLC
Donald F. Dunn
Former Chairman
Maas Brothers/Jordan Marsh
Jeffery P. Howells
Executive Vice President
and Chief Financial Officer
Anthony A. Ibargüen
President and Chief Operating Officer
Edward C. Raymund
Chairman Emeritus
David M. Upton
Professor of Business Administration
Harvard Business School
John Y. Williams
Managing Director
Equity-South Advisors, LLC
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
Néstor Cano
Executive Vice President of U.S.
Sales and Marketing
H. John Lochow
Executive Vice President
of IT and Logistics
Timothy J. Curran
Senior Vice President of U.S. Sales
Lawrence W. Hamilton
Senior Vice President
of Human Resources
Gerald M. Labie
Senior Vice President
of U.S. Marketing
Yuda Saydun
Senior Vice President and
General Manager – Latin America
Joseph B. Trepani
Senior Vice President
and Corporate Controller
Patrick O. Connelly
Vice President
of 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
SUBSIDIARIES
Computer 2000 AG
Wolfratshauser, Strasse 84
81379 Munich
Germany
Tech Data Canada Inc.
6895 Columbus Road
Mississauga, Ontario L5T 2G9
Canada
Tech Data Education, Inc.
5350 Tech Data Drive
Clearwater, FL 33760
Tech Data Finance, Inc.
Suite 295
1655 No. Main Street
Walnut Creek, CA 94596
Tech Data France, SNC
Z.I. Les Vignes
26, avenue Henri Barbusse
F93012 Bobigny Cedex
France
Tech Data Latin America
8501 N.W. 17th Street, Suite 101
Miami, FL 33126
Tech Data Pacific, Inc.
5350 Tech Data Drive
Clearwater, FL 33760
Tech Data Product
Management, Inc.
5350 Tech Data Drive
Clearwater, FL 33760
ANNUAL MEETING
The annual meeting of shareholders of
the Company will be held at 4:30 p.m.
on Tuesday, June 22, 1999, at Tech
Data’s headquarters: 5350 Tech Data
Drive, Clearwater, FL 33760,
727-539-7429.
INVESTOR RELATIONS
Tech Data Corporation welcomes
inquiries from its shareholders and
other interested investors. For further
information on the activities of the
Company, additional copies of this
report, or other financial information,
please contact our Investor Relations
department at 800-237-8931,
ext. 75855 or through e-mail at
ir@techdata.com. Additionally,
information is available through the
Company’s World Wide Web site
at www.techdata.com. Quarterly
earnings information is available
through the Company’s fax-on
demand service by calling
800-758-5804, ext. 841125.
TRANSFER AGENT
Communications regarding lost stock
certificates and address changes
should be directed to our transfer agent,
ChaseMellon Shareholder Services.
ChaseMellon Shareholder
Services
Four Station Square, Third Floor
Pittsburgh, PA 15219
(800) 756-3353
SECURITIES COUNSEL
Schifino & Fleischer, P.A.
Tampa, FL
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Tampa, FL
STOCK LISTING
The Company’s common stock is
traded on The Nasdaq Stock Market
under the symbol TECD.
Tech Data Corporation
5350 Tech Data Drive, Clearwater, Florida 33760
www.techdata.com
© 1999 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, 1999
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from
to
Commission file number 0-14625
TECH DATA CORPORATION
(Exact name of registrant as specified in its charter)
_____________________________________________
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: (727) 539-7429
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.0015 per share.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
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, 1999:
$1,080,900,000
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of
the latest practicable date.
Class
Outstanding at March 31, 1999
Common stock, par value $.0015 per share
51,139,048
DOCUMENTS INCORPORATED BY REFERENCE
The registrant’s Proxy Statement for use at the Annual Meeting of Shareholders on June 22,
1999 is incorporated by reference in Part III of this Form 10-K to the extent stated herein.
ITEM 1. Business
Overview
PART I
Tech Data Corporation ("Tech Data" or the "Company") was incorporated in 1974 to market data
processing supplies such as tape, disk packs, and custom and stock tab forms for mini and mainframe
computers directly to end users. In 1984, the Company began marketing certain of its products to the
newly emerging market of microcomputer dealers and had withdrawn entirely from end-user sales,
broadened its product line to include hardware products, and completed its transition to a wholesale
distributor. The Company has since continually expanded its product lines, customer base and
geographical presence.
On May 31, 1989, the Company entered the Canadian market through the acquisition of a
distributor subsequently named Tech Data Canada Inc. (“Tech Data Canada”). Tech Data Canada serves
customers in all Canadian provinces.
On March 24, 1994, the Company completed the non-cash exchange of 1,144,000 shares of its
common stock for all of the outstanding capital stock of Softmart International, S.A. (subsequently named
Tech Data France, SNC) (“Tech Data France”), a privately-held distributor of personal computer products
based in Paris, France. Tech Data France is one of the largest wholesale distributors of microcomputer
products in France, representing leading manufacturers and publishers such as Compaq, Hewlett-
Packard, IBM, Lotus and Microsoft.
To complement its Miami-based Latin American export business, the Company opened a 33,000
square-foot distribution center near São Paulo, Brazil in February 1997.
Tech Data expanded its European presence by acquiring a controlling interest in Macrotron AG
(“Macrotron”), a leading publicly held distributor of personal computer products based in Munich,
Germany, on July 1, 1997. Macrotron’s product line included such leading vendors as 3Com, Canon,
Compaq, Corel, Epson, Hewlett-Packard, IBM, Intel, Microsoft, Sony and Toshiba.
Approximately one year later, in July 1998, Tech Data completed the acquisition of 83% of the
voting common stock of Computer 2000 AG (“Computer 2000”), Europe’s leading technology products
distributor. With a presence in significant geographic markets in Europe, the Middle East and Latin
America, the purchase of Computer 2000 propelled Tech Data’s reach into over 30 countries worldwide.
As a result of this initial purchase, subsequent tender offer, open market purchases and private purchase
transactions, the Company currently owns approximately 99.3% of Computer 2000’s outstanding stock.
Computer 2000’s product line includes such leading vendors as Apple, Cisco, Compaq, Epson, Hewlett-
Packard, IBM, Intel, Microsoft, 3Com, and Toshiba.
With technology reseller customers in Germany, Switzerland and Austria, Computer 2000 had
significant market overlap with Macrotron. As a result of this overlap, as well as the challenge of
integrating two large competitors in the Germanic market, Tech Data chose to sell its majority interest in
Macrotron effective on July 1, 1998. Tech Data owned 99% and 91% of Macrotron's outstanding common
and preferred stock, respectively, at the time of the sale and recorded a $15.7 million pretax gain on the
transaction (see Note 2 of Notes to Consolidated Financial Statements).
Tech Data Corporation is the world’s second largest distributor of microcomputer hardware and
software products to value-added resellers ("VARs"), corporate resellers, retailers, direct marketers and
internet resellers (collectively with VARs, “customers”). Tech Data distributes products throughout the
United States, Canada, the Caribbean, Latin America, Europe and the Middle East. The Company
purchases its products directly from more than 1,000 manufacturers of microcomputer hardware and
publishers of software in large quantities, maintains a stocking inventory of more than 75,000 products
and sells to an active base of over 100,000 customers. The Company’s broad assortment of vendors and
products meets the customers’ need for a cost effective link to those vendors’ products offered through a
single source.
2
The Company provides its customers with leading products including systems, peripherals,
networking and software, which accounted for 25%, 42%, 18% and 15%, respectively, of sales in fiscal
1999. The Company offers products from manufacturers and publishers such as Cisco, Compaq,
Creative Labs, Epson, Hewlett-Packard, IBM, Intel, Iomega, Microsoft, Nortel Networks, Novell, Okidata,
Symantec, 3Com, Toshiba, Viewsonic and Western Digital. The Company generally ships products the
same day the orders are received from regionally located distribution centers. The customers are
provided with a high-level of service through the Company’s pre- and post-sale technical support,
electronic commerce tools (including on-line order entry, product configuration services and electronic
data interchange (“EDI”) services), customized shipping documents and flexible financing programs.
Industry
The wholesale distribution model, like that provided by the Company, has proven to be well-suited
for both manufacturers and publishers of microcomputer products (“vendors”) and resellers of those
products. The large number and diversity of resellers makes it cost efficient for vendors to rely on
wholesale distributors which can leverage distribution costs across multiple vendors who outsource a
portion of their distribution, credit, marketing and support services. Similarly, due to the large number of
vendors and products, resellers often cannot or choose not to establish direct purchasing relationships.
Instead they rely on wholesale distributors, such as Tech Data, which can leverage purchasing costs
across multiple resellers to satisfy a significant portion of their product procurement and delivery,
financing, marketing and technical support needs.
The Company believes that the rates of growth of the wholesale distribution segment of the
microcomputer industry and the Company continue to outpace that of the microcomputer industry as a
whole for three principal reasons. First, as a result of the use of open systems and off-the-shelf
components, hardware and software products are increasingly viewed as commodities. The resulting
price competition coupled with rising selling costs and shorter product life cycles, make it difficult for
manufacturers and publishers to efficiently sell directly to resellers and has prompted them to rely on
more cost-efficient methods of distribution. Second, resellers are increasingly relying on wholesale
distributors such as Tech Data for product availability and flexible financing alternatives rather than
stocking large inventories themselves and maintaining credit lines to finance working capital needs.
Third, restrictions by certain major manufacturers on sales through wholesale distributors were gradually
eased commencing in 1991. Since the beginning of 1995, the Company has been able to sell certain of
those manufacturers’ products under more competitive
terms and conditions (“open-sourcing”).
Historically, these previously restricted product lines were sold by master resellers, or aggregators, (whose
business model was similar to wholesale distributors, but focused on relatively few product lines) to a
network of franchise dealers. Open-sourcing has virtually eliminated any advantage that these
aggregators enjoyed as a result of the exclusive arrangements. In addition, consolidation in the wholesale
distribution industry continues as economies of scale and access to financial resources become more
critical. Larger distributors, like the Company, that have been able to utilize economies of scale to lower
costs and pass on the savings to its customers in the form of reduced prices have continued to take
market share.
A number of emerging industry trends are providing new opportunities and challenges for Tech
Data. The advent of the direct sales model and other industry developments has led many manufacturers
and distributors to reevaluate their business models. Leading systems manufacturers are introducing new
policies, processes, terms and conditions as part of their overall effort to reduce costs and improve
efficiency. Some manufacturers are moving toward assemble-to-order business models instead of the
traditional “build-to-forecast” approach that requires forecasting market demand and manufacturing a
broad range of systems based on these projections. Under this model, systems are assembled upon
demand and shipped from distribution centers across the world. The success of this new model will be
driven by the extent to which reseller and manufacturer partners embrace the model and choose to make
changes to their traditional way of doing business.
Consolidation represents a major industry trend in recent years as many distributors have either
exited the market or been purchased by larger players. The Company believes that the dynamics of the
wholesale distribution industry favor the largest distributors, such as Tech Data, which have access to
financing and are able to achieve economies of scale and breadth of geographic coverage.
3
As resellers continue to seek ways to reduce costs and improve efficiencies, distributors are
responding with a variety of new value-added services. Tech Data’s ability to provide a “virtual
warehouse” of products for resellers means that they no longer need to hold inventory. Configuration and
assembly services can be employed to customize systems. Private Label Delivery can ensure the
product arrives at the customer as it if was shipped directly from the reseller. The emergence of the
Internet, and consequently Internet resellers, has created one of the industry’s fastest-growing business
segments. These resellers, which sell mainly on price and availability, present a new set of challenges
such as advanced use of electronic commerce capabilities.
The increasing utilization of electronic ordering and information delivery systems, including the
ability to transact business over the World Wide Web has had and is expected to continue to have a
significant impact on the cost efficiency of the wholesale distribution industry. Distributors, such as Tech
Data, with the financial and technical resources to develop, implement and operate state-of-the-art
management information systems have been able to reduce both their customers’ and their own
transaction costs through more efficient purchasing and lower selling costs.
In summary, microcomputer distribution is experiencing rapid growth and consolidation, creating
an environment in which market share and the resulting cost efficiencies are critical.
Business Strategy
Tech Data, as the world’s second largest distributor of microcomputer products, believes that its
infrastructure and the size of its operation position it to gain share in its current markets as well as
continue its expansion into new geographic markets. The Company’s size and performance have allowed
it to make significant investments in personnel, management information systems, distribution centers
and other capital resources. The Company provides a broad array of products and services for its
resellers, which allows them to satisfy their needs from a single source. The Company’s competitive
advantage is the result of its low cost structure, investment in sophisticated management information
systems and its access to capital to finance growth.
To maintain and enhance its leadership position in wholesale distribution, the Company's business
strategy includes the following main elements:
Maintain low cost and efficient operations. The Company has pursued a strategy of
profitable revenue growth by providing its customers with the benefit of operating efficiencies
achieved through centralized management and control, stringent cost controls and automation. The
Company strictly controls selling, general and administrative expenses; utilizes its highly automated
order placement and processing systems to efficiently manage inventory and shipments and to
reduce transaction costs; and realizes economies of scale in product purchasing, financing and
working capital management. The Company has been successful in reducing selling, general and
administrative expenses as a percentage of net sales from 6.81% for the fiscal year ended January
31, 1992 to 4.27% for the fiscal year ended January 31, 1999.
Leverage management information systems. In order to further improve its operating
efficiencies and services to its resellers, the Company invested approximately $30 million in a
scaleable, state-of-the-art computer information system which was implemented in December 1994.
This system, which currently supports the Company’s U.S. and Canadian operations and Latin
American export operations, provides the Company operating efficiencies and allows the Company
to offer additional services such as expansion of its electronic commerce capabilities, including
electronic data interchange and order entry over the Company’s World Wide Web site. Electronic
commerce generates significant cost savings and operational efficiencies for Tech Data and its
customers. By the fourth quarter of fiscal 1999, approximately 25% of the Company’s U.S. sales
dollar volume originated from orders received electronically over the Company’s World Wide Web
site or other links such as EDI. The Company believes that growth in its electronic commerce
capabilities will provide incremental economies of scale and further reduce transaction costs.
4
Offer a broad and balanced product mix. The Company offers its resellers a broad
assortment of leading technology products. Currently, the Company offers more than 75,000
products from more than 1,000 manufacturers and publishers. By offering a broad product
assortment, the Company can benefit from its resellers’ objective to procure product more
efficiently by reducing the number of their direct vendor relationships. The Company is continually
broadening its product assortment to ensure it provides its customers with the latest technology
products. The Company maintains a balanced product line of systems, peripherals, networking
products and software to minimize the effects of fluctuation in supply and demand.
Foster customer loyalty through superior customer service. Tech Data’s sales force
provides superior customer service through a dedicated team approach in order to differentiate
itself from its competitors and foster customer loyalty. The Company provides services such as
flexible customer financing and credit programs, a suite of electronic commerce tools (including
electronic order entry and access to product specifications), pre- and post-sale technical support,
products configuration, customized shipping documents, flexible product return policies and
customer education programs. The Company believes its strategy of not competing with its
customer base also promotes customer loyalty.
Broaden geographic coverage through international expansion. The Company plans to
take advantage of its strong financial position, vendor relationships and distribution expertise to
continue to expand its business in the markets it currently serves and additional markets. The
Company’s expansion strategy focuses on identifying companies with significant market positions
and quality management teams in markets where there is developed or emerging demand for
microcomputer products. Following expansion into a new market, Tech Data enhances its market
share by providing capital, adding new product lines, competitively pricing its products and
delivering value-added services. The Company’s operations have expanded from its North
American focus to include Europe with the acquisition in 1994 of France’s largest wholesale
microcomputer distributor. In February 1997, the Company continued its international expansion
through the development of an in-country subsidiary which stocks and distributes products in Brazil.
The Company’s purchase of Computer 2000 AG, Germany’s largest distributor, in July 1998
established the Company as the leading European distributor, as well as strengthened its position in
Latin America.
Vendor Relations
The Company's strong financial and industry positions have enabled it to obtain contracts with
most leading manufacturers and publishers. The Company purchases products directly from more than
1,000 manufacturers and publishers, generally on a nonexclusive basis. The Company's vendor
agreements are believed to be in the form customarily used by each manufacturer and typically contain
provisions which allow termination by either party upon 60 days notice. Generally, the Company's supplier
agreements do not require it to sell a specified quantity of products or restrict the Company from selling
similar products manufactured by competitors. Consequently, the Company has the flexibility to
terminate or curtail sales of one product line in favor of another product line as a result of technological
change, pricing considerations, product availability, customer demand and vendor distribution policies.
Such agreements generally contain stock rotation and price protection provisions which, along with the
Company’s inventory management policies and practices, reduce the Company’s risk of loss due to slow-
moving inventory, vendor price reductions, product updates or obsolescence. Under the terms of many
distribution agreements, suppliers will credit the distributor for declines in inventory value resulting from
the supplier’s price reductions if the distributor complies with certain conditions. In addition, under many
such agreements, the distributor has the right to return for credit or exchange for other products a portion
of those inventory items purchased, within a designated period of time. A supplier who elects to terminate
a distribution agreement generally will repurchase from the distributor the supplier’s products carried in the
distributor’s inventory. While the industry practices discussed above are sometimes not embodied in
agreements and do not protect the Company in all cases from declines in inventory value, management
believes that these practices provide a significant level of protection from such declines. No assurance
can be given, however, that such practices will continue or that they will adequately protect the Company
against declines in inventory value. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations - Asset Management.”
5
Major computer systems manufacturers have begun to re-engineer their manufacturing processes
whereby final assembly will be performed at the distribution level (“channel assembly”) versus the current
“build-to-forecast” methodology employed by these manufacturers. Tech Data expanded its TDEnsemble
services over the past two years to include assemble-to-order capabilities on behalf of its manufacturing
partners, in addition to resellers, seeking custom configuration of branded and unbranded systems. Tech
Data was selected by Compaq, Hewlett-Packard and IBM to participate in their respective channel
assembly initiatives. In addition to its own ISO 9002-certified centers in South Bend, Indiana and
Swedesboro, New Jersey, Tech Data now offers custom-configuration at its FactoryDirect locations with
Compaq in Houston, Texas and IBM in Research Triangle Park, North Carolina.
In addition to providing manufacturers and publishers with one of the largest bases of resellers in
the United States, Canada, the Caribbean, Latin America, Europe and the Middle East, the Company also
offers manufacturers and publishers the opportunity to participate in a number of special promotions,
training programs and marketing services targeted to the needs of its resellers.
No single vendor accounted for more than 10% of the Company's net sales during fiscal 1999, 1998
or 1997, except sales of Compaq products which accounted for 13%, 13% and 12% of net sales in fiscal
1999, 1998 and 1997, respectively, and sales of Hewlett-Packard products which accounted for 18% and
13% of net sales in fiscal 1999 and 1998, respectively.
Customers, Products and Services
The Company sells more than 75,000 microcomputer products including systems, peripherals,
networking and software purchased directly from manufacturers and publishers in large quantities for sale
to an active reseller base of more than 100,000 VARs, corporate resellers, direct marketers, retailers and
Internet resellers.
The Company’s VARs typically do not have the resources to establish a large number of direct
purchasing relationships or stock significant product inventories. This market is attractive because VARs,
which constituted approximately 56% of Tech Data’s net sales in fiscal 1999, generally rely on distributors
as their principal source of computer products and financing. Corporate resellers, retailers, direct
marketers and internet resellers may establish direct relationships with manufacturers and publishers for
their more popular products, but utilize distributors as the primary source for other product requirements
and the alternative source for products acquired direct. The Company’s Tech Data Elect Program
provides cost-plus pricing on certain high volume products, primarily computer systems and printers, and
other special terms to target corporate resellers. Corporate resellers constituted approximately 26% of the
Company’s net sales in fiscal 1999. Tech Data also has developed special programs to meet the unique
needs of retail, direct marketers and internet resellers, which customers constituted approximately 18% of
the Company’s net sales in fiscal 1999. No single customer accounted for more than 5% of the
Company’s net sales during fiscal 1999, 1998 or 1997.
The Company pursues a strategy of continually expanding its product line to offer its customers a
broad assortment of the latest technology products. From time to time, the demand for certain products
sold by the Company exceeds the supply available from the manufacturer or publisher. The Company
then receives an allocation of the products available. Management believes that the Company's ability to
compete is not adversely affected by these periodic shortages and the resulting allocations.
Tech Data provides resellers a high-level of service through the Company’s pre- and post-sale
technical support, suite of electronic commerce tools (including on-line order entry and EDI services),
customized shipping documents, product configuration services and flexible financing programs.
The Company delivers products throughout the United States, Canada, the Caribbean, Latin
America, Europe and the Middle East from its 35 regionally located distribution centers. Locating
distribution centers near its customers enables the Company to deliver products on a timely basis, thereby
reducing customers' need to invest in inventory. See Item 2 - Properties for further discussion of the
Company’s locations and distribution centers.
6
Sales and Electronic Commerce
Currently, the Company's sales force consists of approximately 2,000 field and 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 or contact the Company through various electronic methods to place orders. If the product is in
stock and the customer has available credit, customer orders are generally shipped the same day from
the distribution facility nearest the customer.
Increasingly, customers rely upon the Company's electronic ordering and information systems, in
addition to its product catalogs and frequent mailings as sources for product information, including prices.
The Company's on-line computer system allows the inside sales teams to check for current stocking
levels in each of the six United States distribution centers. Likewise, inside sales teams in Canada, the
Caribbean, Latin America, Europe and the Middle East can check on stocking levels in their respective
distribution centers. Through “Tech Data On-Line”, the Company’s proprietary electronic on-line system,
U.S. customers can gain remote access to the Company’s data processing system to check product
availability and pricing and to place an order. Certain of the Company’s larger customers have available
EDI services whereby orders, order acknowledgments, invoices, inventory status reports, customized
pricing information and other industry standard EDI transactions are consummated on-line which
improves efficiency and timeliness for both the Company and the customers. In 1998, the Company
launched order entry capability over the Company’s World Wide Web site. By the fourth quarter of fiscal
1999 approximately 25% of the Company’s U.S. sales dollar volume originated from orders received
electronically and web orders were reaching approximately $2 million per day.
The Company provides comprehensive training to its field and inside sales representatives
regarding technical characteristics of products and the Company's policies and procedures. In addition,
the Company's ongoing training program is supplemented by product seminars offered daily by
manufacturers and publishers.
Competition
The Company operates in a market characterized by intense competition. Competition within the
industry is based on product availability, credit availability, price, delivery and various services and
support provided by the distributor to the customer. The Company believes that it is equipped to compete
effectively with other distributors in these areas. Major competitors include Ingram Micro, Inc. and CHS
Electronics, Inc., as well as a variety of smaller distributors. The only competitor larger than the Company
is Ingram Micro, Inc.
The Company also competes with manufacturers and publishers who sell directly to resellers and
end-users. The Company nevertheless believes that in the majority of cases, manufacturers and
publishers choose to sell products through distributors rather than directly because of the relatively small
volume and high selling costs associated with numerous small orders. Management also believes that the
Company's prompt delivery of products and efficient handling of returns provide an important competitive
advantage over manufacturers’ and publishers' efforts to market their products directly.
Employees
On January 31, 1999, the Company had approximately 8,240 employees located as follows:
United States – 3,600, Europe – 4,185, and all other regions - 455. Certain of the Company’s employees
in Europe are subject to collective bargaining or similar arrangements. The Company considers its
relations with its employees to be good.
7
Foreign and domestic operations and export sales
The Company operates predominantly in a single industry segment as a wholesale distributor of
computer-based technology products and services. That is, the principal markets, products and services
and methods of distribution from which each segment derives its revenues are essentially the same. The
principal geographical areas in which the Company operates are the United States, Europe (including the
Middle East) and other international areas which include Canada, Brazil, Argentina, Chile, Peru, Uruguay
and export sales to Latin America and the Caribbean from the U.S. In 1999, 1998 and 1997, 45%, 23%
and 15%, respectively, of the Company’s sales were derived from sales outside of the U.S.
See Note 10 of Notes to Consolidated Financial Statements for further information regarding the
geographical distribution of the Company’s net sales, operating income and identifiable assets.
Executive Officers
Steven A. Raymund, Chairman of the Board of Directors and Chief Executive Officer, age
43, has been employed by the Company since 1981, serving as Chief Executive Officer since January
1986 and as Chairman of the Board of Directors since April 1991. In 1998, Mr. Raymund was appointed
Chairman of the Computer 2000 Management Board. He has a B.S. Degree in Economics from the
University of Oregon and a Masters Degree from the Georgetown University School of Foreign Service.
Anthony A. Ibargüen, President and Chief Operating Officer, age 39, joined the Company in
September 1996 as President of the Americas and was appointed President and Chief Operating Officer
in March 1997. In 1998, Mr. Ibargüen was appointed to the Company’s Board of Directors and to the
Supervisory Board of Computer 2000. Prior to joining the Company, he was employed by ENTEX
Information Services, Inc. from August 1993 to August 1996 as Executive Vice President of Sales and
Marketing. From June 1990 to August 1993, he was employed by JWP, Inc. most recently as a Vice
President. Mr. 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 42, joined the
Company in October 1991 as Vice President of Finance and assumed the responsibilities of Chief
Financial Officer in March 1992. In March 1993, he was promoted to Senior Vice President and Chief
Financial Officer and was promoted to Executive Vice President and Chief Financial Officer in March
1997. In 1998, Mr. Howells was appointed to the Company’s Board of Directors and to the Supervisory
Board of Computer 2000. From June 1991 through September 1991 he was employed as Vice President
of Finance of Inex Vision Systems. From July 1979 to May 1991 he was employed by Price Waterhouse.
Mr. Howells is a Certified Public Accountant and holds a B.B.A. Degree in Accounting from Stetson
University.
Néstor Cano, Executive Vice President of U.S. Sales and Marketing, age 35, joined the
Company in July 1998 as a result of the Company’s acquisition of Computer 2000. In March 1999, he
was appointed Executive Vice President of U.S. Sales and Marketing. Prior to his appointment in the
U.S., Mr. Cano served in various management positions with Computer 2000 from 1989 to 1998, most
recently as Regional Managing Director of Spain and Portugal. Mr. Cano holds an Engineering Degree
from Barcelona University.
H. John Lochow, Executive Vice President of Information Technology and Logistics, age
46, joined the Company in February 1998 as Senior Vice President and Chief Information Officer and in
February 1999 was promoted to Executive Vice President of Information Technology and Logistics. Prior
to joining the Company, he served as Chief Information Officer at Bell Canada and Chief Executive of
their international subsidiary Bell Sygma from 1996 to February 1998. From 1994 to 1996, he was
employed by AT&T Capital Corporation as Vice President of Systems and New Business Development
and from 1989 to 1994 he was employed by CNA Insurance Companies as Vice President of Systems.
Mr. Lochow holds a B.A. Degree in Mathematics from Thomas Edison University.
Peggy K. Caldwell, Senior Vice President of Marketing, age 53, joined the Company in May
1992. Prior to joining the Company, she was employed by International Business Machines Corporation
for 25 years, most recently serving in a variety of senior management positions in the National
Distribution Division. Ms. Caldwell holds a B.S. Degree in Mathematics and Physics from Bucknell
University. Ms. Caldwell retired from the Company on January 31, 1999.
8
Timothy J. Curran, Senior Vice President of U.S. Sales, age 47, joined the Company in April
1997. Prior to joining the Company, he was employed by Panasonic Communications and Systems
Company (including various other Panasonic affiliates) from 1983 to 1997 serving in a variety of senior
management positions. Mr. Curran holds a B.A. Degree in History from the University of Notre Dame and
a Ph.D. in International Relations from Columbia University.
Lawrence W. Hamilton, Senior Vice President of Human Resources, age 41, joined the
Company in August 1993 as Vice President of Human Resources and was promoted to Senior Vice
President in March 1996. Prior to joining the Company, he was employed by Bristol-Myers Squibb
Company from 1985 to August 1993, most recently as Vice President - Human Resources and
Administration of Linvatec Corporation (a division of Bristol-Myers Squibb Company). Mr. Hamilton holds
a B.A. Degree in Political Science from Fisk University and a Masters of Public Administration, Labor
Policy from the University of Alabama.
Gerald M. Labie, Senior Vice President of U.S. Marketing, age 55, joined the Company in
November 1997 as President and Managing Director of European Operations and was appointed Senior
Vice President of U.S. Marketing in February 1999. Prior to joining the Company, he was employed by
Corporate Software Inc. from 1989 to 1997, most recently serving in the role of Senior Vice President and
General Manager, Europe. Mr. Labie holds a B.A. Degree from Alfred University.
Yuda Saydun, Senior Vice President and General Manager - Latin America, age 46, joined
the Company in May 1993 as Vice President and General Manager - Latin America. In March 1997 he
was promoted to Senior Vice President and General Manager - Latin America. Prior to joining the
Company, he was employed by American Express Travel Related Services Company, Inc. from 1982 to
May 1993, most recently as Division Vice President, Cardmember Marketing. Mr. Saydun holds a B.S.
Degree in Political and Diplomatic Sciences from Universite Libre de Bruxelles and a Masters of Business
Administration Degree, Finance/Marketing from U.C.L.A.
Joseph B. Trepani, Senior Vice President and Corporate Controller, age 38, joined the
Company in March 1990 as Controller and held the position of Director of Operations from October 1991
through January 1995. In February 1995, he was promoted to Vice President and Worldwide Controller
and to Senior Vice President and Corporate Controller in March 1998. Prior to joining the Company, Mr.
Trepani was Vice President of Finance for Action Staffing, Inc. from July 1989 to February 1990. From
1982 to June 1989, he was employed by Price Waterhouse. Mr. Trepani is a Certified Public Accountant
and holds a B.S. Degree in Accounting from Florida State University.
Patrick O. Connelly, Vice President of Credit Services, age 53, joined the Company in August
1994. Prior to joining the Company, he was employed by Unisys Corporation for nine years as Worldwide
Director of Credit. Mr. Connelly holds a B.A. Degree in History and French from the University of Texas
at Austin.
Charles V. Dannewitz, Vice President of Taxes, age 44, joined the Company in February 1995.
Prior to joining the Company, he was employed by Price Waterhouse for 13 years, most recently as a Tax
Partner. Mr. Dannewitz is a Certified Public Accountant and holds a B.S. Degree in Accounting from
Illinois Wesleyan University.
Arthur W. Singleton, Vice President, Treasurer and Secretary, age 38, joined the Company in
January 1990 as Director of Finance and was appointed Treasurer and Secretary in April 1991. In
February 1995, he was promoted to Vice President, Treasurer and Secretary. Prior to joining the
Company, Mr. Singleton was employed by Price Waterhouse from 1982 to December 1989. Mr.
Singleton is a Certified Public Accountant and holds a B.S. Degree in Accounting from Florida State
University.
David R. Vetter, Vice President and General Counsel, age 40, joined the Company in June
1993. Prior to joining the Company, he was employed by the law firm of Robbins, Gaynor & Bronstein,
P.A. from 1984 to June 1993, most recently as a partner. Mr. Vetter is a member of the Florida Bar and
holds a B.A. Degree in English and Economics from Bucknell University and a J.D. Degree from the
University of Florida.
9
ITEM 2. Properties
Tech Data’s executive offices are located in Clearwater, Florida. The Company operates a total of
35 distribution centers to provide its customers timely delivery of products. These distribution centers are
located in the following principal markets: U.S. – 6, Canada – 2, Latin America –5, Europe – 21 and the
Middle East - 1. In addition to the above distribution centers, the Company operates two distribution
facilities in the U.S. which are located within the manufacturing facilities of Compaq and IBM in
connection with the Company’s FactoryDirect program (see Vendor Relations). The Company also
operates training centers in nine cities in the U.S.
The facilities of the Company are substantially utilized, well maintained and are adequate to conduct
the Company's current business.
ITEM 3. Legal Proceedings
There are no material legal proceedings pending against the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
There have been no matters submitted to a vote of security holders during the last quarter of the
fiscal year ended January 31, 1999.
PART II
ITEM 5. Market for the Registrant’s Common Stock and Related Shareholder Matters
The Company's common stock is traded on the Nasdaq Stock Market under the symbol TECD. The
Company has not paid cash dividends since fiscal 1983. The Board of Directors does not intend to
institute a cash dividend payment policy in the foreseeable future. The table below presents the quarterly
high and low sales prices for the Company's common stock as reported by The Nasdaq Stock Market.
The approximate number of shareholders as of January 31, 1999 was 30,000.
Fiscal year 1999
Fourth quarter
Third quarter
Second quarter
First quarter
Fiscal year 1998
Fourth quarter
Third quarter
Second quarter
First quarter
Sales Price
High
$44 1/2
53 1/8
49 7/8
50 5/8
Low
$26 5/8
36 3/4
33 3/4
36 1/8
$47 3/4
51 3/4
39 15/16
27 1/2
$34 1/8
36 1/4
22 7/8
19 3/4
10
ITEM 6. Selected Financial Data
FIVE YEAR FINANCIAL SUMMARY
(In thousands, except per share data)
Year ended January 31,
1999
1998
1997
1996
1995
$ 11,528,999 $ 7,056,619 $ 4,598,941 $ 3,086,620 $ 2,418,410
10,801,126
6,590,873
4,277,160
2,867,226
2,219,122
492,542
11,293,668
235,331
44,988
15,700
206,043
76,215
129,828
876
293,108
6,883,981
172,638
29,908
206,770
4,483,930
115,011
21,522
163,790
3,031,016
55,604
20,086
127,951
2,347,073
71,337
13,761
142,730
52,816
89,914
429
93,489
36,516
56,973
35,518
13,977
21,541
57,576
22,664
34,912
$ 128,952 $ 89,485
$ 56,973
$ 21,541
$ 34,912
Income statement data:
Net sales
Cost and expenses:
Cost of products sold
Selling, general and
administrative expenses
Operating profit
Interest expense
Gain on the sale of Macrotron AG
Income before income taxes
Provision for income taxes
Income before minority interest
Minority interest
Net income
Net income per common share:
Basic
$ 2.59 $ 2.00
$ 1.39
$ .57
$ .92
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
_________
$ 2.47 $ 1.92
$ 1.35
$ .56
$ .91
49,727
54,161
44,715
46,610
40,870
42,125
37,846
38,138
37,758
38,258
$ 725,057 $ 537,381
2,185,383
540,177
8,683
702,588
3,844,987
817,870
308,521
967,291
$ 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
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 most recent fiscal years.
Net sales
Cost and expenses:
Cost of products sold
Selling, general and administrative expenses
Operating profit
Interest expense
Gain on sale of Macrotron AG
Income before income taxes
Provision for income taxes
Income before minority interest
Minority interest
Net income
Percentage of net sales
Year ended January 31,
1999
1998
100.0% 100.0% 100.0%
1997
93.7
4.3
98.0
2.0
.4
.2
1.8
.7
1.1
-
1.1%
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%
Fiscal Years Ended January 31, 1999 and 1998
Net sales increased 63.4% to $11.5 billion in fiscal 1999 compared to $7.1 billion in the prior year.
This increase is attributable to the acquisition of Computer 2000 AG (“Computer 2000”), as well as the
addition of new product lines and the expansion of existing product lines. Sales for the fiscal year ended
January 31, 1999 include six months of results for Computer 2000, in which the Company acquired a
controlling interest in July 1998, and include six months of results for Macrotron AG, which was acquired
in July 1997 and sold in July 1998. The Company’s U.S., Europe and other international sales grew
17.0%, 295.5% and 32.9%, respectively, in fiscal 1999 compared to the prior year. The significant growth
in the Company’s international sales is attributable to the acquisition of Computer 2000. Excluding the
effect of acquisitions and dispositions, sales growth rates in fiscal 1999 were approximately 17%, 27%
and 15% in the U.S., Europe and other international areas, respectively. Total international sales in fiscal
1999 represent approximately 45% of consolidated net sales compared with 23% in the prior year.
The cost of products sold as a percentage of net sales increased from 93.4% in fiscal 1998 to
93.7% in fiscal 1999. This increase is a result of competitive market prices and the Company’s strategy
of lowering selling prices in order to gain market share and to pass on the benefit of operating efficiencies
to its customers.
Selling, general and administrative expenses increased 68.0% from $293.1 million in fiscal 1998
to $492.5 million in fiscal 1999, and as a percentage of net sales increased to 4.3% in fiscal 1999 from
4.2% in the prior year. The increase in selling, general and administrative expenses is attributable to the
acquisitions of Macrotron and Computer 2000, increases in amortization of intangibles as well as other
operating expenses needed to support the increased volume of business.
As a result of the factors described above, operating profit in fiscal 1999 increased 36.3% to
$235.3 million, or 2.0% of net sales, compared to $172.6 million, or 2.4% of net sales, in fiscal 1998. A
factor contributing to the decrease in the operating profit margin from 2.4% in fiscal 1998 to 2.0% in fiscal
1999, was ongoing competitive pricing pressure experienced by the Company in its U.S. business.
Additionally contributing to this decrease was the Company’s more significant presence in Europe in fiscal
1999, principally as a result of the Computer 2000 acquisition. Operating margins in Europe are typically
lower than the Company’s U.S. business as a result of higher costs, partially offset by better asset
turnover.
Interest expense increased due to an increase in the Company’s average outstanding
indebtedness related to funding the acquisition of Computer 2000, funding for continued growth and
capital expenditures. The increase in interest expense was partially offset in fiscal 1999 by decreases in
average short-term interest rates on the Company’s floating rate indebtedness.
12
The Company’s results of operations in fiscal 1999 include a pretax gain of $15.7 million ($9.6
million net of income taxes) related to the July 1998 sale of Macrotron AG.
The Company’s average income tax rate was 37.0% for fiscal 1999 and fiscal 1998.
Net income in fiscal 1999 increased 44.1% to $129.0 million, or $2.47 per diluted share,
compared to $89.5 million, or $1.92 per diluted share, in the prior year. Excluding the gain on the sale of
Macrotron, net income increased 33.4% to $119.4 million, or $2.29 per diluted share.
Fiscal Years Ended January 31, 1998 and 1997
Net sales increased 53.4% to $7.1 billion in fiscal 1998 compared to $4.6 billion in the prior year.
This increase is attributable to the acquisition of Macrotron AG, the addition of new product lines and the
expansion of existing product lines combined with an increase in the Company’s market share. The
Company’s U.S. and international sales grew 39.1% and 134.6% respectively, in fiscal 1998 compared to
the prior year. The significant growth in the Company’s international sales is attributable to the acquisition
of Macrotron AG, in which the Company acquired a controlling interest on July 1, 1997. The Company’s
international sales in fiscal 1998 were approximately 23% of consolidated net sales compared with 15% in
the prior year.
The cost of products sold as a percentage of net sales increased from 93.0% in fiscal 1997 to
93.4% in fiscal 1998. This increase is a result of competitive market prices and the Company’s strategy
of lowering selling prices in order to gain market share and to pass on the benefit of operating efficiencies
to its customers.
Selling, general and administrative expenses increased 41.8% from $206.8 million in fiscal 1997
to $293.1 million in fiscal 1998, and as a percentage of net sales decreased to 4.2% in fiscal 1998 from
4.5% in the prior year. This decline in selling, general and administrative expenses as a percentage of
net sales is attributable to greater economies of scale the Company realized during fiscal 1998 in addition
to improved operating efficiencies. The dollar value increase in selling, general and administrative
expenses is attributable to the acquisition of Macrotron AG and the expanded employment and increases
in other operating expenses needed to support the increased volume of business.
As a result of the factors described above, operating profit in fiscal 1998 increased 50.1% to
$172.6 million, or 2.4% of net sales, compared to $115.0 million, or 2.5% of net sales, in fiscal 1997. A
factor contributing to the decrease in the operating profit margin from 2.5% in fiscal 1997 to 2.4% in fiscal
1998 was the acquisition of Macrotron AG. Macrotron’s operating model employs a lower operating profit
margin due to its higher asset turnover, as compared to the Company’s U.S. business.
Interest expense increased due to an increase in the Company’s average outstanding
indebtedness related to funding continued growth, the acquisition of Macrotron AG and capital
expenditures. The increase in interest expense was partially offset in fiscal 1998 by decreases in short-
term interest rates on the Company’s floating rate indebtedness and by the receipt of net proceeds of
approximately $149 million from the Company’s November 1997 common stock offering which were used
to reduce indebtedness.
The Company’s average income tax rate declined to 37.0% for fiscal 1998 as compared to 39.1%
for fiscal 1997. This reduction primarily is the result of a larger portion of the Company’s income being
subject to lower state income tax jurisdictions.
Net income in fiscal 1998 increased 57.1% to $89.5 million, or $1.92 per diluted share, compared
to $57.0 million, or $1.35 per diluted share, in the prior year.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued Statement of position
(“SOP”) 98-1 “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”
effective for fiscal years beginning after December 15, 1998. The Company has elected early
13
implementation of provisions of SOP 98-1 effective for the year ended June 15, 1999. This statement
requires capitalization of certain costs relating to computer software developed or obtained for internal
use. The impact of adoption was not material to the Company’s consolidated financial statements.
In June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). This statement requires
that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if so, the type of the hedge
transaction. The ineffective portion of all hedge transactions will be recognized in the current-period
earnings. SFAS 133 is effective for fiscal years beginning after June 15, 1999. The future impact of this
statement on the Company’s results of operations is not expected to be material.
Impact of Inflation
The Company has not been adversely affected by inflation as technological advances and
competition within the microcomputer industry has generally caused prices of the products sold by the
Company to decline. Management believes that any price increases could be passed on to its customers,
as prices charged by the Company are not set by long-term contracts.
Liquidity and Capital Resources
Net cash provided by operating activities of $43.5 million in fiscal 1999 was primarily attributable
to income from operations of $129.0 million combined with an increase in accounts payable partially
offset by increases in accounts receivable and inventories.
Net cash provided by investing activities of $60.2 million in fiscal 1999 was attributable to receipt
of $227.8 million in proceeds from the sale of Macrotron (see Note 9 of Notes to Consolidated Financial
Statements) offset by $115.0 million related to the acquisition of Computer 2000 and the Company’s
continuing investment of $47.8 million in its management information systems, office facilities and its
distribution center facilities and $4.9 million in software development costs. The Company expects to
make capital expenditures of approximately $75 - $100 million during fiscal 2000 to further expand its
management information systems, office facilities and distribution centers.
Net cash used in financing activities of $97.8 million in fiscal 1999 reflects the net repayments
under the Company’s revolving credit loans of $114.1 million partially offset by proceeds from stock
option exercises (including the related income tax benefit) of $16.5 million.
The Company currently maintains domestic and foreign revolving credit agreements which
provide maximum short-term borrowings of approximately $1.35 billion (including local country credit
lines), of which $818 million was outstanding at January 31, 1999. The Company believes that cash from
operations, available and obtainable bank credit lines and trade credit from its vendors will be sufficient to
satisfy its working capital and capital expenditure needs through fiscal 2000.
Asset Management
The Company manages its inventories by maintaining sufficient quantities to achieve high order
fill rates while attempting to stock only those products in high demand with a rapid turnover rate.
Inventory balances fluctuate as the Company adds new product lines and when appropriate, makes large
purchases, including cash purchases from manufacturers and publishers when the terms of such
purchases are considered advantageous. The Company's contracts with most of its vendors provide price
protection and stock rotation privileges to reduce the risk of loss due to manufacturer price reductions and
slow moving or obsolete inventory. In the event of a vendor price reduction, the Company generally
receives a credit for the impact on products in inventory. In addition, the Company has the right to rotate
a certain percentage of purchases, subject to certain limitations. Historically, price protection and stock
rotation privileges as well as the Company’s inventory management procedures have helped to reduce
the risk of loss of carrying inventory.
14
The Company attempts to control losses on credit sales by closely monitoring customers'
creditworthiness through its computer system which contains detailed information on each customer's
payment history and other relevant information. The Company has obtained credit insurance which
insures a percentage of the credit extended by the Company to certain of its larger domestic and
international customers against possible loss. Customers who qualify for credit terms are typically granted
net 30-day payment terms. The Company also sells products on a prepay, credit card, cash on delivery
and floorplan basis.
Year 2000
Introduction
The “Year 2000 Problem” arose because many existing computer programs use only the last two
digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins
with “20” instead of the familiar “19.” If not corrected, many computer applications could fail or create
erroneous results. The problems created by using abbreviated dates appear in hardware (such as
microchips), operating systems and other software programs. The Company’s Year 2000 (“Y2K”)
compliance project is intended to determine the readiness of the Company’s business for the Year 2000.
The Company defines Y2K “compliance” to mean that the computer code will process all defined future
dates properly and give accurate results.
Description of Areas of Impact and Risk
The Company has identified four areas where the Y2K problem creates risk to the Company.
These areas are: a) internal Information Technology (“IT”) systems; b) non-IT systems with embedded
chip technology; c) system capabilities of third party businesses with relationships with the Company,
including product suppliers, customers, service providers (such as telephone, power, logistics, financial
services) and other businesses whose failure to be Y2K compliant could have a material adverse effect
on the Company’s business, financial condition or results of operations; and d) product liability claims
arising out of the non-performance of computer products distributed by the Company.
Plan to Address Year 2000 Compliance
In August 1997, the Company formed a Year 2000 compliance project team and began
developing an overall plan to address Y2K readiness issues. This plan includes five phases as follows:
Phase I is to create an inventory of the Company’s IT systems, non-IT systems and service providers
(each of these being referred to as “business components”) that need to be analyzed for Y2K compliance.
During Phase I, a priority is established so that the Company will first address the most important business
components to determine Y2K readiness. Phase II analyzes the identified business components to
determine which of the business components in the inventory require additional effort to be Y2K
compliant. Phase III is the repair, modification or replacement of business components which the analysis
determines are not Y2K compliant (“remediation”). Phase IV consists of various types of testing to
confirm that the remediation process has resulted in the business components being Y2K compliant.
Phase V is the development of contingency plans to address potential risks that the Y2K compliance
project may not fully address.
State of Readiness
IT Systems – U.S. and Canada- The Company is in Phase III and Phase IV of the Year 2000
project overall. As testing and remediation progress, the inventory and test plans are refined.
Approximately 76% of all identified IT system business components in the U.S. have been deemed to be
Y2K compliant as of April 15, 1999 with analysis of the remaining 24% continuing. Of the 24% remaining,
remediation will be completed by re-writing and upgrading key software application systems to incorporate
Y2K compliance.
Functional testing of individual components of the Company’s business critical applications has
been completed. Fully integrated tests of these individual components will continue with completion
targeted in September 1999. Completion of full integration testing has moved from July to September in
order to provide adequate time to complete all remediation of business critical applications outside the
mainframe environment and the technology refresh described in the next paragraph.
15
The expected completion of the testing and remediation of the Company’s desktop hardware and
software systems is October 1999. The Company is addressing the Y2K compliance of these systems by
acceleration of a previously planned desktop technology refresh during which systems that are not Y2K
compliant will be replaced. Internal resources have been reallocated and external resources have been
secured to address these issues by the planned completion dates. Full integration testing can be
completed only after the applications and systems outside the mainframe environment have also been
remediated.
The on-line portion of the DCS software system (the Company’s system performing the primary
business functions of sales order entry, billing, purchasing, distribution and inventory control) has been
determined to be compliant for the following dates: January 1, February 29, December 31, 2000.
Remaining batch processing portions of the DCS system is still in progress. User acceptance testing for
all portions of the DCS system is targeted to begin June 1999. In addition to the Company’s internal
resources, outside consultants have been secured to focus exclusively on the DCS environment.
IT Systems – Outside the U.S. and Canada - The Company’s subsidiaries located outside of the
U.S. and Canada are currently focusing on Phase III and Phase IV tasks of the Year 2000 project. As of
March 29, 1999, approximately 59% of the identified critical business components of all countries have
been determined to be Y2K compliant. Each country is separately reporting on its progress, with central
coordination and management provided by the Y2K compliance project team.
For the subsidiaries of Computer 2000 (“C2000”), country locations are divided into two core
areas: those using the SAP R/2 system (the Company’s system performing the primary business functions
of sales, order entry, billing, purchasing, distribution and inventory control) and those that use other
systems to provide these business processes. The majority of the countries use the SAP R/2 system.
The version of SAP R/2 in use by C2000, has received certification from TUV, a German governmental
independent testing authority, that it is Y2K compliant. C2000 is testing these elements and the custom
modifications it has to the system, with completion of this testing scheduled for completion in September
1999. This testing incorporates related subsystems and key client/server and desktop systems.
For those countries using non SAP R/2 systems, conversion to SAP R/2 or upgrades to a
compliant system are being implemented or the system is being determined to be Y2K compliant by
certification by the vendor and internal C2000 testing. In France, the Company is consolidating the
operations of its Tech Data subsidiary with C2000’s subsidiary. As part of this consolidation, SAP R/2
systems will be replaced with currently existing enterprise systems that are not Y2K compliant. For this
reason, additional project phases have been identified which will require the conversion of operations in
France to a single, Y2K compliant, enterprise system. Conversion of this system is scheduled to begin in
July 1999.
Non-IT systems - The non-IT systems (devices which store and report date-related information,
such as access control systems, elevators, conveyors and other items containing a microprocessor or
internal clock) are utilizing the phased plan approach for the IT systems. Phase I inventory and
prioritization has been completed for non-IT systems in the U.S. and in connection with the Company’s
acquisition of Computer 2000, is currently being conducted in the Company’s worldwide locations. Phase
II analysis is being performed on systems material to the Company’s operations with the assistance of the
Company’s vendors, with completion expected in July 1999. Implementation of Phases III and IV will
continue through August 1999. The Company currently plans to complete the Y2K compliance program
for all material non-IT systems by the end of October 1999.
Material Third Parties - The Company relies on third party suppliers for many systems, products
and services. The Company will be adversely affected if these third parties are not Y2K compliant. The
Company continues to solicit, receive and review responses to surveys sent to those third parties
determined to be material to the operations of the Company to determine their Y2K readiness. For those
critical third parties that fail to respond to the Company’s survey, the Company is pursuing alternative
means of obtaining Y2K readiness information and is conducting reviews of publicly available information
published by such third parties.
16
Product Liability - The Company does not make any representations or warranties that the
products it distributes are or will be Y2K-ready or compliant. In certain countries where the Company or
its subsidiaries distribute products, the Company may have an obligation to accept returns of products,
which fail because the product is not Y2K ready. In most cases, these returns may be passed on to the
manufacturer. In those countries where product return obligations may exist, the Company plans to
carefully review manufacturer representations regarding products that are sold in material volumes by the
Company or its subsidiaries.
Cost of Project
The Company has incurred approximately $3.1 million through January 31, 1999 on the Y2K
compliance effort, excluding compensation and benefit costs for associates who do not work full-time on
the Y2K project and costs of systems upgrades that would have normally been made on similar timetable.
The overall cost of the Y2K compliance effort cannot be accurately estimated until all inventory and
analysis phases associated with the recent acquisition of Computer 2000 have been completed, however,
the Company believes the costs will be approximately $9.1 million.
Contingency Planning and Risks
The Company has begun contingency planning for some of its critical applications and will be
developing additional contingency plans as testing determines the necessity. While the Company
believes that its approach to Y2K readiness is sound, it is possible that some business components are
not identified in the inventory, or that the scanning or testing process does not result in analysis and
remediation of all source code. The Company will assume a third party is not Y2K ready if no survey
response or an inadequate survey response is received. The Company’s contingency plan will address
alternative providers and processes to deal with business interruptions that may be caused by internal
system or third party providers failure to be Y2K ready to the extent it is possible.
The failure to correct a material Y2K problem could result in an interruption in, or a failure of,
certain normal business activities or operations. Such failure could materially and adversely affect the
Company’s operations and therefore, could materially and adversely affect the Company’s results of
operations, liquidity and financial condition. In addition, the Company’s operating results could be
materially adversely affected if it were to be held responsible for the failure of any products sold by the
Company to be Y2K ready despite the Company’s disclaimer of product warranties and the limitation of
liability contained in its sales terms and conditions.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European Union commenced a
conversion from their existing sovereign currencies to a new, single currency called the euro. Fixed
conversion rates between the existing currencies, the legacy currencies, and the euro were established
and the euro became the common legal currency of the participating countries on this date. The euro now
trades on currency exchanges and is available for non-cash transactions. The participants will now issue
sovereign debt exclusively in euro and have redenominated all outstanding sovereign debt. Following this
introduction period,
tender as
denominations of euro until January 1, 2002. At that time, countries will issue new euro-denominated bills
for use in cash transactions. All legacy currency will be withdrawn prior to July 1, 2002 completing the
euro conversion on this date. As of January 1, 1999, the participating countries no longer control their
own monetary policies by directing independent interest rates for the legacy currencies, and instead, the
authority to direct monetary policy, including money supply and official interest rates for the euro, is
exercised by the new European Central Bank.
legacy currencies will remain
the participating members
legal
The Company has implemented a plan to address the issues raised by the euro conversion.
These issues include, but are not limited to; the competitive impact created by cross-border price
transparency; the need for the Company and its business partners to adapt IT and non-IT systems to
accommodate euro-demoninated transactions; and the need to analyze the legal and contractual
implications of the Company’s contracts. The Company currently anticipates that the required
modifications to its systems, equipment and processes will be made on a timely basis and does not
expect that the costs of such modifications will have a material effect on the Company’s financial position
or results of operations.
17
Since the implementation of the euro on January 1, 1999, the Company has experienced
improved efficiencies in its cash management program in Europe and has been able to reduce certain
hedging activities as a direct result of the conversion. The Company has not experienced any material
adverse effects on its financial position or results of operations in connection with the initial roll-out of the
euro currency.
Market Risk
The Company is exposed to the impact of foreign currency fluctuations and interest rate changes
due to its international sales and global funding. In the normal course of business, the Company employs
established policies and procedures to manage its exposure to fluctuations in the value of foreign
currencies and interest rates using a variety of financial instruments. It is the Company’s policy to utilize
financial instruments to reduce risks where internal netting cannot be effectively employed. It is the
Company’s policy not to enter into foreign currency or interest rate transactions for speculative or trading
purposes.
In addition to product sales and costs, the Company has foreign currency risk related to debt that
is denominated in currencies other than the dollar and cross-currency swaps hedging intercompany debt.
The Company’s foreign currency risk management objective is to protect its earnings and cash flows
resulting from sales, purchases and other transactions from the adverse impact of exchange rate
movements. Foreign exchange risk is managed by using forward, option and swap contracts to hedge
intercompany loans, receivables and payables. Hedged transactions are denominated primarily in
Belgian Franc, Danish Krone, French Franc, Spanish Peseta, Finnish Markka, Norwegian Krone, German
Mark, Swedish Krona, Swiss Franc and British Pound.
The Company is exposed to changes in interest rates primarily as a result of its short and long-
term debt used to maintain liquidity and finance inventory, capital expenditures and business expansion.
Interest rate risk is also present in the cross-currency swaps hedging intercompany and third-party loans.
The Company’s interest rate risk management objective is to limit the impact of interest rate changes on
earnings and cash flows and to lower overall borrowing costs. To achieve its objectives the Company
uses a combination of fixed- and variable-rate debt. As of January 31, 1999, approximately 49% of the
outstanding debt had fixed interest rates. The Company finances working capital needs through various
bank loans and commercial paper programs.
Foreign exchange and interest rate risk and related derivatives use is monitored using a variety of
techniques including periodic reviews of market value and sensitivity analyses. The Company’s
computations are based on
These
interrelationships are determined by observing foreign currency market changes and interest rate changes
over the preceding 90 days. The value of foreign currency options does not change on a one-to-one basis
with changes in the underlying currency rate. The model includes all of the Company’s forwards, options
and interest rate swaps. The Company believes that the hypothetical fluctuation in fair value of its
derivatives would be offset by increases/decreases in the value of the underlying transactions being
hedged.
interrelationships between currencies and
interest rates.
Comments on Forward-Looking Information
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of
1995, the Company has filed an Exhibit 99A which outlines cautionary statements and identifies important
factors that could cause the Company’s actual results to differ materially from those projected in forward-
looking statements made by, or on behalf of, the Company. Such forward-looking statements, as made
within Items 1 and 7 of this Form 10-K, should be considered in conjunction with the aforementioned
Exhibit 99A.
18
ITEM 8. Financial Statements and Supplementary Data
Index to Financial Statements
Financial Statements
Page
Report of Independent Certified Public Accountants .....................................................................
20
Report of Management .................................................................................................................
20
Consolidated Balance Sheet at January 31, 1999 and 1998..........................................................
21
Consolidated Statement of Income for the three years ended January 31, 1999 ...........................
22
Consolidated Statement of Changes in Shareholders’ Equity for the
three years ended January 31, 1999 ..........................................................................................
22
Consolidated Statement of Cash Flows for the three years ended January 31, 1999.....................
23
Notes to Consolidated Financial Statements.................................................................................
24
Financial Statement Schedule
Report of Independent Certified Public Accountants on Financial Statement Schedule.................
41
Schedule II. -- Valuation and qualifying accounts..........................................................................
42
All schedules and exhibits not included are not applicable, not required or would contain
information which is shown in the financial statements or notes thereto.
19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Tech Data Corporation:
In our opinion, the accompanying consolidated balance sheet and the related consolidated
statements of income, of changes in shareholders' equity and of cash flows present fairly, in all material
respects, the financial position of Tech Data Corporation and its subsidiaries at January 31, 1999 and
1998, and the results of their operations and their cash flows for each of the three years in the period
ended January 31, 1999, in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits of these statements
in accordance with generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Tampa, Florida
March 19, 1999
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 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 of Directors
and Chief Executive Officer
March 19, 1999
Jeffery P. Howells
Executive Vice President
and Chief Financial Officer
20
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 $60,521 and $29,731
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 9)
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
shares authorized; 51,098,442
and 48,250,349 issued and outstanding
Additional paid-in capital
Retained earnings
Cumulative translation adjustment
Total shareholders' equity
January 31,
1999
1998
$ 8,615 $ 2,749
1,796,045
1,369,351
113,952
3,287,963
126,537
345,326
85,161
909,426
1,028,367
65,843
2,006,385
100,562
55,460
22,976
$3,844,987 $2,185,383
$ 817,870 $ 540,177
850,866
77,961
1,469,004
8,683
1,477,687
5,108
1,503,866
241,170
2,562,906
308,521
2,871,427
6,269
5
5
77
505,385
428,720
33,104
967,291
72
403,880
299,768
(1,137 )
702,588
$3,844,987 $2,185,383
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
21
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
Year ended January 31,
1998
1997
1999
Net sales
Cost and expenses:
Cost of products sold
Selling, general and administrative expenses
Operating profit
Interest expense
Gain on sale of Macrotron AG
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
$11,528,999
$7,056,619 $4,598,941
10,801,126
492,542
11,293,668
235,331
44,988
15,700
206,043
76,215
129,828
876
$ 128,952
6,590,873
293,108
6,883,981
172,638
29,908
-
142,730
52,816
89,914
429
4,277,160
206,770
4,483,930
115,011
21,522
-
93,489
36,516
56,973
-
$ 89,485 $ 56,973
$ 2.59 $ 2.00 $ 1.39
$ 2.47 $ 1.92 $ 1.35
49,727
54,161
44,715
46,610
40,870
42,125
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
Preferred Stock
Shares Amount
Common Stock
Shares Amount
Additional
Paid-In
Capital
Other
Retained
Earnings
Accumulated
Total
Comprehensive Shareholders’
Income
Equity
Balance – January 31, 1996
227
$5
37,931
$57
$130,045
$153,310
$ 2,281
$285,698
Issuance of common stock for stock
options exercised and related tax
benefit
Issuance of common stock net of
offering costs
Comprehensive Income
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
Comprehensive Income
Balance – January 31, 1998
Issuance of common stock in
business purchase
Issuance of common stock for stock
options exercised and related tax
benefit
Comprehensive Income
Balance – January 31, 1999
760
4,600
1
7
13,223
83,309
227
5
43,291
65
226,577
56,973
210,283
(830 )
1,451
407
861
3,691
227
5
48,250
2,196
1
1
5
72
3
9,255
19,077
148,971
403,880
84,964
89,485
299,768
(2,588 )
(1,137 )
652
2
16,541
227
$5
51,098
$77
$505,385
128,952
$428,720
34,241
$33,104
13,224
83,316
56,143
438,381
9,256
19,078
148,976
86,897
702,588
84,967
16,543
163,193
$967,291
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
22
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 provided by (used in) operating activities
Cash flows from investing activities:
Acquisition of business, net of cash acquired
Sale of Macrotron AG
Expenditures for property and equipment
Software development costs
Net cash provided by (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 (used in) provided by financing activities
Year ended January 31,
1998
1999
1997
$11,094,731
(10,948,414 )
(39,926 )
(62,895 )
43,496
$6,870,096
(6,914,537 )
(29,909 )
(51,949 )
(126,299 )
$4,390,916
(4,513,309 )
(21,122 )
(45,037 )
(188,552 )
(115,000 )
227,843
(47,796 )
(4,856 )
60,191
16,543
(114,151 )
(213 )
(97,821 )
(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
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
5,866
2,749
$ 8,615
2,088
661
$ 2,749
(493 )
1,154
$ 661
Reconciliation of net income to net cash provided by (used in)
operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
$ 128,952
$ 89,485
$ 56,973
(used in) operating activities:
Depreciation and amortization
Provision for losses on accounts receivable
Gain on sale of Macrotron AG
Loss on disposal of fixed assets
Deferred income taxes
Changes in assets and liabilities:
(Increase) in accounts receivable
(Increase) in inventories
Decrease (increase) in prepaid and other assets
Increase in accounts payable
(Decrease) increase in accrued expenses
Total adjustments
42,605
34,810
(15,700 )
-
26,364
22,634
-
-
500
3,720
(434,268 )
(49,830 )
89,140
387,136
(139,849 )
(85,456 )
(183,481 )
(181,393 )
(8,317 )
106,134
(1,445 )
(215,784 )
$ (126,299 )
20,011
19,648
-
446
(5,051 )
(208,025 )
(294,552 )
(13,962 )
225,358
10,602
(245,525 )
$ (188,552 )
Net cash provided by (used in) operating activities
$ 43,496
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
23
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements include the accounts of Tech Data Corporation and its
subsidiaries (“Tech Data” or the “Company”). All significant intercompany accounts and transactions
have been eliminated in consolidation.
Method of accounting
The Company prepares its financial statements in conformity with generally accepted accounting
principles. These principles require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue recognition
Sales are recorded upon shipment. The Company allows its customers to return product for
exchange or credit subject to certain limitations. Provision for estimated losses on such returns are
recorded at the time of sale (see product warranty below). Funds received from vendors for marketing
programs and product rebates are accounted for as a reduction of selling, general and administrative
expenses or product cost according to the nature of the program.
Inventories
Inventories (consisting of computer related hardware and software products) are stated at the
lower of cost or market, cost being determined on the first-in, first-out (FIFO) method.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed over the estimated
economic lives (or lease period if shorter) using the following methods:
Buildings and improvements
Leasehold improvements
Furniture, fixtures and equipment
Method
Straight-line
Straight-line
Accelerated
Years
15 - 39
2 - 10
2 - 10
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.
Long lived assets
Long lived assets are reviewed for potential impairment at such time when events or changes in
circumstances indicate that recovery of the asset is unlikely. Any impairment loss would be recognized
when the sum of the expected, undiscounted future net cash flows is less than the carrying amount of the
asset.
24
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Excess of cost over acquired net assets
The excess of cost over acquired net assets (“goodwill”) is being amortized on a straight-line
basis over 15 to 40 years. Amortization expense was $5,714,000, $1,458,000 and $602,000 in 1999,
1998 and 1997, respectively. The accumulated amortization of goodwill is approximately $8,651,000
and $3,563,000 at January 31, 1999 and 1998, respectively.
Intangibles
Included within other assets at January 31, 1999 are certain intangible assets including deferred
software costs and the allocation of a portion of the purchase price of Computer 2000 AG (“Computer
2000”) to software used within the Computer 2000 entity and the value of the customer base acquired
(see Note 2 – Acquisition and Disposition of Subsidiaries). Such deferred costs are being amortized over
three to ten years with amortization expense of $8,442,000, $4,967,000 and $4,611,000 in 1999, 1998
and 1997, respectively. The accumulated amortization of such costs was $22,603,000 and $14,160,000
at January 31, 1999 and 1998, respectively. The remaining unamortized balance of such costs was
$39,876,000 and $17,894,000 at January 31, 1999 and 1998, respectively.
Product warranty
The Company’s vendors generally warrant the products distributed by the Company and allow
the Company to return defective products, including those that have been returned to the Company by its
customers. The Company does not independently warrant the products it distributes; however, the
Company does warrant the following: (1) services with regard to products configured for its customers,
and (2) products it builds to order from components purchased from other sources. A provision for
estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual
experience. Warranty expense was not material to the Company’s Consolidated Statement of Income.
Income taxes
Income taxes are accounted for under the liability method. Deferred taxes reflect the tax
consequences on future years of differences between the tax bases of assets and liabilities and their
financial reporting amounts. Deferred taxes have not been provided on the cumulative undistributed
earnings of foreign subsidiaries or the cumulative translation adjustment related to those investments
since such amounts are expected to be reinvested indefinitely.
Foreign currency activities
The assets and liabilities of foreign operations are translated at the exchange rates in effect at
the balance sheet date, with the related translation gains or losses reported as a separate component of
shareholders’ equity. The results of foreign operations are translated at the weighted average exchange
rates during the year. The Company recorded a net gain resulting from foreign currency transactions
(including gains or losses on forward contracts) of $5,027,000 for the year ended January 31, 1999. The
foreign currency gains (losses) for the fiscal years ended January 31, 1998 and 1997 were immaterial.
Concentration of credit risk
The Company sells its products to a large base of value-added resellers (“VARs”), corporate
resellers, retailers, direct marketers and internet resellers throughout the United States, Canada, the
Caribbean, Latin America, Europe, and the Middle East. The Company also performs ongoing credit
evaluations of its customers and generally does not require collateral. The Company has obtained credit
insurance which insures a percentage of credit extended by the Company to certain of its larger domestic
and international customers against possible loss. The Company makes provisions for estimated credit
losses at the time of sale.
25
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Derivative financial instruments
The Company operates internationally with distribution facilities in various locations around the
world. The Company reduces its exposure to fluctuations in interest rates and foreign exchange rates by
creating offsetting positions through the use of derivative financial instruments. The market risk related
to the foreign exchange agreements is offset by changes in the valuation of the underlying items being
hedged. The majority of the Company’s derivative financial instruments have terms of 180 days or less.
The Company currently does not use derivative financial instruments for trading or speculative purposes,
nor is the Company a party to leveraged derivatives.
Derivative financial instruments are accounted for on an accrual basis. Income and expense are
recorded in the same category as that arising from the related asset or liability being hedged. Gains and
losses resulting from effective hedges of existing assets, liabilities or firm commitments are deferred and
recognized when the offsetting gains and losses are recognized on the related hedged items.
The notional amount of forward exchange contracts and options is the amount of foreign
currency bought or sold at maturity. The notional amount of currency interest rate swaps is the
underlying principal and currency amounts used in determining the interest payments exchanged over
the life of the swap. Notional amounts are indicative of the extent of the Company’s involvement in the
various types and uses of derivative financial instruments and are not a measure of the Company’s
exposure to credit or market risks through its use of derivatives. The estimated fair value of derivative
financial instruments represents the amount required to enter into like off-setting contracts with similar
remaining maturities based on quoted market prices.
The Company’s derivative financial instruments outstanding at January 31, 1999 and 1998 are
as follows (derivative instruments outstanding at January 31, 1997 were not material):
January 31, 1999
January 31, 1998
Notional
Amounts
Estimated
Fair Value
Notional
Amounts
Estimated
Fair Value
(In thousands)
(In thousands)
Foreign exchange forward contracts
Purchased foreign currency options
Currency interest rate swaps
$438,000
60,000
329,000
$ 130
90
(2,440 )
$ 78,000
500
128,300
$ 940
(10 )
400
Fair value of financial instruments
Financial instruments (excluding derivative financial instruments) that are subject to fair value
disclosure requirements are carried in the consolidated financial statements at amounts that approximate
fair value. The carrying amount of debt outstanding pursuant to bank credit agreements approximates
fair value as interest rates on these instruments approximate current market rates. The carrying amount
of the convertible subordinated notes approximates fair value based upon available market information.
Fair value is estimated based on discounted cash flows and available market information as well as other
valuation techniques.
Comprehensive income
Effective for the fiscal year ended January 31, 1999 the Company adopted SFAS No. 130,
“Reporting Comprehensive Income” ("SFAS 130"). SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in the Company’s consolidated financial
statements. Comprehensive income is defined as the change in equity (net assets) of a business
enterprise during a period from transactions and other events and circumstances from non-owner
sources.
26
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company’s balance of other comprehensive income is comprised exclusively of changes in the net
cumulative translation adjustment. For the year ended January 31, 1999, the Company has recorded
deferred income taxes related to the change in the cumulative translation adjustment of $4,376,000. The
deferred income taxes related to the cumulative translation adjustment for the years ended January 31,
1998 and 1997 was not significant.
Stock-based compensation
The Company has adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock
Based Compensation" ("SFAS 123"). As permitted by this pronouncement, the Company's measurement
of compensation cost continues to be in accordance with the Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance with the requirements of
SFAS 123, the appropriate pro forma disclosures relating to net income and earnings per share are
provided. See Note 7 – Employee Benefit Plans.
Net income per common share
Basic EPS is computed by dividing net income by the weighted average number of common
shares outstanding during the reported period. Diluted EPS reflects the potential dilution that could occur
assuming the conversion of the convertible subordinated notes and exercise of the stock options using
the if-converted and treasury stock methods, respectively. The composition of basic and diluted net
income per common share is as follows:
Year ended January 31,
1999
Weighted
Average
Shares
Per
Share
Amount
Net
Income
Year ended January 31,
1998
Weighted
Average
Shares
Net
Income
Per
Share
Amount
(In thousands, except per share amounts)
Year ended January 31,
1997
Weighted
Average
Shares
Per
Share
Amount
Net
Income
Net income per common
Share – basic
Effect of dilutive securities:
Stock options
5% convertible subordinated
notes
Net income per common
Share – diluted
$128,952
49,727
$2.59
$89,485
44,715
$2.00
$56,973
40,870
$1.39
1,767
1,895
1,255
4,726
2,667
-
-
-
-
$133,678
54,161
$2.47
$89,485
46,610
$1.92
$56,973
42,125
$1.35
At January 31, 1999, 1998 and 1997, there were 1,571,000, 98,000 and 26,000 shares, respectively,
excluded from the computation of diluted earnings per share because their effect would have been
antidilutive.
Cash management system
Under the Company's cash management system, disbursements cleared by the bank are
reimbursed on a daily basis from the revolving credit loans. As a result, checks issued but not yet
presented to the bank are not considered reductions of cash or accounts payable. Included in accounts
payable are $95,185,000 and $60,000,000 at January 31, 1999 and 1998 respectively, for which checks
are outstanding.
Statement of cash flows
Short-term investments which have an original maturity of ninety days or less are considered cash
equivalents in the statement of cash flows. The effect of changes in foreign exchange rates on cash
balances is not material. See Note 2 of Notes to Consolidated Financial Statements regarding the non-
cash exchange of common stock and convertible notes in connection with business combinations.
27
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fiscal year
The Company and its North American subsidiaries operate on a fiscal year that ends on January
31. The Company consolidates its European and Latin American subsidiaries on a fiscal year that ends
on December 31. The difference in year-end dates is primarily attributable to regulatory requirements
imposed on the Company’s foreign subsidiaries as well as timing of information requirements.
Recent accounting pronouncements
In March 1998, the Accounting Standards Executive Committee issued Statement of position
(“SOP”) 98-1 “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”
effective for fiscal years beginning after December 15, 1998. The Company has elected early
implementation of provisions of SOP 98-1 effective for the year ended January 31, 1999. This statement
requires capitalization of certain costs relating to computer software developed or obtained for internal
use. The impact of adoption was not material to the Company’s consolidated financial statements.
In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS 133”). This statement requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of a hedge transaction
and, if so, the type of the hedge transaction. The ineffective portion of all hedge transactions will be
recognized in the current-period earnings. SFAS 133 is effective for fiscal years beginning after June 15,
1999. The future impact of this statement on the Company’s results of operations is not expected to be
material.
NOTE 2 – ACQUISITION AND DISPOSITION OF SUBSIDIARIES:
Acquisition of Macrotron AG
On July 1, 1997, the Company acquired approximately 77% of the voting common stock and 7%
of the non-voting preferred stock of Macrotron AG (“Macrotron”), a distributor of personal computer
products based in Munich, Germany. The initial acquisition was completed through an exchange of
approximately $26 million in cash and 406,586 shares of the Company’s common stock, for a combined
total value of $35 million. The cash portion of the initial acquisition, the related tender offer and
subsequent purchase of Macrotron’s common and preferred stock were funded from the Company’s
revolving credit loan agreements. Prior to the disposition discussed below, the Company owned
approximately 99% and 91% of Macrotron’s common and preferred stock, respectively for a total
purchase price of $80,000,000.
The acquisition of Macrotron was accounted for under the purchase method. The purchase price
allocation resulted in approximately $53,500,000 in excess cost over the net fair market value of tangible
assets acquired as of January 31, 1998 and was being amortized over a period of 20 years. Consistent
with the Company’s accounting policy for foreign subsidiaries, Macrotron’s operations were consolidated
into the Company’s consolidated financial statements on a calendar year basis. Consequently, the
Company’s fiscal year ending January 31, 1998 includes Macrotron’s operations for the six month period
beginning July 1, 1997 and ending December 31, 1997.
Disposition of Macrotron AG
Effective July 1, 1998, pursuant to a Share Purchase Agreement dated June 10, 1998, the
Company completed the sale of its majority interest in Munich-based subsidiary Macrotron AG
("Macrotron") to Ingram Micro, Inc. ("Ingram"). Tech Data owned 99% and 91% of Macrotron's outstanding
common and preferred stock, respectively, at the time of the sale. The sale of Macrotron was completed
through the receipt of approximately $228,000,000 from Ingram (approximately $100,000,000 for the
Company’s shares of Macrotron and the balance of $128,000,000 for the repayment of Macrotron’s
intercompany indebtedness). The Company recorded a $15,700,000 gain on the sale, of which
$3,200,000 was recorded in the fourth quarter due to resolution of certain contingencies.
28
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Acquisition of Computer 2000 AG
On July 1, 1998, Tech Data completed the acquisition of approximately 83% of the voting
common stock of Computer 2000, a European distributor of technology products. The Company acquired
80% of the outstanding voting stock of Computer 2000 from its parent company, Klöckner & Co. AG., a
subsidiary of Munich-based conglomerate VIAG AG, and an additional stake of approximately 3% of
Computer 2000’s shares from an institutional investor. The initial acquisition was completed through an
exchange of approximately 2.2 million shares of Tech Data common stock and $300,000,000 of 5%
convertible subordinated notes, due 2003 (coupon rate of 5.0%, five year term and convertible into shares
of common stock at $56.25 per share). The purchase agreement is subject to certain contingent payments
based upon future events. Any payments made by the Company relating to this contingency will increase
the purchase price and will result in additional goodwill. The Company commenced a tender offer for the
remaining C2000 shares and, as a result of this tender offer, open market purchases and private purchase
transactions, the Company currently owns approximately 99.3% of Computer 2000’s outstanding stock at
January 31, 1999. The tender offer, open market purchases and private purchase transactions were
funded through the Company’s revolving credit loan agreements.
The acquisition of Computer 2000 was accounted for under the purchase method. The purchase
price of approximately $500,000,000 was allocated to the assets acquired and liabilities assumed based
upon their estimated fair values at the date of acquisition. The excess of the purchase price over the fair
value of net assets acquired of approximately $319,000,000 ($343,000,000 at year end exchange rates) is
being amortized on a straight-line basis over 40 years. The final allocation of the purchase price has not
been finalized due to various contingent liabilities identified by the Company including costs of
restructuring. To the extent these liabilities are not fully incurred, the purchase price and related goodwill
will be reduced accordingly.
The Company’s subsidiaries outside of North America are included in its consolidated financial
statements on a calendar basis. As such, the year ended January 31, 1999 includes six months results for
Computer 2000 (which was acquired effective July 1, 1998) and includes six months of operating results
for Macrotron (which was sold effective July 1, 1998).
Pro forma information
The following unaudited pro forma results of operations reflect the effect on the Company’s
operations as if the above described acquisition of Macrotron had occurred at the beginning of each of
the periods presented below (in thousands, except per share amounts):
Net sales
Net income
Net income per common share:
Basic
Diluted
Year ended January 31,
1997
1998
$7,623,852
90,161
$5,571,406
60,716
2.01
1.93
1.47
1.43
The following unaudited pro forma results of operations reflect the effect on the Company’s
operations as if the above described acquisition of Computer 2000 and disposition of Macrotron had
occurred at the beginning of each of the periods presented below:
29
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Net sales
Net income
Net income per common share:
Basic
Diluted
Year ended January 31,
1999
1998
$13,694,426
125,954
$11,350,432
95,669
2.48
2.34
2.04
1.94
The unaudited pro forma information is presented for informational purposes only and is not
necessarily indicative of the operating results that would have occurred had the acquisitions and
dispositions noted above been consummated as of the beginning of the respective periods, nor are they
necessarily indicative of future operating results.
Non-cash transactions
The Company issued 406,586 shares of common stock in conjunction with the purchase of
Macrotron in July 1997. Additionally, the Company issued $300,000,000 convertible subordinated notes
and approximately 2,200,000 shares of common stock in conjunction with its acquisition of Computer
2000 in July 1998.
NOTE 3 - PROPERTY AND EQUIPMENT:
January 31,
1999
1998
(In thousands)
$ 4,897
36,995
156,414
4,299
202,605
(76,068)
$126,537
$ 7,805
36,543
112,821
12,359
169,528
(68,966)
$100,562
January 31,
1999
1998
(In thousands)
$355,000
$237,420
295,539
300,568
167,331
$817,870
2,189
$540,177
Land
Buildings and improvements
Furniture, fixtures and equipment
Construction in progress
Less-accumulated depreciation
NOTE 4 - REVOLVING CREDIT LOANS:
Receivables Securitization Program, average
interest rate of 5.41% at January 31, 1999,
expiring February 28, 2000
Multicurrency Revolving Credit Facility, average
interest rate of 4.14% at January 31, 1999,
expiring August 28, 2000
Other revolving credit facilities, various interest
rates, expiring on various dates through 1999
30
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company has an agreement (the “Receivables Securitization Program”) with three financial
institutions that allows the Company to transfer an undivided interest in a designated pool of U.S.
accounts receivable on an ongoing basis to provide borrowings up to a maximum of $500,000,000. As
collections reduce accounts receivable balances included in the pool, the Company may transfer
interests in new receivables to bring the amount available to be borrowed up to the maximum. The
Company pays interest on advances under the Receivables Securitization Program at a designated
commercial paper rate, plus an agreed-upon margin.
Under the terms of the Company's Multicurrency Revolving Credit Facility with a syndicate of
banks, the Company is able to borrow funds in sixteen major foreign currencies up to a maximum of
$550,000,000 on an unsecured basis. The Company pays interest on advances under this facility at the
applicable eurocurrency rate plus a margin based on certain financial ratios. The Company can fix the
interest rate for periods of 30 to 180 days under various interest rate options.
In addition to the facilities described above, the Company has additional lines of credit and
overdraft facilities to support its worldwide operations. Most of these facilities are provided on an
unsecured, short-term basis and are reviewed periodically for renewal. Under the covenants of the
Company’s Multicurrency Revolving Credit Facility, indebtedness outstanding under these facilities may
not exceed $300,000,000.
The Company’s credit agreements contain warranties and covenants that must be complied with
on a continuing basis, including the maintenance of certain financial ratios and restrictions on payment of
dividends. At January 31, 1999, the Company was in compliance with all such covenants.
NOTE 5 - LONG-TERM DEBT:
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 6.90%, principal and interest payable
quarterly, through 2000
Convertible subordinated debentures, interest at 5.00% payable
semi-annually, due 2003
Less - current maturities
January 31,
1999
1998
(In thousands)
$ 8,661
$8,788
22
300,000
308,683
108
_
8,896
(162)
(213 )
$308,521
$8,683
Principal maturities of long-term debt at January 31, 1999 for the succeeding five fiscal years are
as follows: 2000 - $162,000; 2001 - $155,000; 2002 - $172,000; 2003 - $191,000; 2004 - $300,211,000.
On July 1, 1998, the Company issued $300,000,000 convertible subordinated notes due July 1,
2003. The notes bear interest at 5% per year and are convertible any time prior to maturity, unless
previously redeemed or repurchased, into shares of common stock at a conversion rate of 17.777 shares
per $1,000 principal amount of notes, equivalent to a conversion price of approximately $56.25 per
share. The notes are convertible into approximately 5,300,000 shares of the Company’s common stock.
The notes are redeemable in whole or in part, at the option of the Company at any time on or after July
1, 2001. These notes are subordinated in right of payment to all senior indebtedness of the Company
and will be effectively subordinated to all indebtedness and other liabilities of the Company’s
subsidiaries.
Mortgage notes payable are guaranteed by property and equipment with an original cost of
approximately $12,000,000. The Industrial Revenue Bond contains covenants which require the
Company to maintain certain financial ratios with which the Company was in compliance at January 31,
1999.
31
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 - INCOME TAXES (in thousands):
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company’s deferred tax liabilities and assets are as follows:
Deferred tax liabilities:
Accelerated depreciation and amortization
Capitalized advertising program costs
Other – net
Total gross deferred tax liabilities
Deferred tax assets:
Accruals not currently deductible
Reserves not currently deductible
Capitalized inventory costs
Foreign loss carryforwards
Other – net
Total gross deferred tax assets
Less: valuation allowance
Total net deferred tax assets
Net deferred tax asset (included in prepaid and other assets)
Significant components of the provision for income taxes are as follows:
January 31,
1999
$ 19,821
2,174
6,242
28,237
7,880
22,777
2,046
59,996
8,934
101,633
(16,037)
85,596
$ 57,359
1998
$10,519
1,630
4,937
17,086
5,412
21,290
1,959
-
371
29,032
-
29,032
$11,946
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Year ended January 31,
1998
$39,805
2,469
6,822
49,096
1999
$50,153
6,816
18,746
75,715
1997
$32,485
5,897
3,185
41,567
(3,093)
(424)
4,017
500
$76,215
3,328
507
(115)
3,720
$52,816
(3,490)
(451)
(1,110)
(5,051)
$36,516
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
32
1997
Year ended January 31,
1998
35.0%
1.4
.6
37.0%
1999
35.0%
1.5
.5
37.0%
35.0%
3.8
.3
39.1%
Year ended January 31,
1999
$140,850
65,193
$206,043
1998
$126,757
15,973
$142,730
1997
$88,536
4,953
$93,489
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company’s foreign subsidiaries had deferred tax assets relating to net operating loss
carryforwards of $145 million. The majority of the net operating losses have an indefinite carryforward
period with the remaining portion expiring in years 1999 through 2009. A valuation allowance of $16
million has been recognized to offset the deferred tax assets relating to the net operating loss
carryforwards.
The cumulative amount of undistributed earnings of international subsidiaries for which U.S.
income taxes have not been provided was approximately $59 million at January 31, 1999. It is not
practical to estimate the amount of unrecognized deferred U.S. taxes on these undistributed earnings.
NOTE 7 - EMPLOYEE BENEFIT PLANS:
Stock compensation plans
At January 31, 1999, the Company had three stock-based compensation plans, as well as an
employee stock purchase plan, an employee stock ownership plan and a retirement savings plan, which
are described below. The Company applies APB Opinion 25 and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans and its
stock purchase plan.
Fixed stock option plans
In August 1985, the Board of Directors adopted the 1985 Incentive Stock Option Plan (the “1985
Plan”), which covers an aggregate of 1,050,000 shares of common stock. The options were granted to
certain officers and key employees at or above fair market value; accordingly, no compensation expense
has been recorded with respect to these options. Options are exercisable beginning two years from the
date of grant only if the grantee is an employee of the Company at that time. No options may be granted
under the 1985 Plan after July 31, 1995.
In June 1990, the shareholders approved the 1990 Incentive and Non-Statutory Stock Option
Plan (the “1990 Plan”) which covers an aggregate of 10,000,000 shares (as amended in June 1997) of
common stock. The 1990 Plan provides for the granting of incentive and non-statutory stock options,
stock appreciation rights (“SARs”) and limited stock appreciation rights (“Limited SARs”) at prices
determined by the stock option committee, except for incentive stock options which are granted at the
fair market value of the stock on the date of grant. Incentive options granted under the 1990 Plan
become exercisable over a five year period while the date of exercise of non-statutory options is
determined by the stock option committee. As of January 31, 1999, no SARs or Limited SARs had been
granted under the 1990 Plan. Options granted under the 1985 Plan and the 1990 Plan expire 10 years
from the date of grant, unless a shorter period is specified by the stock option committee.
In June 1995, the shareholders approved the 1995 Non-Employee Director’s Non-Statutory Stock
Option Plan. Under this plan, the Company grants non-employee members of its Board of Directors
stock options upon their initial appointment to the board and then annually each year thereafter. Stock
options, granted at the fair market value of the stock on the date of grant, are awarded to members upon
their initial appointment and vest and become exercisable at a rate of 20% per year. Annual awards vest
and become exercisable one year from the date of grant. The number of shares subject to options under
this plan cannot exceed 100,000 and the options expire 10 years from the date of grant.
33
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of the status of the Company’s stock option plans is as follows:
January 31,
1999
January 31,
1998
January 31,
1997
Weighted
Average
Exercise
Price
Shares
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Shares
3,881,545
$19.43
3,285,818
$14.31
3,081,110
$13.31
1,661,400
(609,620)
(569,250)
4,364,075
40.27
14.24
28.68
26.88
1,643,400
(720,573)
(327,100)
3,881,545
26.65
13.23
17.57
19.43
1,112,000
(675,492)
(231,800)
3,285,818
16.27
13.11
13.72
14.31
768,425
601,895
576,862
3,496,000
4,588,000
905,000
Outstanding at beginning
of year
Granted
Exercised
Canceled
Outstanding at year end
Options exercisable at
year end
Available for grant at year
end
Options Outstanding
Options Exercisable
Weighted-
Average
Remaining
Contractual Life
(years)
2.00
6.40
7.31
8.12
9.01
Weighted-
Average
Exercise
Price
$ 2.43
13.08
23.49
39.80
45.93
Number
Exercisable
at 1/31/99
16,000
554,225
189,200
9,000
-
768,425
Weighted-
Average
Exercise
Price
$ 2.43
12.58
20.51
31.78
-
Range of
Exercise Prices
$ 1.56 – 5.04
10.62 – 15.13
19.00 – 27.38
29.50 – 43.75
44.50 – 50.38
Number
Outstanding
at 1/31/99
16,000
1,297,725
1,348,300
1,558,050
144,000
4,364,075
Employee stock purchase plan
Under the 1995 Employee Stock Purchase Plan approved in June 1995, the Company is
authorized to issue up to 1,000,000 shares of common stock to eligible employees in the Company’s
U.S. and Canadian subsidiaries. Under the terms of the plan, employees can choose to have a fixed
dollar amount or percentage deducted from their bi-weekly compensation to purchase the Company’s
common stock and/or elect to purchase shares once per calendar quarter. The purchase price of the
stock is 85% of the market value on the exercise date and employees are limited to a maximum
purchase of $25,000 fair market value each calendar year. Since plan inception, the Company has sold
182,449 shares as of January 31, 1999. All shares purchased under this plan must be retained for a
period of one year.
34
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pro forma effect of stock compensation plans
Had the compensation cost for the Company’s stock option plans and employee stock purchase
plan been determined based on the fair value at the grant dates for awards under the plans consistent
with the method prescribed by Statement of Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation”, the Company’s net income and net income per common share on a pro
forma basis would have been (in thousands, except per share data):
Net income
Net income per common share:
Basic
Diluted
Year ended January 31,
1998
1999
$120,548
$85,344
2.42
2.32
1.91
1.83
1997
$55,059
1.35
1.31
The preceding pro forma results were calculated with the use of the Black-Scholes option-pricing
model. The following assumptions were used for the years ended January 31, 1999, 1998 and 1997,
respectively: (1) risk-free interest rates of 5.68%, 6.76% and 6.08%; (2) dividend yield of 0.0%; (3)
expected lives of 5.00, 4.87 and 5.08 years; and (4) volatility of 65%, 56% and 56%. Results may vary
depending on the assumptions applied within the model.
Stock ownership and retirement savings plans
In 1984 the Company established an employee stock ownership plan (the “ESOP”) covering
substantially all U.S. employees. The ESOP provides for distribution of vested percentages of the
Company's common stock to participants. Such benefit becomes fully vested after seven years of
qualified service. At January 31, 1999 and 1998, 813,000 and 780,000 shares, respectively, were held
by the ESOP. The Company also offers its U.S. employees a retirement savings plan pursuant to
section 401(k) of the Internal Revenue Code which provides for the Company to match 50% of the first
$1,000 of each participant's deferrals annually. Contributions to these plans are made in amounts
approved annually by the Board of Directors. Aggregate contributions made by the Company to these
plans were $1,992,000, $2,460,000 and $2,090,000 for 1999, 1998 and 1997, respectively.
NOTE 8 - CAPITAL STOCK:
Each outstanding share of preferred stock is entitled to one vote on all matters submitted to a
vote of shareholders, except for matters involving mergers, the sale of all Company assets, amendments
to the Company's charter and exchanges of Company stock for stock of another company which require
approval by a majority of each class of capital stock. In such matters, the preferred and common
shareholders will each vote as a separate class.
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
Operating leases
The Company leases distribution facilities and certain equipment under noncancelable operating
leases which expire at various dates through 2005. Future minimum lease payments under all such
leases for the succeeding five fiscal years are as follows: 2000 - $32,514,000; 2001 - $28,857,000; 2002
- $17,416,000; 2003 - $13,019,000; 2004 - $13,617,000; and $106,000 thereafter. Rental expense for all
operating leases amounted to $27,015,000, $15,704,000 and $10,160,000 in 1999, 1998 and 1997,
respectively.
35
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 10 - SEGMENT INFORMATION:
Effective for the period ended January 31, 1999, the Company has adopted the disclosure
requirements of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”
which establishes standards for additional disclosure about operating segments for interim and annual
financial statements. This standard requires financial and descriptive information be disclosed for
segments whose operating results are reviewed by the chief operating officer for decisions on resource
allocation. It also establishes standards for related disclosures about products and services, geographic
areas, and major customers.
The Company operates predominantly in a single industry segment as a wholesale distributor of
computer-based technology products and services. Based on geographic location, the Company has
three principal segments. These geographical segments are 1) the United States, 2) Europe (including
the Middle East) and 3) Other International areas (Canada, Brazil, Argentina, Chile, Peru, Uruguay, and
export sales to Latin America and the Caribbean from the U.S.). The measure of segment profit is
income from operations. The accounting policies of the segments are the same as those described in
Note 1-Summary of Significant Accounting Policies.
Financial information by geographic segments is as follows (in thousands):
United States
Europe
Other
International
Total
Fiscal year 1999
Net sales to unaffiliated customers
$6,359,124
$4,540,108
$ 629,767
$11,528,999
Operating income
Identifiable assets
$ 156,142
$ 76,638
$ 2,551
$ 235,331
$1,555,325
$2,112,546
$ 177,116
$ 3,844,987
Fiscal year 1998
Net sales to unaffiliated customers
Operating income
Identifiable assets
Fiscal year 1997
Net sales to unaffiliated customers
Operating income
Identifiable assets
$5,434,833
$1,148,036
$ 473,750
$ 7,056,619
$ 148,485
$ 20,122
$ 4,031
$ 172,638
$1,558,337
$ 534,192
$ 92,854
$ 2,185,383
$3,907,516
$ 403,030
$ 288,395
$ 4,598,941
$ 102,024
$ 8,120
$ 4,867
$ 115,011
$1,326,531
$ 151,012
$ 67,751
$ 1,545,294
NOTE 11 - UNAUDITED INTERIM FINANCIAL INFORMATION:
Fiscal year 1999
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)
$2,184,366
139,767
23,105
$2,213,261
144,748
35,279
$3,278,401
213,095
34,088
$3,852,971
230,263
36,480
.48
.46
.73
.70
.67
.63
.71
.67
36
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fiscal year 1998
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
37
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
None.
ITEMS 10, 11, 12 and 13.
The information required by Item 10 relating to executive officers of the registrant is included
under the caption "Executive Officers" of Item 1 of this Form 10-K. The information required by Item 10
relating to Directors of the registrant and the information required by Items 11, 12 and 13 is incorporated
herein by reference to the registrant's definitive proxy statement for the 1998 Annual Meeting of
Shareholders. However, the information included in such definitive proxy statement under the
subcaption entitled “Grant Date Present Value” in the table entitled “Option Grants in Last Fiscal Year”,
the information included under the caption entitled “Compensation Committee Report on Executive
Compensation”, and the information included in the “Stock Price Performance Graph” shall not be
deemed incorporated by reference in this Form 10-K and shall not otherwise be deemed filed under the
Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended. The
definitive proxy statement for the 1999 Annual Meeting of Shareholders will be filed with the Commission
prior to May 31, 1999.
ITEM 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) See index to financial statements and schedules included in Item 8.
(b) The Company filed the following reports on Form 8-K during the fiscal year ended January
31, 1998:
Current Report on Form 8-K dated July 1, 1998
Current Report on Form 8-K dated July 28, 1998
(c) The exhibit numbers on the following list correspond to the numbers in the exhibit table
required pursuant to Item 601 of Regulation S-K.
3-A(1)
-- Articles of Incorporation of the Company as amended to April 23, 1986.
3-B(2)
-- Articles of Amendment to Articles of Incorporation of the Company filed on
August 27, 1987.
3-C(13)
-- By-Laws of the Company as amended to November 28, 1995.
3-F(9)
-- Articles of Amendment to Articles of Incorporation of the Company filed on
July 15, 1993.
4-E(15)
-- Articles of Amendment to Articles of Incorporation of the Company filed on June 25, 1997.
10-F(4)
-- Incentive Stock Option Plan, as amended, and form of option agreement.
10-G(10)
-- Employee Stock Ownership Plan as amended December 16, 1994.
10-V(5)
-- Employment Agreement between the Company and Edward C. Raymund dated as
of January 31, 1991.
10-W(5)
-- Irrevocable Proxy and Escrow Agreement dated April 5, 1991.
10-X(6)
-- First Amendment to the Employment Agreement between the Company and
Edward C. Raymund dated November 13, 1992.
10-Y(6)
-- First Amendment in the nature of a Complete Substitution to the Irrevocable Proxy
and Escrow Agreement dated November 13, 1992.
10-Z(7)
-- 1990 Incentive and Non-Statutory Stock Option Plan as amended.
10-AA(7)
-- Non-Statutory Stock Option Grant Form.
10-BB(7)
-- Incentive Stock Option Grant Form.
10-CC(8)
-- Employment Agreement between the Company and Steven A. Raymund dated
February 1, 1992.
38
10-EE(10)
-- Retirement Savings Plan as amended January 26, 1994.
10-FF(9)
-- Revolving Credit and Reimbursement Agreement dated December 22, 1993.
10-GG(9)
-- Transfer and Administration Agreement dated December 22, 1993.
10-HH(10)
-- Amendments (Nos. 1-4) to the Transfer and Administration Agreement.
10-II(10)
-- Amended and Restated Revolving Credit and Reimbursement Agreement dated
July 28, 1994, as amended.
10-JJ(10)
-- Revolving Foreign Currency Agreement dated August 4, 1994, as amended.
10-KK(13)
-- Amendments (Nos. 5,6) to the Transfer and Administration Agreement
10-LL(13)
-- Amendments (Nos. 3-5) to the Amended and Restated Revolving Credit and
Reimbursement Agreement dated July 28, 1994, as amended.
10-MM(13) -- Amendments (Nos. 3-5) to the Revolving Foreign Currency Agreement dated
August 4, 1994, as amended.
10-NN(12)
-- Non-Employee Directors’ 1995 Non-Statutory Stock Option Plan.
10-OO(12) -- 1995 Employee Stock Purchase Plan.
10-PP(12)
-- Employment Agreement between the Company and A. Timothy Godwin dated as
of December 5, 1995.
10-QQ(14) -- Amended and Restated Transfer and Administration Agreement dated January 21,
1997.
10-RR(14)
-- Amendment Number 1 to the Amended and Restated Transfer and Administration
Agreement dated January 21, 1997, as amended.
10-SS(14)
-- Revolving Credit and Reimbursement Agreement dated May 23, 1996.
10-TT(15)
-- Amendment Number 2 to the Amended and Restated Transfer and Administration
Agreement dated January 21, 1997, as amended.
10-UU(15)
-- Revolving Credit and Reimbursement Agreement dated August 28, 1997.
10-VV(16)
-- Amendment Number 3 to the Amended and Restated Transfer and Administration
Agreement dated January 21, 1997, as amended.
10-WW (17)
-- Amendments (Nos. 1-2) to the Revolving Credit and Reimbursement Agreement
dated August 28, 1997, as amended.
10-XX (17) -- Amendments (Nos. 4-6) to the Amended and Restated Transfer and
Administration Agreement dated January 21, 1997, as amended.
21(17)
-- Subsidiaries of Registrant.
27(3)
-- Financial Data Schedule (included in the electronic version only.)
99-A(3)
-- Cautionary Statement For Purposes of the “Safe Harbor” Provisions of the Private
Securities Litigation Reform Act of 1995.
_____________
(1)
(3) Filed herewith.
(4)
(2)
(5)
(6)
(7)
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.
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.
39
(8)
Incorporated by reference to the Exhibits included in the Company’s Form 10-K for the year ended
January 31, 1993, File No. 0-14625.
(9)
Incorporated by reference to the Exhibits included in the Company’s Form 10-K for the year ended
January 31, 1994, File No. 0-14625.
(10) Incorporated by reference to the Exhibits included in the Company’s Form 10-K for the year ended
January 31, 1995, File No. 0-14625.
(11) Incorporated by reference to the Exhibits included in the Company’s Form 8-K filed on March 26,
1996, File No. 0-14625.
(12) Incorporated by reference to the Exhibits included in the Company’s Definitive Proxy Statement for
the 1995 Annual Meeting of Shareholders, File No. 0-14625.
(13) Incorporated by reference to the Exhibits included in the Company’s Form 10-K for the year ended
January 31, 1996, File No. 0-14625.
(14) Incorporated by reference to the Exhibits included in the Company’s Form 10-K for the year ended
January 31, 1997, File No. 0-14625.
(15) Incorporated by reference to the Exhibits included in the Company’s Registration Statement on
Form
S-3, File No. 333-36999.
(16) Incorported by reference to the Exhibits included in the Company’s Form 10-K for the year ended
January 31, 1998, File No. 0-14625.
(17) To be filed by amendment.
40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of Tech Data Corporation
Our audits of the consolidated financial statements referred to in our report dated March 19,
1999 appearing on page 20 of this Form 10-K of Tech Data Corporation also included an audit of the
Financial Statement Schedule listed in Item 14 of this Form 10-K. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Tampa, Florida
March 19, 1999
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-
8s (Nos. 33-21879, 33-41074, 33-62181 and 33-60479) of Tech Data Corporation of our report dated
March 19, 1999 appearing on page 20 of this Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule appearing above.
PricewaterhouseCoopers LLP
Tampa, Florida
May 3, 1999
41
SCHEDULE II
TECH DATA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Description
Allowance for doubtful accounts
receivable and sales returns:
January 31,
1999
1998
1997
__________
Additions
Balance at Charged to
beginning
of period
cost and
expenses
Deductions Other(1)
Balance
at end of
period
$29,731
23,922
22,669
$34,810
22,634
19,648
$(31,707)
(26,153)
(22,685)
$27,687
9,328
4,290
$60,521
29,731
23,922
(1) Other includes recoveries, acquisitions, dispositions and the effect of fluctuations in foreign currency.
42
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 3rd day of May, 1999.
SIGNATURES
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/ ANTHONY A. IBARGÜEN President and Chief Operating
Anthony A. Ibargüen
Officer; Director
/s/ JEFFERY P. HOWELLS
Jeffery P. Howells
Executive Vice President and
Chief Financial Officer; Director
(principal financial officer)
Date
May 3, 1999
May 3, 1999
May 3, 1999
/s/ JOSEPH B. TREPANI
Joseph B. Trepani
Senior Vice President and Corporate
Controller (principal accounting officer)
May 3, 1999
/s/ ARTHUR W. SINGLETON
Arthur W. Singleton
/s/ CHARLES E. ADAIR
Charles E. Adair
/s/ MAXIMILIAN ARDELT
Maximilian Ardelt
/s/ DANIEL M. DOYLE
Daniel M. Doyle
Vice President, Treasurer and Secretary
May 3, 1999
Director May 3, 1999
Director May 3, 1999
Director May 3, 1999
/s/ DONALD F. DUNN Director May 3, 1999
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; Chairman Emeritus May 3, 1999
Director May 3, 1999
Director May 3, 1999
43
EXHIBIT 99A
CAUTIONARY STATEMENTS FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for
"forward-looking statements" to encourage companies to provide prospective information, so long as
such information is identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to differ materially from those
discussed in the forward-looking statement(s). Tech Data Corporation (the "Company" or “Tech Data”)
desires to take advantage of the safe harbor provisions of the Act.
Except for historical information, the Company's Annual Report on Form 10-K for the year ended
January 31, 1999 to which this exhibit is appended, the Company's quarterly reports on Form 10-Q, the
Company's current reports on Form 8-K, periodic press releases, as well as other public documents and
statements, may contain forward-looking statements within the meaning of the Act.
In addition, representatives of the Company, from time to time, participate in speeches and calls
with market analysts, conferences with investors and potential investors in the Company's securities, and
other meetings and conferences. Some of the information presented in such speeches, calls, meetings
and conferences may be forward-looking within the meaning of the Act.
It is not reasonably possible to itemize all of the many factors and specific events that could
affect the Company and/or the microcomputer products distribution industry as a whole. In some cases,
information regarding certain important factors that could cause actual results to differ materially from
those projected, forecasted, estimated, budgeted or otherwise expressed in forward-looking statements
made by or on behalf of the Company may appear or be otherwise conveyed together with such
statements. The following additional factors (in addition to other possible factors not listed) could affect
the Company's actual results and cause such results to differ materially from those projected, forecasted,
estimated, budgeted or otherwise expressed in forward-looking statements made by or on behalf of the
Company:
Competition
The Company operates in a highly competitive environment, both in the United States and
internationally. The computer wholesale distribution industry is characterized by intense competition,
based primarily on product availability, credit availability, price, speed of delivery, ability to tailor specific
solutions to customer needs, quality and depth of product lines and pre-sale and post-sale training,
service and support. The Company competes with a variety of regional, national and international
wholesale distributors, some of which have greater financial resources than the Company. In addition,
the Company faces competition from direct sales by vendors which may be able to offer resellers lower
prices than the Company.
Narrow Profit Margins
As a result of intense price competition in the industry, the Company has narrow gross profit and
operating profit margins. These narrow margins magnify the impact on operating results of variations in
sales and operating costs. The Company has partially offset the effects of its low gross profit margins by
increasing sales and reducing operating expenses as a percentage of sales; however, there can be no
assurance that the Company will maintain or increase sales or further reduce operating expenses as a
percentage of sales in the future. Future gross profit margins may be adversely affected by changes in
product mix, vendor pricing actions and competitive and economic pressures.
Risk Of Declines In Inventory Value
The Company is subject to the risk that the value of its inventory will decline as a result of price
reductions by vendors or technological obsolescence. It is the policy of most vendors of microcomputer
products to protect distributors, such as the Company, which purchase directly from such vendors, from
the loss in value of inventory due to technological change or the vendors' price reductions.
44
Some vendors, however, may be unwilling or unable to pay the Company for products returned to them
under purchase agreements. Moreover, industry practices are sometimes not embodied in written
agreements and do not protect the Company in all cases from declines in inventory value. No assurance
can be given that such practices will continue, that unforeseen new product developments will not
adversely affect the Company, or that the Company will be able to successfully manage its existing and
future inventories.
Some major systems vendors are developing programs which will allow the Company to
assemble systems from components provided by the vendors. While the Company has developed the
ability to configure computer products, the process of assembling large volumes of systems from
components will require new business practices by the Company. It is also uncertain how the vendors will
apply policies related to price protection, stock rotation and other protections against the decline in
inventory value to components.
Dependence On Information Systems
The Company is highly dependent upon its internal computer and telecommunication systems to
operate its business. There can be no assurance that the Company's information systems will not fail,
that the Company will be able to attract and retain qualified personnel necessary for the operation of
such systems, that the Company will be able to expand and improve its information systems, or that the
information systems of acquired companies will be sufficient to meet the Company's standards or can be
successfully converted into an acceptable information system on a timely and cost-effective basis. Any
of such problems could have an adverse effect on the Company's business.
The Company is currently addressing Year 2000 system requirements and anticipates that Year
2000 modifications will be made on a timely basis and does not believe that the cost of the modifications
will have a material effect on the Company’s operating results. There can be no assurance, however,
that the Company will be able to modify successfully and in a timely manner all of its internal services
and systems to comply with Year 2000 requirements, which could have a material adverse effect on the
Company’s operating results. In addition, the Company faces risks to the extent that suppliers of
products, services and business on a worldwide basis may not obtain proper compliance with Year 2000
requirements.
Customer Credit Exposure
The Company sells its products to a large customer base of value-added resellers, corporate
resellers, retailers and direct marketers. A significant portion of such sales is financed by the Company.
As a result, the Company's business could be adversely affected in the event of the deterioration of the
financial condition of its customers, resulting in the customers' inability to repay the Company. This risk
would be increased in the event of a general economic downturn affecting a large number of the
Company's customers.
Management Of Expansion
in personnel and has significantly
The rapid expansion of the Company's business has required the Company to make significant
recent additions
the Company's working capital
requirements. Although the Company has experienced rapid expansion in recent years, such expansion
should not be considered indicative of future expansion. Such expansion has resulted in new and
increased responsibilities for management personnel and has placed and continues to place a strain
upon the Company's management, operating and financial systems and other resources. There can be
no assurance that the strain placed upon the Company's management, operating and financial systems
and other resources will not have an adverse effect on the Company's business, nor can there be any
assurance that the Company will be able to attract or retain sufficient personnel to continue the
expansion of its operations.
increased
45
Liquidity And Capital Resources
The Company's business requires substantial capital to finance accounts receivable and product
inventory that are not financed by trade creditors. The Company has historically relied upon cash
generated from operations, bank credit lines, trade credit from its vendors and proceeds from public
offerings of its Common Stock to satisfy its capital needs and finance growth. In order to continue its
expansion, the Company will need additional financing, including debt financing. The inability to obtain
such sources of capital could have an adverse effect on the Company's business.
Acquisitions
As part of its growth strategy, the Company pursues the acquisition of companies that either
complement or expand its existing business. As a result, the Company regularly evaluates potential
acquisition opportunities, which may be material in size and scope. Acquisitions involve a number of
risks and uncertainties, including expansion into new geographic markets and business areas, the
requirement to understand local business practices, the diversion of management's attention to the
assimilation of the operations and personnel of the acquired companies, the possible requirement to
upgrade the acquired companies' management information systems to the Company's standards,
potential adverse short-term effects on the Company's operating results and the amortization of any
acquired intangible assets.
Foreign Currency Exchange Risks; Exposure To Foreign Markets
The Company conducts business in countries outside of the United States which exposes the
Company to fluctuations in foreign currency exchange rates. The Company may enter into short-term
forward exchange or option contracts to hedge this risk according to its outlook on future exchange rates;
nevertheless, fluctuations in foreign currency exchange rates could have an adverse effect on the
Company's business.
The Company's international operations are subject to other risks such as the imposition of
governmental controls, currency devaluations, export license requirements, restrictions on the export of
certain technology, political instability, trade restrictions, tariff changes, difficulties in staffing and
managing international operations, difficulties in collecting accounts receivable and longer collection
periods and the impact of local economic conditions and practices. As the Company continues to expand
its international business, its success will be dependent, in part, on its ability to anticipate and effectively
manage these and other risks. There can be no assurance that these and other factors will not have an
adverse effect on the Company's business.
Product Supply Shortages
The Company is dependent upon the supply of products available from its vendors. The industry
is characterized by periods of severe product shortages due to vendors' difficulty in projecting demand
for certain products distributed by the Company. When such product shortages occur, the Company
typically receives an allocation of product from the vendor. There can be no assurance that vendors will
be able to maintain an adequate supply of products to fulfill all of the Company's customer orders on a
timely basis. Failure to obtain adequate product supplies, if available to competitors, could have an
adverse effect on the Company's business.
Vendor Relations
The loss of certain key vendors could have an adverse effect on the Company's business. In
addition, the Company relies on various rebate and cooperative marketing programs offered by its
vendors to defray expenses associated with distributing and marketing the vendors' products.
Additionally, certain of the Company’s vendors subsidize floor plan financing arrangements. A reduction
by the Company's vendors in any of these programs could have an adverse effect on the Company's
business.
46
General Economic Conditions
From time to time the markets in which the Company sells its products experience weak
economic conditions that may negatively affect the Company's sales. Although the Company does not
consider its business to be highly seasonal, it has experienced seasonally higher sales and earnings in
the third and fourth quarters. To the extent that general economic conditions affect the demand for
products sold by the Company, such conditions could have an adverse effect on the Company's
business.
Exposure To Natural Disasters
The Company's headquarters facilities, certain of its distribution centers as well as certain
vendors and customers are located in areas prone to natural disasters such as floods, hurricanes,
tornadoes, earthquakes and other adverse weather conditions. The Company's business could be
adversely affected should its ability to distribute products be impacted by such an event.
Labor Strikes
The Company's labor force is currently non-union with the exception of employees of certain
European subsidiaries which are subject to collective bargaining or similar arrangements. Additionally,
the Company does business in certain foreign countries where labor disruption is more common than is
experienced in the United States. The majority of the freight carriers used by the Company are
unionized. A labor strike by a group of the Company’s employees, one of the Company's freight carriers,
one of its vendors, a general strike by civil service employees, or a governmental shutdown could have
an adverse effect on the Company's business.
Volatility Of Common Stock
Because of the foregoing factors, as well as other variables affecting the Company's operating
results, past financial performance should not be considered a reliable indicator of future performance,
and investors should not use historical trends to anticipate results or trends in future periods. In addition,
the Company's participation in a highly dynamic industry often results in significant volatility of the
Common Stock price.
47