TECH DATA CORPORATION
2006 ANNUAL REPORT
YEAR ENDED JANUARY 31, 2006
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NASDAQ:TECD
Who We Are
Founded in 1974, Tech Data Corporation (NASDAQ: TECD) is a leading
distributor of IT products, with more than 90,000 customers in over
100 countries. The company’s business model enables technology solution
providers, manufacturers and publishers to cost-effectively sell to and
support end users ranging from small-to-midsize businesses (SMB) to
large enterprises. Ranked 107th on the FORTUNE 500®, Tech Data
generated $20.5 billion in sales for its fiscal year ended January 31, 2006.
For more information, visit www.techdata.com.
Our Shared Values
Integrity and
Respect
The foundation of our
business is integrity.
All interactions with
customers, business
partners, suppliers,
shareholders and
team members must
be conducted with
integrity, ethics and
mutual respect.
Teamwork
We invest in our team
members and provide
a professional,
challenging and
rewarding environment
where we work together
as one cohesive team
to share ideas and
resources.
Partnership
Strategic business
relationships with
customers and business
partners produce mutual
benefits. We value those
relationships and invest
in their long-term
development.
Passion for
Winning
We aspire to be the best
at everything we do,
always striving to be
the first choice for our
customers and business
partners.
Ownership
We promote an
environment of personal
accountability that
delivers consistent
results against
commitments. We all
take responsibility for
each team decision.
2 0 0 6 A n n u a l R e p o r t
1
Our Mission
To be the IT distributor of choice for our customers and business partners,
thus enabling our shareholders to prosper.
FINANCIAL HIGHLIGHTS
For the years ended January 31, (In millions, except per-share data)
2006
2005
2004
Income Statement Data(1):
Operating income—GAAP
EMEA restructuring charges and consulting costs(2)
Closure of the U.S. education business
Operating income—Non-GAAP
Income from continuing operations—GAAP
EMEA restructuring charges and consulting costs(2), net of tax
Deferred tax assets valuation allowance
Reversal of previously accrued income taxes
Closure of the U.S. education business, net of tax
$ 163
$ 232
$ 169
41
—
—
—
3
$ 204 $ 232 $ 172
$
23
39
56
—
—
$ 160
$ 107
—
—
(12)
—
—
—
—
2
Income from continuing operations—Non-GAAP
$ 118 $ 148 $ 109
Income from continuing operations per diluted share
GAAP
Non-GAAP(3)
Weighted average diluted shares outstanding
Balance Sheet Data:
Working capital
Total assets
Total shareholders’ equity
$ 0.39
$ 2.69
$ 1.86
$ 2.02
$ 2.50
$ 1.90
58,414
59,193
57,501
$ 1,392
$ 1,489
$ 1,525
$ 4,405
$ 4,558
$ 4,168
$ 1,760
$ 1,927
$ 1,658
(1) Amounts exclude discontinued operations related to the EMEA training business.
(2) Amount includes consulting costs of $9.6 million (pre-tax) recorded in SG&A.
(3) The calculation of diluted EPS is based upon non-GAAP net income as reconciled above.
T e c h D a t a C o r p o r a t i o n
2
DEAR VALUED
SHAREHOLDER:
Tech Data Corporation generated record sales of $20.5 billion for
the fiscal year ended January 31, 2006. Our Americas team excelled,
increasing revenue by nearly 12 percent and operating income by
10 percent over the prior year. In EMEA (Europe, the Middle East and export sales
For the third
consecutive year,
technology solution
providers chose
Tech Data as the overall
“preferred source,”
according to the 2005
CRN Sourcing Study,
published by the leading
to Africa), we faced challenges and responded by initiating a significant restructuring
U.S. reseller channel
program to drive recovery and establish a solid foundation for our long-term future
trade publication.
in this region.
STRO N G AM ERICAS R ES U LTS Diligent pricing and margin
management, excellent service and strong customer engagement enabled
our Americas team to profitably grow our business during the year. We did well managing
the credit we extend to customers, minimizing bad debt expense and maximizing selling
potential. E-business advances, focused cost control and continuous improvement through-
out our Americas operations also contributed to our leading position in this region.
Our strong Americas growth during the fiscal year was supported by many product
categories, including wireless solutions, digital imaging, printers, notebooks, point-of-sale
systems, components, storage and security software. For the third consecutive year,
technology solution providers chose Tech Data as the overall “preferred source,”
according to the 2005 CRN Sourcing Study, published by the leading U.S. reseller channel
trade publication.
TH E RIGHT COU RSE IN EM EA We began the fiscal year in EMEA with
disappointing results, as first-quarter sales declined approximately 4 percent on a local-
currency basis compared to the prior-year period, and operating income dropped below our
expectations. While the weak demand in EMEA contributed to our operating income short-
fall, internal issues also caused distractions that hampered our team from running the daily
business at top speed: most notably, a major systems upgrade project—already well in
progress across the region—and further integrating operations from an acquired company.
We moved forward in the second quarter with a comprehensive restructuring program to
optimize our EMEA cost structure while strengthening purchasing, pricing and sales
management practices. Although cutting costs was a major goal of the program, given
2 0 0 6 A n n u a l R e p o r t
3
our market share decline, we clearly needed to address customer engagement programs
as well. In fact, on a shorter-term basis, we made shoring up our market position a top
priority to regain the confidence of our customers, business partners and employees.
After intensifying our focus on service levels and customer satisfaction, as well as market
share, we began to win back business and improve operating performance. Sales in local
currency rebounded from negative growth in the first and second quarters to approximately
3 percent in the seasonally strong fourth quarter—accelerating over 22 percent on a
sequential basis. Operating performance increased steadily as a percent of sales during the
third and fourth quarters, with our EMEA region generating nearly $50 million in operating
income for the fiscal year, excluding charges related to the restructuring program and
related consulting fees.
WHY TECH DATA We believe the earnings potential of Tech Data is much greater
than our overall results demonstrated this fiscal year. The reasons for our confidence
extend beyond the progress we made during the year and anticipate in the Americas and
EMEA going forward.
Today’s pervasive trend toward outsourcing signifies major opportunity for our industry.
Manufacturers and publishers rely heavily on specialists in areas ranging from design and
production to call center operations, technical support and logistics management. The
rationale is simple. Why try to do everything well internally when other companies perform
these functions upon demand at exceptionally low cost?
Distribution represents a prime case in point. Consider the vast infrastructure and targeted
Technology solution
providers depend on
Tech Data for fast,
convenient access
to a comprehensive
product offering that
services that we proficiently provide, with selling, general and administrative (SG&A)
includes the latest
expenses of just 4 percent of sales. More than 90,000 technology resellers and solution
industry innovations.
providers rely on Tech Data in over 100 countries. We ship millions of orders each year, often
LEADING
IT SOLUTIONS
T e c h D a t a C o r p o r a t i o n
4
Steven A. Raymund
Today, I’m particularly enthused about the steps we’re taking
to further strengthen our overall corporate culture. With nearly
8,000 employees worldwide, the team is far more diverse—
and more talented—than ever. We are setting new standards
of excellence, driving more team spirit, and more commitment
to shared values and guiding principles. We’re laying the
foundation for Tech Data’s success from all perspectives, includ-
ing for our shareholders, business partners, customers and
team members.
directly to end users while fully retaining our customers’ brand
Not long ago, we announced that my role is changing in con-
identities. We also handle millions of inbound and outbound
junction with our decision to separate the chairman and CEO
contacts at our call centers, and millions of additional
positions. Upon appointment of a CEO successor, I will focus
transactions take place over our Web pages, including order
exclusively on my duties as chairman in working with our team
processing and round-the-clock information access. Technical
on opportunities to support Tech Data’s ongoing success.
questions are addressed both online and on the phone daily.
Although my role will be different, my passion and vision for
And the credit services we offer keep product flowing where
Tech Data remain undiminished. I feel that we’ve been able to
it should.
The relationships we have established are equally vital, especially
regarding the trust that resellers and solution providers place in
us. They know we are dedicated to meeting their unique
create a very good company, recognized with many industry
awards and accolades. As we fulfill our potential, we intend
to uphold our commitment in making Tech Data a truly
great company.
requirements, with complete product and service offerings
Our optimism is reflected in the $100 million stock buyback
tailored specifically to IT channel business models. This one-
program we introduced in the first quarter of the fiscal year
stop convenience gives our customers the efficiency they
and doubled to $200 million during the fourth quarter. We are
demand in sourcing and supporting fully integrated solutions.
extremely well-capitalized, planning respectable operating
Our ability to cost-effectively address these needs also gives
profits in the new fiscal year (excluding charges associated with
our business partners peace of mind, as they fulfill the mission
our EMEA restructuring program) and anticipating significant
to create and market the next innovation—the tools that help
improvements in our return on invested capital.
businesses and other consumers thrive.
A LEGACY FROM GOOD TO GREAT I look back with
considerable pride at my 25 years with Tech Data, being part
of such a dynamic and central force in the IT marketplace. We
have experienced some setbacks along the way, and I feel
especially disappointed in our performance this past year in
EMEA. On balance, though, we’ve been able to create an
Tech Data’s mission remains squarely focused on maximizing
the value we provide to you, our fellow shareholders. Our
leadership and worldwide team all share in this commitment.
We look forward to a great future together.
enterprise that provides tremendous service to our business
Steven A. Raymund
partners and customers, as well as exciting career opportunities
Chairman of the Board of Directors
for our employees.
and Chief Executive Officer
2 0 0 6 A n n u a l R e p o r t
5
FINANCIAL TABLE OF CONTENTS
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Management’s Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Reports of Independent Registered Certified Public Accounting Firm . . . . . . . . . . . 24
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statement of Changes in Shareholders’ Equity . . . . . . . . . . . . . . . . . 28
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Market for the Registrant’s Common Stock, Related Shareholder Matters
and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INSIDE BACK COVER
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
6
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data. In the fourth quarter of fiscal 2006, in order to dedicate
strategic efforts and resources to core growth opportunities, management made the decision to sell the EMEA Training Business (the
“Training Business”). The results of operations of the Training Business have been reclassified and presented as “income (loss) from
discontinued operations, net of tax,” for all periods presented below. The balance sheet data has not been reclassified as the net assets
of the Training Business are less than 0.5% of the total net assets of the Company. This information should be read in conjunction with
the MD&A and our consolidated financial statements and notes thereto appearing elsewhere in this Annual Report.
Year ended January 31,
Five Year Financial Summary
2006
2005
2004 (1)
2003
2002
(In thousands, except per share data)
Income statement data:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,482,851
19,460,332
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,730,917
18,667,184
$ 17,358,525
16,414,773
$ 15,738,945
14,907,187
$ 17,197,511
16,269,481
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . .
Restructuring charges(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special charges(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,022,519
828,278
30,946
—
1,063,733
832,178
—
—
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposition of subsidiaries, net . . . . . . . . . . . . . . . . . . .
Discount on sale of accounts receivable . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net foreign currency exchange loss (gain) . . . . . . . . . . . . . . . .
Income (loss) from continuing operations
before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes (4) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . .
163,295
—
5,503
23,996
1,816
131,980
109,013
22,967
3,619
231,555
—
—
22,867
(2,959)
211,647
52,025
159,622
2,838
943,752
771,786
—
3,065
168,901
—
—
16,566
(1,893)
154,228
47,040
107,188
(3,041)
831,758
612,728
—
328,872
(109,842)
5,745
—
24,045
(6,942)
(132,690)
67,128
(199,818)
—
928,030
677,914
—
27,000
223,116
—
—
55,419
(143)
167,840
57,063
110,777
—
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
26,586
$
162,460
$
104,147
$
(199,818)
$
110,777
Income (loss) per common share—basic:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.40
0.06
$
2.74
0.05
$
1.88
(0.05)
$
(3.55)
—
Net income (loss) per common share—basic . . . . . . . . . . . . $
0.46
$
2.79
$
1.83
$
(3.55)
$
Income (loss) per common share—diluted:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.39
0.06
$
2.69
0.05
$
1.86
(0.05)
$
(3.55)
—
Net income (loss) per common share—diluted . . . . . . . . . . . $
0.45
$
2.74
$
1.81
$
(3.55)
$
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends per common share . . . . . . . . . . . . . . . . . . . . . . . . . .
57,749
58,414
—
58,176
59,193
—
56,838
57,501
—
56,256
56,256
—
2.04
—
2.04
1.98
—
1.98
54,407
60,963
—
2 0 0 6 A n n u a l R e p o r t
7
Year ended January 31,
2006
2005
2004 (1)
2003
2002
(In thousands, except per share data)
Balance sheet data:
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,392,108
4,404,634
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
235,088
Revolving credit loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,605
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . .
14,378
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,598
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,760,307
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,488,617
4,557,736
68,343
291,625
17,215
45,178
1,927,471
$ 1,525,432
4,167,886
80,221
9,258
307,934
46,591
1,658,489
$ 1,399,283
3,248,018
188,309
1,403
314,498
16,155
1,338,530
$ 1,390,657
3,458,330
86,046
1,092
612,335
4,737
1,259,933
(1) See Item 7—MD&A for effects of Azlan acquisition and adoption of Emerging Issues Task Force Issue (“EITF”) No. 02-16, “Accounting by a Customer (including a Reseller)
for Certain Consideration Received from a Vendor.”
(2) See Note 6 of Notes to Consolidated Financial Statements for discussion of restructuring costs incurred in fiscal year 2006.
(3) See Note 14 of Notes to Consolidated Financial Statements for discussion of special charges incurred in fiscal year 2004. A special charge of $328.9 million was recorded
in fiscal year 2003 for the impairment of goodwill. The special charges of $27.0 million incurred in fiscal year 2002 related to a $14.3 million write-off of inventory manage-
ment software, a $5.8 million write-off related to a variety of small software enhancements and tools that were no longer being used, a $5.4 million impairment charge
on equity investments and a $1.5 million charge associated with the development of a new logistics center in Germany which was postponed indefinitely.
(4) See Note 9 of Notes to Consolidated Financial Statements for discussion of a $56.0 million increase to the deferred tax asset valuation allowance in fiscal 2006 and the
reversal of $11.5 million of previously accrued income taxes in fiscal 2005.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
8
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
• customer credit exposure
This Annual Report on Form 10-K, including this Management’s
Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”), contains forward-looking statements, as
described in the “safe harbor” provision of the Private Securities
Litigation Reform Act of 1995. These statements involve a number
of risks and uncertainties and actual results could differ materially
from those projected. These forward-looking statements regard-
ing future events and the future results of Tech Data Corporation
are based on current expectations, estimates, forecasts, and pro-
jections about the industries in which we operate and the beliefs
and assumptions of our management. Words such as “expects,”
“anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,”
“believes,” “seeks,” “estimates,” variations of such words, and
similar expressions are intended to identify such forward-looking
statements. In addition, any statements that refer to projections
of our future financial performance, our anticipated growth and
trends in our businesses, and other characterizations of future
events or circumstances, are forward-looking statements. Readers
are cautioned that these forward-looking statements are only pre-
dictions and are subject to risks, uncertainties, and assumptions.
Therefore, actual results may differ materially and adversely from
those expressed in any forward-looking statements. Readers are
referred to the cautionary statements and important factors
discussed in Item 1A. Risk Factors in this Annual Report on Form
10-K for the year ended January 31, 2006 for further information.
We undertake no obligation to revise or update publicly any
forward-looking statements for any reason.
Factors that could cause actual results to differ materially
include the following:
• competition
• narrow profit margins
• dependence on information systems
• restructuring activities
• acquisitions
• exposure to natural disasters, war and terrorism
• dependence on independent shipping companies
• labor strikes
• risk of declines in inventory value
• product availability
• vendor terms and conditions
• loss of significant customers
• need for liquidity and capital resources; fluctuations in interest
rates
• foreign currency exchange rates; exposure to foreign markets
• potential asset impairments from declines in operating
performance
• changes in income tax and other regulatory legislation
• changes in accounting rules
• volatility of common stock price
OVERVIEW
Tech Data is a leading distributor of information technology
(“IT”) products, logistics management and other value-added
services. We distribute microcomputer hardware and software
products to value-added resellers, corporate resellers, direct
marketers and retailers. Our offering of value-added customer
services includes training and technical support, external financing
options, configuration services, outbound telemarketing, market-
ing services and a suite of electronic commerce solutions. We
manage our business in two geographic segments: the Americas
(includes the United States, Canada, Latin America and export
sales to the Caribbean) and EMEA (includes Europe, the Middle
East and export sales to Africa).
Our strategy is to leverage our efficient cost structure com-
bined with our multiple service offerings to generate demand and
cost efficiencies for our suppliers and customers around the world.
The IT distribution industry in which we operate is characterized
by narrow gross profit as a percentage of sales (“gross margin”)
and narrow income from operations as a percentage of sales
(“operating margin”). Historically, our gross and operating mar-
gins have been impacted by intense price competition, as well as
changes in terms and conditions with our suppliers, including
those terms related to rebates and other incentives and price
protection. We expect these competitive pricing pressures to
continue in the foreseeable future, and therefore, we will continue
to evaluate our pricing policies and terms and conditions offered
to our customers in response to changes in our vendors’ terms
and conditions and the general market environment. As we con-
tinue to evaluate our existing pricing policies and make future
changes, if any, we may experience moderated sales growth or
sales declines. In addition, increased competition and changes in
general economic conditions within the markets in which we con-
duct business may hinder our ability to maintain and/or improve
gross margin from its current level.
2 0 0 6 A n n u a l R e p o r t
9
In the fourth quarter of fiscal 2006, in order to dedicate strate-
gic efforts and resources to core growth opportunities, we made
the decision to sell the EMEA Training Business (the “Training
Business”). In March 2006, we closed the sale of the Training
Business to a third party for total cash consideration of $16.5
million and $0.5 million of additional consideration which is con-
tingent upon the satisfaction of certain post-closing conditions.
Our results of operations for the Training Business have been
reclassified and presented as “income (loss) from discontinued
operations, net of tax” in our Consolidated Statement of Opera-
tions for all periods presented. The reclassification of the Training
Business had the effect of reducing previously reported gross
margin and SG&A as a percentage of sales by approximately .20%
to .23% of consolidated net sales for all periods restated. The
impact on previously reported operating margin was relatively
insignificant. The assets and liabilities of the Training Business have
not been reclassified in our January 31, 2006 Consolidated Balance
Sheet as the net assets of the Training Business are less than 0.5%
of the total consolidated net assets of the Company.
From a balance sheet perspective, we require working capital
primarily to finance accounts receivable and inventory. We have
historically relied upon debt, trade credit from our vendors, and
accounts receivable financing programs for our working capital
needs. We believe our balance sheet at January 31, 2006 was one
of the strongest in the industry, with a debt to capital ratio (calcu-
lated as total debt divided by the aggregate of total debt and total
shareholders’ equity) of 12%.
Our business continues to perform well in the Americas; how-
ever, we have been disappointed with our results in EMEA. In May
2005, in response to a weaker demand environment in EMEA, we
announced a formal restructuring program for our EMEA opera-
tions (further discussed below). We believe our challenges in the
EMEA region over the last several quarters are the result of a
combination of factors, including somewhat weaker demand con-
ditions in certain countries, competitive pricing pressures, declining
average selling prices and, most notably, the diverted focus of our
management team in the region. Specifically, the combined effect
of the completion of the final phases of our comprehensive IT
systems upgrade and harmonization project, further integration
of our Azlan operations and, most recently, the implementation of
our EMEA restructuring program, diverted the focus of our man-
agement team in the region from executing appropriate pricing,
purchasing and sales management practices.
We are beginning to see the benefits from our actions to
restructure and optimize our operations in the EMEA region. These
actions have included: engaging external consultants to provide a
fresh perspective and detailed recommendations, such as the
implementation of a new, simplified EMEA management organi-
zational structure; assigning dedicated resources across the region
to improve our pricing, purchasing and sales management prac-
tices; and implementing our restructuring program. In addition,
both the Azlan integration and our IT systems upgrade and
harmonization project were substantially complete at the end of
fiscal 2006, which is expected to alleviate further diversion of
management resources to these initiatives.
With respect to our restructuring program, we have recorded
charges for workforce reductions and the optimization of facilities
and systems. Excluding external consulting costs, total cash
charges associated with the restructuring program are estimated
to be in the range of $40.0 million to $50.0 million, comprised of
$24.0 to $30.0 million related to workforce reductions and $16.0
to $20.0 million related to the optimization of facilities and systems.
We expect initiatives related to the restructuring program to gen-
erate annualized savings in the same range. Through January 31,
2006, the Company has incurred $30.9 million related to the
restructuring program, comprised of approximately $18.9 million
related to workforce reductions and approximately $12.0 million
for facility costs. The remaining charges are expected to be
incurred over the next three quarters with all U.S. dollar amounts
being approximated using an exchange rate of .837 euros per U.S.
dollar. Costs related to the restructuring program have been
funded by operating cash flows and our credit facilities. Costs
recorded in each quarter may vary depending upon the timing of
certain actions. The costs related to this restructuring program,
other than the external consulting costs, are reflected within the
Consolidated Statement of Operations as “restructuring charges,”
which is a component of operating income. In addition, during
the nine months ended January 31, 2006, the Company incurred
approximately $9.6 million of external consulting costs related to
the restructuring program. These consulting costs are included in
“selling, general and administrative expenses” in the Consolidated
Statement of Operations. The Company expects to continue to
incur external consulting costs related to the restructuring pro-
gram in fiscal 2007. These consulting costs, along with the costs
of internal personnel dedicated to the implementation of the
restructuring program and other incremental costs indirectly
related to the restructuring program, will partially offset the savings
we expect to realize from the EMEA restructuring program during
fiscal year 2007 (see further discussion below and in Note 6 of
Notes to Consolidated Financial Statements for related discussion
of our restructuring program).
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
1 0
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The information included within MD&A is based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosures. On an ongoing basis, we evaluate these
estimates, including those related to bad debts, inventory, vendor
incentives, goodwill and intangible assets, deferred taxes, and con-
tingencies. Our estimates and judgments are based on currently
available information, historical results, and other assumptions we
believe are reasonable. Actual results could differ materially from
these estimates. We believe the following critical accounting poli-
cies affect the more significant judgments and estimates used in
the preparation of our consolidated financial statements.
Accounts Receivable
We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make required
payments. In estimating the required allowance, we take into
consideration the overall quality and aging of the receivable port-
folio, the existence of credit insurance and specifically identified
customer risks. Also influencing our estimates are the following:
(1) the large number of customers and their dispersion across wide
geographic areas; (2) the fact that no single customer accounts
for more than 5% of our net sales; (3) the value and adequacy of
collateral received from customers, if any and (4) our historical loss
experience. If actual customer performance were to deteriorate
to an extent not expected by us, additional allowances may be
required which could have an adverse effect on our consolidated
financial results.
Inventory
We value our inventory at the lower of its cost or market value,
with cost being determined on the first-in, first-out method. We
write down our inventory for estimated obsolescence equal to the
difference between the cost of inventory and the estimated mar-
ket value based upon an aging analysis of the inventory on hand,
specifically known inventory-related risks (such as technological
obsolescence and the nature of vendor terms surrounding price
protection and product returns), foreign currency fluctuations for
foreign-sourced product, and assumptions about future demand.
Market conditions or changes in terms and conditions by our ven-
dors that are less favorable than those projected by management
may require additional inventory write-downs, which could have
an adverse effect on our consolidated financial results.
Vendor Incentives
We receive incentives from vendors related to cooperative
advertising allowances, infrastructure funding, volume rebates
and other incentive agreements. These incentives are generally
under quarterly, semiannual or annual agreements with the ven-
dors; however, some of these incentives are negotiated on an
ad hoc basis to support specific programs mutually developed
with the vendor. Unrestricted volume rebates and early payment
discounts received from vendors are recorded as a reduction of
inventory upon receipt of funds and as a reduction of cost of
products sold as the related inventory is sold. Incentives received
from vendors for specifically identified cooperative advertising
programs and infrastructure funding are recorded as adjustments
to selling, general and administrative expenses, and any reim-
bursement in excess of the related cost is recorded in the same
manner as unrestricted volume rebates, as discussed above.
Actual rebates may vary based on volume or other sales
achievement levels, which could result in an increase or reduction
in the estimated amounts previously accrued. We also provide
reserves for receivables on vendor programs for estimated losses
resulting from vendors’ inability to pay or rejections of claims by
vendors. Should amounts recorded as outstanding receivables
from vendors be uncollectible, additional allowances may be
required which could have an adverse effect on our consolidated
financial results.
Goodwill, Intangible Assets and Other Long-Lived Assets
The carrying value of goodwill is reviewed at least annually for
impairment and may also be reviewed more frequently if current
events and circumstances indicate a possible impairment. An
impairment loss is charged to expense in the period identified. We
also examine the carrying value of our intangible assets with finite
lives, which includes capitalized software and development costs,
purchased intangibles, and other long-lived assets as current
events and circumstances warrant determining whether there are
any impairment losses. If indicators of impairment are present and
future cash flows are not expected to be sufficient to recover the
assets’ carrying amount, an impairment loss is charged to expense
in the period identified. Factors that may cause a goodwill, intan-
gible asset or other long-lived asset impairment include negative
industry or economic trends and significant underperformance
relative to historical or projected future operating results. Our val-
uation methodologies include, but are not limited to, estimating
2 0 0 6 A n n u a l R e p o r t
1 1
the net present value of the projected cash flows of our reporting
units. If actual results are substantially lower than our projections
underlying these assumptions, or if market discount rates substan-
tially increase, our future valuations could be adversely affected,
potentially resulting in future impairment charges.
Income Taxes
We record valuation allowances to reduce our deferred tax
assets to the amount expected to be realized. In assessing the
adequacy of a recorded valuation allowance, we consider all
positive and negative evidence and a variety of factors, including
the scheduled reversal of deferred tax liabilities, historical and
projected future taxable income, and prudent and feasible tax
planning strategies. If we determine we would be able to use a
deferred tax asset in the future in excess of its net carrying value,
an adjustment to the deferred tax asset would be made to reduce
income tax expense, thereby increasing net income in the period
such determination was made. Should we determine that we are
unable to realize all or part of our net deferred tax assets in the
future, an adjustment to the deferred tax asset would be made to
income tax expense, thereby reducing net income in the period
such determination was made. However, the recognition of any
future tax benefit resulting from the reduction of the $6.3 million
valuation allowance associated with the purchase of Azlan would
be recorded as a reduction of goodwill.
Contingencies
We accrue for contingent obligations, including estimated legal
costs, when the obligation is probable and the amount is reason-
ably estimable. As facts concerning contingencies become known,
we reassess our position and make appropriate adjustments to
the financial statements. Estimates that are particularly sensitive
to future changes include those related to tax, legal, and other
regulatory matters such as imports and exports, the imposition of
international governmental controls, changes in the interpretation
and enforcement of international laws (in particular related to
items such as duty and taxation), and the impact of local eco-
nomic conditions and practices, which are all subject to change as
events evolve and as additional information becomes available
during the administrative and litigation process.
RECENT ACCOUNTING PRONOUNCEMENTS
AND LEGISLATION
See Note 1 of Notes to Consolidated Financial Statements for the
discussion on recent accounting pronouncements and legislation.
RESULTS OF OPERATIONS
Except for the section relating to discontinued operations, the
Results of Operations discussion below relates only to continuing
operations.
The following tables set forth our net sales and operating income, by geographic region for the years ended January 31, 2006, 2005
and 2004:
% of
2006
net sales
2005
% of
net sales
2004
% of
net sales
Net sales by geographic region ($ in thousands):
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,464,667
11,018,184
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46.21%
53.79
$ 8,482,512
11,248,405
42.99%
57.01
$ 7,839,425
9,519,100
45.16%
54.84
Worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,482,851
100.00%
$ 19,730,917
100.00%
$ 17,358,525
100.00%
Year-over-year increase (decrease) in net sales (%):
Americas (US$) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.6%
8.2% (6.0)%
(2.0)% 18.2% 28.6%
EMEA (US$) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.6)%
EMEA (Euro) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.1%
9.0%
Worldwide (US$) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8% 13.7% 10.3%
2006
2005
2004
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
1 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Operating income ($ in thousands):
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $154,839
8,456
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.64%
0.08%
$140,690
90,865
1.66%
0.81%
$120,413
48,488
1.54%
0.51%
Worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $163,295
0.80%
$231,555
1.17%
$168,901
0.97%
2006
% of
net sales
2005
% of
net sales
2004
% of
net sales
We sell many products purchased from the world’s leading
peripheral, system and networking manufacturers and software
publishers. Products purchased from Hewlett-Packard generated
27%, 28% and 32% of our net sales in fiscal 2006, 2005 and
2004, respectively. There were no other manufacturers or publish-
ers that accounted for 10% or more of our net sales in the past
three years.
The following table sets forth our Consolidated Statement of
Operations as a percentage of net sales for each of the three most
recent fiscal years:
2006
2005
2004
Net sales . . . . . . . . . . . . . . . . . . . . . 100.00% 100.00% 100.00%
Cost of products sold . . . . . . . . . . .
95.01
94.61
94.56
Gross profit . . . . . . . . . . . . . . . . . .
Selling, general and
administrative expenses . . . . . . .
Restructuring charges . . . . . . . . . . .
Special charges . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . .
Discount on sale of accounts
receivable . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . .
Net foreign currency exchange
4.99
4.04
0.15
—
0.80
0.16
5.39
4.22
—
—
1.17
0.14
5.44
4.45
—
0.02
0.97
0.13
0.03
(0.04)
—
(0.03)
—
(0.04)
loss (gain) . . . . . . . . . . . . . . . . . .
0.01
(0.01)
(0.01)
Income from continuing
operations before income taxes
Provision for income taxes . . . . . . .
Income from continuing
operations . . . . . . . . . . . . . . . . .
Income (loss) from discontinued
operations, net of tax . . . . . . . . .
0.64
0.53
0.11
0.02
1.07
0.27
0.80
0.02
0.89
0.27
0.62
(0.02)
Net income . . . . . . . . . . . . . . . . . . .
0.13%
0.82%
0.60%
Net Sales
Our consolidated net sales were approximately $20.5 billion
during fiscal 2006, an increase of 3.8% when compared to fiscal
2005. On a regional basis, during fiscal 2006, net sales in the
Americas increased by 11.6% over fiscal 2005 and decreased by
2.0% in EMEA (decrease of 0.6% on a euro basis). Our performance
in the Americas is primarily due to stronger sales to direct marketers
and retailers and a general improvement in demand for IT prod-
ucts and services compared to the prior year, somewhat offset by
declining average selling prices of many products we sell. As pre-
viously discussed in this MD&A, our performance in EMEA can be
attributed to a combination of factors, including somewhat weaker
demand conditions in certain countries, competitive pricing pres-
sures resulting in declining average selling prices and, most notably,
the diverted focus of our management team in the region.
During fiscal 2005, we saw our consolidated net sales grow to
$19.7 billion, a 13.7% increase over fiscal 2004. This growth can
be attributed to strong demand in both the Americas and EMEA.
Our performance within EMEA was further enhanced by the
strengthening of the euro versus the U.S. dollar, which contrib-
uted approximately half of the 18.2% sales growth we reported
in the region. Our sales growth in EMEA was also positively
impacted in fiscal 2005 from the inclusion of twelve months of
operations of Azlan compared to including only ten months of
operations in fiscal 2004. Azlan, one of the leading European dis-
tributors of networking and communications equipment, was
acquired by Tech Data in March 2003. Our legacy operations (i.e.,
excluding Azlan) in EMEA also experienced sales growth in the
high single digits, reflecting the strong demand for IT products
during the fiscal year.
Gross Profit
Gross profit as a percentage of net sales (“gross margin”) dur-
ing fiscal 2006 was 4.99%, a decrease from 5.39% in fiscal 2005.
The decrease in gross margin is primarily attributable to the highly
competitive pricing environment and operational challenges in our
EMEA operations, as discussed above, and to a much lesser extent,
changes in customer and product mix in both EMEA and the
Americas. We continuously evaluate our pricing policies and terms
and conditions offered to our customers in response to changes in
our vendors’ terms and conditions and the general market envi-
ronment. As we continue to evaluate our existing pricing policies
and make future changes, if any, we may experience moderated
sales growth or sales declines. In addition, increased competition
and changes in general economic conditions within the markets in
2 0 0 6 A n n u a l R e p o r t
1 3
which we conduct business may hinder our ability to maintain
and/or improve gross margin from its current level.
Gross margin during fiscal 2005 was 5.39%, compared to
5.44% in fiscal 2004. This decrease is the result of the highly
competitive pricing environment in both the Americas and EMEA,
partially offset by the effect of Emerging Issues Task Force No. 02-
16, “Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor” (“EITF Issue No. 02-16”).
EITF Issue No. 02-16 requires that, under certain circumstances,
consideration received from vendors be treated as a reduction of
cost of goods sold and not as a reduction of selling, general and
administrative expenses. EITF Issue No. 02-16 further requires
the recognition of such consideration be deferred until the
related inventory is sold. As the guidance was applicable only to
vendor arrangements entered into or modified subsequent to
December 31, 2002, it was effective for all vendor arrangements
throughout fiscal 2005; however, it had only a partial impact dur-
ing fiscal 2004. As a result, gross margin in fiscal 2005 included
45 basis points of vendor consideration reclassified from selling,
general and administrative expenses compared to 26 basis points
being reclassified in fiscal 2004.
In addition to the impact of EITF Issue No. 02-16, the inclusion
of a full twelve months of Azlan’s results (which generates higher
gross margins than our “legacy” operations) in fiscal 2005 com-
pared to ten months in fiscal 2004 also positively affected our
gross margin comparisons on a year-over-year basis; however, this
impact was far less than the impact of EITF Issue No. 02-16.
Operating Expenses
Selling, general and administrative expenses (“SG&A”)
SG&A as a percentage of net sales decreased to 4.04% in
fiscal 2006, compared to 4.22% in fiscal 2005. The decrease in
SG&A as a percentage of net sales in fiscal 2006 is the result of
continuing cost savings initiatives and improvements in produc-
tivity, particularly in EMEA, where we are beginning to realize the
benefits associated with our restructuring efforts. Also contribut-
ing to our decrease in SG&A is a reduction in credit costs due to
favorable credit experience and the positive resolution of contin-
gencies associated with certain customer accounts. We strive to
continuously improve our business model through our constant
monitoring of costs, including tight budgetary controls and pro-
ductivity reviews. These productivity reviews result in a variable
cost model with an ability to better respond to changes in market
demand compared to those companies with high fixed costs.
In absolute dollars, worldwide SG&A decreased by $3.9 million
in fiscal 2006 compared to fiscal 2005. The decrease in fiscal 2006
is primarily due to the benefits realized from the restructuring pro-
gram and the decrease in credit costs, partially offset by $9.6 mil-
lion of external consulting costs incurred related to our EMEA
restructuring program, an increase in labor costs in the Americas
to support the additional sales and, to a lesser extent, a stronger
U.S. dollar versus the euro in fiscal 2006 compared to fiscal 2005.
SG&A as a percentage of net sales decreased to 4.22% in fis-
cal 2005, compared to 4.45% in fiscal 2004. This decrease is the
result of continuing cost savings initiatives and improvements in
productivity, offset in part by the effects of EITF Issue No. 02-16.
In absolute dollars, SG&A increased by $60.4 million in fiscal 2005
compared to fiscal 2004. This increase is attributable to the con-
tinued strengthening of the euro against the U.S. dollar and the
implementation of EITF Issue No. 02-16, as discussed above.
Excluding these factors, SG&A actually declined in fiscal 2005
compared to fiscal 2004 as a result of our tight budgetary controls
and productivity reviews.
Restructuring Charges
As discussed earlier in this MD&A, in May 2005, we announced
a formal restructuring program to better align the EMEA operating
cost structure with the current business environment. In connection
with this restructuring program, we continue to record charges
for workforce reductions and the optimization of facilities and
systems. For the year ended January 31, 2006, we incurred $30.9
million related to the restructuring program, comprised of approx-
imately $18.9 million related to workforce reductions and approxi-
mately $12.0 million for facility costs.
Special Charges
During fiscal 2004, we incurred special charges of $3.1 million,
or .02% of net sales, related to the closure of our education busi-
ness in the United States and the restructuring of this business to
a more variable cost-based, outsourced model. These charges
primarily include costs associated with employee severance, facility
lease terminations and the write-off of fixed assets associated
with the business.
Interest Expense, Discount on Sale of Accounts Receivable,
Interest Income, Foreign Currency Exchange Gains/Losses
Interest expense increased 10.4% to $31.4 million in fiscal
2006 compared to $28.5 million in the prior year. The increase in
interest expense during fiscal 2006 is primarily due to additional
working capital requirements resulting from higher sales volume
and an increase in our average short-term borrowing rate compared
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
1 4
1 4
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
(CONTINUED)
to the prior fiscal year. Interest income increased 32.5% to $7.4 mil-
lion in fiscal 2006 from $5.6 million in the prior year. The increase
in interest income during fiscal 2006 compared to fiscal 2005 is
primarily attributable to higher interest rates earned on short-term
cash investments compared to the prior fiscal year.
Discounts on the sale of accounts receivable totaled $5.5 million
in fiscal 2006. The discount is associated with the accounts receiv-
able purchase facility agreements executed in fiscal 2006 (see
further discussion below in this MD&A and in Note 3 of Notes to
Consolidated Financial Statements).
Interest expense increased 22.6% to $28.5 million in fiscal
2005 from $23.2 million in fiscal 2004. The increase in interest
expense is primarily due to additional working capital require-
ments resulting from higher sales volume, as well as a higher
interest rate environment in the U.S. in fiscal 2005 compared to
fiscal 2004. Interest income decreased 15.7% to $5.6 million in
fiscal 2005 from $6.7 million in fiscal 2004. This decrease is pri-
marily due to a decrease in cash available for investment in fiscal
2005 as compared to fiscal 2004.
We realized a net foreign currency exchange loss of $1.8 mil-
lion during fiscal 2006 and net foreign currency exchange gains of
$3.0 million and $1.9 million during fiscal years 2005 and 2004,
respectively. We recognize net foreign currency exchange gains
and losses primarily due to the fluctuation in the value of the U.S.
dollar versus the euro, and to a lesser extent, versus other curren-
cies. It continues to be our goal to minimize foreign currency
exchange gains and losses through an effective hedging program.
Our hedging policy prohibits speculative foreign currency exchange
transactions.
Provision for Income Taxes
Our effective tax rate for continuing operations was 82.6% in
fiscal 2006 and 24.6% in fiscal 2005. The increase in the effective
tax rate during fiscal 2006 is primarily the result of a $56.0 million
increase in the deferred tax valuation allowance on deferred tax
assets recorded during the second quarter of fiscal 2006 related
to deferred tax assets for specific jurisdictions in EMEA, primarily
Germany. While we believe the restructuring efforts will improve
the operating performance within our German operations, we
have determined this charge to be appropriate due to cumulative
losses expected to be realized through the current fiscal year, after
considering the effect of implementing prudent and feasible tax
planning strategies. In the future, to the extent we generate con-
sistent taxable income within those operations currently requiring
the valuation allowance, we may reduce the valuation allowance
on the related deferred tax assets, thereby reducing tax expense
and increasing net income in the same period. The underlying net
operating loss carryforwards remain available to offset future tax-
able income in the specific jurisdictions requiring the valuation
allowance, subject to applicable tax laws and regulations.
Excluding the effect of the deferred tax asset valuation allowance,
our effective tax rate for continuing operations would have
approximated 40.2% for fiscal 2006. The increase in the tax rate
from 30.0% in fiscal 2005 (adjusted for the reversal of previously
accrued income taxes as discussed below) to 40.2% in fiscal 2006
was primarily the result of annual losses incurred in certain tax
jurisdictions where we are not able to record a tax benefit. On
an absolute dollar basis, the provision for income taxes
increased 109.5% to $109.0 million in fiscal 2006 as compared to
$52.0 million in fiscal 2005, primarily as a result of the factors
discussed above.
Our effective tax rate for continuing operations was 24.6% in
fiscal 2005 compared to 30.5% in fiscal 2004. The decrease in
the effective tax rate is primarily attributable to the reversal of
previously accrued income taxes of $11.5 million due to the favor-
able resolution of various income tax examinations during the
fourth quarter of fiscal 2005. Excluding the reversal of previously
accrued income taxes, our effective tax rate for continuing opera-
tions would have approximated 30.0% during fiscal 2005. On an
absolute dollar basis, the provision for income taxes increased
10.6% to $52.0 million in fiscal 2005 as compared to $47.0 million
in fiscal 2004, primarily due to an increase in our taxable income
and the factors discussed above.
The effective tax rate differed from the U.S. federal statutory
rate of 35% during these periods for the reasons discussed above,
as well as tax rate benefits of certain earnings from operations in
lower-tax jurisdictions throughout the world for which no U.S.
taxes have been provided because such earnings are planned to
be reinvested indefinitely outside the U.S.
Our future effective tax rates could be adversely affected by
earnings being lower than anticipated in countries where we have
lower statutory rates, changes in the valuation of our deferred tax
assets or liabilities or changes in tax laws or interpretations thereof.
In addition, our income tax returns are subject to continuous
examination by the Internal Revenue Service and other tax author-
ities. We regularly assess the likelihood of adverse outcomes
resulting from these examinations to determine the adequacy of
our provision for income taxes. At January 31, 2006, we believe
we have appropriately accrued for probable income tax exposures.
To the extent we prevail in matters for which accruals have been
established or are required to pay amounts in excess of such
2 0 0 6 A n n u a l R e p o r t
1 5
accruals, our effective tax rate in a financial reporting period could
be materially affected.
Income (Loss) from Discontinued Operations, Net of Tax
Results of operations for the Training Business have been
reclassified and presented as income (loss) from discontinued
operations, net of tax, within the Consolidated Statement of
Operations for all periods presented. We realized income from
discontinued operations, net of tax, of $3.6 million and $2.8 million
in fiscal 2006 and 2005, respectively, and a loss from discontinued
operations, net of tax, of $3.0 million in fiscal 2004.
IMPACT OF INFLATION
We have not been adversely affected by inflation. Management
believes that most price increases could be passed on to our cus-
tomers, as prices charged by us are not set by long-term contracts;
however, as a result of competitive pressure, there can be no
assurance that the full effect of any such price increases could be
passed on to our customers.
QUARTERLY DATA—SEASONALITY
Our quarterly operating results have fluctuated significantly in
the past and will likely continue to do so in the future as a result
of currency fluctuations and seasonal variations in the demand for
the products and services we offer. Narrow operating margins
may magnify the impact of these factors on our operating results.
Recent historical seasonal variations have included a reduction of
demand in EMEA during our second and third fiscal quarters
followed by an increase in EMEA demand during our fiscal fourth
quarter. Given that a significant portion of our revenues are
derived from EMEA, the worldwide results closely follow the
seasonality trends in EMEA. Additionally, the life cycles of major
products, as well as the impact of future acquisitions and disposi-
tions, may also materially impact our business, financial condition,
or results of operations. See Note 15 of Notes to Consolidated
Financial Statements for further information regarding our quar-
terly results.
LIQUIDITY AND CAPITAL RESOURCES
Our discussion of liquidity and capital resources includes an
analysis of our cash flows and capital structure, which includes
both continuing and discontinued operations for all periods pre-
sented. The absence of cash flows from discontinued operations is
not expected to affect the Company’s future liquidity.
The following table summarizes Tech Data’s Consolidated State-
ment of Cash Flows for the years ended January 31, 2006, 2005
and 2004 (in thousands):
Year ended January 31,
2006
2005
2004
Net cash provided by (used in):
Operating activities . . . . . . . . . . $ 257,439
(51,583)
(235,438)
Investing activities . . . . . . . . . . .
Financing activities . . . . . . . . . .
Effect of exchange rate
changes on cash and
cash equivalents . . . . . . . . . .
$ 106,945
(38,645)
12,200
$ 303,234
(251,518)
(110,708)
(8,809)
5,755
10,602
Net increase (decrease) in cash
and cash equivalents . . . . . . . . $ (38,391)
$ 86,255
$ (48,390)
Net cash provided by operating activities increased in fiscal
2006 as compared to fiscal 2005 due primarily to the timing of
payments to vendors. We have several key metrics we use to
manage our working capital, including our cash conversion cycle
(also referred to as “net cash days”) and owned inventory levels.
Our net cash days are defined as days sales outstanding in
accounts receivable (“DSO”) plus days of supply on hand in inven-
tory (“DOS”), less days of purchases outstanding in accounts
payable (“DPO”). Owned inventory is calculated as the difference
between our inventory and accounts payable balances divided
into the inventory balance. Our net cash days improved by approx-
imately 6% to 29 days at the end of fiscal 2006 compared to 31
days at the end of fiscal 2005, resulting from improved manage-
ment of our worldwide cash conversion cycle. Our owned inven-
tory level (the percentage of inventory not financed by vendors)
was a negative 25% at the end of fiscal 2006, meaning our
accounts payable balances exceeded our inventory balances by
25%. This compares to negative owned inventory of 18% at the
end of fiscal 2005.
Net cash provided by operating activities decreased in fiscal
2005 as compared to fiscal 2004 due primarily to the timing of
payments to vendors, offset in part by increased earnings over the
prior year (especially within our EMEA segment). Our net cash
days improved by approximately 6% to 31 days at the end of fiscal
2005 compared to 33 days at the end of fiscal 2004, resulting
from improved management of our worldwide cash conversion
cycle. Our owned inventory level was a negative 18% at the end
of fiscal 2005 compared to negative owned inventory of 24% at
the end of fiscal 2004.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
1 6
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The following table presents the components of Tech Data’s cash
conversion cycle, in days, as of January 31, 2006, 2005 and 2004:
As of January 31,
2006
2005
2004
Days of sales outstanding . . . . . . . . . . . . . . . . . . .
Days of supply in inventory . . . . . . . . . . . . . . . . . .
Days of purchases outstanding . . . . . . . . . . . . . . .
36
26
(33)
Cash conversion cycle (days) . . . . . . . . . . . . . . .
29
36
25
(30)
31
39
26
(32)
33
Net cash used in investing activities of $51.6 million during
fiscal 2006 was primarily attributable to the continuing investment
related to the expansion and upgrading of our IT systems, office
facilities and equipment for our logistics centers. We expect to
make total capital expenditures of approximately $60.0 million
during fiscal 2007 for equipment and machinery in our logistics
centers, office facilities and IT systems. While we believe we will
realize increased operating efficiencies as a result of these invest-
ments, unforeseen circumstances or complexities could have an
adverse impact on our business.
Net cash used in investing activities of $38.6 million during
fiscal 2005 was attributable to the continuing investment related
to the expansion and upgrading of our IT systems, office facilities
and equipment for our logistics centers, offset by the proceeds
from the sale of one of the facilities at our headquarters campus
in Clearwater, Florida.
Net cash used in financing activities of $235.4 million during
fiscal 2006 reflects the $290.0 million repayment of our convert-
ible subordinated debentures, $1.6 million of payments on other
long-term debt and $127.0 million for the repurchase of 3,443,131
shares of our common stock, partially offset by net borrowings on
our revolving credit lines of $166.5 million and $16.7 million in
proceeds received for the issuance of common stock related to our
stock option exercises and purchases made through our Employee
Stock Purchase Plan (“ESPP”).
Net cash provided by financing activities of $12.2 million dur-
ing fiscal 2005 reflects $32.7 million in proceeds from stock option
exercises and purchases made through our ESPP, partially offset by
net repayments on our revolving credit lines and long-term debt
of $20.5 million.
As of January 31, 2006, we maintained a $400.0 million Receiv-
ables Securitization Program with a syndicate of banks, which
expires in August 2006. We pay interest (average rate of 4.72% at
January 31, 2006) on the Receivables Securitization Program at
designated commercial paper rates plus an agreed-upon margin.
Additionally, we maintained a $250.0 million Multi-currency
Revolving Credit Facility with a syndicate of banks that expires in
March 2010. We pay interest (average rate of 5.50% at January 31,
2006) under this facility at the applicable euro rate plus a margin
based on our credit ratings. In addition to these credit facilities,
we maintained lines of credit and overdraft facilities totaling
approximately $674.7 million at January 31, 2006 (average interest
rate was 3.49% at January 31, 2006).
The total capacity of the aforementioned credit facilities was
approximately $1.3 billion, of which $235.1 million was outstand-
ing at January 31, 2006. Our credit agreements contain limitations
on the amounts of annual dividends and repurchases of common
stock. Additionally, the credit agreements require compliance with
certain warranties and covenants on a continuing basis. The finan-
cial ratio covenants contained within the credit agreements include
a debt to capitalization ratio, an interest to EBITDA (earnings
before interest, taxes, deprecation and amortization) ratio, and a
tangible net worth requirement. At January 31, 2006, we were in
compliance with all such covenants. The ability to draw funds
under these credit facilities is dependent upon sufficient collateral
(in the case of the Receivables Securitization Program) and meet-
ing the aforementioned financial covenants, which may limit our
ability to draw the full amount of these facilities. As of January 31,
2006, the maximum amount that could be borrowed under these
facilities, in consideration of the availability of collateral and the
financial covenants, was approximately $1.1 billion.
At January 31, 2006, we had issued standby letters of credit of
$22.4 million. These letters of credit typically act as a guarantee of
payment to certain third parties in accordance with specified terms
and conditions. The issuance of these letters of credit reduces
our available capacity under the abovementioned facilities by the
same amount.
In December 2001, we issued $290.0 million of convertible
subordinated debentures due 2021. The debentures bore interest
at 2% per year and were convertible into our common stock, if
the market price of the common stock exceeded a specified per-
centage of the conversion price per share of common stock.
Holders had the option to require us to repurchase the debentures
on specified anniversary dates from the issue date at 100% of the
principal amount plus accrued interest to the repurchase date. We
had the option to satisfy such repurchases in either cash and/or
our common stock, provided that shares of common stock reached
a certain fair market value. The debentures were redeemable in
whole or in part for cash at our option at any time on or after
December 20, 2005. Additionally, the debentures were subordi-
nated in right of payment to all of our senior indebtedness and
2 0 0 6 A n n u a l R e p o r t
1 7
were effectively subordinated to all indebtedness and other liabili-
ties of our subsidiaries.
In December 2004, we completed an exchange offer whereby
approximately 99.3% of our then outstanding $290.0 million con-
vertible subordinated debentures (the “Old Notes”) were exchanged
for new debentures (the “New Notes”). The New Notes had sub-
stantially identical terms to the previously outstanding Old Notes.
As the holders of both the New Notes and the Old Notes had
the option to require us to repurchase the debentures on certain
dates, beginning with December 15, 2005, we classified the
debentures as a current liability at January 31, 2005.
In accordance with the debenture agreement, on December 15,
2005, the debenture holders of the New Notes exercised their
option to require the Company to repurchase the debentures. We
repurchased the New Notes using cash and existing credit lines. In
addition, prior to January 31, 2006, we also repurchased the Old
Notes using cash and existing credit lines.
In August 2000, we filed a universal shelf registration statement
with the Securities and Exchange Commission for $500.0 million
of debt and equity securities. The net proceeds from any issuance
are expected to be used for general corporate purposes, including
capital expenditures, the repayment or refinancing of debt and to
meet working capital needs. As of January 31, 2006, we have not
issued any debt or equity securities under this registration state-
ment, nor can any assurances be given that we will issue any debt
or equity securities under this registration statement in the future.
Our debt to capital ratio was 12% at January 31, 2006. We
believe that our existing sources of liquidity, including cash
resources and cash provided by operating activities, supplemented
as necessary with funds available under our credit arrangements,
will provide sufficient resources to meet our present and future
working capital and cash requirements for at least the next 12
months. Changes in our credit rating or other market factors may
increase our interest expense or other costs of capital, or capital
may not be available to us on acceptable terms to fund our work-
ing capital needs. The Company will continue to need additional
financing, including debt financing. The inability to obtain such
sources of capital could have an adverse effect on the Company’s
business. The Company’s credit facilities contain various financial
and other covenants that may limit the Company’s ability to
borrow or limit the Company’s flexibility in responding to business
conditions.
CONTRACTUAL OBLIGATIONS
Principal maturities of long-term debt, comprised exclusively of
capital leases, at January 31, 2006 and amounts due under future
minimum lease payments, including minimum commitments under
IT outsourcing agreements, are as follow (in thousands):
Operating
leases
Capital
leases
Total
Fiscal year:
2007 . . . . . . . . . . . . . . . . . . . . . . . . $ 62,493
54,841
2008 . . . . . . . . . . . . . . . . . . . . . . . .
44,846
2009 . . . . . . . . . . . . . . . . . . . . . . . .
37,383
2010 . . . . . . . . . . . . . . . . . . . . . . . . .
29,450
2011 . . . . . . . . . . . . . . . . . . . . . . . . .
68,728
Thereafter . . . . . . . . . . . . . . . . . . . .
$ 2,520
2,520
1,751
1,597
1,597
9,768
$ 65,013
57,361
46,597
38,980
31,047
78,496
Total payments . . . . . . . . . . . . . . . . .
Less amounts representing
297,741
19,753
317,494
interest . . . . . . . . . . . . . . . . . . . . .
—
(3,770)
(3,770)
Total principal payments . . . . . . . . . . $297,741
$ 15,983
$ 313,724
Fair value renewal and purchase options and escalation clauses
exist for a substantial portion of the operating leases included
above. Purchase orders for the purchase of inventory and other
goods and services are not included in the table above. We are
not able to determine the aggregate amount of such purchase
orders that represent contractual obligations, as purchase orders
typically represent authorizations to purchase rather than binding
agreements. For the purposes of this table, contractual obliga-
tions for purchase of goods or services are defined as agreements
that are enforceable and legally binding on Tech Data and that
specify all significant terms, including: fixed or minimum quanti-
ties to be purchased; fixed, minimum or variable price provisions;
and the approximate timing of the transaction. Our purchase
orders are based on our current demand expectations and are
fulfilled by our vendors within short-time horizons. We do not
have significant noncancelable agreements for the purchase of
inventory or other goods specifying minimum quantities or set
prices that exceed our expected requirements for the next three
months. We also enter into contracts for outsourced services;
however, the obligations under these contracts were not signifi-
cant and the contracts generally contain clauses allowing for can-
cellation without significant penalty.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
1 8
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
OFF-BALANCE SHEET ARRANGEMENTS
Trade Receivables Purchase Facility Agreements
Synthetic Lease Facility
On July 31, 2003, we completed a restructuring of our synthetic
lease facility with a group of financial institutions (the “Restructured
Lease”) under which we lease certain logistics centers and office
facilities from a third-party lessor. The Restructured Lease expires
in fiscal 2008, at which time we have the following options: renew
the lease for an additional five years, purchase the properties at
an amount equal to their cost, or remarket the properties. If we
elect to remarket the properties, we have guaranteed the lessor a
percentage of the cost of each of the properties, in an aggregate
amount of approximately $121.0 million (the “residual value”). At
any time during the lease term, we may, at our option, purchase
up to four of the seven properties, at an amount equal to each
property’s cost. We pay interest on the Restructured Lease at
LIBOR plus an agreed-upon margin. The Restructured Lease con-
tains covenants that must be complied with on a continuous basis,
similar to the covenants described in certain of the credit facilities
discussed above and in Note 7 of Notes to Consolidated Financial
Statements. The amount funded under the Restructured Lease
(approximately $136.7 million at January 31, 2006) is treated as
debt under the definition of the covenants required under both
the Restructured Lease and the credit facilities. As of January 31,
2006, we were in compliance with all such covenants.
The sum of future minimum lease payments under the
Restructured Lease at January 31, 2006 was approximately $20.9
million. Properties leased under the Restructured Lease facility
total 2.5 million square feet of space, with land totaling 204 acres
located in Clearwater and Miami, Florida; Fort Worth, Texas;
Fontana, California; Suwanee, Georgia; Swedesboro, New Jersey;
and South Bend, Indiana.
The Restructured Lease has been accounted for as an operating
lease. FASB Interpretation (“FIN”) No. 46 requires us to evaluate
whether an entity with which we are involved meets the criteria
of a variable interest entity (“VIE”) and, if so, whether we are
required to consolidate that entity. We have determined that the
third-party lessor of this synthetic lease facility does not meet the
criteria of a VIE and therefore is not subject to the consolidation
provisions of FIN No. 46.
During fiscal 2006, we entered into revolving trade receivables
purchase facility agreements (the “Receivables Facilities”) with
third-party financial institutions to sell accounts receivable on a
non-recourse basis. We use the Receivables Facilities as a source
of working capital funding. The Receivables Facilities limit the
amount of purchased accounts receivable the financial institutions
may hold to $346.0 million at January 31, 2006, based on the
foreign currency exchange rate at that date. Under the Receivables
Facilities, we may sell certain accounts receivable (the “Receivables”)
in exchange for cash less a discount based on LIBOR plus a margin.
Such transactions have been accounted for as a true sale, in accord-
ance with SFAS No. 140, “Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities.” The Receiv-
ables Facilities, of which $200.0 million expires in May 2006 and
$146.0 million does not have an expiration date, require that we
continue to service, administer and collect the sold accounts
receivable. During the year ended January 31, 2006, we received
gross proceeds of $796.1 million from the sale of the Receivables
and recognized related discounts totaling $5.5 million. The pro-
ceeds, net of the discount incurred, are reflected in the Consoli-
dated Statement of Cash Flows in operating activities within cash
received from customers and the change in accounts receivable.
Guarantees
As is customary in the IT industry, to encourage certain cus-
tomers to purchase product from us, we have arrangements with
certain finance companies that provide inventory-financing facili-
ties for our customers. In conjunction with certain of these
arrangements, we have agreements with the finance companies
that would require us to repurchase certain inventory, which might
be repossessed from the customers by the finance companies.
Due to various reasons, including among other items, the lack of
information regarding the amount of saleable inventory purchased
from us still on hand with the customer at any point in time, our
repurchase obligations relating to inventory cannot be reasonably
estimated. Repurchases of inventory by us under these arrange-
ments have been insignificant to date. We also provide additional
financial guarantees to finance companies on behalf of certain
customers. The majority of these guarantees is for an indefinite
2 0 0 6 A n n u a l R e p o r t
1 9
period of time, where we would be required to perform if the
customer is in default with the finance company. The Company
reviews the underlying credit for these guarantees on at least an
annual basis. As of January 31, 2006 and 2005, the aggregate
amount of guarantees under these arrangements totaled approxi-
mately $7.0 million and $9.7 million, respectively, of which approx-
imately $2.9 million and $5.3 million, respectively, was outstanding.
We believe that, based on historical experience, the likelihood of
a material loss pursuant to both of the above guarantees is
remote. We also provide residual value guarantees related to our
Restructured Lease which have been recorded at the estimated
fair value of the residual value guarantees.
ASSET MANAGEMENT
We manage our 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. Inven-
tory balances fluctuate as we add new product lines and when
appropriate, we make large purchases, including cash purchases
from manufacturers and publishers when the terms of such pur-
chases are considered advantageous. Our contracts with most of
our 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, we generally receive a credit for the impact on
products in inventory and we have the right to rotate a certain
percentage of purchases, subject to certain limitations. Historically,
price protection and stock rotation privileges as well as our inven-
tory management procedures have helped to reduce the risk of
loss of inventory value.
We attempt to control losses on credit sales by closely monitor-
ing customers’ creditworthiness through our IT systems, which
contain detailed information on each customer’s payment history
and other relevant information. We have obtained credit insur-
ance that insures a percentage of the credit extended by us to
certain customers against possible loss. Customers who qualify for
credit terms are typically granted net 30-day payment terms in
the Americas. While credit terms in EMEA vary by country, the
vast majority of customers is granted credit terms ranging from
30-60 days. We also sell products on a prepay, credit card and
cash on delivery basis. In addition, certain of the Company’s ven-
dors subsidize floorplan financing arrangements for the benefit of
our customers.
QUALITATIVE AND QUANTITATIVE DISCLOSURES
ABOUT MARKET RISK
As a large global organization, we face exposure to adverse
movements in foreign currency exchange rates. These exposures
may change over time as business practices evolve and could have
a material impact on our financial results in the future. In the
normal course of business, we employ established policies and
procedures to manage our exposure to fluctuations in the value of
foreign currencies using a variety of financial instruments. It is our
policy to utilize financial instruments to reduce risks where inter-
nal netting cannot be effectively employed. Additionally, we do not
enter into foreign currency derivative instruments for speculative
or trading purposes. Our primary exposure relates to transactions in
EMEA, where the currency collected from customers can be differ-
ent from the currency used to purchase the product. Our foreign
currency risk management objective is to protect our earnings and
cash flows from the adverse impact of exchange rate changes.
Foreign exchange risk is managed by using foreign currency
forward, option and swap contracts to hedge both intercom-
pany and third party a) loans, b) accounts receivable and c)
accounts payable.
We have elected not to designate our foreign currency contracts
as hedging instruments, and they are therefore marked-to-market
with changes in their value recorded in the income statement
each period. The underlying exposures are denominated primarily
in the following currencies: U.S. dollar, British pound, Canadian
dollar, Czech koruna, Danish krone, euros, Norwegian krone,
Polish zloty, Swedish krona and Swiss franc.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
2 0
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The following table provides information about our foreign currency derivative financial instruments outstanding as of January 31,
2006 and 2005. The information is provided in U.S. dollar equivalents. For the foreign currency contracts, the table presents the notional
amount (at contractual exchange rates) and the weighted average contractual foreign currency exchange rates. These contracts are gen-
erally for durations of 90 days or less.
Foreign Currency Contracts
Notional Amounts by Expected Maturity
Average Forward Foreign Currency
Exchange Rate
January 31, 2006
January 31, 2005
Notional
amount
Weighted
average
contract rate
Estimated fair
market
value
Notional
amount
Weighted
average
contract rate
Estimated fair
market
value
(Dollar amounts in millions, except weighted average contract rates)
United States Dollar Functional Currency
Forward Contracts—Purchase
United States Dollar
Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33.63
3.17
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.20
Norwegian Krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.71
Danish Krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42.08
British Pound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.63
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.65
Miscellaneous other currencies . . . . . . . . . . . . . . . . . . .
Forward Contracts—Sell United States Dollar
Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21.60
—
Danish Krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.26
Miscellaneous other currencies . . . . . . . . . . . . . . . . . . .
Euro Functional Currency
Forward Contracts—Purchase Euro
United States Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . $118.70
16.09
Czech Koruna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
148.98
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47.12
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.60
Danish Krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.68
Canadian Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26.39
Polish Zloty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.60
Norwegian Krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward Contracts—Sell Euro
United States Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . $185.39
—
British Pound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Czech Koruna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Danish Krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.14
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Miscellaneous other currencies . . . . . . . . . . . . . . . . . . .
Forward Contracts—Purchase Swedish Krona
1.215
1.276
6.629
6.161
1.768
7.636
—
1.199
—
—
1.217
28.775
9.234
1.554
7.463
1.394
3.832
8.131
1.215
—
—
—
9.300
—
$(0.09)
(0.01)
—
(0.03)
(0.36)
(0.02)
—
$ 0.46
—
0.01
$ 0.13
(0.20)
0.05
(0.08)
—
(0.17)
(0.06)
(0.04)
$(0.48)
—
—
—
0.03
—
$103.67
2.93
5.04
4.42
33.59
—
1.07
$ 22.00
1.80
—
$ 39.13
10.07
131.27
34.65
21.07
30.25
9.04
—
$110.30
45.08
3.04
—
—
0.84
Norwegian Krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.72
1.149
$ 0.01
$ —
Forward Contracts—Sell Swedish Krona
United States Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.94
7.668
$(0.04)
$ —
Forward Contracts—Purchase British Pound
1.319
1.181
6.585
5.658
1.874
—
—
1.314
5.693
—
1.314
30.394
9.059
1.545
7.444
1.618
4.079
—
1.309
1.451
30.200
—
—
—
—
—
United States Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . $ —
—
$ —
$ 1.01
1.872
$ 1.42
0.01
(0.16)
0.04
0.26
—
—
$(0.19)
—
—
$(0.30)
(0.10)
0.69
0.02
(0.01)
(0.01)
(0.03)
—
$ 0.48
(0.25)
0.01
—
—
—
$ —
$ —
$ 0.01
2 0 0 6 A n n u a l R e p o r t
2 1
January 31, 2006
January 31, 2005
Notional
amount
Weighted
average
contract rate
Estimated fair
market
value
Notional
amount
Weighted
average
contract rate
Estimated fair
market
value
(Dollar amounts in millions, except weighted average contract rates)
Other Miscellaneous Functional Currencies
Forward Contracts—Purchase
United States Dollar
Canadian Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.45
1.10
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.80
Chilean Peso . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.28
Polish Zloty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.69
Czech Koruna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.90
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Miscellaneous other currencies . . . . . . . . . . . . . . . . . . .
Forward Contracts—Purchase Euro
British Pound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ —
7.43
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.56
Polish Zloty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.65
Miscellaneous other currencies . . . . . . . . . . . . . . . . . . .
Forward Contracts—Sell Euro
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ —
17.31
Polish Zloty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.11
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward Contracts—Sell United States Dollar
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.56
8.70
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward Contracts—Sell Norwegian Krone
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.21
1.149
1.268
527.991
3.183
23.381
7.677
—
—
1.547
3.840
—
—
3.839
9.300
1.273
3.146
1.150
$(0.08)
0.01
(0.05)
(0.13)
(0.01)
(0.05)
—
$ —
0.02
(0.06)
—
$ —
0.07
0.03
$ —
0.02
$12.50
1.40
4.72
12.50
—
—
0.20
$ 4.57
8.74
8.57
—
$ 2.48
—
—
$ 1.00
—
1.228
1.176
575.930
3.095
—
—
—
1.436
1.531
4.089
—
1.539
—
—
1.187
—
$ 0.11
0.01
0.05
0.08
—
—
—
$(0.02)
0.10
(0.06)
—
$(0.02)
—
—
$ —
—
$ 0.01
$ —
—
$ —
We are exposed to changes in interest rates primarily as a result
of our short- and long-term debt used to maintain liquidity and to
finance working capital, capital expenditures and business expan-
sion. Interest rate risk is also present in the forward foreign
currency contracts hedging intercompany and third-party loans.
Our interest rate risk management objective is to limit the impact
of interest rate changes on earnings and cash flows and to mini-
mize overall borrowing costs. To achieve our objective, we use a
combination of fixed and variable rate debt. The nature and amount
of our long-term and short-term debt can be expected to vary as
a result of future business requirements, market conditions and
other factors. As of January 31, 2006 and 2005, approximately 6%
and 82%, respectively, of the outstanding debt had fixed interest
rates. We utilize various financing instruments, such as receivables
securitization, leases, revolving credit facilities and trade receiv-
able purchase facilities, to finance working capital needs.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
2 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The following table provides information about our financial instruments that are sensitive to changes in interest rates. For debt obli-
gations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. Fair value for
these instruments was determined based on third-party valuations. All amounts are stated in U.S. dollar equivalents.
Debt and Interest Rate Contracts as of January 31, 2006
Principal Notional Amount by Expected Maturity
United States Dollar Functional Currency
Liabilities
U.S. dollar denominated debt—revolving credit
January 31,
2007
2008
2009
2010
Thereafter
Total
(Dollar amounts in millions)
Fair
market value
January 31,
2006
Variable rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 126.6
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
4.76% —
Euro Functional Currency
Liabilities
Euro denominated debt—revolving credit
Variable rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82.0
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
3.13% —
Euro denominated long-term debt (including current portion)
—
—
—
—
—
—
—
—
—
—
—
—
$ 126.6
$126.6
$ 82.0
$ 82.0
Fixed rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.6
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.94% 5.94% 5.94% 5.94% 5.94%
$ 1.7
$ 1.0
$ 1.0
$10.7
$ 16.0
$ 16.0
Other Miscellaneous Functional Currencies
Liabilities
Other foreign currencies denominated debt—revolving credit
Variable rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26.5
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
5.72% —
—
—
—
—
—
—
$ 26.5
$ 26.5
Debt and Interest Rate Contracts as of January 31, 2005
Principal Notional Amount by Expected Maturity
United States Dollar Functional Currency
Liabilities
U.S. dollar denominated debt—revolving credit
January 31,
2006
2007
2008
2009
Thereafter
Total
(Dollar amounts in millions)
Fair
market value
January 31,
2005
Variable rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.4
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
3.09% —
U.S. dollar denominated long-term debt
(including current portion)
Fixed rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $290.0
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2.00% —
Euro Functional Currency
Liabilities
Euro denominated debt—revolving credit
Variable rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56.5
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2.55% —
Euro denominated long-term debt (including current portion)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 1.4
$ 1.4
$290.0
$290.4
$ 56.5
$ 56.5
Fixed rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.6
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.94% 5.94% 5.94% 5.94% 5.94%
$ 1.7
$ 1.8
$ 1.1
$12.5
$ 18.8
$ 18.8
Other Miscellaneous Functional Currencies
Liabilities
Other foreign currencies denominated debt—revolving credit
Variable rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.4
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
4.66% —
—
—
—
—
—
—
$ 10.4
$ 10.4
2 0 0 6 A n n u a l R e p o r t
2 3
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures
designed to ensure that information required to be disclosed in
reports filed under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), is recorded, processed, summarized and
reported within the specified time periods. In designing and
evaluating our disclosure controls and procedures, management
recognized that disclosure controls and procedures, no matter
how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the disclosure
controls and procedures are met. Further, the design of a control
system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all con-
trol issues and instances of fraud, if any, within the Company have
been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns
can occur because of a simple error or mistake. Additionally, con-
trols can be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management override
of the controls. The design of any system of controls also is based
in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
As of the end of the period covered by this report, the Company’s
Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)
evaluated, with the participation of Tech Data’s management, the
effectiveness of the Company’s disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange
Act). Based on the evaluation, the Company’s CEO and CFO con-
cluded that the Company’s disclosure controls and procedures
were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the applicable rules
and forms, and that it is accumulated and communicated to our
management, including our CEO and CFO, as appropriate to allow
timely decisions regarding required disclosure.
Management’s Report on Internal Control over
Financial Reporting
Management of the Company is responsible for establishing
and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) under the Securities Exchange Act of
1934. The Company’s internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore,
even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement prepara-
tion and presentation.
Under the supervision and with the participation of manage-
ment, including our principal executive officer and principal finan-
cial officer, we assessed the effectiveness of the Company’s
internal control over financial reporting as of January 31, 2006. In
making this assessment, management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control—Integrated Framework.
Based on our assessment, we believe that, as of January 31, 2006,
the Company’s internal control over financial reporting was effec-
tive based on those criteria.
Management’s assessment of the effectiveness of internal
control over financial reporting as of January 31, 2006, has been
audited by Ernst & Young, LLP, the independent registered certi-
fied public accounting firm who also audited the Company’s
consolidated financial statements. Ernst & Young’s attestation
report on management’s assessment of the Company’s internal
control over financial reporting is included below.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
2 4
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Tech Data Corporation:
We have audited the accompanying consolidated balance
sheets of Tech Data Corporation and subsidiaries as of January 31,
2006 and 2005, and the related consolidated statements of oper-
ations, shareholders’ equity, and cash flows for each of the three
years in the period ended January 31, 2006. These financial state-
ments 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 in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial state-
ments are free of material misstatement. An audit includes exam-
ining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Tech Data Corporation and subsidiaries at January 31,
2006 and 2005, and the consolidated results of their operations
and their cash flows for each of the three years in the period
ended January 31, 2006, in conformity with U. S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Tech Data Corporation’s internal control over
financial reporting as of January 31, 2006, based on criteria estab-
lished in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 29, 2006 expressed an
unqualified opinion thereon.
Tampa, Florida
March 29, 2006
2 0 0 6 A n n u a l R e p o r t
2 5
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Shareholders of
Tech Data Corporation:
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting, that Tech Data Corporation and subsidiaries
maintained effective internal control over financial reporting as of
January 31, 2006, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Tech Data Corporation’s management is responsible for
maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on
management’s assessment and an opinion on the effectiveness
of the company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal con-
trol over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control
over financial reporting, evaluating management’s assessment,
testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we con-
sidered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projec-
tions of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
In our opinion, management’s assessment that Tech Data
Corporation maintained effective internal control over financial
reporting as of January 31, 2006, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion, Tech
Data Corporation maintained, in all material respects, effective
internal control over financial reporting as of January 31, 2006,
based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Tech Data Corporation as of
January 31, 2006 and 2005, and the related consolidated state-
ments of operations, shareholders’ equity, and cash flows for each
of the three years in the period ended January 31, 2006 of Tech
Data Corporation and our report dated March 29, 2006 expressed
an unqualified opinion thereon.
Tampa, Florida
March 29, 2006
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
2 6
CONSOLIDATED BALANCE SHEET
January 31,
2006
2005
(In thousands,
except share amounts)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 156,665
2,160,138
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,527,729
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
138,927
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,983,459
141,275
134,327
145,573
$ 195,056
2,217,474
1,492,479
151,480
4,056,489
146,144
149,719
205,384
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,404,634
$ 4,557,736
Liabilities and Shareholders’ Equity
Current liabilities:
Revolving credit loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 235,088
1,917,213
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,605
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
437,445
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,591,351
14,378
38,598
$
68,343
1,757,838
291,625
450,066
2,567,872
17,215
45,178
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,644,327
2,630,265
Commitments and contingencies (Note 12)
Shareholders’ equity:
Common stock, par value $.0015; 200,000,000 shares authorized; 59,239,085 shares issued at
January 31, 2006 and 58,984,055 shares issued at January 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost (3,048,060 shares at January 31, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89
729,455
(112,601)
938,383
204,981
88
724,562
—
911,797
291,024
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,760,307
1,927,471
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,404,634
$ 4,557,736
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
2 0 0 6 A n n u a l R e p o r t
2 7
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended January 31,
2006
2005
2004
(In thousands, except per share amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,482,851
19,460,332
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,730,917
18,667,184
$ 17,358,525
16,414,773
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,022,519
828,278
30,946
—
1,063,733
832,178
—
—
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount on sale of accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net foreign currency exchange loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
163,295
31,422
5,503
(7,426)
1,816
131,980
109,013
22,967
3,619
231,555
28,473
—
(5,606)
(2,959)
211,647
52,025
159,622
2,838
943,752
771,786
—
3,065
168,901
23,217
—
(6,651)
(1,893)
154,228
47,040
107,188
(3,041)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
26,586
$
162,460
$
104,147
Income (loss) per common share—basic:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.40
0.06
$
2.74
0.05
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.46
$
2.79
$
Income (loss) per common share—diluted:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.39
0.06
$
2.69
0.05
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.45
$
2.74
$
1.88
(0.05)
1.83
1.86
(0.05)
1.81
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,749
58,414
58,176
59,193
56,838
57,501
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
2 8
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
Common Stock
Shares
Amount
Additional
paid-in
capital
Treasury
stock
Retained
earnings
(In thousands)
Accumulated
other
comprehensive
income
(loss)(a)
Total
shareholders’
equity
Balance—January 31, 2003 . . . . . . . . . . . . . 56,484
Issuance of common stock for benefit
plans and stock options exercised,
including related tax benefit of $4,343 . . . 1,233
—
Comprehensive income . . . . . . . . . . . . . . . .
Balance—January 31, 2004 . . . . . . . . . . . . . 57,717
Issuance of common stock for benefit
plans and stock options exercised,
including related tax benefit of $5,738 . . . 1,267
—
Comprehensive income . . . . . . . . . . . . . . . .
Balance—January 31, 2005 . . . . . . . . . . . . . 58,984
Issuance of common stock for benefit
plans and stock options exercised,
including related tax benefit of $1,461 . . .
Purchase of treasury stock, at cost . . . . . . . .
Issuance of treasury stock for benefit
plans and stock options exercised,
255
—
including related tax benefit of $1,174 . . .
Comprehensive income (loss) . . . . . . . . . . . .
—
—
$85
$652,928
$
— $ 645,190
$ 40,327
$1,338,530
2
—
87
1
—
88
1
—
—
—
33,164
—
686,092
38,470
—
724,562
—
—
— 104,147
— 749,337
—
182,646
222,973
33,166
286,793
1,658,489
—
—
— 162,460
—
68,051
38,471
230,511
— 911,797
291,024
1,927,471
8,001
—
—
(127,027)
—
—
—
—
8,002
(127,027)
(3,108)
—
14,426
—
—
26,586
—
(86,043)
11,318
(59,457)
Balance—January 31, 2006 . . . . . . . . . . . 59,239
$89
$729,455
$ (112,601) $ 938,383
$204,981
$1,760,307
(a) The Company’s accumulated other comprehensive income (loss) is comprised exclusively of changes in the Company’s cumulative foreign currency translation
adjustment account.
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
2 0 0 6 A n n u a l R e p o r t
2 9
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended January 31,
2006
2005
2004
(In thousands)
Cash flows from operating activities:
Cash received from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,504,871
(20,160,865)
Cash paid to suppliers and employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,082)
Interest paid, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(65,485)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,745,283
(19,571,824)
(18,837)
(47,677)
$ 17,390,674
(17,027,162)
(17,045)
(43,233)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
257,439
106,945
303,234
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenditures for property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software and software development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Proceeds from the issuance of common stock and reissuance of treasury stock . . . . .
Cash paid for purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net borrowings (repayments) on revolving credit loans . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
9,169
(41,973)
(18,779)
(51,583)
16,686
(127,027)
166,530
(291,627)
(235,438)
(8,809)
(38,391)
195,056
—
5,130
(25,876)
(17,899)
(38,645)
32,733
—
(11,319)
(9,214)
12,200
5,755
86,255
108,801
(203,010)
4,484
(31,278)
(21,714)
(251,518)
28,823
—
(138,039)
(1,492)
(110,708)
10,602
(48,390)
157,191
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
156,665
$
195,056
$
108,801
Reconciliation of net income to net cash provided by operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
26,586
$
162,460
$
104,147
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Provision for losses on accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
53,744
6,172
26,466
$
55,472
13,268
(3,616)
55,084
29,214
7,369
(32,585)
(83,311)
3,078
214,804
42,485
230,853
(44,305)
(119,999)
(32,193)
55,849
20,009
(15,699)
(140,203)
14,713
300,350
(51,741)
(55,515)
199,087
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
257,439
$
106,945
$
303,234
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
3 0
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Tech Data Corporation (“Tech Data” or the “Company”) is a
leading provider of information technology (“IT”) products, logis-
tics management and other value-added services. The Company
distributes microcomputer hardware and software products to
value-added resellers, direct marketers, retailers and corporate
resellers. The Company is managed in two geographic segments:
the Americas (which includes the United States, Canada, Latin
America and export sales to the Caribbean) and EMEA (which
includes Europe, the Middle East and export sales to Africa).
Principles of Consolidation
The consolidated financial statements include the accounts
of Tech Data and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The Company operates on a fiscal year that ends on January 31.
Basis of Presentation
In accordance with Statement of Financial Accounting Standards
(“SFAS” or “Statement”) No. 144, “Accounting for the Impairment
or Disposal of Long-lived Assets,” the Company has accounted for
the EMEA Training Business (the “Training Business”) as a discon-
tinued operation. SFAS No. 144 applies to long-lived assets to be
held and used or to be disposed of, including assets under capital
leases of lessees, assets subject to operating leases of lessors and
prepaid assets. The results of operations of the Training Business
have been reclassified and presented as “income (loss) from dis-
continued operations, net of tax,” for all periods presented. The
balance sheet data has not been reclassified as the net assets of
the Training Business are less than 0.5% of the total net assets of
the Company. The cash flows of the Training Business have not
been reported separately within the Company’s Consolidated
Statement of Cash Flows as the net cash flows of the Training
Business are not material and the absence of cash flows from dis-
continued operations is not expected to affect the Company’s
future liquidity. The transaction is further discussed in Note 2—
Discontinued Operations.
Method of Accounting
The Company prepares its financial statements in conformity
with accounting principles generally accepted in the United States.
These principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabil-
ities 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
Revenue is recognized once four criteria are met: (1) the
Company must have persuasive evidence that an arrangement
exists; (2) delivery must occur, which generally happens at the
point of shipment (this includes the transfer of both title and risk
of loss, provided that no significant obligations remain); (3) the
price must be fixed or determinable; and (4) collectibility must be
reasonably assured. Shipping revenue is included in net sales while
the related costs, including shipping and handling costs, are included
in the cost of products sold. The Company allows its customers to
return product for exchange or credit subject to certain limitations.
A provision for such returns is recorded at the time of sale based
upon historical experience.
The Company generated net sales of approximately 27%, 28%
and 32%, in fiscal 2006, 2005 and 2004, respectively, from prod-
ucts purchased from Hewlett Packard.
Service revenue associated with configuration, training and
other services is recognized when the work is complete and the
four criteria discussed above have been met. Service revenues
have represented less than 10% of total net sales for fiscal years
2006, 2005 and 2004.
Accounts Receivable
The Company maintains an allowance for doubtful accounts
for estimated losses resulting from the inability of our customers
to make required payments. In estimating the required allowance,
the Company takes into consideration the overall quality and
aging of the receivable portfolio, the existence of credit insurance,
specifically identified customer risks and historical writeoff experi-
ence. If actual customer performance were to deteriorate to an
extent not expected by the Company, additional allowances may
be required which could have an adverse effect on the Company’s
financial results.
Inventories
Inventories, consisting entirely of finished goods, are stated at
the lower of cost or market, cost being determined on the first-in,
first-out (“FIFO”) method. Inventory is written down for estimated
obsolescence equal to the difference between the cost of inventory
and the estimated market value, based upon an aging analysis of
the inventory on hand, specifically known inventory-related risks
(such as technological obsolescence and the nature of vendor
terms surrounding price protection and product returns), foreign
2 0 0 6 A n n u a l R e p o r t
3 1
currency fluctuations for foreign-sourced product and assump-
tions about future demand.
Property and Equipment
Property and equipment are stated at cost and property and
equipment under capital leases are stated at the present value of
the future minimum lease payments. Depreciation expense includes
depreciation of purchased property and equipment and assets
recorded under capital leases. Depreciation expense is computed
over the shorter of the estimated economic lives or lease periods
using the straight-line method as follows:
Years
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15–39
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3–10
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 3–10
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 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 the
carrying amount of the asset may not be recoverable. An impair-
ment loss would be recognized when the sum of the expected,
undiscounted future net cash flows is less than the carrying
amount of the asset.
Goodwill
The Company accounts for goodwill and other intangible
assets in accordance SFAS No. 142, “Goodwill and Other Intangible
Assets.” SFAS No. 142 requires an annual review for impairment,
or more frequently if impairment indicators arise. This testing
includes the determination of each reporting unit’s fair value using
market multiples and discounted cash flow modeling. The Company
performs its annual review for goodwill impairment in the fourth
quarter of each fiscal year.
Intangible Assets
Included within other assets at both January 31, 2006 and 2005
are certain intangible assets including capitalized software costs,
as well as value assigned to the acquired customer lists and trade-
marks related to the acquisitions of Computer 2000 AG (“Computer
2000”) and Azlan Group PLC (“Azlan”). Such capitalized costs and
intangibles are being amortized over a period of three to ten years.
The Company capitalizes computer software costs that meet
both the definition of internal-use software and defined criteria
for capitalization in accordance with SFAS Position No. 98-1,
“Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use.”
The Company’s accounting policy is to amortize capitalized
software costs on a straight-line basis over periods ranging from
three to ten years, depending upon the nature of the software,
the stability of the hardware platform on which the software is
installed, its fit in our overall strategy, and our experience with
similar software. It is the Company’s policy to amortize personal
computer-related software, such as spreadsheet and word pro-
cessing applications, over three years, which reflects the rapid
changes in personal computer software. Mainframe software
licenses are amortized over five years, which is in line with the
longer economic life of mainframe systems compared to personal
computer systems. Finally, strategic applications such as customer
relationship management and enterprise-wide systems are amor-
tized over seven to ten years based on their strategic fit and the
Company’s historical experience with such applications.
Product Warranty
The Company’s vendors generally warrant the products distrib-
uted 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, in several countries where
the Company operates, the Company is responsible for defective
products as a matter of law. The time period required by law in
certain countries exceeds the warranty period provided by the
manufacturer. To date, the Company has not incurred any signifi-
cant costs for defective products under these legal requirements.
The Company does warrant services with regard to products
integrated for its customers. A provision for estimated warranty
costs is recorded at the time of sale and periodically adjusted to
reflect actual experience. To date, the Company has not incurred
any significant service warranty costs. Fees charged for products
configured by the Company represented less than 10% of net
sales for fiscal years 2006, 2005 and 2004.
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
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
3 2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
subsidiaries or the cumulative translation adjustment related to
those investments, since such amounts are expected to be rein-
vested indefinitely.
The Company’s future effective tax rates could be adversely
affected by earnings being lower than anticipated in countries
where it has lower statutory rates, changes in the valuation of its
deferred tax assets or liabilities or changes in tax laws or interpre-
tations thereof. In addition, the Company is subject to the contin-
uous examination of its income tax returns by the Internal Revenue
Service and other tax authorities. The Company regularly assesses
the likelihood of adverse outcomes resulting from these examina-
tions to determine the adequacy of its provision for income taxes.
To the extent the Company were to prevail in matters for which
accruals have been established or be required to pay amounts in
excess of such accruals, the Company’s effective tax rate in a given
financial statement period could be materially affected.
Concentration of Credit Risk
The Company sells its products to a large base of value-added
resellers, direct marketers, retailers and corporate resellers
throughout the United States, Europe, Canada, Latin America, the
Caribbean, the Middle East and Africa. The Company 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 customers against possible loss. The Company makes
provisions for estimated credit losses at the time of sale. No single
customer accounted for more than five percent of the Company’s
net sales during fiscal years 2006, 2005 and 2004.
Foreign Currency Translation
Income and expense accounts of foreign operations are trans-
lated at weighted average exchange rates during the year. Assets,
including goodwill, and liabilities of foreign operations that operate
in a local currency environment are translated to U.S. dollars at the
exchange rates in effect at the balance sheet date, with the related
translation gains or losses reported as components of accumu-
lated other comprehensive income in shareholders’ equity.
Derivative Financial Instruments
The Company faces exposure to changes in foreign currency
exchange rates and interest rates. The Company reduces its expo-
sure by creating offsetting positions through the prudent use of
derivative financial instruments. The majority of these instruments
have terms of 90 days or less. It is the Company’s policy to utilize
financial instruments to reduce risk where appropriate and prohibit
entering into derivative financial instruments for speculative or
trading purposes.
Derivative financial instruments are marked-to-market each
period with gains and losses on these contracts recorded in income
in the period in which their value changes, with the offsetting entry
for unsettled positions being booked to either other assets or
other liabilities. Gains and losses resulting from effective account-
ing 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 to be bought or sold at matu-
rity. The notional amount of interest rate swaps is the underlying
principal 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 similar
offsetting contracts with similar remaining maturities based on
quoted market prices.
The Company’s derivative financial instruments outstanding at
January 31, 2006 and 2005 are as follows:
January 31, 2006
January 31, 2005
Notional
amounts
Estimated
fair
value
Notional
amounts
Estimated
fair
value
(In thousands)
Foreign exchange
forward
contracts . . . . . . . . . $818,030
$(1,109)
$666,950
$214
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate
fair value because of the short maturity of these items. The carry-
ing amount of debt outstanding pursuant to bank credit agree-
ments approximates fair value as interest rates on these instruments
approximate current market rates. The estimated fair value of the
convertible subordinated notes was approximately $290.4 million
at January 31, 2005 based upon available market information.
These convertible subordinated notes were repaid prior to
January 31, 2006.
2 0 0 6 A n n u a l R e p o r t
3 3
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity
(net assets) of a business enterprise during a period from transac-
tions and other events and circumstances from non-owner sources,
and is comprised of “net income (loss)” and “other comprehen-
sive income (loss).” The Company’s other comprehensive income
(loss) is comprised exclusively of changes in the Company’s cur-
rency translation adjustment account (“CTA account”), including
income taxes attributable to those changes.
Comprehensive income (loss), net of taxes, for the years ended
Year ended January 31,
2006
2005
2004
(In thousands,
except per share amounts)
Net income, as reported . . . . . . . . . $ 26,586
Deduct: Total stock-based employee
compensation expense deter-
mined under fair value-based
method for all awards,
net of related tax effects (1) . . . . .
(22,804)
$ 162,460
$ 104,147
(17,592)
(21,231)
January 31, 2006, 2005 and 2004 is as follows (in thousands):
Pro forma net income . . . . . . . . . . . $ 3,782
$ 144,868
$ 82,916
Year ended January 31,
2006
2005
2004
Comprehensive income (loss):
Net income . . . . . . . . . . . . . . . . . . $ 26,586
(86,043)
Change in CTA(1) . . . . . . . . . . . . . .
$ 162,460
68,051
$ 104,147
182,646
Total . . . . . . . . . . . . . . . . . . . . . $ (59,457)
$ 230,511
$ 286,793
(1) Net of income taxes of $5.6 million for the fiscal year ended January 31, 2004.
There was no income tax effect in fiscal years 2006 or 2005.
Accumulated comprehensive income includes $28.6 million of
income taxes at January 31, 2006, 2005 and 2004.
Stock-Based Compensation
At January 31, 2006, the Company had awards outstanding
under four stock-based employee compensation plans, which are
described more fully in Note 10—Employee Benefit Plans. The
Company has adopted the disclosure provisions of SFAS No. 148,
“Accounting for Stock-Based Compensation—Transition and
Disclosure,” which amends SFAS No. 123, “Accounting for Stock-
Based Compensation.” SFAS No. 148 allows for continued use of
recognition and measurement principles of Accounting Principles
Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees” and related interpretations in accounting for those
plans. The Company applies the recognition and measurement
principles of APB Opinion No. 25 and related interpretations in
accounting for the Company’s stock-based compensation plans.
Options granted under these plans had an exercise price equal to
or greater than the market value of the underlying common stock
on the date of grant. The following table illustrates the effect on
net income and earnings per share if the Company had applied
the fair value recognition provisions to stock-based employee
compensation. Such disclosure is not necessarily indicative of the
fair value of stock options that could be granted by the Company
in future fiscal years or of the value of all equity instruments cur-
rently outstanding.
Earnings per share:
Basic—as reported . . . . . . . . . . . $
0.46
Basic—pro forma . . . . . . . . . . . . $
0.07
Diluted—as reported . . . . . . . . . $
0.45
Diluted—pro forma . . . . . . . . . . $
0.06
$
$
$
$
2.79
2.49
2.74
2.45
$
$
$
$
1.83
1.46
1.81
1.44
(1) Pro forma stock compensation expense for the year ended January 31, 2006
includes incremental expense, net of the related tax effects, of approximately $15.4
million related to the accelerated vesting of stock options issued in March 2004.
On February 25, 2005, the Company’s Board of Directors
approved the acceleration of vesting for all stock options awarded
in March 2004 to employees and officers under the Company’s
stock option award program. While the Company typically issues
options that vest equally over four years, as a result of this vesting
acceleration, stock options to purchase approximately 1.5 million
shares of the Company’s common stock became immediately
exercisable. The grant prices of the affected stock options range
from $41.08 to $41.64 and the closing price of the Company’s
common stock on February 24, 2005, was $41.20. The vesting
acceleration resulted in an expense to the Company of less than
$0.1 million. The primary purpose of the accelerated vesting was
to eliminate future compensation expense the Company would
otherwise recognize in its income statement with respect to these
accelerated options upon the adoption of SFAS No. 123R, “Share-
Based Payments.”
Treasury Stock
Treasury stock is accounted for at cost. The reissuance of shares
from treasury stock for exercises of stock-based awards or other
corporate purposes is based on the weighted average purchase
price of the shares.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
3 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Earnings Per Share (“EPS”)
Basic EPS is computed by dividing net income by the weighted average number of shares outstanding during the reported period. For
the years ended January 31, 2006, 2005 and 2004, diluted EPS reflects the potential dilution that could occur assuming the exercise of
the stock options and similar equity incentives (as further discussed below) using the if-converted and treasury stock methods, respec-
tively. The composition of basic and diluted EPS is as follows:
Year ended January 31, 2006
Year ended January 31, 2005
Year ended January 31, 2004
Net
income
Weighted
average
shares
Per
share
amount
Net
income
Weighted
average
shares
Per
share
amount
Net
income
Weighted
average
shares
Per
share
amount
Net income per common share—
basic . . . . . . . . . . . . . . . . . . . . . . . . . . $26,586
57,749
$0.46
$162,460
58,176
$2.79
$104,147
56,838
$1.83
Effect of dilutive securities:
Stock options . . . . . . . . . . . . . . . . . . . . .
—
665
—
1,017
—
663
Net income per common share—
diluted . . . . . . . . . . . . . . . . . . . . . . . . $26,586
58,414
$0.45
$162,460
59,193
$2.74
$104,147
57,501
$1.81
(In thousands, except per share data)
At January 31, 2006, 2005 and 2004, there were 3,215,066,
1,435,852 and 2,445,046 shares, respectively, excluded from the
computation of diluted earnings per share because their effect
would have been antidilutive.
The Company issued approximately 255,000 shares of common
stock during the year ended January 31, 2006 and 1,267,000 shares
of common stock during the year ended January 31, 2005 in con-
nection with the exercise of stock options. In addition, during the
year ended January 31, 2006, the Company repurchased 3,443,131
shares of common stock and reissued 395,071 shares of the
treasury stock.
In December 2004 the Company completed an Exchange Offer
whereby approximately 99.3% of the Company’s $290.0 million
convertible subordinated debentures (the “Old Notes”) were
exchanged for new debentures (the “New Notes”). The dilutive
impact of the Old Notes and New Notes outstanding at January 31,
2005 and 2004 has been excluded from the diluted earnings per
share calculations due to the conditions for the contingent conver-
sion features not being met. As further discussed in Note 8—
Long-Term Debt, the entire balance of the Old Notes and the New
Notes was repaid prior to January 31, 2006.
Cash Management System
Under the Company’s cash management system, to the extent
that cash is unavailable locally, disbursements cleared by the bank
are reimbursed on a daily basis from available credit facilities. As a
result, checks issued but not yet presented to the bank by the
payee are not considered reductions of cash or accounts payable.
Included in accounts payable are $87.3 million and $67.1 million
at January 31, 2006 and 2005, 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.
Contingencies
The Company accrues for contingent obligations, including
estimated legal costs, when the obligation is probable and the
amount is reasonably estimable. As facts concerning contingen-
cies become known, the Company reassesses its position and
makes appropriate adjustments to the financial statements.
Estimates that are particularly sensitive to future changes include
those related to tax, legal and other regulatory matters such as
imports and exports, the imposition of international governmental
controls, changes in the interpretation and enforcement of inter-
national laws (particularly related to items such as duty and taxa-
tion), and the impact of local economic conditions and practices,
which are all subject to change as events evolve and as additional
information becomes available during the administrative and liti-
gation process.
2 0 0 6 A n n u a l R e p o r t
3 5
Non-Cash Transactions
The Company completed an Exchange Offer in December 2004
whereby approximately 99.3% of the Company’s $290.0 million
convertible subordinated debentures were exchanged for New
Notes. See further discussion at Note 8—Long-Term Debt.
Recent Accounting Pronouncements & Legislation
In December 2004, the Financial Accounting Standards Board
(“FASB”) issued Staff Position No. 109-2, “Accounting and Disclo-
sure Guidance for the Foreign Earnings Repatriation Provision
within the American Jobs Creation Act of 2004” (“FSP No. 109-2”),
which provides guidance for implementing the repatriation of
earnings provisions of the American Jobs Creation Act of 2004
(the “Jobs Act”) and disclosing the provision’s impact on the
Company’s income tax and deferred tax liabilities. Even though
the Jobs Act was enacted in October 2004, FSP No. 109-2 permits
additional time beyond the period of enactment to allow the
Company to evaluate the effects of the Jobs Act on the Company’s
plan for reinvestment or repatriation of foreign earnings. After
completing this evaluation during the third quarter of fiscal 2006,
the Company made the decision not to repatriate any foreign
earnings under the provisions of the Jobs Act.
In February 2005, the FASB issued Emerging Issues Task Force
(“EITF”) Issue No. 03-13, “Applying the Conditions of Paragraph
42 of FASB Statement No. 144 in Determining Whether to Report
Discontinued Operations” (“EITF 03-13”). EITF 03-13 gives guid-
ance on how to evaluate whether the operations and cash flows
of a disposed component have been or will be eliminated from
ongoing operations and the types of continuing involvement that
constitute significant continuing involvement in the operations of
the disposed component. The provisions of EITF 03-13 have been
applied in the determination of the discontinued operations as of
January 31, 2006.
In April 2005, the SEC modified the effective date of SFAS
No. 123R—“Share-Based Payments” (“SFAS No. 123R”). SFAS No.
123R, as amended, requires all share-based payments to employ-
ees, including grants of employee equity incentives, to be recog-
nized in the consolidated statement of operations based on their
fair values. SFAS No. 123R is applicable to the Company beginning
February 1, 2006, and the Company will adopt the standard using
the “modified prospective” method. The modified prospective
method requires compensation costs to be recognized, beginning
with the effective date of adoption, for all share-based payments
granted after the effective date and awards granted to employees
prior to the effective date of the statement that remain unvested
on the effective date.
As permitted by SFAS No. 123, the Company currently accounts
for share-based payments to employees using the intrinsic value
method prescribed in APB Opinion No. 25, and as such, generally
recognizes no compensation cost for employee stock options.
Accordingly, the adoption of SFAS No. 123R will impact the
Company’s results of operations, although it will have no impact
on our overall liquidity. The future impact of the adoption of SFAS
No. 123R cannot be determined because it will depend on the
levels of share-based payments granted in the future. However,
had the Company adopted SFAS No. 123R in prior periods, the
impact of the statement would have approximated the impact of
SFAS No. 123 as described in the disclosure of pro-forma net
income and earnings per share included in the stock-based com-
pensation table earlier in this note.
SFAS No. 123R also requires the benefits of tax deductions in
excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow, as cur-
rently required. This requirement will reduce net operating cash
flows and increase net financing cash flows in periods after adop-
tion. While the Company cannot estimate what those amounts
will be in the future as it depends, among other things, when
employees exercise stock options, the amount of operating cash
flows recognized in prior periods for such excess tax deductions
were $2.6 million, $5.7 million and $4.3 million for the years
ended January 31, 2006, 2005 and 2004, respectively.
In May 2005, the FASB issued SFAS No. 154, “Accounting
Changes and Corrections” (“SFAS No. 154”), which replaces APB
Opinion No. 20, “Accounting Changes” and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements,”
and changes the requirements for the accounting for and report-
ing of a change in accounting principle. SFAS No. 154 also provides
guidance on the accounting for and reporting of error corrections.
This statement is applicable for accounting changes and corrections
of errors made in fiscal years beginning after December 15, 2005.
In June 2005, the FASB issued Staff Position 143-1, “Accounting
for Electronic Equipment Waste Obligations” (“FSP 143-1”). FSP
143-1 provides guidance on the accounting for certain obligations
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
3 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
associated with the Waste Electrical and Electronic Equipment
Directive (the “Directive”) adopted by the European Union (“EU”).
Under the Directive, the waste management obligation for histori-
cal equipment (products put on the market on or prior to August
13, 2005) remains with the commercial user until the customer
replaces the equipment. The Company will apply the provisions of
FSP 143-1, which requires recognition of the estimated liability
and obligation associated with the historical waste, upon the
Directive’s adoption into law by the applicable EU member coun-
tries in which it operates. The Company is in the process of assess-
ing what impact, if any, the Directive and FSP 143-1 may have on
its consolidated financial position or results of operations.
Reclassifications
Reclassifications, in addition to those related to discontinued
operations discussed in Note 2, have been made to the January 31,
2005 and 2004 financial statements to conform to the January 31,
2006 financial statement presentation. These reclassifications did
not change previously reported total assets, liabilities, shareholders’
equity or net income.
NOTE 2 —DISCONTINUED OPERATIONS
In the fourth quarter of fiscal 2006, in order to dedicate strate-
gic efforts and resources to core growth opportunities, the
Company made the decision to sell the EMEA Training Business
(the “Training Business”). In March 2006, we closed the sale of
the Training Business to a third-party (the “Purchaser”) for total
cash consideration of $16.5 million and $0.5 million of additional
consideration which is contingent upon the satisfaction of certain
post-closing conditions. The sale of the Training Business includes
net assets with a book value of approximately $7.3 million at
January 31, 2006, comprised primarily of accounts receivable,
property and equipment, accrued expenses and other liabilities.
We will provide IT services for a transitional period anticipated to
be approximately six months, but will have no other significant
continuing involvement in the operations of the Training Business
subsequent to the closing of the sale. In addition, the Company
will realize no continuing cash flows from the Training Business
subsequent to the closing of the sale. The Company is in the pro-
cess of finalizing the closing balance sheet as of the sale date with
the Purchaser, including the allocation of any EMEA goodwill, and
does not anticipate the gain on the sale of the Training Business to
be material to the Company’s consolidated operating results or
financial condition.
In accordance with SFAS No. 144, “Accounting for the Impair-
ment or Disposal of Long-Lived Assets,” the sale of the Training
Business qualifies as a discontinued operation. Accordingly, the
results of the Training Business have been reclassified and pre-
sented as “income (loss) from discontinued operations, net of tax,”
within Consolidated Statement of Operations for each of the three
years in the period ended January 31, 2006. The assets and liabili-
ties of the Training Business have not been reclassified within the
Consolidated Balance Sheet as the net assets of the Training
Business are less than 0.5% of the total consolidated net assets of
the Company.
The following table reflects the results of the Training Business
reported as discontinued operations for all periods presented:
Year ended January 31,
2006
2005
2004
(In thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $59,290
11,519
Cost of products sold . . . . . . . . . . . . . .
$ 59,416
11,117
$ 47,815
9,921
Gross profit . . . . . . . . . . . . . . . . . . . . .
Selling, general and
administrative expenses . . . . . . . . . .
Operating income (loss) from
discontinued operations . . . . . . . . . .
Provision (benefit) for income taxes . . .
47,771
48,299
37,894
42,545
44,340
41,179
5,226
1,607
3,959
1,121
(3,285)
(244)
Income (loss) from discontinued
operations, net of tax . . . . . . . . . . . . $ 3,619
$ 2,838
$ (3,041)
2 0 0 6 A n n u a l R e p o r t
3 7
No amounts related to interest expense or interest income have
been allocated to discontinued operations.
The net assets of the Training Business as of January 31, 2006,
included in the Company’s Consolidated Balance Sheet, are as fol-
lows (in thousands):
ASSETS
Current assets:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,266
537
2,227
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,030
6,236
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,266
LIABILITIES
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,597
9,349
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . .
on currency exchange rates at that date. Under the Receivables
Facilities, the Company may sell certain accounts receivable (the
“Receivables”) in exchange for cash less a discount based on LIBOR
plus a margin. Such transactions have been accounted for as a true
sale, in accordance with SFAS No. 140, “Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities.”
The Receivables Facilities, of which $200.0 million expires in May
2006 and $146.0 million does not have an expiration date, require
that the Company continue to service, administer and collect the
sold accounts receivable. During the year ended January 31, 2006,
the Company received gross proceeds of $796.1 million from the
sale of the Receivables and recognized related discounts totaling
$5.5 million. The proceeds, net of the discount incurred, are
reflected in the Consolidated Statement of Cash Flows in operat-
ing activities within cash received from customers and the change
in accounts receivable.
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,946
NOTE 4— PROPERTY AND EQUIPMENT, NET
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,946
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,320
January 31,
2006
2005
(In thousands)
NOTE 3 —ACCOUNTS RECEIVABLE, NET
Accounts receivable, net is comprised of the following:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings and leasehold improvements . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . .
6,276
88,996
322,344
$
8,075
100,669
321,670
January 31,
2006
2005
(In thousands)
Less accumulated depreciation . . . . . . . . . . . . .
417,616
(276,341)
430,414
(284,270)
$ 141,275
$ 146,144
Accounts receivable . . . . . . . . . . . . . . . . . . . $2,220,513
(60,375)
Allowance for doubtful accounts . . . . . . . . .
$2,294,783
(77,309)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,160,138
$2,217,474
Trade Receivables Purchase Facility Agreements
During fiscal 2006, the Company entered into revolving trade
receivables purchase facility agreements (the “Receivables Facilities”)
with third-party financial institutions to sell accounts receivable on
a non-recourse basis. The Company uses the Receivables Facilities
as a source of working capital funding. The Receivables Facilities
limit the amount of purchased accounts receivable the financial
institutions may hold to $346.0 million at January 31, 2006, based
Depreciation expense, including amortization expense of assets
recorded under capital leases, included in income from continuing
operations for the years ended January 31, 2006, 2005 and 2004
totaled $30.6 million, $33.1 million, and $35.2 million, respec-
tively. Property and equipment leased under capital leases was
approximately $14.5 million and $17.2 million, net of accumulated
depreciation of $8.2 million and $7.1 million, at January 31, 2006
and 2005, respectively (see Note 8—Long-Term Debt). Property
and equipment recorded as capital leases is comprised of a logis-
tics center and related equipment in EMEA.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
3 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5 — GOODWILL AND OTHER
INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the years
ended January 31, 2006 and 2005, respectively, are as follows:
The Company accounts for goodwill and other intangible
assets in accordance with SFAS No. 142, “Goodwill and Other
Intangible Assets” (“SFAS No. 142”). SFAS No. 142 requires an
annual review for impairment, or more frequently if impairment
indicators arise. This review includes the determination of each
reporting unit’s fair value using market multiples and discounted
cash flow modeling. Separable intangible assets that have finite
lives continue to be amortized over their estimated useful lives.
During the fourth quarters of fiscal 2006, 2005 and 2004, the
Company performed its annual review for impairment of goodwill
and determined there were no impairments.
Americas
EMEA
Total
Balance as of January 31, 2004 . . . $2,966
Goodwill acquired during the year . .
—
Adjustments to allocation of
previously recorded
purchase price . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . .
—
—
(In thousands)
$ 138,272
3,046
$ 141,238
3,046
(3,728)
9,163
(3,728)
9,163
Balance as of January 31, 2005 . . .
Adjustments to allocation of
previously recorded
purchase price . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . .
2,966
146,753
149,719
—
—
(3,346)
(12,046)
(3,346)
(12,046)
Balance as of
January 31, 2006 . . . . . . . . . . . . $2,966
$ 131,361
$ 134,327
(1) “Other” primarily relates to the effect of fluctuations in foreign currencies.
Included within “other assets, net” are intangible assets as follows:
January 31, 2006
January 31, 2005
Gross
carrying
amount
Accumulated
amortization
Net book
value
Gross
carrying
amount
Accumulated
amortization
Net book
value
(In thousands)
(In thousands)
Amortized intangible assets:
Capitalized software and development costs . . . . . . . . . . . . . . . . . . $191,169
29,340
Customer lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,303
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
817
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$107,248
15,777
4,139
745
$ 83,921
13,563
3,164
72
$181,638
31,443
7,827
708
$ 95,792
12,930
2,869
592
$ 85,846
18,513
4,958
116
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $228,629
$127,909
$100,720
$221,616
$112,183
$ 109,433
In addition, the Company capitalized intangible assets of
$18.8 million, $17.9 million and $21.7 million for the years ended
January 31, 2006, 2005 and 2004, respectively. These capitalized
intangible assets included capitalized interest of $0.3 million, $0.6
million and $0.8 million for the respective periods. These capital-
ized assets related solely to software and software development
expenditures to be used in the Company’s operations.
The weighted average amortization period for all intangible
assets capitalized during fiscal 2006, 2005 and 2004 approximated
nine, eight and seven years, respectively. The weighted average
amortization period of all intangible assets was approximately
nine, nine and eight years for fiscal years 2006, 2005 and 2004,
respectively.
Amortization expense included in income from continuing
operations for the years ended January 31, 2006, 2005 and 2004
totaled $21.2 million, $20.0 million and $17.7 million, respectively.
Estimated amortization expense of currently capitalized costs for
assets placed in service is as follows (in thousands):
Fiscal year:
2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,500
2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,900
2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,200
2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,900
8,700
2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 0 0 6 A n n u a l R e p o r t
3 9
NOTE 6— RESTRUCTURING PROGRAM
In May 2005, the Company announced a formal restructuring
program to better align the EMEA operating cost structure with
the current business environment. In connection with this restruc-
turing program, the Company has recorded and will continue to
record charges for workforce reductions and the optimization of
facilities and systems.
Excluding consulting costs, total cash charges associated with
the restructuring program are estimated to be in the range of
$40.0 to $50.0 million, comprised of $24.0 to $30.0 million
related to workforce reductions and $16.0 to $20.0 million related
to the optimization of facilities and systems. Through January 31,
2006, the Company has incurred $30.9 million related to the
restructuring program, comprised of approximately $18.9 million
related to workforce reductions and approximately $12.0 million
for facility costs. The remaining charges are expected to be
incurred over the next three quarters and may vary each quarter
depending upon the timing of certain actions. Costs related to
the restructuring program have been funded by operating cash
flows and the Company’s credit facilities. The recognition of
restructuring charges requires the Company’s management to
make judgments and estimates regarding the nature, timing, and
amount of costs associated with the restructuring plan. Although
the Company believes its estimates are appropriate and reason-
able based on available information, actual results could differ
from those estimates.
The restructuring charges are incurred pursuant to formal plans
developed by management and are accounted for in accordance
with the guidance set forth in SFAS No. 146, “Accounting for
Costs Associated with Exit or Disposal Activities.” The costs related
to this restructuring program, other than the external consulting
costs, are reflected in the Consolidated Statement of Operations as
“restructuring charges,” which is a component of operating
income. The accrued restructuring charges are included in “accrued
expenses and other liabilities” in the Consolidated Balance Sheet.
In addition, during the nine months ended January 31, 2006, the
Company incurred approximately $9.6 million of external consult-
ing costs related to the restructuring program. These consulting
costs are included in “selling, general and administrative expenses”
in the Consolidated Statement of Operations.
Summarized below is the activity related to accruals for restruc-
turing charges recorded during the year ended January 31, 2006:
Employee
termination
benefits
Facility
costs
Total
(In thousands)
Balance as of January 31, 2005 . . . $ —
18,888
Charges to operations . . . . . . . . . .
(16,980)
Cash payments . . . . . . . . . . . . . . . .
151
Other . . . . . . . . . . . . . . . . . . . . . . .
Balance as of
January 31, 2006 . . . . . . . . . . . $ 2,059
NOTE 7—REVOLVING CREDIT LOANS
Receivables Securitization Program, average
interest rate of 4.72% at January 31, 2006,
$ — $
12,058
(2,198)
564
—
30,946
(19,178)
715
$ 10,424
$ 12,483
January 31,
2006
2005
(In thousands)
expiring August 2006 . . . . . . . . . . . . . . . . . . . . . $120,000
Multi-currency Revolving Credit Facility, average
interest rate of 5.50% at January 31, 2006,
expiring March 2010 . . . . . . . . . . . . . . . . . . . . . .
Other revolving credit facilities, average interest
rate of 3.49% at January 31, 2006, expiring
on various dates throughout fiscal 2007 . . . . . . .
109,088
6,000
$ —
—
68,343
$235,088
$ 68,343
The Company has an agreement (the “Receivables Securitization
Program”) with a syndicate of banks that allows the Company to
transfer an undivided interest in a designated pool of U.S. accounts
receivable, on an ongoing basis, to provide security or collateral
for borrowings up to a maximum of $400.0 million. Under this
program, which expires in August 2006, the Company legally iso-
lated certain U.S. trade receivables into a wholly-owned bank-
ruptcy remote special purpose entity. Such receivables, which are
recorded in the Consolidated Balance Sheet, totaled $515.3 million
and $505.0 million at January 31, 2006 and 2005, respectively. 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 designated commercial paper rates
plus an agreed-upon margin. The Company plans to renew this
program in August 2006.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
4 0
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Under the terms of the Company’s Multi-currency Revolving
Credit Facility with a syndicate of banks, the Company is able to
borrow funds in major foreign currencies up to a maximum of
$250.0 million. Under this facility, which expires in March 2010,
the Company has provided either a pledge of stock or a guarantee
of certain of its significant subsidiaries. The Company pays interest
on advances under this facility at the applicable LIBOR rate plus a
margin based on the Company’s credit ratings. The Company can
fix the interest rate for periods of 7 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 totaling approxi-
mately $674.7 million at January 31, 2006 to support its worldwide
operations. Most of these facilities are provided on an unsecured,
short-term basis and are reviewed periodically for renewal.
The total capacity of the aforementioned credit facilities was
approximately $1.3 billion, of which $235.1 million was outstanding
at January 31, 2006. The Company’s credit agreements contain
limitations on the amounts of annual dividends and repurchases
of common stock. Additionally, the credit agreements require
compliance with certain warranties and covenants on a continuing
basis. The financial ratio covenants contained within the credit
agreements include a debt to capitalization ratio, an interest to
EBITDA (earnings before interest, taxes, deprecation and amorti-
zation) ratio and a tangible net worth requirement. At January 31,
2006, the Company was in compliance with all such covenants.
The ability to draw funds under these credit facilities is dependent
upon sufficient collateral (in the case of the Receivables
Securitization Program) and meeting the aforementioned financial
covenants, which may limit the Company’s ability to draw the full
amount of these facilities. As of January 31, 2006, the maximum
amount that could be borrowed under these facilities, in consider-
ation of the availability of collateral and the financial covenants,
was approximately $1.1 billion.
At January 31, 2006, the Company had issued standby letters
of credit of $22.4 million. These letters of credit typically act as a
guarantee of payment to certain third parties in accordance with
specified terms and conditions. The issuance of these letters of
credit reduces the Company’s available capacity under the above
mentioned facilities by the same amount.
NOTE 8 — LONG-TERM DEBT
January 31,
2006
2005
(In thousands)
Convertible subordinated debentures, interest
at 2.00% payable semiannually, due
December 2021 (includes $2.0 million of
convertible debentures not redeemed for
New Notes at January 31, 2005 in connection
with the Exchange Offer discussed below) . . . . $ — $ 290,000
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,983
18,840
Less—current maturities . . . . . . . . . . . . . . . . . . . .
15,983
(1,605)
308,840
(291,625)
$ 14,378
$ 17,215
In December 2001, the Company issued $290.0 million of con-
vertible subordinated debentures due 2021. The debentures bore
interest at 2% per year and were convertible into the Company’s
common stock, if the market price of the common stock exceeded
a specified percentage of the conversion price per share of com-
mon stock, beginning at 120% and declining 1/2% each year
until it reaches 110% at maturity, or in other specified instances.
Holders could convert debentures into 16.7997 shares per $1,000
principal amount of debentures, equivalent to a conversion price
of approximately $59.53 per share. The debentures were convert-
ible into 4,871,913 shares of the Company’s common stock.
Holders had the option to require the Company to repurchase the
debentures on any of the fourth, eighth, twelfth or sixteenth
anniversary dates from the issue date at 100% of the principal
amount plus accrued interest to the repurchase date. The Company
had the option to satisfy such repurchases in either cash and/or
the Company’s common stock, provided that shares of common
stock at the first purchase date will be valued at 95% of fair mar-
ket value (as defined in the indenture) and at 97.5% of fair market
value for all subsequent purchase dates. The debentures were
redeemable in whole or in part for cash at the Company’s option
at any time on or after December 20, 2005. Additionally, the
debentures were subordinated in right of payment to all senior
indebtedness of the Company and were effectively subordinated to
all indebtedness and other liabilities of the Company’s subsidiaries.
2 0 0 6 A n n u a l R e p o r t
4 1
In December 2004, the Company completed an Exchange Offer
whereby approximately 99.3% of the Company’s then outstand-
ing $290.0 million convertible subordinated debentures (the “Old
Notes”) were exchanged for new debentures (the “New Notes”).
The New Notes had substantially identical terms to the previously
outstanding Old Notes except for the following modifications: a) a
net share settlement feature that provides that holders will receive,
upon redemption, cash for the principal amount of the New Notes
and stock for any remaining amount due; b) an adjustment to the
conversion rate upon payment of cash dividends or distributions
as well as a modification to the options available to the New Note
holders in the event of a change in control; and c) a modification
to the calculation of contingent interest payable, if any. As the
holders of both the New Notes and the Old Notes had the option
to require the Company to repurchase the debentures on certain
dates, beginning with December 15, 2005, the Company classi-
fied the debentures as a current liability at January 31, 2005.
In accordance with the debenture agreement, on December
15, 2005, the debenture holders of the New Notes exercised their
option to require the Company to repurchase the debentures. The
Company repurchased the New Notes using cash and existing
credit lines. In addition, prior to January 31, 2006, the Company
also repurchased the Old Notes using cash and existing credit lines.
In accordance with Emerging Issues Task Force Issue No. 04-8,
“The Effect of Contingently Convertible Instruments on Diluted
Earnings Per Share,” the dilutive impact of the New Notes is
excluded from the diluted EPS calculations due to the conditions
for the contingent conversion feature not being met. Since only
$2.0 million of the original $290.0 million of Old Notes were not
exchanged for New Notes in connection with the Exchange Offer,
there is no impact on previously reported diluted EPS or on diluted
EPS for the years ended January 31, 2005 and 2004, respectively.
The aforementioned debentures were subordinated in right of
payment to all senior indebtedness of the Company and were
effectively subordinated to all indebtedness and other liabilities of
the Company’s subsidiaries.
Principal maturities of long-term debt, comprised exclusively of
capital leases, at January 31, 2006 and for succeeding fiscal years
is as follows (in thousands):
Fiscal year:
2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,520
2,520
2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,751
2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,597
2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,597
2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,768
19,753
Total payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less amounts representing interest . . . . . . . . . . . . . . . . . . . . .
(3,770)
Total principal payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,983
In August 2000, the Company filed a universal shelf registration
statement with the Securities and Exchange Commission for $500.0
million of debt and equity securities. The net proceeds from any
issuance are expected to be used for general corporate purposes,
including capital expenditures, the repayment or refinancing of
debt and to meet working capital needs. As of January 31, 2006,
the Company had not issued any debt or equity securities under
this registration statement, nor can any assurances be given that
the Company will issue any debt or equity securities under this
registration statement in the future.
NOTE 9 —INCOME TAXES
The Company accounts for income taxes in accordance with
SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). In
accordance with SFAS No. 109, the Company evaluates the ability
to realize its deferred tax assets on a quarterly basis. This evaluation
takes into consideration all positive and negative evidence and a
variety of factors, including the scheduled reversal of temporary
differences, historical and projected future taxable income, and
prudent and feasible tax planning strategies.
As a result of the Company’s quarterly deferred tax asset eval-
uation, during the second quarter of fiscal 2006, a non-cash
charge of $56.0 million was recorded to increase the valuation
allowance against deferred tax assets related to specific jurisdic-
tions in EMEA, primarily Germany. While the Company believes its
restructuring efforts will improve the operating performance
within its German operations, the Company determined this
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
4 2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
charge to be appropriate due to the cumulative losses expected to
be realized through the current fiscal year, with such cumulative
losses not being utilized in future periods through the implemen-
tation of prudent and feasible tax planning strategies. To the
extent that the Company generates consistent taxable income
within those operations requiring a valuation allowance, the
Company may reduce the valuation allowance on the related
deferred tax assets, thereby reducing the income tax expense and
increasing net income in the same period. The underlying net
operating loss carryforwards remain available to offset future tax-
able income in the specific jurisdictions requiring a valuation
allowance, subject to applicable tax laws and regulations.
Significant components of the provision for income taxes for
continuing operations are as follows:
Year ended January 31,
2006
2005
2004
(In thousands)
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . $ 62,032
3,931
State . . . . . . . . . . . . . . . . . . . . . . . .
16,584
Foreign . . . . . . . . . . . . . . . . . . . . . .
$ 31,701
1,763
22,177
$ 21,245
1,025
17,401
Total current . . . . . . . . . . . . . . . .
82,547
55,641
39,671
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . .
(22,747)
(2,371)
51,584
4,990
967
(9,573)
13,011
2,007
(7,649)
Total deferred . . . . . . . . . . . . . . .
26,466
(3,616)
7,369
$ 109,013
$ 52,025
$ 47,040
The reconciliation of income tax computed at the U.S. federal
statutory tax rates to income tax expense for continuing operations
is as follows:
Year ended January 31,
2006
2005
2004
U.S. statutory rate . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit . . . . . . . . . . . . . . . . . . . .
0.8
Net operating losses . . . . . . . . . . . . . . . . . . 60.7
(14.0)
Tax on foreign earnings under U.S. rate . . .
Reversal of previously accrued
income taxes . . . . . . . . . . . . . . . . . . . . . .
Other—net . . . . . . . . . . . . . . . . . . . . . . . . .
—
0.1
0.8
2.5
(9.8)
(5.4)
1.5
1.3
7.6
(13.2)
—
(0.2)
82.6% 24.6% 30.5%
Included in net operating losses in fiscal 2006 is a non-cash
charge of $56.0 million to increase in the valuation allowance on
deferred tax assets related to specific jurisdictions in EMEA, pri-
marily Germany. The reversal of previously accrued income taxes
represents the reversal of $11.5 million in accrued taxes due to the
favorable resolution of various income tax examinations during
the fourth quarter of fiscal 2005.
The components of pretax income from continuing operations
are as follows:
Year ended January 31,
2006
2005
2004
(In thousands)
United States . . . . . . . . . . . . . . . . . . $122,125
9,855
Foreign . . . . . . . . . . . . . . . . . . . . . . .
$114,338
97,309
$101,059
53,169
$131,980
$211,647
$154,228
Significant components of the Company’s deferred tax liabilities
and assets are as follows:
January 31,
2006
2005
(In thousands)
Deferred tax liabilities:
Depreciation and amortization . . . . . . . . . . . $ 23,595
2,497
Capitalized marketing program costs . . . . . .
—
Convertible debenture interest . . . . . . . . . . .
8,793
Accruals currently deductible . . . . . . . . . . . .
6,488
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 27,541
1,791
26,706
8,788
6,317
Total deferred tax liabilities . . . . . . . . . . . .
41,373
71,143
Deferred tax assets:
Accrued liabilities and reserves . . . . . . . . . . .
Loss carryforwards . . . . . . . . . . . . . . . . . . . .
Amortizable goodwill . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,363
101,756
32,456
8,256
2,114
56,042
85,936
39,231
5,210
233
Less: valuation allowance . . . . . . . . . . . . . . . . .
194,945
(136,506)
186,652
(66,909)
Total deferred tax assets . . . . . . . . . . . . . .
58,439
119,743
Net deferred tax asset . . . . . . . . . . . . . . $ 17,066
$ 48,600
2 0 0 6 A n n u a l R e p o r t
4 3
The net change in the deferred income tax valuation allowance
was an increase of $69.6 at January 31, 2006, an increase of $8.8
million at January 31, 2005, and an increase of $33.3 million at
January 31, 2004. The valuation allowance at January 31, 2006 and
2005 primarily relates to foreign net operating loss carryforwards
of $375.7 million and $321.6 million, respectively. The majority of
the net operating losses have an indefinite carryforward period
with the remaining portion expiring in fiscal years 2007 through
2021. The Company evaluates a variety of factors in determining
the realizability of deferred tax assets, including the scheduled
reversal of temporary differences, projected future taxable income,
and prudent and feasible tax planning strategies.
During fiscal 2005, $39.2 million of the loss carryforward
deferred tax asset was reclassified due to a corporate reorganiza-
tion in Germany. As part of the reorganization, a tax election was
made, which converted a portion of the German net operating
losses into tax deductible goodwill.
The cumulative amount of undistributed earnings of foreign
subsidiaries for which U.S. income taxes have not been provided
was approximately $83.1 million at January 31, 2006. It is not cur-
rently practical to estimate the amount of unrecognized deferred
U.S. income taxes that might be payable on the repatriation of
these earnings.
NOTE 10 — EMPLOYEE BENEFIT PLANS
Stock Compensation Plans
At January 31, 2006, the Company had awards outstanding
under four stock-based compensation plans, two of which are
currently active and which authorize the issuance of 10.5 million
shares, of which approximately 2.2 million shares are available for
future grant. Under the plans, the Company is authorized to award
officers, employees, and non-employee members of the Board
of Directors restricted stock, options to purchase common stock,
maximum-value stock-settled stock appreciation rights (“MV
Stock-settled SARS”), maximum-value stock options (“MVOs”)
and performance awards that are dependent upon achievement
of specified performance goals. Equity-based compensation grants
have a maximum term of 10 years, unless a shorter period is spec-
ified by the Compensation Committee of the Board of Directors.
Grants and awards under the plans are priced as determined by
the Compensation Committee and under the terms of the
Company’s active stock-based compensation plans and are
required to be priced at, or above, the fair market value on the
date of grant. Awards generally vest between one and five years
from the date of grant. The Company applies APB Opinion No. 25
and related interpretations in accounting for its plans.
During the fiscal year ended January 31, 2006, the Company’s
Board of Directors approved the issuance of 1.6 million long-term
incentive awards in the form of MV Stock-settled SARs and MVOs
pursuant to the 2000 Equity Incentive Plan of Tech Data Corporation,
as amended. MV Stock-settled SARs and MVOs are similar to tradi-
tional stock options, except these instruments contain a predeter-
mined cap on the exercise price. In addition, upon exercise, a MV
Stock-settled SAR requires the Company to settle the spread (the
difference between the exercise price and the grant price) in
shares of the Company’s common stock. The grant price of the
MV Stock-settled SARs and MVOs was determined using the last
sale price as quoted on the NASDAQ on the date of grant (or
higher as required based on the laws and regulations of specific
foreign jurisdictions). The terms of the awards (i.e., vesting sched-
ule, contractual term, etc.) were not materially different from the
terms of traditional stock options previously granted by the
Company. MV Stock-settled SARs are required to be accounted
for as variable awards, until the earlier of the exercise of these
awards or the implementation of SFAS No. 123R. In accordance
with APB Opinion No. 25, variable awards are to be remeasured
on a quarterly basis with changes in value recorded in the
Company’s Consolidated Statement of Operations as compen-
sation expense. Compensation expense of approximately $0.1 mil-
lion was recorded for these instruments during the year ended
January 31, 2006.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
4 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of the status of the Company’s stock option plans is as follows:
January 31, 2006
January 31, 2005
January 31, 2004
Outstanding at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . 6,843,585
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600,027
(596,786)
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(654,623)
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,192,203
Shares
Weighted
average
exercise
price
$34.15
37.07
24.01
37.19
35.36
Weighted
average
exercise
price
$31.20
40.86
26.25
35.95
Weighted
average
exercise
price
$32.14
24.44
23.49
33.18
Shares
7,064,331
2,101,055
(1,236,862)
(976,063)
Shares
6,952,461
1,656,310
(1,284,001)
(481,185)
6,843,585
34.15
6,952,461
31.20
Options exercisable at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,043,986
Available for grant at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,166,082(1)
3,576,410
3,225,442
3,436,503
4,452,027
(1) Total includes 758,014 shares available for grant under an employee equity compensation plan not approved by shareholders. On March 29, 2006, the Board of Directors
passed a resolution that prohibits the Company from issuing any future grants under this plan.
Range of exercise prices
$14.37–$21.56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.75– 25.64 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.31– 36.86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37.06– 37.06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37.25– 41.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41.08– 41.08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41.13– 51.38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding
Options exercisable
Weighted
average
remaining
contractual
life (years)
3.09
6.53
4.96
9.16
3.55
8.16
5.93
6.57
Number
outstanding
at 1/31/06
257,814
1,161,702
1,144,314
1,342,419
623,418
1,295,550
1,366,986
7,192,203
Weighted
average
exercise
price
$16.65
24.25
30.33
37.06
39.72
41.08
43.47
Number
exercisable
at 1/31/06
257,814
512,118
1,068,361
0
554,344
1,289,050
1,362,299
Weighted
average
exercise
price
$16.65
24.23
29.99
0
39.83
41.08
43.46
35.36
5,043,986
36.28
Employee Stock Purchase Plan
Under the 1995 Employee Stock Purchase Plan (the “ESPP”)
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 ESPP, employees can choose to have a fixed dollar amount or
percentage deducted from their bi-weekly compensation to pur-
chase 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 in fair market
value each calendar year. From the inception of the ESPP through
January 31, 2006, the Company has sold 387,005 shares of com-
mon stock to the ESPP. All shares purchased under the ESPP must
be held for a period of one year.
2 0 0 6 A n n u a l R e p o r t
4 5
Pro Forma Effect of Stock Compensation Plans
As disclosed in Note 1—Business and Summary of Significant
Accounting Policies, the Company has included the pro forma net
income and pro forma earnings per share reflecting the compen-
sation cost that the Company would have recorded on its equity
incentive plans plan had it used the fair value at grant date for
awards under the plans consistent with the method prescribed by
SFAS No. 123. The weighted average estimated fair value of the
MV Stock-settled SARs and MVOs granted during the year ended
January 31, 2006 was $7.70 based on a two-step valuation utiliz-
ing both the Hull-White Lattice (binomial) and Black-Scholes
option-pricing models using the following weighted average
assumptions:
Year ended January 31, 2006
Expected
option term (years)
Expected
volatility
Risk-free
interest rate
Expected
dividend
yield
Suboptimal
exercise
factor
Hull-White Lattice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Black-Scholes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
4
41%
41%
4.65%
4.65%
0%
0%
1.24
—
The weighted average estimated fair value of options granted during fiscal 2005 and 2004 was $19.87 and $13.10, respectively, based
on the Black-Scholes option-pricing model using the following weighted average assumptions:
Year ended January 31,
Expected
option term (years)
Expected
volatility
Risk-free
interest rate
2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
4
57%
66%
2.50%
2.54%
Expected
dividend
yield
0%
0%
Results may vary depending on the assumptions applied within
NOTE 11 —SHAREHOLDERS’ EQUITY
the model.
Retirement Savings Plan
The Company sponsors the Tech Data Corporation 401(k)
Savings Plan (“the 401(k) Savings Plan”) for its employees. At the
Company’s discretion, participant deferrals are matched monthly,
in the form of company stock, in an amount equal to 50% of the
first 6% of participant deferrals and participants are fully vested
following four years of qualified service.
At January 31, 2006 and 2005, the number of shares of Tech
Data common stock held by the Company’s 401(k) Savings Plan
totaled 329,000 and 334,000 shares, respectively.
Aggregate contributions made by the Company to the 401(k)
Savings Plan were $2.3 million and $1.8 million for fiscal 2006 and
fiscal 2005, respectively. Tech Data did not make any contribu-
tions to the 401(k) Savings Plan in fiscal 2004.
On March 31, 2005, the Company’s Board of Directors autho-
rized a share repurchase program of up to $100.0 million of the
Company’s common stock (increased to $200.0 million in
November 2005). The Company’s share repurchases are made on
the open market through block trades or otherwise. The number
of shares purchased and the timing of the purchases is based on
working capital requirements, general business conditions and
other factors, including alternative investment opportunities.
Shares repurchased by the Company are held in treasury for gen-
eral corporate purposes, including issuances under employee
equity incentive plans. During fiscal 2006, the Company repur-
chased 3,443,131 shares comprised of 3,260,576 shares purchased
in conjunction with the Company’s share repurchase program and
182,555 shares purchased outside of the stock repurchase program,
at an average of $36.89 per share, for a total cost, including
expenses, of approximately $127.0 million.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
4 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 — COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases logistics centers, office facilities and cer-
tain equipment under noncancelable operating leases that expire
at various dates through 2015. Fair value renewal and purchase
options and escalation clauses exist for a substantial portion of
the operating leases included above. Rental expense related to
continuing operations for all operating leases, including minimum
commitments under IT outsourcing agreements, totaled $59.0
million, $58.6 million and $55.9 million in fiscal years 2006, 2005
and 2004, respectively. Future minimum lease payments at January
31, 2006 under all such leases, including minimum commitments
under IT outsourcing agreements, for succeeding fiscal years are
as follows (in thousands):
Fiscal year:
2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,493
54,841
2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,846
2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,383
2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,450
2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68,728
Total payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 297,741
Synthetic Lease Facility
On July 31, 2003, the Company completed a restructuring of
its synthetic lease facility with a group of financial institutions (the
“Restructured Lease”) under which the Company leases certain
logistics centers and office facilities from a third-party lessor. The
Restructured Lease expires in fiscal year 2008, at which time the
Company has the following options: renew the lease for an addi-
tional five years, purchase the properties at an amount equal to
their cost, or remarket the properties. If the Company elects to
remarket the properties, it has guaranteed the lessor a percentage
of the cost of each of the properties, in an aggregate amount of
approximately $121.0 million (the “residual value”). At any time
during the lease term, the Company may, at its option, purchase
up to four of the seven properties, at an amount equal to each
property’s cost. The Company pays interest on the Restructured
Lease at LIBOR plus an agreed-upon margin. The Restructured
Lease contains covenants that must be complied with on a con-
tinuous basis, similar to the covenants described in certain of the
credit facilities discussed in Note 7—Revolving Credit Loans. The
amount funded under the Restructured Lease (approximately
$136.7 million at January 31, 2006) is treated as debt under the
definition of the covenants required under both the Restructured
Lease and the credit facilities. As of January 31, 2006, the Company
was in compliance with all such covenants.
The sum of future minimum lease payments under the
Restructured Lease at January 31, 2006 was approximately $20.9
million. Properties leased under the Restructured Lease are located
in Clearwater and Miami, Florida; Fort Worth, Texas; Fontana,
California; Suwanee, Georgia; Swedesboro, New Jersey; and South
Bend, Indiana.
The Restructured Lease has been accounted for as an operat-
ing lease. FASB Interpretation (“FIN”) No. 46 requires the Company
to evaluate whether an entity with which it is involved meets the
criteria of a variable interest entity (“VIE”) and, if so, whether the
Company is required to consolidate that entity. The Company has
determined that the third-party lessor of its synthetic lease facility
does not meet the criteria of a VIE and, therefore, is not subject to
the consolidation provisions of FIN No. 46.
Contingencies
Prior to fiscal 2004, one of the Company’s European subsidi-
aries was audited in relation to various value-added tax (“VAT”)
matters. As a result of those audits, the subsidiary received notices
of assessment that allege the subsidiary did not properly collect
and remit VAT. It is management’s opinion, based upon the opin-
ion of outside legal counsel, that the Company has valid defenses
related to a substantial portion of these assessments. Although
the Company is vigorously pursuing administrative and judicial
action to challenge the assessments, no assurance can be given as
to the ultimate outcome. The resolution of such assessments could
be material to the Company’s operating results for any particular
period, depending upon the level of income for such period.
The Company is subject to various other legal proceedings and
claims arising in the ordinary course of business. The Company’s
management does not expect that the outcome in any of these
other legal proceedings, individually or collectively, will have a
material adverse effect on the Company’s financial condition,
results of operations, or cash flows.
Guarantees
As is customary in the IT industry, to encourage certain cus-
tomers to purchase products from Tech Data, the Company has
arrangements with certain finance companies that provide inven-
tory financing facilities to the Company’s customers. In conjunction
with certain of these arrangements, the Company would be
required to purchase certain inventory in the event the inventory is
repossessed from the customers by the finance companies. For
various reasons, including the lack of information regarding the
2 0 0 6 A n n u a l R e p o r t
4 7
amount of saleable inventory purchased from the Company still
on hand with the customer at any point in time, the Company’s
repurchase obligations relating to inventory cannot be reasonably
estimated. Repurchases of inventory by the Company under these
arrangements have been insignificant to date. The Company also
provides additional financial guarantees to finance companies on
behalf of certain customers. The majority of these guarantees are
for an indefinite period of time, where the Company would be
required to perform if the customer is in default with the finance
company. The Company reviews the underlying credit for these
guarantees on at least an annual basis. As of January 31, 2006
and 2005, the aggregate amount of guarantees under these
arrangements totaled approximately $7.0 million and $9.7 million,
respectively, of which approximately $2.9 million and $5.3 million,
respectively, was outstanding. The Company believes that, based
on historical experience, the likelihood of a material loss pursuant
to both of the above guarantees is remote. The Company also
provides residual value guarantees related to the Restructured
Lease which have been recorded at the estimated fair value of the
residual guarantees.
NOTE 13 —SEGMENT INFORMATION
Tech Data operates predominately in a single industry segment
as a distributor of IT products, logistics management, and other
value-added services. While the Company operates primarily in
one industry, because of its global presence, the Company is man-
aged by its geographic segments. The Company’s geographic
segments include the Americas (United States, Canada, Latin
America, and export sales to the Caribbean) and EMEA (Europe,
Middle East, and export sales to Africa). The Company assesses
performance of and makes decisions on how to allocate resources
to its operating segments based on multiple factors including
current and projected operating income and market opportuni-
ties. The accounting policies of the segments are the same as
those described in Note 1—Business and Summary of Significant
Accounting Policies.
Financial information by geographic segment is as follows.
Year ended January 31,
2006
2005
2004
(In thousands)
Net sales to unaffiliated
customers (a)
Americas . . . . . . . . . . . . $ 9,464,667
11,018,184
EMEA . . . . . . . . . . . . . .
$ 8,482,512
11,248,405
$ 7,839,425
9,519,100
Total . . . . . . . . . . . . . . . $ 20,482,851
$ 19,730,917
$ 17,358,525
Operating income (b)
Americas . . . . . . . . . . . . $
EMEA . . . . . . . . . . . . . .
154,839
8,456
$
140,690
90,865
$
120,413
48,488
Total . . . . . . . . . . . . . . . $
163,295
$
231,555
$
168,901
Depreciation and
amortization
Americas . . . . . . . . . . . . $
EMEA . . . . . . . . . . . . . .
16,290
35,506
$
16,885
36,199
$
19,957
32,950
Total . . . . . . . . . . . . . . . $
51,796
$
53,084
$
52,907
Capital expenditures
Americas . . . . . . . . . . . . $
EMEA . . . . . . . . . . . . . .
24,454
36,298
$
8,511
35,264
$
13,380
39,612
Total . . . . . . . . . . . . . . . $
60,752
$
43,775
$
52,992
Identifiable assets (a)
Americas . . . . . . . . . . . . $ 1,436,508
2,968,126
EMEA . . . . . . . . . . . . . .
$ 1,459,639
3,098,097
$ 1,358,729
2,809,157
Total . . . . . . . . . . . . . . . $ 4,404,634
$ 4,557,736
$ 4,167,886
Goodwill
Americas . . . . . . . . . . . . $
EMEA . . . . . . . . . . . . . .
2,966
131,361
$
2,966
146,753
$
2,966
138,272
Total . . . . . . . . . . . . . . . $
134,327
$
149,719
$
141,238
(a) For the year ended January 31, 2006, net sales to unaffiliated customers in the
U.S. represented 87% of the total Americas net sales to unaffiliated customers,
and represented 88% and 89%, respectively, of the total Americas net sales
for the years ended January 31, 2005 and 2004. Identifiable assets in the U.S.
represented 79% of the Americas identifiable assets at January 31, 2006 and
represented 86% of the Americas’ identifiable assets at both January 31, 2005
and 2004.
(b) For the year ended January 31, 2006, the amounts shown above include $30.9
million of restructuring charges related to the EMEA restructuring program and
$9.6 million in external consulting costs associated with the restructuring pro-
gram (see also Note 6—Restructuring Program). For the year ended January 31,
2004, the amounts shown above include $3.1 million of pre-tax special charges
related to the Americas’ operations (see also Note 14—Special Charges).
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
4 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 14—SPECIAL CHARGES
In fiscal year 2004, the Company recorded pre-tax special
charges of $3.1 million related to the closure of the Company’s
education business in the United States and changing this busi-
ness to an outsourced model. This total is presented separately as
a component of income from operations in the Consolidated
Statement of Operations.
NOTE 15 —INTERIM FINANCIAL INFORMATION (UNAUDITED)
Interim financial information for fiscal years 2006 and 2005 is as follows. All periods presented have been restated to reflect the
reclassification of the Training Business as discontinued operations.
Quarter ended
April 30,
July 31,
October 31,
January 31,
(In thousands, except per share amounts)
Fiscal year 2006
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,063,691
$ 4,813,850
$ 5,073,955
$ 5,531,355
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 264,126
$ 239,950
$ 250,986
$ 267,457
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,666
857
$
(60,118)
704
$
21,921
1,043
$
28,498
1,015
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
33,523
$
(59,414)
$
22,964
$
29,513
Income (loss) per share—basic:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.56
0.01
(1.03)
.01
$
$
0.38
0.02
Net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.57
$
(1.02)
$
0.40
$
Income (loss) per share—diluted:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.55
0.01
(1.03)
.01
$
$
0.38
0.02
Net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.56
$
(1.02)
$
0.40
$
0.50
0.02
0.52
0.50
0.02
0.52
Fiscal year 2005
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,806,833
$ 4,564,942
$ 4,757,111
$ 5,602,031
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 262,696
$ 256,266
$ 252,101
$ 292,670
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,526
138
$
30,294
380
$
36,664
1,146
$
58,138
1,174
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
34,664
$
30,674
$
37,810
$
59,312
Income per share—basic:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income per share—diluted:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.60
0.00
0.60
0.59
0.00
0.59
$
$
$
$
0.52
0.01
0.53
0.51
0.01
0.52
$
$
$
$
0.63
0.02
0.65
0.62
0.02
0.64
$
$
$
$
0.99
0.02
1.01
0.97
0.02
0.99
2 0 0 6 A n n u a l R e p o r t
4 9
Net loss in the quarter ended July 31, 2005 includes a $56.0
million increase in the valuation allowance recorded against
deferred tax assets related to specific jurisdictions in EMEA, pri-
marily Germany, which increased diluted loss per share from
continuing operations by $0.96 per share for the quarter ended
July 31, 2005.
Net income in the quarter ended January 31, 2005 includes an
$11.5 million reversal of previously accrued income taxes resulting
from the favorable resolution of several tax audits concluded dur-
ing the quarter, which increased diluted earnings per share from
continuing operations by $0.19 per share for the quarter ended
January 31, 2005.
RISK FACTORS
The following are certain risk factors that could affect our busi-
ness, financial position and results of operations. These risk factors
should be considered in connection with evaluating the forward-
looking statements contained in this Annual Report on Form 10-K
because these factors could cause the actual results and condi-
tions to differ materially from those projected in the forward-
looking statements. Before you buy our common stock or other
securities, you should know that making such an investment
involves risks, including the risks described below. The risks that
have been highlighted below are not the only risks of our business.
If any of the risks actually occur, our business, financial condition
or results of operations could be negatively affected. In that case,
the trading price of our common stock or other securities could
decline, and you may lose all or part of your investment. Certain
risk factors that could cause actual results to differ materially from
our forward-looking statements include the following:
Competition
The Company operates in a highly competitive environment.
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 solu-
tions to customer needs, quality and depth of product lines and
training, service and support. Weakness in demand in the market
intensifies the competitive environment in which the Company
operates. The Company competes with a variety of regional,
national and international wholesale distributors, some of which
have greater financial resources than the Company. The Company
also faces competition from companies entering or expanding into
the logistics and product fulfillment and e-commerce supply chain
services market.
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
attributed to variations in sales and operating costs. Future gross
profit and operating margins may be adversely affected by changes
in product mix, vendor pricing actions and competitive and
economic pressures. In addition, failure to attract new sources of
business from expansion of products or services or entry into
new markets may adversely affect future gross profit and oper-
ating margins.
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 or experience disruptions, 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, that the Company will be able to
convert to new systems efficiently, or that the Company will be
able to integrate new programs effectively with its existing pro-
grams. Any of such problems could have an adverse effect on the
Company’s business.
Restructuring Activities
In May 2005, the Company initiated a restructuring program in
the EMEA region. We may experience delays or greater than
expected costs in implementing our restructuring program, and
our efforts may fail to achieve the desired improvements in our
EMEA operating and gross profit margins. Changes in organiza-
tional structure, personnel, job duties and processes related to this
restructuring program will require significant management
resources and may reduce productivity during implementation of
the program. Because the Company operates with narrow operat-
ing margins and gross profit margins, lower productivity could have
a material adverse effect on our results of operations, particularly
if it occurs during seasonal peaks in our business.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
5 0
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Acquisitions
As part of its growth strategy, the Company pursues the acqui-
sition 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
or impairment of any acquired intangible assets.
Exposure to Natural Disasters, War, and Terrorism
The Company’s headquarters facilities and some of its logistics
centers as well as certain vendors and customers are located in
areas prone to natural disasters such as floods, hurricanes, torna-
does, or earthquakes. In addition, demand for the Company’s
services is concentrated in major metropolitan areas. Adverse
weather conditions, major electrical failures or other natural disas-
ters in these major metropolitan areas may disrupt the Company’s
business should its ability to distribute products be impacted by
such an event.
The Company operates in multiple geographic markets, several
of which may be susceptible to acts of war and terrorism. The
Company’s business could be adversely affected should its ability
to distribute products be impacted by such events.
The Company and many of its suppliers receive parts and prod-
ucts from Asia and operate in many parts of the world that may
be susceptible to disease or epidemic that may disrupt the
Company’s ability to receive or deliver products or other disrup-
tions in operations.
Dependence on Independent Shipping Companies
The Company relies on arrangements with independent ship-
ping companies, such as Federal Express and United Parcel Service,
for the delivery of its products from vendors and to customers.
The failure or inability of these shipping companies to deliver
products, or the unavailability of their shipping services, even
temporarily, could have a material adverse effect on the Company’s
business. The Company may also be adversely affected by an
increase in freight surcharges due to rising fuel costs and added
security. There can be no assurance that Tech Data will be able
to pass along the full effect of an increase in these surcharges to
its customers.
Labor Strikes
The Company’s labor force is currently non-union with the
exception of employees of certain European and Latin American
subsidiaries, which are subject to collective bargaining or similar
arrangements. The Company does business in certain foreign
countries where labor disruption is more common than is experi-
enced in the United States and some 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 gov-
ernmental shutdown could have an adverse effect on the
Company’s business. Many of the products the Company sells are
manufactured in countries other than the countries in which the
Company’s logistics centers are located. The inability to receive
products into the logistics centers because of government action
or labor disputes at critical ports of entry may have a material
adverse effect on the Company’s business.
Risk of Declines in Inventory Value
The Company is subject to the risk that the value of its inven-
tory will decline as a result of price reductions by vendors or tech-
nological obsolescence. It is the policy of most of the Company’s
vendors to protect distributors from the loss in value of inventory
due to technological change or the vendors’ price reductions.
Some vendors, however, may be unwilling or unable to pay the
Company for price protection claims or products returned to them
under purchase agreements. Moreover, industry practices are
sometimes not embodied in written agreements and do not pro-
tect the Company in all cases from declines in inventory value. No
assurance can be given that such practices to protect distributors
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.
2 0 0 6 A n n u a l R e p o r t
5 1
Product Availability
The Company is dependent upon the supply of products avail-
able from its vendors. The industry is characterized by periods of
severe product shortages due to vendors’ difficulties 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 prod-
ucts to fulfill all of the Company’s customer orders on a timely
basis. Failure to obtain adequate product supplies could have an
adverse effect on the Company’s business.
Vendor Terms and Conditions
The Company relies on various rebates, cash discounts, and
cooperative marketing programs offered by its vendors to support
expenses associated with distributing and marketing the vendors’
products. Currently, the rebates and purchase discounts offered
by vendors are influenced by sales volumes and percentage
increases in sales, and are subject to changes by the vendors.
Additionally, certain of the Company’s vendors subsidize floorplan
financing arrangements for the benefit of our customers. Termi-
nations of a supply or services agreement or a significant change
in supplier terms or conditions of sale could negatively affect our
operating margins, revenue or the level of capital required to fund
our operations.
The Company receives a significant percentage of revenues
from products it purchases from relatively few manufacturers. As
has historically been the case, a manufacturer may make rapid,
significant and adverse changes in its sales terms and conditions,
such as reducing the amount of price protection and return rights
as well as reducing the level of purchase discounts and rebates
they make available to us, or may merge with or acquire other
significant manufacturers. The Company’s gross margins could be
materially and negatively impacted if the Company is unable to
pass through the impact of these changes to the Company’s cus-
tomers or cannot develop systems to manage ongoing supplier
programs. In addition, the Company’s standard vendor distribution
agreement permits termination without cause by either party upon
30 days notice. The loss of a relationship with any of the Company’s
key vendors, a change in their strategy (such as increasing direct
sales), the merging of significant manufacturers, or significant
changes in terms on their products may adversely affect the
Company’s business.
Loss of Significant Customers
Customers do not have an obligation to make purchases from
the Company. In some cases, the Company has made adjustments
to its systems, vendor offerings, and processes, and made staffing
decisions, in order to accommodate the needs of a significant
customer. In the event a significant customer decides to make its
purchases from another distributor, experiences a significant
change in demand from its own customer base, becomes finan-
cially unstable, or is acquired by another company, the Company’s
receipt of revenues may be significantly affected, resulting in an
adverse effect on the Company’s business.
Customer Credit Exposure
The Company sells its products to a large customer base of
value-added resellers, direct marketers, retailers and corporate
resellers. The Company finances a significant portion of such sales
through trade credit. As a result, the Company’s business could
be adversely affected in the event of a deterioration of the finan-
cial condition of its customers, resulting in the customers’ inability
to repay the Company. This risk may increase if there is a general
economic downturn affecting a large number of the Company’s
customers and in the event the Company’s customers do not
adequately manage their business or properly disclose their finan-
cial condition.
Need for Liquidity and Capital Resources; Fluctuations in
Interest Rates
The Company’s business requires substantial capital to operate
and 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, proceeds from public offerings of its
common stock and proceeds from debt offerings to satisfy its
capital needs and finance growth. The Company utilizes various
financing instruments such as receivables securitization, leases,
revolving credit facilities and trade receivable purchase facilities.
As the financial markets change and new regulations come into
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
5 2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
effect, the cost of acquiring financing and the methods of financ-
ing may change. Changes in our credit rating or other market
factors may increase our interest expense or other costs of capital,
or capital may not be available to us on acceptable terms to fund
our working capital needs. The Company will continue to need
additional financing, including debt financing. The inability to
obtain such sources of capital could have an adverse effect on the
Company’s business. The Company’s credit facilities contain vari-
ous financial and other covenants that may limit the Company’s
ability to borrow or limit the Company’s flexibility in responding to
business conditions. These financing instruments involve variable
rate debt, thus exposing the Company to risk of fluctuations in
interest rates. Such fluctuations in interest rates could have an
adverse effect on the Company’s business.
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; nevertheless, fluctuations in foreign currency exchange rates
could have an adverse effect on the Company’s business. In par-
ticular, the value of the Company’s equity investment in foreign
countries may fluctuate based upon changes in foreign currency
exchange rates. These fluctuations, which are recorded in a cumu-
lative translation adjustment account, may result in losses in the
event a foreign subsidiary is sold or closed at a time when the
foreign currency is weaker than when the Company initially
invested in the country.
The Company’s international operations are subject to other
risks such as the imposition of governmental controls, export
license requirements, restrictions on the export of certain technol-
ogy, political instability, trade restrictions, tariff changes, difficulties
in staffing and managing international operations, changes in the
interpretation and enforcement of laws (in particular related to
items such as duty and taxation), difficulties in collecting accounts
receivable, longer collection periods and the impact of local eco-
nomic conditions and practices. There can be no assurance that
these and other factors will not have an adverse effect on the
Company’s business.
Potential Asset Impairments from Declines in
Operating Performance
The Company assesses potential impairments to long-lived
assets, including property and equipment, certain deferred tax
assets, certain intangible assets and other long-lived assets, when
there is evidence that events or changes in circumstances indicate
that the carrying value may not be recoverable. The Company
assesses potential impairments to indefinite-lived intangible assets,
including goodwill and deferred tax assets, at least annually and
more frequently if current events and circumstances indicate a
possible impairment. The Company’s operations in the EMEA
region have been considerably more challenging as a result of
somewhat weaker demand in certain countries in Europe and
slowing IT demand. As a result, the Company has launched a
formal restructuring program for the EMEA region. Should the
operating performance in EMEA not improve, the Company may
be required to recognize an impairment charge related to its long-
lived and/or indefinite-lived assets. A significant impairment loss
could have a material adverse effect on the Company’s operating
results for the period during which the impairment is recorded.
Changes in Income Tax and Other Regulatory Legislation
The Company operates in compliance with applicable laws and
regulations. When new legislation is enacted with minimal advance
notice, or when new interpretations or applications of existing
laws are made, the Company may need to implement changes in
its policies or structure.
2 0 0 6 A n n u a l R e p o r t
5 3
Volatility of Common Stock Price
Because of the foregoing factors, as well as other variables
affecting the Company’s operating results, past financial perfor-
mance 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. Some of the
factors that may affect the market price of the common stock, in
addition to those discussed above, are changes in investment
recommendations by securities analysts, changes in market valua-
tions of competitors and key vendors, and fluctuations in the
overall stock market, but particularly in the technology sector.
In addition, recent legislation requires all member states of the
European Union to adopt the European Directive 2002/96/EC
regarding Waste in Electrical and Electronic Equipment (“WEEE
Directive”) and 2002/95/EC regarding restrictions of the use of
certain hazardous substances in electrical and electronic equip-
ment (“RoHS Directive”) into national law. The manner and timing
of adoption of these laws may impact the Company as it remains
unclear to what extent the Company will be deemed a producer
subject to compliance with these regulations and the financial
costs and guarantees thereby required.
The Company makes plans for its structure and operations
based upon existing laws and anticipated future changes in the
law. The Company is susceptible to unanticipated changes in leg-
islation, especially relating to income and other taxes, import/
export laws, hazardous materials and electronic waste recovery
legislation, and other laws related to trade, accounting, and busi-
ness activities. Such changes in legislation, both domestic and
international, may have a significant adverse effect on the
Company’s business.
Changes in Accounting Rules
The Company prepares its financial statements in conformity
with accounting principles generally accepted in the United States.
These accounting principles are subject to interpretation by the
Financial Accounting Standards Board, the Public Company Account-
ing Oversight Board, the Securities and Exchange Commission,
the American Institute of Certified Public Accountants and various
other bodies formed to interpret and create appropriate account-
ing policies. A change in these policies or a new interpretation of
an existing policy could have a significant effect on our reported
results and may affect our reporting of transactions before a
change is announced.
T e c h D a t a C o r p o r a t i o n a n d S u b s i d i a r i e s
5 4
MARKET FOR THE REGISTRANT’S COMMON STOCK, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Stock Market
under the symbol “TECD.” We have not paid cash dividends since
fiscal 1983 and the Board of Directors has no current plans to
institute a cash dividend payment policy in the foreseeable future.
The table below presents the quarterly high and low sale prices
for our common stock as reported by the NASDAQ Stock Market.
As of February 28, 2006, there were 405 holders of record. We
believe that there are approximately 43,000 beneficial holders.
Sales Price
High
Low
Fiscal year 2006
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42.10
39.50
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39.11
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43.56
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34.21
33.80
33.04
33.82
High
Low
Fiscal year 2005
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $46.00
40.50
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41.13
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42.80
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$39.90
33.82
32.60
33.41
Equity Compensation and Stock Purchase Plan Information
The number of shares issuable upon exercise of outstanding options granted to employees and non-employee directors, as well as the
number of shares remaining available for future issuance, under our equity compensation and stock purchase plans as of January 31,
2006 are summarized in the following table:
Plan category
Number of
shares to
be issued upon
exercise of outstanding
options
Weighted
average
exercise
price of outstanding
options
Number of shares
remaining available for
future issuance
under equity
compensation plans
Equity compensation plans approved by shareholders for:
Employee equity compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-employee directors’ equity compensation . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee equity compensation plan not approved by shareholders (1) . . . . . . .
5,680,989
—
102,500
5,783,489
1,408,714
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,192,203
$34.97
—
34.80
34.96
36.99
35.36
1,408,068
612,995
—
2,021,063
758,014
2,779,077
(1) The 2000 Non-Qualified Stock Option Plan of Tech Data Corporation was included as an exhibit to our Registration Statement on Form S-8 (file no. 333-59198) filed on
April 19, 2001, under which underlying shares of our common stock were registered. This exhibit is incorporated by reference. On March 29, 2006, the Board of Directors
passed a resolution that prohibits the Company from issuing any future grants from this plan.
CORPORATE INFORMATION
BOARD OF DIRECTORS
OFFICERS
Steven A. Raymund
Chairman of the Board of Directors
and Chief Executive Officer,
Tech Data Corporation
Charles E. Adair
Partner,
Cordova Ventures
Maximilian Ardelt
Managing Director,
Con Digit Consult GmbH
James M. Cracchiolo
Chairman and Chief Executive Officer,
Ameriprise Financial, Inc.
Jeffery P. Howells
Executive Vice President and
Chief Financial Officer,
Tech Data Corporation
Kathy Misunas
Founder and Principal,
Essential Ideas
David M. Upton
Albert J. Weatherhead III
Professor of Business Administration,
Technology and Operations Management,
Harvard Business School
John Y. Williams
Managing Director,
Equity-South Advisors, LLC
Steven A. Raymund
Chairman of the Board of Directors and
Chief Executive Officer
Néstor Cano
President, Worldwide Operations
Jeffery P. Howells
Executive Vice President and
Chief Financial Officer
Kenneth Lamneck
President, the Americas
Joseph A. Osbourn
Executive Vice President and
Worldwide Chief Information Officer
Alain Amsellem
Senior Vice President, European Finance
and Operations
Charles V. Dannewitz
Senior Vice President, Taxes and Treasurer
Thomas J. Ducatelli
Senior Vice President, U.S. Sales
Andrew Gass
Senior Vice President,
European Enterprise Division
Lawrence W. Hamilton
Senior Vice President, Human Resources
Thomas F. Huber
Senior Vice President,
Managing Director, DACH Region
William J. Hunter
Senior Vice President and
European Chief Financial Officer
Robert G. O’Malley
Senior Vice President, U.S. Marketing
William K. Todd, Jr.
Senior Vice President, Logistics and
Integration Services
Joseph B. Trepani
Senior Vice President and
Corporate Controller
David R. Vetter
Senior Vice President,
General Counsel and Secretary
Gerard F. Youna
Senior Vice President, European Operational
Design and Performance
Mike Zava
Senior Vice President,
Credit and Customer Services, the Americas
Benjamin B. Godwin
Corporate Vice President,
Real Estate and Corporate Services
CORPORATE HEADQUARTERS
Tech Data Corporation
5350 Tech Data Drive
Clearwater, FL 33760
727-539-7429
www.techdata.com
INDEPENDENT REGISTERED
CERTIFIED PUBLIC ACCOUNTANTS
Ernst & Young LLP, Tampa, FL
ETHICS REPORTING HOTLINE
866-TD ETHIC—866-833-8442
STOCK LISTING
The NASDAQ Stock Market, Inc.
Ticker symbol: TECD
TRANSFER AGENT
Mellon Investor Services, LLC
P.O. Box 3315
South Hackensack, NJ 07606
866-357-3551
www.melloninvestor.com/isd
ANNUAL MEETING
OF SHAREHOLDERS
All interested parties are cordially invited to
attend the Annual Meeting of Shareholders
on Tuesday, June 6, 2006, at 4:00 p.m. at the
company headquarters, 5350 Tech Data Drive,
Clearwater, FL 33760.
FINANCIAL REPORTS
Financial reports, including Form 10-K and
annual reports, can be accessed online at:
techdata.com. You may also obtain a copy
upon written request to:
Tech Data Corporation
Attention: Investor Relations
5350 Tech Data Drive
Clearwater, FL 33760
INVESTOR INQUIRIES
Investor Relations
Phone: 800-292-7906
Fax: 727-538-5860
E-mail: ir@techdata.com
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Tech Data Corporation �
5350 Tech Data Drive
Clearwater, Florida 33760 �
P: 727-539-7429 �
www.techdata.com