E x e c u t e D i v e r s i f y I n n o v a t e E x e c u t e D i v e r s i f y I n n o v a t e E x e c u t e D i v e r s i f y I n n o v a t e
2007 Annual Report
Year Ended January 31, 2007
*
Tech Data
A leading distributor of
technology solutions, with
more than 90,000 customers
in over 100 countries.
A Clear
Strategy:
E x e c u t e D i v e r s i f y I n n o v a t e E x e c u t e D i v e r s i f y I n n o v a t e
Tech Data was built on its ability
to execute. We distributed over
$21 billion in IT products in fiscal
2007 and we will continue to
capitalize on this strength.
*
Execute
We continually explore new and
adjacent product markets and
geographies for opportunities
to diversify our business and
advance our position.
*
Diversify
Through continued innovation, we
can drive new efficiencies, improve
customer service and enhance our
*
Innovate
financial performance.
Strengthening our position
E x e c u t e D i v e r s i f y I n n o v a t e E x e c u t e D i v e r s i f y I n n o v a t e E x e c u t e D i v e r s i f y I n n o v a t e
Worldwide Net Sales
in millions
‘03
‘04
‘05
‘06
‘07
$15,739
$17,359
$19,731
$20,483
$21,440
For the fiscal years ended January 31, (In millions, except per-share data)
Net Sales
GAAP operating (loss) income
Non-GAAP operating income (1)
5000
10000
0
GAAP net (loss) income per diluted share
15000
20000
25000
Non-GAAP net income per diluted share (1)
Cash conversion cycle (days)
Cash and cash equivalents
Total debt
Shareholders’ equity
(1) Please refer to page 58 for the GAAP to non-GAAP reconciliation.
Net Sales by Region for Fiscal 2007
The
Americas
46%
Europe
54%
2007
2006
2005
$ 21,440 $ 20,483 $ 19,731
$
$
(4) $
163 $
164 $
204 $
232
232
$ (1.76) $
.45 $ 2.74
$ 1.40 $ 2.08 $ 2.55
30
29
$
$
265 $
157 $
443 $
251 $
31
195
377
$ 1,703 $ 1,760 $ 1,927
1
Achieved record worldwide
net sales of $21.4 billion
4.7%
growth
Dear Valued Shareholders:
E x e c u t e D i v e r s i f y I n n o v a t e E x e c u t e D i v e r s i f y I n n o v a t e E x e c u t e D i v e r s i f y I n n o v a t e
Fiscal 2007 marked a year of transition and further alignment for Tech Data. Steve Raymund retired
as chief executive officer after 25 years of leadership with the company, and on behalf of the Board
of Directors and the entire team at Tech Data, we thank Steve for his vision and tremendous accom-
plishments throughout the years. As a veteran industry expert, Steve continues to provide valuable
insight in his ongoing role as Tech Data’s Chairman of the Board.
Turning to our financial results, our performance during the year was mixed, as we completed
our European restructuring program and continued to stabilize our operations in the region. Our
Americas segment executed well, delivering another year of solid performance in a market that
remains very competitive. We generated worldwide non-GAAP operating income of $164.3 million
while achieving record net sales of $21.4 billion, as we focused on growing our net sales responsibly,
at a managed pace. There is still work for us to do, but today we believe our company is stronger,
better prepared and more appropriately aligned to prosper in the marketplace.
Since joining the Tech Data team in October 2006, I made it a priority to meet with many of
our vendors, customers, employees and shareholders worldwide. What I learned is that most view
Tech Data as a significant and strategic player in IT distribution and that our company possesses the
business fundamentals, talent and financial strength required to accelerate our success. Throughout
my discussions with our various stakeholders, I was often presented with the same key questions
about Tech Data and our future. Let me share a few of those questions and my responses with you.
Q >>
What is your strategic mission for Tech Data?
As we look ahead into fiscal 2008 and beyond, we will continue to reaffirm three operating objectives
that support Tech Data’s strategic mission, drive our growth in the marketplace and position Tech
Data for continued success. These include our ability to effectively execute across all levels of our
operations, diversify into new and adjacent markets and innovate the way we do business. Tech
Data represents a critical route to the market for the world’s largest, most dynamic suppliers of
IT solutions. Our ability to hone our position and deliver upon our operating objectives impacts our
success, but more importantly it impacts the success of our vendors and our customers.
Execute. Our company was built on its ability to execute. We buy and sell, then pick, pack
and ship tens of thousands of products every day. Through superior execution, we built a dynamic
company that in fiscal 2007 distributed over $21 billion in IT products into over 100 countries.
Our ability to execute is a competitive advantage, and we’ll look to gain additional leverage from
this strength.
Diversify. There is a tremendous opportunity for us to expand and enhance Tech Data’s
business prospects via diversification into new and adjacent product markets and geographies
while leveraging our current infrastructure and logistics expertise. We’re continually exploring new
opportunities to further fuel our growth while we attain our objectives of maximizing profits and
increasing return on capital employed.
2
bringing you the future in technology solutions
E x e c u t e D i v e r s i f y I n n o v a t e
Innovate. In an industry that is constantly evolving, requiring companies to conduct business more effi-
ciently, it is critical for Tech Data to continuously invest in innovation to better serve our vendors and customers.
For example, through the deployment of warehouse management technologies and e-commerce capabilities,
we can improve customer service, better control costs and gain a marked competitive advantage.
By aggressively pursuing these operating objectives, we believe we will continually strengthen our
position as a leader in the marketplace. In recent years, our energies have been heavily focused on internal
issues as we traversed the challenges in Europe, alongside very competitive market conditions worldwide.
With our stabilization efforts progressing in Europe and the continued solid execution of our operations in the
Americas, we are committed more than ever to redeploying our energies in the marketplace and advancing
our position worldwide.
Q >>
Tech Data’s European and Americas operations are markedly different in their structure and recent
financial performance. Is Tech Data on track worldwide for long-term, sustainable growth?
Fiscal 2007, specifically the third quarter, marked the completion of several key initiatives in Europe including
our restructuring, warehouse regionalization, the integration of our Azlan acquisition and the implementation
of a Pan-European SAP system. It was critical for Tech Data to streamline its European infrastructure, rationalize
its logistics capabilities and eliminate redundancies, while ultimately building a pan-European operation on
a single state-of-the-art enterprise resource planning (ERP) system. Our improved execution combined with
these initiatives began to deliver better results in the second half of fiscal 2007. We will continue to optimize
our operations in Europe by leveraging our infrastructure, energizing our sales and marketing execution and
targeting products, geographies and customers that offer strong growth and profitability.
The Americas region continued its solid performance in fiscal 2007 with 5.3 percent growth in net sales
and an operating margin, excluding stock-based compensation, of 1.61 percent of net sales. While the Americas
region remains quite competitive, our superior execution and coverage model continue to deliver results.
In both the Americas and Europe, we carefully managed our product and customer portfolio mix in
our effort to deliver responsible growth. This remains a constant objective as we replace under-performing
business with a more profitable mix. The small-to-medium sized business (SMB) segment is the fastest growing
sector of the IT industry and we continue to expand our SMB coverage model to further penetrate this
generally higher margin market.
In fiscal 2008, we will continue to control our selling, general and administrative (SG&A) expenses, but
we will also make investments across our operations worldwide in IT enhancements and sales programs that
will yield tactical benefits. All of our investments are targeted at better positioning Tech Data for long-term,
profitable growth.
3
Robert M. Dutkowsky
As we look to the future,
we will continue to reaffirm
our operating objectives to
effectively execute across our
operations, diversify into new
and adjacent markets, and
innovate the way
we do business.
E x e c u t e D i v e r s i f y I n n o v a t e E x e c u t e D i v e r s i f y I n n o v a t e E x e c u t e D i v e r s i f y I n n o v a t e
Q >>
How are you preparing Tech Data for continued success in an industry that continues to evolve and
remain particularly competitive?
The challenge of being responsive to changes in technology and the needs of our vendors and customers make
it imperative that Tech Data be more innovative, more adept and more daring in its business approach. We
put our strategy into action by taking several steps in fiscal 2007 and in the early part of fiscal 2008.
During the fourth quarter of fiscal 2007, we created the Advanced Infrastructure Systems (AIS) division.
The mission of AIS is to diversify Tech Data into emerging technology markets that deliver higher growth
with better margins. We believe rapidly evolving solutions like industry standard servers, blades, virtualization,
storage and open source software products will change the channel as we know it, and we’re poised to
maintain our leadership position as this transition unfolds. The creation of AIS diversifies our business for the
future and it positions us as an innovator in the eyes of our vendors and customers.
In February 2007, we announced that we are establishing a joint venture with Brightstar Corp., a world
leader in mobile and wireless devices. This evolving relationship will open up the European mobile device
market to Tech Data—a market that is expected to grow by 12 percent in 2007 according to industry research.
The partnership will position Tech Data in an adjacent technology market, diversifying our business, while
allowing us to leverage our established logistics infrastructure and execution capabilities in Europe. This will
be the first time Tech Data has entered into a joint venture agreement, making this a truly innovative way for
us to accelerate our time to market in this fast growing segment.
In addition to Tech Data’s years of proven success and recent initiatives aimed at furthering our position in the
industry, we have maintained a solid financial position. Our cash conversion cycle was 30 days in fiscal 2007,
a reduction of three days since fiscal 2004. During fiscal 2007, we completed a $200 million stock repurchase
program, purchasing 5.5 million shares—underscoring our commitment and confidence in our future. In
December 2006, we also closed on $350 million in 2.75 percent convertible debenture notes to support work-
ing capital needs.
In closing, I’m very proud of my Tech Data colleagues around the world and impressed not only by their
industry knowledge, but their enthusiasm for the future. In many regards fiscal 2007 was a difficult year, and
I thank the entire Tech Data team for their dedication and contributions. To our directors, vendors, customers
and shareholders, I express my gratitude for your continued commitment to Tech Data. As we look to the
future, we will continue to reaffirm our operating objectives to execute, diversify and innovate—positioning
Tech Data for increased success in the industry. Our veteran management team is poised and ready to lead us
in these efforts as we continue to sharpen our focus and respond aggressively to our expanding marketplace.
4
Bob Dutkowsky
Chief Executive Officer
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
Financial table of contents
Selected Consolidated Financial Data
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Reports of Independent Registered Certified Public Accounting Firm
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Shareholders’ Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Market for the Registrant’s Common Stock, Related Shareholder Matters
and Issuer Purchases of Equity Securities
Stock Performance Chart
GAAP to Non-GAAP Reconciliation (Unaudited)
6
8
25
27
28
29
30
31
56
57
58
5
Selected Consolidated Financial Data
The following table sets forth certain selected consolidated financial data. In the first quarter of fiscal 2007, management sold the
European Training Business (the “Training Business”). The results of operations of the Training Business have been reclassified and pre-
sented 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.
Five Year Financial Summary
2007
2006
2005
2004
2003
Income statement data:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,440,445
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,433,674
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . .
Goodwill impairment(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges(2) . . . . . . . . . . . . . . . . . . . . . . . . .
Special charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,006,771
851,097
136,093
23,764
—
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposition of subsidiaries, net . . . . . . . . . . . . . .
Discount on sale of accounts receivable . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net foreign currency exchange (gain) loss . . . . . . . . . . .
(Loss) income from continuing operations
before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes(3) . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations . . . . . . . . . . .
Discontinued operations, net of tax . . . . . . . . . . . . . . . .
(4,183)
—
12,509
28,742
(15)
(45,419)
55,508
(100,927)
3,946
(In thousands, except per share data)
$ 20,482,851
19,460,332
$19,730,917
18,667,184
$ 17,358,525
16,414,773
$ 15,738,945
14,907,187
1,022,519
828,278
—
30,946
—
163,295
—
5,503
23,996
1,816
131,980
109,013
22,967
3,619
1,063,733
832,178
—
—
—
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)
—
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(96,981) $
26,586
$
162,460
$
104,147
$
(199,818)
(Loss) income per common share—basic:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
(1.83) $
0.07
$
0.40
0.06
$
2.74
0.05
$
1.88
(0.05)
Net (loss) income per common share—basic . . . . . . . . $
(1.76) $
0.46
$
2.79
$
1.83
$
(Loss) income per common share—diluted:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
(1.83) $
0.07
$
0.39
0.06
$
2.69
0.05
$
1.86
(0.05)
Net (loss) income per common share—diluted . . . . . . $
(1.76) $
0.45
$
2.74
$
1.81
$
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends per common share . . . . . . . . . . . . . . . . . . . . .
55,129
55,129
—
57,749
58,414
—
58,176
59,193
—
56,838
57,501
—
(3.55)
—
(3.55)
(3.55)
—
(3.55)
56,256
56,256
—
6
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
2007
2006
2005
2004
2003
(In thousands, except per share data)
Balance sheet data:
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,816,564
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,703,864
Revolving credit loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,195
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . .
2,376
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
363,604
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,252
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,702,720
$1,392,108
4,404,634
235,088
1,605
14,378
38,598
1,760,307
$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) See Note 6 of Notes to Consolidated Financial Statements for discussion of the goodwill impairment recorded in fiscal year 2007.
(2) See Note 7 of Notes to Consolidated Financial Statements for discussion of restructuring costs incurred in fiscal year 2006 and 2007.
(3) See Note 10 of Notes to Consolidated Financial Statements for discussion of the $8.4 million and $56.0 million increases in the deferred tax asset valuation allowance in
fiscal 2007 and 2006, respectively.
7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Annual Report, 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 regarding
future events and the future results of Tech Data Corporation are
based on current expectations, estimates, forecasts, and projections
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 Risk Factors of this Annual Report on page 52 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
• 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
• customer credit exposure
• need for liquidity and capital resources; fluctuations in interest rates
• foreign currency exchange rates; exposure to foreign markets
• 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
(including the United States, Canada, Latin America and export
sales to the Caribbean) and Europe, formerly referred to as EMEA
(including 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. We will con-
tinue to focus on not only disciplined pricing and purchasing prac-
tices, but also on realigning our customer and vendor portfolio to
support a sustainable higher margin business that will help drive
long-term profitability throughout all of our operations. As we
continue to evaluate our existing pricing policies and make future
changes, if any, within our customer or vendor portfolio, we may
experience moderated sales growth or sales declines. In addition,
increased competition and changes in general economic con-
ditions within the markets in which we conduct business may
hinder our ability to maintain and/or improve gross margin from
its current level.
8
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
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, 2007 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 21%.
We continue to be satisfied with our performance over the last
several years within the Americas. However, our profitability within
Europe has been well below our expectations. We believe our lack
of acceptable operating performance in Europe was the result of a
combination of factors, including weaker demand conditions in
certain countries, competitive pricing pressures, declining average
selling prices and, most notably, the diverted focus of our man-
agement team in the region. Specifically, the combined effect of
the completion of our comprehensive IT systems upgrade and har-
monization project, further integration of our Azlan operations
and, most recently, the implementation of our European restruc-
turing program initiated in May 2005, diverted the focus of our
management team in the region from executing appropriate pric-
ing, purchasing and sales management practices.
In order to dedicate our strategic efforts and focus towards
core growth opportunities, as well as our European turnaround,
during the first quarter of fiscal 2007, we completed the sale of
our Training Business to a third-party for total cash consideration
of $16.5 million, resulting in an after-tax gain of $3.8 million. Our
results of operations for the Training Business and the gain on the
sale of the Training Business have been reclassified and presented
as “discontinued operations, net of tax” in our Consolidated
Statement of Operations for all periods presented. The reclassifi-
cation of the Training Business had the effect of reducing previ-
ously reported gross margin and selling, general and administrative
expenses (“SG&A”) as a percentage of consolidated net sales by
approximately .20% to .23% for fiscal 2006 and 2005. The
impact on previously reported operating margin for these periods
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 were less than 0.5% of the total consolidated net assets
of the Company.
During the second quarter of fiscal 2007, our challenges in
Europe intensified. During this quarter, we recorded sharply lower
than expected revenues which we believe was the result of a
further deceleration in IT demand within Europe, in comparison
to previous quarters. This deceleration in IT demand during the
quarter, particularly within Western Europe where the majority of
our European revenue is derived, was a key factor leading to a
heightened level of pricing pressure experienced within the region
during the quarter. This further deceleration in IT demand and
heightened pricing pressure, coupled with continued internal dis-
tractions of management related to the restructuring program,
resulted in our European operating results for the quarter falling
well short of our internal expectations. As a result, we believed
we had strong indicators of impairment of our goodwill in Europe
and, therefore, we performed an impairment test for goodwill
as of July 31, 2006. This goodwill impairment analysis reflected
the recast of both our short- and longer-term European financial
outlook and resulted in our determination that a $136.1 million
non-cash goodwill impairment charge was necessary as of
July 31, 2006.
As a result of the market factors discussed in the paragraph
above, we believe it will take longer than originally anticipated to
reach an acceptable level of profitability in Europe. The major ini-
tiatives surrounding our restructuring program were completed in
the third quarter of fiscal 2007, and the savings realized from our
restructuring initiatives have partially offset the pressure on our
gross margins experienced during the year. In addition, the dedi-
cated resources which have been assigned across the region to
optimize pricing, purchasing and sales management practices have
begun to produce improvements. During the second semester of
fiscal 2007, we have seen our European operations begin to stabi-
lize with improving revenue growth and gross margins compared
to the first semester of fiscal 2007. While we still have opportuni-
ties and expectations for additional improvement, we believe that
our performance within several countries, especially during the
second semester of fiscal 2007, is a positive indicator of the
Company’s ability to improve our operating performance in
Europe. However, we continue to remain cautiously optimistic, as
the competitive environment and changes in general economic
conditions within the markets in which we conduct business may
hinder our ability to continue to improve our operating margins
from their current level.
Effective February 1, 2006, we adopted the fair value recogni-
tion provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payments” (“SFAS No.
123R”), using the modified prospective transition method, and
therefore have not restated our results of operations for the prior
9
Management’s Discussion and Analysis of Financial Condition and Results of Operations
continued
periods. Under this transition method, stock-based compensation
expense for fiscal 2007 includes compensation expense for stock-
based compensation awards granted prior to, but not yet vested
as of January 31, 2006, and for stock-based compensation awards
granted after January 31, 2006. SFAS No. 123R eliminates the
ability to account for stock-based compensation transactions using
the intrinsic value method under Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to Employees.” In
accordance with SFAS No. 123R, we recognize stock-based com-
pensation expense, reduced for estimated forfeitures, on a straight-
line basis over the requisite service period of the award. During
fiscal 2007, we recognized $8.0 million of stock-based compensa-
tion expense as a result of the adoption of SFAS No. 123R. See
further discussion related to our adoption of SFAS No. 123R
included in Note 1 of Notes to Consolidated Financial Statements.
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 on-going 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
portfolio, the existence of credit insurance and specifically identi-
fied customer risks. Also influencing our estimates are the follow-
ing: (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. Conversely, if actual customer
performance were to improve to an extent not expected by us a
reduction in allowances may be required which could have
a favorable 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, semi-annual or annual agreements with the
vendors; 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.
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 out-
standing receivables from vendors be uncollectible, additional
allowances may be required which could have an adverse effect
on our consolidated financial results.
10
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
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
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.
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 valuation allowance would be made to income tax
expense, thereby reducing net income in the period such determi-
nation was made.
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 economic
conditions and practices, which are all subject to change as events
evolve and as additional information becomes available during the
administrative and litigation process.
Income Taxes
Recent Accounting Pronouncements and Legislation
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 posi-
tive and negative evidence and a variety of factors including, the
scheduled reversal of deferred tax liabilities, historical and pro-
jected future taxable income, and prudent and feasible tax plan-
ning 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 valuation allowance would
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, 2007, 2006
and 2005:
2007
% of
net sales
2006
% of
net sales
2005
% of
net sales
Net sales by geographic region ($ in thousands):
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,965,074
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,475,371
46.48% $ 9,464,667
11,018,184
53.52
46.21% $ 8,482,512
11,248,405
53.79
42.99%
57.01
Worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,440,445
100.00% $ 20,482,851
100.00% $ 19,730,917
100.00%
11
Management’s Discussion and Analysis of Financial Condition and Results of Operations
continued
Year-over-year increase (decrease) in net sales (%):
Americas (US$) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3% 11.6%
8.2%
Europe (US$) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1% (2.0)% 18.2%
Europe (Euro) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5% (0.6)% 9.0%
3.8% 13.7%
Worldwide (US$) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7%
2007
2006
2005
Operating income (loss) ($ in thousands):
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 155,653
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(159,836)
1.56%
(1.39)%
$ 154,839
8,456
1.64% $ 140,690
90,865
0.08%
1.66%
0.81%
Worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(4,183)
(0.02)% $ 163,295
0.80% $ 231,555
1.17%
2007
% of
net sales
2006
% of
net sales
2005
% of
net sales
We sell many products purchased from the world’s leading
peripheral, system and networking manufacturers and software
publishers. Products purchased from HP generated 28%, 27% and
28% of our net sales in fiscal 2007, 2006 and 2005, respectively.
There were no other manufacturers or publishers 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:
2007
2006
2005
Net sales . . . . . . . . . . . . . . . . . . . . . . 100.00% 100.00% 100.00%
Cost of products sold . . . . . . . . . . . . 95.30
94.61
95.01
Gross profit . . . . . . . . . . . . . . . . . . .
Selling, general and
administrative expenses . . . . . . . .
Goodwill impairment . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . .
Operating (loss) income . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
Discount on sale of
accounts receivable . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . .
Net foreign currency
exchange (gain) loss . . . . . . . . . . .
(Loss) income from continuing
operations before income taxes . . .
Provision for income taxes . . . . . . . .
(Loss) income from
continuing operations . . . . . . . . . .
Discontinued operations,
net of tax . . . . . . . . . . . . . . . . . . .
4.70
3.98
0.63
0.11
(0.02)
0.18
0.06
(0.05)
4.99
4.04
—
0.15
0.80
0.16
5.39
4.22
—
—
1.17
0.14
0.03
(0.04)
—
(0.03)
—
0.01
(0.01)
(0.21)
0.26
(0.47)
0.02
0.64
0.53
0.11
0.02
1.07
0.27
0.80
0.02
Net (loss) income . . . . . . . . . . . . . . .
(0.45)%
0.13%
0.82%
12
Net Sales
Our consolidated net sales were $21.4 billion in fiscal 2007, an
increase of 4.7% when compared to fiscal 2006. On a regional
basis, during fiscal 2007, net sales in the Americas increased by
5.3% over fiscal 2006 and increased by 4.1% in Europe (an
increase of 1.5% on a euro basis). Our sales performance in the
Americas is primarily due to stronger sales to direct marketers and
retailers compared to the prior year somewhat offset by declining
average selling prices of many of the products we sell. The increase
in European sales in fiscal 2007 is primarily the result of the
improved IT demand experienced in the second semester of fiscal
2007 and improved stability in our European operations partially
offset by much lower demand in Western Europe during the first
semester of fiscal 2007 (particularly in the second quarter).
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 was primarily due to reasons similar to those
described above regarding our fiscal 2007 sales performance. Our
performance in Europe can be attributed to a combination of
factors, including somewhat weaker demand conditions in certain
countries, competitive pricing pressures resulting in declining aver-
age selling prices and, most notably, the diverted focus of our
management team in the region.
Gross Profit
Gross profit as a percentage of net sales (“gross margin”) dur-
ing fiscal 2007 was 4.70%, a decrease from 4.99% in fiscal 2006.
The decrease in gross margin is primarily attributable to the more
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
challenging pricing environment in Europe, particularly in the
second quarter of fiscal 2007 and the internal distractions of man-
agement related to the final phases of our comprehensive IT
systems upgrade and harmonization project and the implementa-
tion of the restructuring program in Europe, as discussed above.
Since the completion of these initiatives during the third quarter of
fiscal 2007, we have seen our European operations begin to stabi-
lize and gross margins in the region improve sequentially during
the third and fourth quarters of fiscal 2007. However, we continue
to remain cautiously optimistic as the competitive environment
and changes in general economic conditions within the markets in
which we conduct business may hinder our ability to maintain
and/or continue to improve gross margin from its current level.
Gross margin during fiscal 2006 was 4.99%, a decrease from
5.39% in fiscal 2005. The decrease in gross margin was primarily
attributable to the highly competitive pricing environment and
operational challenges in our European operations, as discussed
above, and to a much lesser extent, changes in customer and
product mix in both Europe and the Americas.
Operating Expenses
Selling, general and administrative expenses (“SG&A”)
SG&A as a percentage of net sales decreased to 3.98% in fiscal
2007, compared to 4.04% in fiscal 2006. The decrease in SG&A
as a percentage of net sales in fiscal 2007 is the result of improve-
ments in productivity, particularly in Europe, where we are realiz-
ing the benefits associated with our restructuring efforts.
In absolute dollars, worldwide SG&A increased by $22.8 million
in fiscal 2007 compared to fiscal 2006. The increase in SG&A in
fiscal 2007 is primarily attributable to an increase in credit costs in
both the Americas and Europe due to higher than anticipated
bankruptcies and other credit losses, increased labor costs in the
Americas, a stronger euro versus the U.S. dollar in fiscal 2007
compared to fiscal 2006, and an additional $8.0 million of com-
pensation expense related to the adoption of SFAS No. 123R in
fiscal 2007. These increases were offset in part by the productivity
improvements and benefits realized in Europe from the restructur-
ing program, which we completed during the third fiscal quarter
of 2007. SG&A includes external consulting costs related to the
European restructuring program of $8.6 million and $9.6 million
for fiscal 2007 and 2006, respectively.
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 was the result of con-
tinuing cost savings initiatives and improvements in productivity,
particularly in Europe, where we began to realize the benefits
associated with our restructuring efforts. Also contributing to our
decrease in SG&A was a reduction in credit costs due to favorable
credit experience and the positive resolution of contingencies
associated with certain customer accounts.
In absolute dollars, worldwide SG&A decreased by $3.9 million
in fiscal 2006 compared to fiscal 2005. The decrease in fiscal 2006
was primarily due to the benefits realized from the restructur-
ing program and the decrease in credit costs, partially offset by
$9.6 million of external consulting costs incurred related to our
European 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.
Goodwill Impairment
As discussed earlier in this MD&A, due to certain indicators of
impairment within our European reporting unit, the Company
performed an impairment test for goodwill as of July 31, 2006.
This testing included the determination of the European reporting
unit’s fair value using market multiples and discounted cash flows
modeling. The Company’s reduced earnings and cash flow fore-
cast for our European region resulted in the Company determining
that a goodwill impairment charge was necessary. As of July 31,
2006, the Company recorded a $136.1 million non-cash charge
for the goodwill impairment in Europe.
Restructuring Charges
As discussed earlier in this MD&A, in May 2005, we announced
a formal restructuring program to better align the European oper-
ating cost structure with the current business environment. As of
October 31, 2006, the initiatives related to the European restruc-
turing program had been completed. During fiscal 2007, we
incurred $23.8 million related to the restructuring program, com-
prised of $20.0 million for workforce reductions and $3.8 million
for facility costs. In total, from inception through completion of
the program, we incurred $54.7 million related to the restructur-
ing program, comprised of $38.9 million for workforce reductions
and $15.8 million for facility costs.
13
Management’s Discussion and Analysis of Financial Condition and Results of Operations
continued
Interest Expense, Discount on Sale of Accounts Receivable, Interest
Income, Foreign Currency Exchange Gains/Losses
Interest expense increased 22.5% to $38.5 million in fiscal
2007 compared to $31.4 million in fiscal 2006. The increase in
interest expense in fiscal 2007 is primarily attributable to the
repurchase of the $290.0 million convertible subordinated deben-
tures in the fourth quarter of fiscal 2006 using revolving credit
facilities, which have higher short-term borrowing rates. In addi-
tion, average short-term interest rates increased in comparison to
the prior fiscal year, resulting in an increase in interest expense in
fiscal 2007 compared to fiscal 2006.
Interest expense increased 10.4% to $31.4 million in fiscal
2006 compared to $28.5 million in fiscal 2005. The increase in
interest expense during fiscal 2006 was primarily due to additional
working capital requirements resulting from higher sales volume
and an increase in our average short-term borrowing rate com-
pared to the prior fiscal year.
Discount on the sale of accounts receivable totaled $12.5 million
and $5.5 million, respectively, in fiscal 2007 and 2006. The dis-
count is associated with the accounts receivable purchase facility
agreements executed in fiscal 2006 (see further discussion below
in this MD&A and in Note 4 of Notes to Consolidated Financial
Statements). The increase in the discount on sale of accounts
receivable from fiscal 2006 to fiscal 2007 reflects the fact that the
Company began selling accounts receivable under the program in
the second quarter of fiscal 2006 which resulted in an increase in
the average amount of accounts receivables sold under the pro-
grams and an increase in the discount rates charged in fiscal 2007
compared to fiscal 2006.
Interest income increased 31.5% to $9.8 million in fiscal 2007
compared to $7.4 million in fiscal 2006. The increase in interest
income during fiscal 2007 compared to fiscal 2006 is primarily
attributable to higher interest rates earned on short-term cash
investments and higher average investment balances compared to
the prior fiscal year. Interest income increased 32.5% to $7.4 million
in fiscal 2006 from $5.6 million in fiscal 2005. The increase in
interest income during fiscal 2006 compared to fiscal 2005 was
primarily attributable to higher interest rates earned on short-term
cash investments compared to the prior fiscal year.
We realized a net foreign currency exchange gain of $0.1 million
in fiscal 2007 compared to a net foreign currency exchange loss
of $1.8 million during fiscal 2006 and a net foreign currency
exchange gain of $3.0 million in fiscal 2005. 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 currencies. It continues to be our goal
to minimize foreign currency exchange gains and losses through
an effective hedging program. Our hedging policy prohibits spec-
ulative foreign currency exchange transactions.
Provision for Income Taxes
Our effective tax rate for continuing operations was (122.2)%
in fiscal 2007 and 82.6% in fiscal 2006. The change in the effective
tax rate during fiscal 2007 compared to fiscal 2006 is primarily the
result of the previously discussed goodwill impairment in Europe
of $136.1 million, which is non-deductible for tax purposes, and
an increase in net operating losses in certain tax jurisdictions for
which no tax benefit was recognized. Additionally, we recorded
an increase in the deferred tax valuation allowance related to
certain jurisdictions in Europe of $8.4 million and $56.0 million in
fiscal years 2007 and 2006, respectively, related to net operating
losses recorded in previous years. On an absolute dollar basis, the
provision for income taxes decreased 49.1% to $55.5 million in
fiscal 2007 as compared to $109.0 million in fiscal 2006 primarily
as a result of the decrease in the adjustment to the deferred tax
asset valuation allowance.
While we believe our restructuring efforts will improve the
operating performance within our European operations, we deter-
mined the respective increases in the valuation allowances on
deferred tax assets in fiscal 2007 and 2006 to be appropriate due
to cumulative losses realized within the respective fiscal years,
after considering the effect of implementing prudent and feasible
tax planning strategies. To the extent we generate future consis-
tent 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
taxable income in the specific jurisdictions requiring the valuation
allowance, subject to applicable tax laws and regulations.
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 compared to fiscal 2005 is primarily
the result of the previously mentioned $56.0 million increase in
the valuation allowance on deferred tax assets. 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 increase in the deferred tax valu-
ation allowance.
14
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
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 Europe during our second and third fiscal quarters
followed by an increase in European demand during our fiscal
fourth quarter. Given that a significant portion of our revenues
are derived from Europe, the worldwide results closely follow the
seasonality trends in Europe. 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
Statement of Cash Flows for the fiscal years ended January 31,
2007, 2006 and 2005:
Years ended January 31,
2007
2006
2005
(In thousands)
Net cash (used in) provided by:
Operating activities . . . . . . . . . . $ (13,988)
(23,666)
121,753
Investing activities . . . . . . . . . . .
Financing activities . . . . . . . . . .
Effect of exchange rate
changes on cash and
cash equivalents . . . . . . . . . .
$ 257,439
(51,583)
(235,438)
$ 106,945
(38,645)
12,200
Net increase (decrease) in cash
and cash equivalents . . . . . . . . $108,341
$ (38,391)
$ 86,255
24,242
(8,809)
5,755
The effective tax rate differed from the U.S. federal statutory
rate of 35% during these periods primarily for the reasons discussed
above, net operating losses in certain tax jurisdictions for which
no tax benefit was recognized and tax rate benefits of earnings
from operations in certain 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.
The overall effective tax rate is dependent upon the geographic
distribution of our worldwide earnings or losses and changes in
tax laws or interpretations of these laws in our operating jurisdic-
tions. We regularly monitor the assumptions used in estimating
our annual effective tax rate and adjust our estimates accordingly.
If actual results differ from our estimates, future income tax
expense could be materially affected.
Our future effective tax rates could be adversely affected by
lower earnings than anticipated in countries with lower statutory
rates, changes in the relative mix of taxable income and taxable
loss jurisdictions, 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 from
these examinations to determine the adequacy of our provision
for income taxes. At January 31, 2007, we believe we have appro-
priately 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 accruals, our
effective tax rate could be materially affected.
Discontinued Operations, Net of Tax
The results of operations and the gain on sale of the Training
Business have been reclassified and presented as “discontinued
operations, net of tax,” within the Consolidated Statement of
Operations for all periods presented. For fiscal 2007, we realized
income from discontinued operations, net of tax, of $3.9 million,
comprised of a $3.8 million gain, net of tax, on the sale of the
Training Business and $0.1 million of income from operations of
the Training Business prior to the sale in March 2006. We realized
$3.6 million and $2.8 million of income from discontinued opera-
tions, net of tax, in fiscal 2006 and 2005, respectively.
Impact of Inflation
For the fiscal years ended January 31, 2007, 2006 and 2005,
we do not believe that inflation had a material impact on our con-
solidated operations or on our financial position.
Net cash used in operating activities was $14.0 million for fiscal
2007 compared to $257.4 million cash provided by operations in
fiscal 2006. The $14.0 million cash used in operations in fiscal
2007 was due primarily to the timing of cash received from cus-
tomers and the timing of payments to vendors. In addition, our
15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
continued
operating cash flows in fiscal 2007 were influenced by higher
accounts receivable balances due to an acceleration of revenue
growth in Europe in the fourth quarter of fiscal 2007 compared to
the same period of fiscal 2006. 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 of sales outstanding
in accounts receivable (“DSO”) plus days of supply on hand in
inventory (“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 remained relatively
consistent at 30 days at the end of fiscal 2007 compared to 29
days at the end of fiscal 2006. Our owned inventory level (the
percentage of inventory not financed by vendors) was a negative
29% at the end of fiscal 2007, meaning our accounts payable bal-
ances exceeded our inventory balances by 29%. This compares to
negative owned inventory of 25% at the end of fiscal 2006.
Net cash provided by operating activities increased to $257.4
million in fiscal 2006 as compared to $106.9 million in fiscal 2005
due primarily to the timing of payments to vendors. Our net cash
days improved by approximately 6% to 29 days at the end of fis-
cal 2006 compared to 31 days at the end of fiscal 2005, resulting
from improved management of our worldwide cash conversion
cycle. Our owned inventory level (the percentage of inventory not
financed by vendors) was a negative 25% at the end of fiscal
2006. This compared to negative owned inventory of 18% at the
end of fiscal 2005.
The following table presents the components of Tech Data’s cash
conversion cycle, in days, as of January 31, 2007, 2006 and 2005:
As of January 31,
2007
2006
2005
Days of sales outstanding . . . . . . . . . . . . . . . . . . .
Days of supply in inventory . . . . . . . . . . . . . . . . . .
Days of purchases outstanding . . . . . . . . . . . . . . .
37
24
(31)
Cash conversion cycle (days) . . . . . . . . . . . . . . .
30
36
26
(33)
29
36
25
(30)
31
Net cash used in investing activities of $23.7 million during fiscal
2007 was primarily due to $43.7 million of expenditures for the
continuing expansion and upgrading of our IT systems, office
facilities and equipment for our logistics centers, offset by $16.5
million proceeds received from the sale of the Training Business and
$3.6 million of proceeds from the sale of property and equipment.
We expect to make total capital expenditures of approximately
$40.0 million during fiscal 2008 for equipment and machinery in
our logistics centers, office facilities and IT systems.
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.
Net cash provided by financing activities of $121.8 million dur-
ing fiscal 2007 is primarily the result of net proceeds of $342.6
million received from the issuance of $350.0 million of convertible
debentures in December 2006, $25.2 million in proceeds received
for the reissuance of treasury stock related to exercises of equity-
based awards and purchases made through our Employee Stock
Purchase Plan (“ESPP”), offset by $166.4 million of net repay-
ments on our revolving credit lines and long-term debt and the
use of $80.1 million for the repurchase of 2,222,720 shares of our
common stock.
Net cash used in financing activities of $235.4 million during
fiscal 2006 is primarily the result of the repayment of our $290.0
million convertible subordinated debentures 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 ESPP.
As of January 31, 2007, we maintained a $400.0 million Receiv-
ables Securitization Program with a syndicate of banks. We pay
interest (rate of 5.70% at January 31, 2007) 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 (rate of 6.32%
at January 31, 2007) under this facility at the applicable LIBOR 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 $787.4 million at January 31, 2007 (average
interest rate on the borrowing was 4.37% at January 31, 2007).
The total capacity of the aforementioned credit facilities was
approximately $1.4 billion, of which $77.2 million was outstand-
ing at January 31, 2007. 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. The financial ratio covenants
16
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
contained within the credit agreements include a debt to capital-
ization ratio, an interest to EBITDA (earnings before interest, taxes,
deprecation and amortization) ratio, and a tangible net worth
requirement. At January 31, 2007, we were in compliance with all
such covenants. The ability to draw funds under these credit facil-
ities is dependent upon sufficient collateral (in the case of the
Receivables Securitization Program) and meeting the aforemen-
tioned financial covenants, which may limit our ability to draw the
full amount of these facilities. As of January 31, 2007, the maxi-
mum amount that could be borrowed under these facilities, in
consideration of the availability of collateral and the financial
covenants, was approximately $750.1 million.
On March 20, 2007, we amended the $250.0 million Multi-
currency Revolving Credit Facility, the Receivables Securitization
Program and the synthetic lease facility we have with a group of
financial institutions (the “Synthetic Lease”), further discussed
below. The primary purpose of these amendments was to obtain
more favorable interest rates, lease rates and facility fees. In addi-
tion, the maturity date of the Multi-currency Revolving Credit
Facility was extended to March 20, 2012.
At January 31, 2007, we had issued standby letters of credit of
$25.5 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 above mentioned facilities by the
same amount.
In December 2006, we issued $350.0 million of convertible
senior debentures due 2026. The debentures bear interest at
2.75% per year. We will pay interest on the debentures on June
15 and December 15 of each year, beginning on June 15, 2007. In
addition, beginning with the period commencing on December 20,
2011 and ending on June 15, 2012 and for each six-month period
thereafter, we will pay contingent interest on the interest payment
date for the applicable interest period, if the market price of the
debentures exceeds specified levels. The convertible senior deben-
tures are convertible into our common stock and cash anytime
after June 15, 2026, or i) if the market price of the common stock,
as defined, exceeds 135% of the conversion price per share of
common stock, or ii) if the Company calls the debentures for
redemption, or iii) upon the occurrence of certain corporate
transactions, as defined. Holders have the right to convert the
debentures into 18.4310 shares per $1,000 principal amount of
debentures, equivalent to a conversion price of approximately
$54.26 per share. Upon conversion, we will deliver cash equal to
the lesser of the aggregate principal amount of the debentures to
be converted and our total conversion obligation and shares of
our common stock in respect of the remainder, if any, of our
conversion obligation. Holders have the option to require us to
repurchase the debentures in cash on any of the fifth, tenth or
fifteenth anniversary dates from the issue date at 100% of the
principal amount plus accrued interest to the repurchase date. The
debentures are redeemable in whole or in part for cash at our
option at any time on or after December 20, 2011. Additionally,
the debentures are senior, unsecured obligations and rank equally
in right of payment with all of our other unsecured and unsubor-
dinated indebtedness. The debentures are effectively subordinated
to all of our existing and future secured debt and are structurally
subordinated to the indebtedness and other liabilities of our
subsidiaries. The proceeds from the offering were used to pay off
short-term debt and for other general corporate purposes.
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.
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 May 2006, we withdrew our $500.0 million universal shelf
registration statement with the Securities and Exchange Commis-
sion as we made the decision not to issue debt or equity securities
through this registration statement.
In fiscal 2006, our Board of Directors authorized a share repur-
chase program of up to $200.0 million of our common stock.
Share repurchases under the program were made on the open
market through block trades or otherwise. The number of shares
purchased and the timing of the purchases was based on working
capital requirements, general business conditions and other factors,
including alternative investment opportunities. Shares we repur-
chase are held in treasury for general corporate purposes, includ-
ing issuances under employee equity incentive plans. During fiscal
2007, we repurchased 2,222,720 shares comprised of 2,220,132
shares purchased in conjunction with our share repurchase pro-
gram and 2,588 shares purchased outside of the stock repurchase
program, at an average of $36.03 per share, for a total cost,
17
Management’s Discussion and Analysis of Financial Condition and Results of Operations
continued
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 non-cancelable 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
cancellation without significant penalty.
Off-Balance Sheet Arrangements
Synthetic Lease Facility
We have a Synthetic Lease facility with a group of financial
institutions under which we lease certain logistics centers and
office facilities from a third-party lessor. The Synthetic Lease expires
in fiscal 2009, 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 $118.0 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 Synthetic Lease at LIBOR
plus an agreed-upon margin. The Synthetic Lease contains cove-
nants that must be complied with, similar to the covenants
described in certain of the credit facilities discussed above and in
Note 8 of Notes to Consolidated Financial Statements. The amount
funded under the Synthetic Lease (approximately $133.2 million at
January 31, 2007) is treated as debt under the definition of the
covenants required under both the Synthetic Lease and the credit
facilities. As of January 31, 2007, we were in compliance with all
such covenants.
including expenses, of $80.1 million. As of October 31, 2006, the
share repurchase program authorized in fiscal 2006 was completed.
Our debt to capital ratio was 21% at January 31, 2007. 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 bor-
row or limit the Company’s flexibility in responding to business
conditions.
Contractual Obligations
As of January 31, 2007, future payments of long-term debt
and amounts due under future minimum lease payments, includ-
ing minimum commitments under IT outsourcing agreements, are
as follows (in thousands):
Operating Capital
leases
leases
Long-term
debt
Total
Fiscal year:
2008. . . . . . . . . . . . . . . . . $ 65,285 $ 3,381 $ — $ 68,666
57,341
2009. . . . . . . . . . . . . . . . .
45,148
2010. . . . . . . . . . . . . . . . .
35,268
2011. . . . . . . . . . . . . . . . .
370,805
2012. . . . . . . . . . . . . . . . .
75,953
Thereafter . . . . . . . . . . . .
—
—
—
350,000
—
55,367
43,339
33,459
18,996
66,843
1,974
1,809
1,809
1,809
9,110
Total payments . . . . . . . . .
Less amounts
283,289
19,892
350,000
653,181
representing interest . . .
— (3,912)
—
(3,912)
Total principal
payments . . . . . . . . . . . $ 283,289 $ 15,980 $350,000
$ 649,269
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
18
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
In January 2007, we sold approximately 6 acres of excess land
located in Miami, Florida. The sale was executed pursuant to the
“excess sale” provisions of the Synthetic Lease agreement and
resulted in a gain of $3.6 million recorded during the quarter
ended January 31, 2007. This gain is included within SG&A in our
Consolidated Statement of Operations.
The sum of future minimum lease payments under the Synthetic
Lease at January 31, 2007 was approximately $13.5 million.
Properties leased under the Synthetic Lease facility total 2.5 million
square feet of space, with land totaling approximately 198 acres
located in Clearwater and Miami, Florida; Fort Worth, Texas;
Fontana, California; Suwanee, Georgia; Swedesboro, New Jersey;
and South Bend, Indiana.
The Synthetic 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.
Trade Receivables Purchase Facility Agreements
We have revolving trade receivables purchase facility agree-
ments (the “Receivables Facilities”) with third-party financial insti-
tutions to sell accounts receivable on a non-recourse basis. We
use the Receivables Facilities as a source of working capital fund-
ing. The Receivables Facilities limit the amount of purchased
accounts receivable the financial institutions may hold to $356.1
million at January 31, 2007, based on currency exchange rates 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 accordance with SFAS No.
140, “Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities.” The Receivables Facilities, which
have various expiration dates, require that we continue to service,
administer and collect the sold accounts receivable.
During fiscal 2007 and 2006, we received gross proceeds of
$1.3 billion and $796.1 million, respectively, from the sale of the
Receivables and recognized related discounts totaling $12.5 million
and $5.5 million, respectively. The proceeds, net of the discount
incurred, are reflected in the Consolidated Statement of Cash
Flows in operating activities within cash received from customers
and the change in accounts receivable. Prior to the second quarter
of fiscal 2006, the Company did not utilize the Receivables
Facilities as a source of funding.
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 are for an indefinite
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, 2007 and 2006, the aggregate
amount of guarantees under these arrangements totaled approxi-
mately $11.5 million and $7.0 million, respectively, of which approx-
imately $7.0 million and $2.9 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.
Additionally, in connection with the sale of the Training
Business discussed in Note 3—Discontinued Operations, we con-
tinue to negotiate the assignment of several of the related facility
lease obligations with the lessors of such properties. To the extent
the lessors are unwilling to agree to a direct lease arrangement
with the purchaser, we will remain liable in the event of default by
the purchaser of the Training Business. The majority of these lease
obligations expire at various dates over the next three years and
would require that we make all required payments under the lease
agreements in the event of default by the purchaser. The maxi-
mum potential amount of future payments (undiscounted) that we
could be required to make under the guarantees is approximately
$8.2 million as of January 31, 2007. We believe that the likelihood
of a material loss pursuant to these guarantees is remote.
19
Management’s Discussion and Analysis of Financial Condition and Results of Operations
continued
We also provide residual value guarantees related to our
Synthetic 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.
Inventory 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 purchases 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 inventory 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 Europe vary by country, the
vast majority of customers are 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 specula-
tive or trading purposes. Our primary exposure relates to transac-
tions in Europe, where the currency collected from customers can
be different from the currency used to purchase the product. Our
foreign currency risk management objective is to protect our earn-
ings and cash flows from the adverse impact of exchange rate
changes.
Foreign exchange risk is managed by using foreign currency for-
ward, option and swap contracts to hedge both intercompany 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 Consolidated Statement
of Operations each period. During fiscal 2007 and 2006, the
underlying exposures are denominated primarily in the following
currencies: U.S. dollar, British pound, Canadian dollar, Czech koruna,
Danish krone, euro, Norwegian krone, Polish zloty, Swedish krona
and Swiss franc.
20
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
The following table provides information about our foreign currency derivative financial instruments outstanding as of January 31,
2007 and 2006. 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
generally for durations of 90 days or less.
Foreign Currency Contracts
Notional Amounts by Expected Maturity
Average Forward Foreign Currency
Exchange Rate
January 31, 2007
January 31, 2006
Notional
amount
Weighted
average
Estimated fair
contract rate 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $128.14
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.03
Norwegian Krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.55
Danish Krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.88
British Pound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36.10
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.75
Miscellaneous other currencies . . . . . . . . . . . . . . . . . . .
—
Forward Contracts—Sell United States Dollar
Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.90
British Pound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.22
Miscellaneous other currencies . . . . . . . . . . . . . . . . . . .
3.73
Euro Functional Currency
Forward Contracts—Purchase Euro
United States Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51.10
Czech Koruna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.42
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
117.64
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32.20
Danish Krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Canadian Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
135.58
Polish Zloty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41.56
Norwegian Krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.91
Israeli Shekel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.16
Forward Contracts—Sell Euro
United States Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . $294.66
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Forward Contracts—Purchase Swedish Krona
Norwegian Krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ —
Forward Contracts—Sell Swedish Krona
United States Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . $ —
1.297
1.240
6.373
5.747
1.953
7.003
—
1.292
1.966
—
1.311
27.780
9.073
1.621
—
1.532
3.934
8.253
5.501
1.298
—
—
—
$(0.42)
0.01
—
—
(0.17)
—
—
$ 0.13
(0.02)
0.02
$(0.32)
0.01
(0.03)
(0.02)
—
(0.04)
(0.05)
(0.01)
—
$(0.93)
—
$ 33.63
3.17
2.20
5.71
42.08
2.63
0.65
$ 21.60
—
1.26
$ 118.70
16.09
148.98
47.12
21.60
35.68
26.39
7.60
—
$ 185.39
5.14
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
$ —
$ 1.72
1.149
$ 0.01
$ —
$ 3.94
7.668
$(0.04)
21
Management’s Discussion and Analysis of Financial Condition and Results of Operations
continued
January 31, 2007
January 31, 2006
Notional
amount
Weighted
average
Estimated fair
contract rate 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chilean Peso . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Polish Zloty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Czech Koruna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous other currencies . . . . . . . . . . . . . . . . . . .
Forward Contracts—Purchase Euro
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Polish Zloty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous other currencies . . . . . . . . . . . . . . . . . . .
Forward Contracts—Sell Euro
$11.25
1.00
5.47
21.46
3.60
2.50
1.00
$ 8.45
11.12
13.16
—
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Polish Zloty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.65
1.56
2.87
Forward Contracts—Sell United States Dollar
Swiss Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Polish Zloty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
5.25
4.19
Forward Contracts—Sell Norwegian Krone
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.55
Forward Contracts—Sell Danish Krone
Swedish Krona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30.46
1.171
1.246
541.890
2.943
21.712
6.883
—
9.036
1.603
3.865
—
1.615
3.870
9.086
—
2.990
6.948
1.095
1.212
$ 0.05
—
—
0.16
—
—
—
$ —
0.07
0.04
—
$ —
—
—
$ —
(0.01)
—
$ 9.45
1.10
5.80
9.28
1.69
3.90
—
$ —
7.43
$13.56
0.65
$ —
17.31
5.11
$ 0.56
8.70
—
$(0.02)
$ 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
—
$ 0.01
$(0.05)
$ —
—
$ —
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, 2007 and 2006, approxi-
mately 83% and 6%, respectively, of the outstanding debt had
fixed interest rates. We utilize various financing instruments, such
as receivables securitization, leases, revolving credit facilities and
trade receivable purchase facilities, to finance working capital needs.
22
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
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, 2007
Principal Notional Amount by Expected Maturity
January 31,
2008
2009
2010
2011
Thereafter
Total
(Dollar amounts in millions)
Fair
market value
January 31,
2007
United States Dollar Functional Currency
Liabilities
U.S. dollar denominated debt—revolving credit
Fixed rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Euro Functional Currency
Liabilities
Euro denominated debt—revolving credit
Variable rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62.9
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.78%
Euro denominated long-term debt (including current portion)
Fixed rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.4
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
$350.0
$ 350.0
$339.0
2.75%
$ 62.9
$ 62.9
—
—
$ 1.1
$ 1.0
$ 1.0
$ 10.5
$ 16.0
$ 16.0
6.15% 6.15% 6.15% 6.15%
6.15%
Other Miscellaneous Functional Currencies
Liabilities
Other foreign currencies denominated debt—revolving credit
Variable rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14.3
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.25%
—
—
—
—
—
—
—
—
$ 14.3
$ 14.3
Debt and Interest Rate Contracts as of January 31, 2006
Principal Notional Amount by Expected Maturity
January 31,
2007
2008
2009
2010
Thereafter
Total
(Dollar amounts in millions)
Fair
market value
January 31,
2006
United States Dollar Functional Currency
Liabilities
U.S. dollar denominated debt—revolving credit
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)
Fixed rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.6
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 126.6
$126.6
$ 82.0
$ 82.0
$ 1.7
$ 1.0
$ 1.0
$ 10.7
$ 16.0
$ 16.0
5.94% 5.94% 5.94% 5.94%
5.94%
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
23
Management’s Discussion and Analysis of Financial Condition and Results of Operations
continued
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 eval-
uating 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, Tech Data’s
management, with the participation of the Company’s Chief Execu-
tive Officer (“CEO”) and Chief Financial Officer (“CFO”), has eval-
uated the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(c) and 15(d)-15(e) under
the Exchange Act), as of January 31, 2007. Based on that evalua-
tion, the Company’s CEO and CFO concluded that the Company’s
disclosure controls and procedures were effective to provide rea-
sonable 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 regard-
ing required disclosure as of January 31, 2007.
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 Exchange Act. The Company’s
internal control over financial reporting is designed to provide rea-
sonable 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 finan-
cial 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 man-
agement, including our principal executive officer and principal
financial officer, we assessed the effectiveness of the Company’s
internal control over financial reporting as of January 31, 2007. 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, 2007,
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, 2007 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.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) identified in connection with management’s evalu-
ation during our last fiscal quarter that have materially affected,
or are reasonably likely to materially affect, the Company’s inter-
nal control over financial reporting.
24
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
Report of Independent Registered Certified Public Accounting Firm
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,
2007 and 2006, 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, 2007. 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.
of Tech Data Corporation and subsidiaries at January 31, 2007
and 2006, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
January 31, 2007, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements,
effective February 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123(R), Share-Based Payment.
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, 2007, based on criteria
established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 28, 2007 expressed an
unqualified opinion thereon.
In our opinion, the financial statements referred to above pres-
ent fairly, in all material respects, the consolidated financial position
Tampa, Florida
March 28, 2007
25
Report of Independent Registered Certified Public Accounting Firm
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 maintained effec-
tive internal control over financial reporting as of January 31, 2007,
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 effec-
tive 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 account-
ing principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of man-
agement and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthor-
ized 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, 2007, 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, 2007,
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, 2007 and 2006, 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, 2007 of Tech
Data Corporation and our report dated March 28, 2007 expressed
an unqualified opinion thereon.
Tampa, Florida
March 28, 2007
26
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
Consolidated Balance Sheet
January 31,
2007
2006
(In thousands,
except share amounts)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 265,006
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,464,735
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,556,008
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122,103
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,407,852
140,762
2,966
152,284
$ 156,665
2,160,138
1,527,729
138,927
3,983,459
141,275
134,327
145,573
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,703,864
$ 4,404,634
Liabilities and Shareholders’ Equity
Current liabilities:
Revolving credit loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,195
2,011,203
2,376
500,514
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,591,288
363,604
46,252
$ 235,088
1,917,213
1,605
437,445
2,591,351
14,378
38,598
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,001,144
2,644,327
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common stock, par value $.0015; 200,000,000 shares authorized; 59,239,085 shares issued at
January 31, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost (4,313,103 and 3,048,060 shares at January 31, 2007 and 2006) . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89
732,378
(157,628)
841,402
286,479
89
729,455
(112,601)
938,383
204,981
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,702,720
1,760,307
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,703,864
$ 4,404,634
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
27
Consolidated Statement of Operations
Year ended January 31,
2007
2006
2005
(In thousands, except per share amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,440,445
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,433,674
$ 20,482,851
19,460,332
$ 19,730,917
18,667,184
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,006,771
1,022,519
1,063,733
Operating expenses:
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
851,097
136,093
23,764
1,010,954
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,183)
Other expense (income):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount on sale of accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net foreign currency exchange (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations, net of tax (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,506
12,509
(9,764)
(15)
41,236
(45,419)
55,508
(100,927)
3,946
828,278
—
30,946
859,224
163,295
31,422
5,503
(7,426)
1,816
31,315
131,980
109,013
22,967
3,619
832,178
—
—
832,178
231,555
28,473
—
(5,606)
(2,959)
19,908
211,647
52,025
159,622
2,838
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(96,981) $
26,586
$
162,460
(Loss) income per common share—basic:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.83) $
0.07
$
0.40
0.06
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(1.76) $
0.46
$
(Loss) income per common share—diluted:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.83) $
0.07
$
0.39
0.06
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(1.76) $
0.45
$
2.74
0.05
2.79
2.69
0.05
2.74
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,129
55,129
57,749
58,414
58,176
59,193
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
28
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
Consolidated Statement of 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, 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 $1,460 . . . . . . . . . .
Purchase of treasury stock, at cost . . . . . . . .
Issuance of treasury stock for benefit plans
and stock options exercised, including
related tax benefit of $1,174 . . . . . . . . . . .
Comprehensive income (loss) . . . . . . . . . . . .
255
—
—
—
Balance—January 31, 2006 . . . . . . . . . . . . . 59,239
—
Purchase of treasury stock, at cost . . . . . . . .
Issuance of treasury stock for benefit plans
and equity-based awards exercised,
including related tax benefit of $2,680 . . .
Contribution of treasury stock to 401(k)
savings plan . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . .
Comprehensive (loss) income . . . . . . . . . . . .
—
—
—
—
$87
$686,092
$
— $749,337
$222,973
$1,658,489
1
—
88
1
—
—
—
89
—
—
—
—
—
38,470
—
724,562
—
—
— 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
729,455
—
(112,601)
(80,093)
938,383
—
—
(86,043)
204,981
—
11,318
(59,457)
1,760,307
(80,093)
(5,123)
32,986
—
—
27,863
73
7,973
—
2,080
—
—
—
—
(96,981)
—
—
81,498
2,153
7,973
(15,483)
Balance—January 31, 2007 . . . . . . . . . . . . 59,239
$89
$732,378
$ (157,628) $841,402
$286,479
$1,702,720
(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.
29
Consolidated Statement of Cash Flows
Year ended January 31,
2007
2006
2005
(In thousands)
Cash flows from operating activities:
Cash received from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,185,902
Cash paid to suppliers and employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,091,764)
Interest paid, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(26,910)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(81,216)
$ 20,504,871
(20,160,865)
(21,082)
(65,485)
$ 19,745,283
(19,571,824)
(18,837)
(47,677)
Net cash (used in) provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
(13,988)
257,439
106,945
Cash flows from investing activities:
Proceeds from sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of convertible debentures, net of expenses . . . . . . . . . . . . . .
Net (repayments) borrowings on revolving credit loans . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,500
3,563
(31,667)
(12,062)
(23,666)
25,183
(80,093)
342,554
(164,824)
(1,611)
544
121,753
24,242
108,341
156,665
—
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
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
265,006
$
156,665
$
195,056
Reconciliation of net (loss) income to net cash (used in) provided by operating activities:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net (loss) income to net cash (used in) provided
by operating activities:
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gain on sale of discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for losses on accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(96,981) $
26,586
$
162,460
136,093
(3,834)
(3,563)
53,280
27,655
7,973
4,296
(544)
(242,305)
25,806
5,636
21,985
50,515
$
— $
—
—
53,744
6,172
—
26,466
—
(32,585)
(83,311)
3,078
214,804
42,485
230,853
—
—
—
55,472
13,268
—
(3,616)
—
(44,305)
(119,999)
(32,193)
55,849
20,009
(55,515)
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82,993
Net cash (used in) provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . $
(13,988) $
257,439
$
106,945
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
30
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
Notes to Consolidated Financial Statements
NOTE 1—BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
and expenses during the reporting period. Actual results could
differ from those estimates.
Description of Business
Revenue Recognition
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 (including the United States, Canada, Latin America
and export sales to the Caribbean) and Europe, formerly referred
to as EMEA (including 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 European Training Business (the “Training Business”) as a dis-
continued operation. The results of operations of the Training
Business have been reclassified and presented as “discontinued
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
at January 31, 2006. 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 has not affected the Company’s liquidity
subsequent to the sale of the Training Business. The transaction is
further discussed in Note 3—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
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.
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
2007, 2006 and 2005.
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 write-off expe-
rience. 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. Conversely, if actual customer performance were
to improve to an extent not expected by us, a reduction in the
allowance may be required which could have a favorable effect on
our consolidated 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
31
Notes to Consolidated Financial Statements
continued
terms surrounding price protection and product returns), foreign
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 is evaluated when the sum of the expected, undiscounted
future net cash flows is less than the carrying amount of the asset.
Any impairment loss is measured by comparing the fair value of
the asset to its carrying value.
Goodwill
The Company accounts for goodwill and other intangible
assets in accordance with 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, 2007 and
2006 are certain intangible assets including capitalized software
costs, as well as value assigned to the acquired customer lists and
trademarks related to the acquisitions of Computer 2000 AG
(“Computer 2000”) and Azlan Group PLC (“Azlan”). Such capital-
ized 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 the American Institute of
Certified Public Accountants’ Statement of 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 the Company’s overall strategy, and our experi-
ence with similar software. It is the Company’s policy to amortize
personal computer-related software, such as spreadsheet and
word processing applications, over three years, which reflects the
rapid changes in personal computer software. Mainframe soft-
ware 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 amortized 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
product 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 2007, 2006 and 2005.
32
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
Income Taxes
Derivative Financial Instruments
Income taxes are accounted for under the liability method.
Deferred taxes reflect the tax consequences on future years of
differences between the tax basis of assets and liabilities and their
financial reporting amounts. Deferred taxes have not been provided
on the cumulative undistributed earnings of foreign subsidiaries or
the cumulative translation adjustment related to those investments
because such amounts are expected to be reinvested 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 through-
out 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 collat-
eral. 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 2007, 2006 and 2005.
Foreign Currency Translation
Income and expense accounts of foreign operations are trans-
lated at weighted average exchange rates during the year. Assets
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 accumulated other compre-
hensive income in shareholders’ equity.
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 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 finan-
cial 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 the
Company’s Consolidated Statement of Operations within “net for-
eign currency exchange (gain) loss” in the period in which their
value changes, with the offsetting entry for unsettled positions
being booked to either other current assets or other current liabil-
ities. Gains and losses resulting from effective accounting 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 is the
amount of foreign currency to be bought or sold at maturity.
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, 2007 and 2006 are as follows:
January 31, 2007
January 31, 2006
Notional
amounts
Estimated
fair
value
Notional
amounts
Estimated
fair
value
(In thousands)
Foreign exchange
forward
contracts . . . . . . . $1,043,076
$(1,604)
$818,030
$(1,109)
33
Notes to Consolidated Financial Statements
continued
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 senior debentures was approximately $339.0 million at
January 31, 2007 based upon available market information.
Comprehensive (Loss) Income
Comprehensive (loss) income 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 (loss) income” and “other comprehen-
sive (loss) income.” The Company’s other comprehensive (loss)
income is comprised exclusively of changes in the Company’s cur-
rency translation adjustment account (“CTA account”), including
income taxes attributable to those changes.
Comprehensive (loss) income, net of taxes, for the years ended
January 31, 2007, 2006 and 2005 is as follows:
Year ended January 31,
2007
2006
2005
(In thousands)
Comprehensive (loss) income:
Net (loss) income . . . . . . . . . . . . . $ (96,981)
Change in CTA(1) . . . . . . . . . . . . . .
81,498
$ 26,586
(86,043)
$162,460
68,051
Total . . . . . . . . . . . . . . . . . . . . . $ (15,483)
$ (59,457)
$230,511
(1) There was no income tax effect in fiscal years 2007, 2006 or 2005.
Accumulated comprehensive (loss) income includes $28.6
million of income taxes at January 31, 2007, 2006 and 2005.
Stock-Based Compensation
Effective February 1, 2006 (the “Effective Date”), the Company
adopted the fair value recognition provisions of SFAS No. 123
(revised 2004), “Share-Based Payments” (“SFAS No. 123R”). SFAS
No. 123R requires all stock-based payments to employees and
non-employee members of the board of directors, including
grants of all employee equity incentives, to be recognized in the
Company’s Consolidated Statement of Operations based on their
fair values. In March 2005, the SEC issued Staff Accounting
Bulletin No. 107 (“SAB No. 107”) regarding its interpretation of
SFAS No. 123R and the valuation of stock-based payments for
public companies. The Company has applied the provisions of SAB
No. 107 in its adoption of SFAS No. 123R.
SFAS No. 123R eliminates the ability to account for stock-based
compensation transactions using the intrinsic value method pre-
scribed under APB Opinion No. 25, “Accounting for Stock Issued
to Employees,” and instead, generally requires that such trans-
actions be accounted for using a fair value-based method. Through
fiscal 2005, the Company used the Black-Scholes option-pricing
model to determine the fair value of its stock options under SFAS
No. 123, “Accounting for Stock-Based Compensation” (“SFAS
No. 123”), for the pro forma disclosures required under this
pronouncement. Beginning in fiscal 2006, the Company began
issuing maximum value stock-settled stock appreciation rights
(“MV Stock-settled SARs”) and maximum value stock options
(“MVOs”), both of which are further discussed below. The fair
value of MV Stock-settled SARs and MVOs under SFAS No. 123R
is determined using a two-step valuation model utilizing both the
Hull-White Lattice (binomial) and Black-Scholes option-pricing
models, which is consistent with the valuation method used for
the MV Stock-settled SARs and MVOs previously included in the
Company’s pro forma disclosures under SFAS No. 123.
The Company has elected the “modified prospective” method
as permitted by SFAS No. 123R, and accordingly, prior periods
have not been restated to reflect the impact of SFAS No. 123R.
The modified prospective method requires compensation expense
to be recognized for all stock-based awards granted after the
Effective Date as well as for all awards granted prior to the Effec-
tive Date that remain unvested on the Effective Date. Stock-based
compensation expense for awards granted prior to February 1,
2006 is based on the grant date fair value as previously determined
under the provisions of SFAS No. 123. Effective February 1, 2006
34
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
the Company began to recognize compensation expense, reduced
for estimated forfeitures, on a straight-line basis over the requisite
service period of the award, which is generally the vesting term of
the outstanding stock awards. The Company estimated the forfei-
ture rate for the fiscal year ended January 31, 2007 based on its
historical experience during the preceding five fiscal years. For the
fiscal year ended January 31, 2007, the Company recorded $8.0
million of stock-based compensation expense (approximately
$0.09 per diluted share), which is included in “selling, general
and administrative expenses” in the Consolidated Statement of
Operations.
In accordance with SFAS No. 123R, beginning in the quarter
ended April 30, 2006, the Company has presented the tax bene-
fits resulting from tax deductions in excess of compensation cost
recognized for stock-based awards (excess tax benefits) both as
an operating activity and as a financing activity in the Consolidated
Statement of Cash Flows. Cash received from stock option exer-
cises during the fiscal year ended January 31, 2007 was $25.2
million and the actual benefit received from the tax deduction
from stock option exercises of the stock-based payment awards
was $2.7 million for the fiscal year ended January 31, 2007.
Prior to the adoption of SFAS No. 123R, the Company mea-
sured compensation expense for its stock-based compensation
plans using the intrinsic value method prescribed by APB Opinion
No. 25 and related interpretations. 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
Company applied the disclosure only provisions of SFAS No. 148,
which amends SFAS No. 123. SFAS No. 148 allowed for the con-
tinued use of recognition and measurement principles of APB
Opinion No. 25 and related interpretations in accounting for those
plans, but required disclosure of compensation expense as if the
fair value-based method had been applied.
The following table illustrates the pro forma net income and
pro forma income per share for fiscal years ended January 31,
2006 and 2005, reflecting the compensation cost that the
Company would have recorded on its equity incentive plans had it
used the fair value-based method at grant date for awards under
the plans consistent with the method prescribed by SFAS No. 123.
Year ended January 31,
2006
2005
(In thousands, except
per share amounts)
Net income, as reported . . . . . . . . . . . . . . . . . . . $ 26,586
Deduct: Total stock-based employee
compensation expense determined under
fair value-based method for all awards,
$ 162,460
net of related tax effects (1) . . . . . . . . . . . . . . .
(22,804)
(17,592)
Pro forma net income . . . . . . . . . . . . . . . . . . . . . $ 3,782
$ 144,868
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) 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, as further discussed in Note 11—Employee Benefit Plans.
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.
35
Notes to Consolidated Financial Statements
continued
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 $115.5 million and $87.3 million
at January 31, 2007 and 2006, respectively, for which checks are
outstanding.
Statement of Cash Flows
Short-term investments which are highly liquid and have an origi-
nal 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
litigation process.
Non-Cash Transactions
During the fiscal year ended January 31, 2005, the Company
completed an Exchange Offer whereby approximately 99.3% of
the Company’s $290.0 million convertible subordinated deben-
tures were exchanged for new notes (see further discussion at
Note 9—Long-Term Debt).
Recent Accounting Pronouncements & Legislation
In September 2006, the Securities and Exchange Commission
(the “SEC”) issued Staff Accounting Bulletin No. 108 “Considering
the Effect of Prior Year Misstatements When Quantifying Misstate-
ments in Current Year Financial Statements” (“SAB No. 108”).
SAB No. 108 provides interpretive guidance on how the effects of
the carryover or reversal of prior year misstatements should be
considered in quantifying a potential current year misstatement.
SAB No. 108 requires that companies view financial statement
misstatements as material if they are material according to either
the income statement or balance sheet approach. The adoption of
the provisions of SAB No. 108, effective as of the fiscal year ended
January 31, 2007, did not have any impact on the Company’s con-
solidated financial position, results of operations or cash flows.
In September 2006, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (“FAS No. 157”). FAS No. 157
defines fair value, establishes a framework for measuring fair value
in accordance with generally accepted accounting principles and
expands disclosures about fair value measurements. The Company
is required to adopt the provisions of FAS No. 157 in the first
quarter of fiscal 2008 and is currently in the process of evaluat-
ing what impact the adoption of FAS No. 157 may have on the
Company’s consolidated financial position, results of operations or
cash flows.
In June 2006, the FASB issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes — an interpretation
of SFAS No. 109” (“FIN 48”). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial
statements in accordance with SFAS No. 109, “Accounting for
Income Taxes,” and prescribes a recognition threshold and mea-
surement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in
a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 will be applicable to the Company
beginning February 1, 2007 and the Company is currently in the
process of evaluating what impact the adoption of FIN 48 may
have on the Company’s consolidated financial position, results of
operations or cash flows.
In June 2006, the FASB ratified the Emerging Issues Task Force
(“EITF”) consensus on Issue No. 06-03, “How Taxes Collected
from Customers and Remitted to Government Authorities Should
Be Presented in the Income Statement (That Is, Gross versus Net
Presentation)” (“EITF No. 06-03”). The Company is required to
adopt the provisions of EITF No. 06-03 in the fiscal year beginning
February 1, 2007. The Company does not expect the provisions of
EITF No. 06-03 to have a material impact on the Company’s con-
solidated financial position, results of operations or cash flows.
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
associated with the Waste Electrical and Electronic Equipment
36
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
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. As of January 31, 2007, the Company has
applied the provisions of FSP 143-1, which requires recognition of
the estimated liability and obligation associated with the historical
waste, upon adoption of the Directive into law by the applicable
EU member countries in which it operates. The adoption of FSP
143-1 did not have a material effect on the Company’s consoli-
dated financial position, results of operations or cash flows.
Reclassifications
Reclassifications have been made to the January 31, 2006 and
2005 financial statements to conform to the January 31, 2007
financial statement presentation. These reclassifications did not
change previously reported total assets, liabilities, shareholders’
equity or net income.
NOTE 2—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, 2007, 2006 and 2005, 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 treasury stock or if-converted method, as applicable.
The composition of basic and diluted EPS is as follows:
Year ended January 31, 2007
Year ended January 31, 2006
Year ended January 31, 2005
Net
loss
Weighted
average
shares
Per
share
amount
Net
income
Weighted
average
shares
Per
share
amount
Net
income
Weighted
average
shares
Per
share
amount
Net (loss) income per common
share—basic . . . . . . . . . . . . . . . . . . . . . $(96,981)
55,129
$(1.76)
$26,586
57,749
$0.46
$162,460
58,176
$2.79
Effect of dilutive securities:
Stock options . . . . . . . . . . . . . . . . . . . .
—
—
—
665
—
1,017
Net (loss) income per common
share—diluted . . . . . . . . . . . . . . . . . . . $(96,981)
55,129
$(1.76)
$26,586
58,414
$0.45
$162,460
59,193
$2.74
(In thousands, except per share data)
At January 31, 2007, 2006 and 2005, there were 2,573,907,
3,215,066 and 1,435,852 shares, respectively, excluded from the
computation of diluted earnings per share because their effect
would have been antidilutive.
calculations due to the conditions for the contingent conversion
features not being met. As further discussed in Note 9—Long-
Term Debt, the entire balance of the Old Notes and the New Notes
was repaid prior to January 31, 2006.
In December 2006, the Company issued $350.0 million of con-
vertible senior debentures due 2026. The dilutive impact of the
$350.0 million convertible senior debentures does not impact
earnings per share at January 31, 2007 as the conditions for the
contingent conversion feature have not been met (see further dis-
cussion in Note 9—Long-Term Debt).
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 has been excluded from the diluted earnings per share
NOTE 3—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 European Training Business (the
“Training Business”). On March 10, 2006, the Company closed
the sale of the Training Business to a third-party (the “Purchaser”)
for total cash consideration of $16.5 million, resulting in an after-
tax gain of $3.8 million. Net assets and other related costs included
in the sale of the Training Business totaled $11.5 million, includ-
ing $1.4 million of allocated goodwill. The Company provided IT
37
Notes to Consolidated Financial Statements
continued
services for a transitional period of approximately six months, but
had no other significant continuing involvement in the operations
of the Training Business subsequent to the closing of the sale. In
addition, the Company has realized no continuing cash flows from
the Training Business subsequent to the closing of the sale.
In accordance with SFAS No. 144, the sale of the Training
Business qualifies as a discontinued operation. Accordingly, the
results of operations and the gain on sale of the Training Business
have been reclassified and included in “discontinued operations,
net of tax,” within the Consolidated Statement of Operations for
the fiscal years ended January 31, 2007, 2006 and 2005, respec-
tively. The assets and liabilities of the Training Business have not
been reclassified within the 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.
The following table reflects the results of the Training Business
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 . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,946
reported as discontinued operations for all periods presented:
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,946
Year ended January 31,
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,320
2007
2006
2005
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . $5,634
Cost of products sold . . . . . . . . . . . . . . . . 1,259
Gross profit . . . . . . . . . . . . . . . . . . . . . . . 4,375
Selling, general and
administrative expenses . . . . . . . . . . . . 4,056
(In thousands)
$ 59,290
11,519
$ 59,416
11,117
47,771
48,299
42,545
44,340
NOTE 4—ACCOUNTS RECEIVABLE, NET
Accounts receivable, net is comprised of the following:
January 31,
2007
2006
(In thousands)
Operating income from
discontinued operations . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . .
319
207
5,226
1,607
3,959
1,121
Accounts receivable . . . . . . . . . . . . . . . . . . . $2,533,702
Allowance for doubtful accounts . . . . . . . . .
(68,967)
$2,220,513
(60,375)
Income from discontinued operations,
net of tax . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of discontinued operations,
net of tax . . . . . . . . . . . . . . . . . . . . . . . 3,834
112
3,619
2,838
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,946
$ 3,619
$ 2,838
No amounts related to interest expense or interest income have
been allocated to discontinued operations.
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,464,735
$2,160,138
Trade Receivables Purchase Facility Agreements
The Company has 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 work-
ing capital funding. The Receivables Facilities limit the amount of
purchased accounts receivable the financial institutions may hold
38
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
to $356.1 million at January 31, 2007, based 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 trans-
actions 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,
which have various expiration dates, require that the Company con-
tinue to service, administer and collect the sold accounts receivable.
During the fiscal years ended January 31, 2007 and 2006, the
Company received gross proceeds of $1.3 billion and $796.1 mil-
lion, respectively, from the sale of the Receivables and recognized
related discounts totaling $12.5 million and $5.5 million, respec-
tively. The proceeds, net of the discount incurred, are reflected in
the Consolidated Statement of Cash Flows in operating activities
within cash received from customers and the change in accounts
receivable. Prior to the second quarter of fiscal 2006, the Company
did not utilize the Receivables Facilities as a source of funding.
NOTE 5—PROPERTY AND EQUIPMENT, NET
January 31,
NOTE 6—GOODWILL AND INTANGIBLE ASSETS
The Company accounts for goodwill and other intangible
assets in accordance with SFAS No. 142, “Goodwill and Other
Intangible Assets.” SFAS No. 142 requires goodwill and indefinite-
lived intangible assets be reviewed annually for possible impair-
ment, or more frequently if impairment indicators arise. Due to
certain indicators of impairment within our European reporting
unit, the Company performed an impairment test for goodwill as
of July 31, 2006. These impairment indicators included signifi-
cantly lower than expected revenues in Europe during the quarter,
further deceleration in IT demand during the quarter and a height-
ened level of pricing pressure in Europe during the quarter. The
Company’s impairment testing included the determination of the
European reporting unit’s fair value using market multiples and
discounted cash flows modeling. The Company’s reduced earn-
ings and cash flow forecast for Europe, primarily due to the
increasingly competitive market conditions and uncertain demand,
resulted in the Company determining that a goodwill impairment
charge was necessary. During the second quarter of fiscal 2007,
the Company recorded a $136.1 million non-cash charge for the
goodwill impairment in Europe.
2007
2006
The changes in the carrying amount of goodwill for the years
(In thousands)
ended January 31, 2007 and 2006, respectively, are as follows:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings and leasehold improvements . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . .
6,584
91,370
340,398
$
6,276
88,996
322,344
Less accumulated depreciation . . . . . . . . . . . . .
438,352
(297,590)
417,616
(276,341)
$ 140,762
$ 141,275
Depreciation expense, including amortization expense of assets
recorded under capital leases, included in income from continuing
operations for the years ended January 31, 2007, 2006 and 2005
totaled $31.0 million, $30.6 million, and $33.1 million, respectively.
Property and equipment leased under capital leases was approxi-
mately $13.8 million and $14.5 million, net of accumulated depre-
ciation of $10.5 million and $8.2 million, at January 31, 2007 and
2006, respectively (see Note 9—Long-Term Debt). Property and
equipment recorded as capital leases is comprised of a logistics
center and related equipment in Europe.
Balance as of January 31, 2005 . . .
Adjustments to allocation of
previously recorded
purchase price . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . .
Balance as of January 31, 2006 . . .
Allocation of goodwill to sale of
Training Business . . . . . . . . . . . .
Adjustments to allocation of
previously recorded
purchase price . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . .
Balance as of
January 31, 2007 . . . . . . . . . . .
Americas
Europe
Total
$2,966
(In thousands)
$ 146,753
$ 149,719
—
—
(3,346)
(12,046)
(3,346)
(12,046)
2,966
131,361
134,327
—
—
—
—
(1,400)
(1,400)
990
(136,093)
5,142
990
(136,093)
5,142
$2,966
$
— $
2,966
(1) “Other” primarily relates to the effect of fluctuations in foreign currencies.
39
Notes to Consolidated Financial Statements
continued
Included within “other assets, net” are intangible assets as follows:
January 31, 2007
January 31, 2006
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 . . . . . . . . . . . . . . . . . . $202,342
Customer lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,356
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,806
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,191
$120,847
20,829
5,985
666
$81,495
10,527
1,821
1,525
$191,169
29,340
7,303
817
$107,248
15,777
4,139
745
$ 83,921
13,563
3,164
72
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $243,695
$148,327
$95,368
$228,629
$127,909
$ 100,720
The Company capitalized intangible assets of $12.1 million,
$18.8 million and $17.9 million for the years ended January 31,
2007, 2006 and 2005, respectively. These capitalized intangible
assets included capitalized interest of $0.3 million and $0.6 million
for the fiscal years ended January 31, 2006 and 2005. There was
no interest capitalized in the fiscal year ended January 31, 2007.
These capitalized 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 2007, 2006 and 2005 approxi-
mated six, nine and eight years, respectively. The weighted aver-
age amortization period of all intangible assets was approximately
eight years for fiscal 2007 and nine years for both fiscal years
2006 and 2005.
Amortization expense included in income from continuing
operations for the years ended January 31, 2007, 2006 and 2005
totaled $22.1 million, $21.2 million and $20.0 million, respectively.
Estimated amortization expense of currently capitalized costs for
assets placed in service is as follows (in thousands):
Fiscal year:
2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,500
17,400
2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,300
2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,300
2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,200
2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 7—RESTRUCTURING PROGRAM
In May 2005, the Company announced a formal restructuring
program to better align the European operating cost structure
with the current business environment. The initiatives related to
the restructuring program were completed during the third quar-
ter of fiscal 2007. In connection with this restructuring program,
the Company recorded charges for workforce reductions and the
optimization of facilities and systems. During the year ended
January 31, 2007, the Company recorded $23.8 million related to
the restructuring program, comprised of $20.0 million for work-
force reductions and $3.8 million for facility costs. Through
January 31, 2007 (since inception of the program), the Company
has incurred $54.7 million related to the restructuring program,
comprised of $38.9 million for workforce reductions and $15.8
million for facility costs. Cash payments related to the restructur-
ing program have been funded by operating cash flows and the
Company’s credit facilities.
The restructuring charges were incurred pursuant to formal
plans developed by management and are accounted for in accor-
dance 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 years ended January 31, 2007
and 2006, the Company incurred $8.6 million and $9.6 million,
40
respectively, of external consulting costs related to the restructur-
ing program. These consulting costs are included in “selling, gen-
eral and administrative expenses” in the Consolidated Statement
of Operations.
Summarized below is the activity related to accruals for restruc-
turing charges recorded during the years ended January 31, 2007
and 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 . . .
Charges to operations . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . .
2,059
19,989
(17,508)
(518)
Balance as of
January 31, 2007 . . . . . . . . . . . . $ 4,022
NOTE 8—REVOLVING CREDIT LOANS
$ — $
12,058
(2,198)
564
10,424
3,775
(8,825)
1,821
—
30,946
(19,178)
715
12,483
23,764
(26,333)
1,303
$ 7,195
$ 11,217
January 31,
2007
2006
(In thousands)
Receivables Securitization Program,
interest rate of 5.70% at January 31, 2007,
expiring August 2007 . . . . . . . . . . . . . . . . . . . . . $ — $120,000
Multi-currency Revolving Credit Facility,
interest rate of 6.32% at January 31, 2007,
expiring March 2010 . . . . . . . . . . . . . . . . . . . . . .
Other revolving credit facilities, average interest
rate of 4.37% at January 31, 2007, expiring
on various dates throughout fiscal 2008 . . . . . .
—
6,000
77,195
109,088
$ 77,195
$235,088
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 pro-
gram, which expires in August 2007, the Company legally isolated
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
certain U.S. trade receivables into a wholly-owned bankruptcy
remote special purpose entity. Such receivables, which are recorded
in the Consolidated Balance Sheet, totaled $571.3 million and
$515.3 million at January 31, 2007 and 2006, respectively. As col-
lections 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 Securi-
tization Program at designated commercial paper rates plus an
agreed-upon margin. The Company plans to renew this program
in August 2007.
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.
On March 20, 2007, the Company amended the Receivables
Securitization Program, the $250.0 million Multi-currency Revolving
Credit Facility, and the synthetic lease facility we have with a group
of financial institutions (the “Synthetic Lease”) (see the Synthetic
Lease further discussed at Note 12—Commitments and Contingen-
cies). The primary purpose of these amendments was to obtain
more favorable interest rates, lease rates and facility fees. In addi-
tion, the maturity date of the Multi-currency Revolving Credit
Facility was extended to March 20, 2012.
In addition to the facilities described above, the Company has
additional lines of credit and overdraft facilities totaling approxi-
mately $787.4 million at January 31, 2007 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 $1.4 billion, of which $77.2 million was outstanding
at January 31, 2007. 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. The financial
ratio covenants contained within the credit agreements include a
debt to capitalization ratio, an interest to EBITDA (earnings before
41
Notes to Consolidated Financial Statements
continued
interest, taxes, deprecation and amortization) ratio and a tangible
net worth requirement. At January 31, 2007, 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 meet-
ing the aforementioned financial covenants, which may limit the
Company’s ability to draw the full amount of these facilities. As of
January 31, 2007, the maximum amount that could be borrowed
under these facilities, in consideration of the availability of collateral
and the financial covenants, was approximately $750.1 million.
At January 31, 2007, the Company had issued standby letters
of credit of $25.5 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 9—LONG-TERM DEBT
January 31,
2007
2006
(In thousands)
Convertible senior debentures, interest at 2.75%
payable semi-annually, due December 2026 . . . $350,000
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,980
$ —
15,983
Less—current maturities . . . . . . . . . . . . . . . . . . . .
365,980
(2,376)
15,983
(1,605)
$363,604
$ 14,378
In December 2006, the Company issued $350.0 million of con-
vertible senior debentures due 2026. The debentures bear interest
at 2.75% per year. The Company will pay interest on the deben-
tures on June 15 and December 15 of each year, beginning on
June 15, 2007. In addition, beginning with the period commencing
on December 20, 2011 and ending on June 15, 2012 and for each
six-month period thereafter, the Company will pay contingent
interest on the interest payment date for the applicable interest
period if the market price of the debentures equals specified
levels. The convertible senior debentures are convertible into the
Company’s common stock and cash, anytime after June 15, 2026,
or i) if the market price of the common stock, as defined, exceeds
135% of the conversion price per share of common stock or ii) if
the Company calls the debentures for redemption or iii) upon
occurrence of certain corporate transactions, as defined. Holders
have the right to convert the debentures into cash and shares of
the Company’s common stock, if any, at a conversion rate of
18.4310 shares per $1,000 principal amount of debentures, equiv-
alent to a conversion price of approximately $54.26 per share.
Upon conversion, the Company will deliver cash equal to the lesser
of the aggregate principal amount of the debentures to be con-
verted and the Company’s total conversion obligation and shares
of the Company’s common stock in respect of the remainder, if
any, of the Company’s conversion obligation. Holders have the
option to require the Company to repurchase the debentures in
cash on any of the fifth, tenth or fifteenth anniversary dates from
the issue date at 100% of the principal amount plus accrued inter-
est to the repurchase date. The debentures are redeemable in
whole or in part for cash at the Company’s option at any time on
or after December 20, 2011. Additionally, the debentures are
senior, unsecured obligations and rank equally in right of payment
with all of the Company’s other unsecured and unsubordinated
indebtedness. The debentures are effectively subordinated to
all of the Company’s existing and future secured debt and are
structurally subordinated to the indebtedness and other liabilities
of the Company’s subsidiaries. The proceeds from the offering
were used to pay off short-term debt and for other general corpo-
rate purposes.
In December 2004, the Company completed an Exchange
Offer whereby approximately 99.3% of the Company’s then
outstanding $290.0 million convertible subordinated deben-
tures (the “Old Notes”) were exchanged for new debentures (the
“New Notes”). 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 remaining Old Notes using
cash and existing credit lines.
42
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
Future payments of long-term debt and capital leases at
January 31, 2007 and for succeeding fiscal years, which assumes
the $350 million convertible senior debentures will be redeemed
on the first redemption date of December 20, 2011, are as follows
(in thousands):
allowance, thereby reducing the income tax expense and increas-
ing net income in the same period. The underlying net operating
loss carryforwards remain available to offset future taxable income
in the specific jurisdictions requiring a valuation allowance, subject
to applicable tax laws and regulations.
Fiscal year:
2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,381
1,974
2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,809
2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,809
2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351,809
9,110
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369,892
(3,912)
Less amounts representing interest on capital leases . . . . . . . .
Total principal payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 365,980
Shelf Registration Statement
In May 2006, the Company withdrew its $500.0 million univer-
sal shelf registration statement with the Securities and Exchange
Commission as the Company made the decision not to issue debt
or equity securities through this registration statement.
NOTE 10—INCOME TAXES
The Company accounts for income taxes in accordance with
SFAS No. 109, “Accounting for Income Taxes.” The Company eval-
uates the realizability of its deferred tax assets on a quarterly basis.
This evaluation considers all positive and negative evidence and
factors, such as 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 quarters of fiscal 2007 and 2006, non-
cash charges of $8.4 million and $56.0 million, respectively, were
recorded to increase the valuation allowance against deferred tax
assets related to specific jurisdictions in Europe. While the Company
believes its restructuring efforts will improve the operating perfor-
mance within the European operations, the Company determined
these charges to be appropriate due to the cumulative losses
expected to be realized through both the prior and current fiscal
years, after considering the effect 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
Significant components of the provision for income taxes for
continuing operations are as follows:
Year ended January 31,
2007
2006
2005
(In thousands)
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . $ 35,458
State . . . . . . . . . . . . . . . . . . . . . . . .
990
Foreign . . . . . . . . . . . . . . . . . . . . . .
14,764
$ 62,032
3,931
16,584
$31,701
1,763
22,177
Total current . . . . . . . . . . . . . . . .
51,212
82,547
55,641
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . .
800
(302)
3,798
(22,747)
(2,371)
51,584
4,990
967
(9,573)
Total deferred . . . . . . . . . . . . . . .
4,296
26,466
(3,616)
$ 55,508
$ 109,013
$52,025
The reconciliation of income tax computed at the U.S. federal
statutory tax rates to income tax expense for continuing opera-
tions is as follows:
U.S. statutory rate . . . . . . . . . . . . . . . . .
State income taxes,
net of federal benefit . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . .
Tax on foreign earnings different
than U.S. rate . . . . . . . . . . . . . . . . . . .
Nondeductible goodwill . . . . . . . . . . . . .
Nondeductible interest . . . . . . . . . . . . . .
Reversal of previously accrued
income taxes . . . . . . . . . . . . . . . . . . . .
Other—net . . . . . . . . . . . . . . . . . . . . . . .
Year ended January 31,
2007
2006
2005
35.0%
35.0% 35.0%
(1.0)
(100.7)
47.5
(104.7)
(5.3)
6.7
0.3
0.8
60.7
(14.0)
—
—
—
0.1
0.8
2.5
(9.8)
—
—
(5.4)
1.5
(122.2)% 82.6% 24.6%
Included in the valuation allowance in fiscal 2007 and 2006 are
non-cash charges of $8.4 million and $56.0 million, respectively,
to increase the valuation allowance on deferred tax assets related
to specific jurisdictions in Europe which were recorded in prior fiscal
years. The reversal of previously accrued income taxes represents
43
Notes to Consolidated Financial Statements
continued
the reversal of $3.0 million and $11.5 million in accrued taxes in
fiscal 2007 and 2005, respectively, due to the favorable resolution
of various income tax examinations.
assets, including the scheduled reversal of temporary differences,
projected future taxable income, and prudent and feasible tax
planning strategies.
The components of pretax (loss) income from continuing oper-
ations are as follows:
Year ended January 31,
2007
2006
2005
United States . . . . . . . . . . . . . . . . . $ 108,369
Foreign . . . . . . . . . . . . . . . . . . . . . .
(153,788)
(In thousands)
$122,125
9,855
$114,338
97,309
At January 31, 2007, there are no consolidated cumulative
undistributed earnings of foreign subsidiaries. It is not currently
practical to estimate the amount of unrecognized deferred U.S.
income tax that might be payable if any earnings were distributed
by individual foreign subsidiaries.
NOTE 11—EMPLOYEE BENEFIT PLANS
$ (45,419)
$131,980
$211,647
Equity Incentive Plans
Significant components of the Company’s deferred tax liabili-
ties and assets are as follows:
January 31,
2007
2006
(In thousands)
Deferred tax liabilities:
Depreciation and amortization . . . . . . . . . . . $ 25,922
Capitalized marketing program costs . . . . . .
2,074
Convertible debenture interest . . . . . . . . . . .
687
Accruals currently deductible . . . . . . . . . . . .
9,591
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,521
$ 23,595
2,497
—
8,793
6,488
Total deferred tax liabilities . . . . . . . . . . . .
44,795
41,373
Deferred tax assets:
Accrued liabilities . . . . . . . . . . . . . . . . . . . . .
Loss carryforwards . . . . . . . . . . . . . . . . . . . .
Amortizable goodwill . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . .
59,284
143,896
29,655
9,946
2,333
50,363
101,756
32,456
8,256
2,114
245,114
(187,027)
194,945
(136,506)
Total deferred tax assets . . . . . . . . . . . . . .
58,087
58,439
Net deferred tax asset . . . . . . . . . . . . . . $ 13,292
$ 17,066
The net change in the deferred income tax valuation allowance
was an increase of $50.5 million at January 31, 2007 and an
increase of $69.6 million at January 31, 2006. The valuation allow-
ance at January 31, 2007 and 2006 primarily relates to foreign net
operating loss carryforwards of $549.8 million and $375.7 million,
respectively. The majority of the net operating losses have an
indefinite carryforward period with the remaining portion expir-
ing in fiscal years 2013 through 2022. The Company evaluates a
variety of factors in determining the realizability of deferred tax
At January 31, 2007, the Company had awards outstanding
from four equity-based compensation plans, one of which is cur-
rently active and which authorizes the issuance of 9.5 million
shares, of which approximately 3.2 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, restricted stock units (“RSUs”), options
to purchase common stock, MV Stock-settled SARs, MVOs and
performance awards that are dependent upon achievement of
specified performance goals. Equity-based compensation awards
have a maximum term of 10 years, unless a shorter period is spec-
ified by the Compensation Committee of the Board of Directors or
is required under local law. Awards under the plans are priced as
determined by the Compensation Committee and under the terms
of the Company’s active equity-based compensation plan are
required to be priced at, or above, the fair market value of the
Company’s common stock on the date of grant. Awards generally
vest between one and four years from the date of grant.
MV Stock-settled SARs and MVOs are similar to traditional
stock options, except these instruments contain a predetermined
cap on the maximum earnings potential a recipient can expect to
receive upon exercise. In addition, upon exercise, holders of an
MV Stock-settled SAR will only receive shares with a value equal
to the spread (the difference between the current market price
per share of the Company’s common stock subject to the prede-
termined cap and the grant price). The grant price of the MV
Stock-settled SARs and MVOs is determined using the last sale
price of the Company’s common stock as quoted on the NASDAQ
on the date of grant (or such higher price as may be required by
applicable laws and regulations of specific foreign jurisdictions).
The other terms of the awards (i.e., vesting schedule, contractual
term, etc.) are not materially different from the terms of traditional
stock options previously granted by the Company.
44
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
During the fiscal years ended January 31, 2007 and 2006, the
Company’s Board of Directors approved the issuance of 1.5 million
and 1.6 million, respectively, of long-term incentive awards in the
form of MV Stock-settled SARs and MVOs pursuant to the
Amended and Restated 2000 Equity Incentive Plan of Tech Data
Corporation, as amended. Prior to the adoption of SFAS No. 123R,
the Company accounted for MV Stock-settled SARs and MVOs as
variable awards. In accordance with APB No. 25, these variable
awards were remeasured on a quarterly basis and changes in value
were recorded in the Company’s Consolidated Statement of Opera-
tions as compensation expense. Compensation expense of approx-
imately $0.1 million was recorded for these instruments during
the year ended January 31, 2006.
A summary of the status of the Company’s equity-based compensation plan activity is as follows:
Weighted
average
exercise
price
Weighted
average remaining
contractual term
(in years)
Aggregate intrinsic
value
(in thousands)
Shares
Outstanding at January 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,192,203
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,496,440
(911,333)
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,007,089)
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at January 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,770,221
Vested and expected to vest at January 31, 2007 . . . . . . . . . . . . . . . . . . . . . 6,569,397
Exercisable at January 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,218,095
Available for grant at January 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,228,502
$35.36
36.88
28.26
38.85
36.14
36.12
36.43
6.4
6.4
5.1
$19,000
19,000
15,000
The aggregate intrinsic value in the table above represents the
difference between the closing price of the Company’s common
stock on January 31, 2007 and the grant price for all in-the-money
options at January 31, 2007. The intrinsic value of the equity-
based awards changes based on the fair market value of the
Company’s common stock. The intrinsic value of equity-based
awards exercised during the fiscal year ended January 31, 2007
was $10.5 million. As of January 31, 2007, the Company expects
$22.6 million of total unrecognized compensation cost related to
equity-based awards to be recognized over the next three fiscal
years (weighted average period of 2.0 years). The total fair value of
equity-based awards vested during the fiscal year ended January 31,
2007 was $7.4 million.
The Company has elected to use the Hull-White Lattice (bino-
mial) and Black-Scholes option-pricing models to determine the
fair value of awards granted during fiscal 2007 and 2006. The
Company used the Black-Scholes option-pricing model for awards
granted prior to fiscal 2006. Both the Hull-White Lattice and Black-
Scholes option-pricing models incorporate various assumptions
including expected volatility, expected life and risk-free interest
rates, while the Hull-White Lattice model also incorporates a sub-
optimal exercise factor (“SEF”) assumption. The Company calculates
expected volatility using an equal blend of the historical volatility
of the Company’s common stock over the most recent period
equal to the contractual term of the award and the implied volatil-
ity using traded options with a variety of remaining maturities.
The expected life for the Hull-White component of the valuation is
equal to the contractual term of the award and the Black-Scholes
component is based on historical experience. The risk-free rate
corresponds to the ten-year Treasury rate on the date of the award
as the contractual term of the award is generally 10 years. The SEF
takes into consideration early exercise behavior or patterns based
on stock-price appreciation. The SEF is computed by analyzing
historical exercises and stock prices on the exercise date as a
multiple of the original award price. Fair value calculations are
subject to change based upon the assumptions applied within the
applicable models.
45
Notes to Consolidated Financial Statements
continued
The weighted average estimated fair value of the MV Stock-settled SARs and MVOs granted during the years ended January 31, 2007
and 2006 was $7.19 and $7.70, respectively, based on a two-step valuation utilizing both the Hull-White Lattice (binomial) and Black-Scholes
option-pricing models using the following weighted average assumptions:
Year ended January 31, 2007
Expected option
term (years)
Expected
volatility
Risk-free
interest rate
Expected
dividend
yield
Suboptimal
exercise
factor
Hull-White Lattice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Black-Scholes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
4
42%
42%
4.87%
4.74%
0%
0%
1.20
—
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%
3.76%
0%
0%
1.24
—
The weighted average estimated fair value of options granted during fiscal 2005 was $19.87 based on the Black-Scholes option-pricing
model using the following weighted average assumptions:
Year ended January 31, 2005
Expected option
term (years)
Expected
volatility
Risk-free
interest rate
Expected
dividend
yield
Black-Scholes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
57%
2.50%
0%
A summary of the status of the Company’s stock-based equity incentives outstanding, which includes options, MV Stock-settled SARs
and MVOs is as follows:
Range of exercise prices
Outstanding
Weighted
average
remaining
contractual
life (years)
Number
outstanding
at 1/31/07
910,782
$16.50–$24.75 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.76– 36.38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
843,479
36.39– 37.04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,277,590
37.06– 37.06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,115,045
539,547
37.25– 41.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41.08– 41.08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
973,575
41.13– 51.38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,110,203
6,770,221
5.2
4.7
9.2
8.1
2.6
7.2
5.0
6.4
Exercisable
Number
exercisable
at 1/31/07
653,061
721,093
5,175
269,433
493,195
973,575
1,102,563
Weighted
average
exercise
price
$21.78
30.12
36.85
37.06
39.85
41.08
43.44
4,218,095
36.43
Weighted
average
exercise
price
$22.48
30.79
36.95
37.06
39.80
41.08
43.43
36.14
As discussed below, the Company also has performance-based
RSUs and RSUs outstanding at January 31, 2007.
The Company’s policy is to utilize shares of its treasury stock,
to the extent available, for the exercise of awards. See further dis-
cussion of the Company’s share repurchase program in Note 12—
Shareholders’ Equity below.
In February 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
46
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
in an expense to the Company of less than $0.1 million. The pri-
mary purpose of the accelerated vesting was to eliminate future
compensation expense the Company would otherwise recognize
in its statement of operations with respect to these accelerated
options upon the adoption of SFAS No. 123R.
During the fiscal year ended January 31, 2007, the Company’s
Board of Directors approved the issuance of performance-based
equity incentive awards in the form of RSUs under the Amended and
Restated 2000 Equity Incentive Plan. The performance-based
RSUs vest only upon achievement of certain performance mea-
sures based on cumulative earnings for defined periods ending
January 31, 2008. The performance-based RSUs granted that
could vest upon achievement of the performance targets range
from 165,000 shares to 495,000 shares and have a weighted aver-
age grant price of $35.08, using the weighted average of the
closing price of the Company’s common stock on the date of each
of the grants. No compensation expense was recorded for these
instruments during the year ended January 31, 2007 as the achieve-
ment of the performance targets is not currently deemed to be
probable by the Company. The table above excludes the grant of
these performance-based RSUs as none of these performance-
based equity incentive awards are vested as of January 31, 2007.
However, these restricted stock units have been considered in the
table above in the determination of amounts available for grant
under the Company’s stock-based compensation plans.
In October 2006, the Company’s Board of Directors approved
the award of 60,000 shares of RSUs to the Company’s recently
appointed Chief Executive Officer, pursuant to the Company’s
Amended and Restated 2000 Equity Incentive Plan. These RSUs
vest quarterly over three years and have a grant price of $36.66,
which represents the closing price of the Company’s common
stock on the date of grant. Compensation expense of $0.2 million
was recorded for these instruments during the year ended
January 31, 2007. During the fiscal year ended January 31, 2007,
3,334 of these RSUs vested, with 56,666 remaining unvested as
of January 31, 2007.
In December 2006, the Company’s Board of Directors approved
the award of 243,000 shares of RSUs. These RSUs vest over the
following three fiscal years and have a grant price of $41.99,
which represents the closing price of the Company’s common
stock on the date of grant. Compensation expense of $0.3 million
was recorded for these instruments during the year ended
January 31, 2007 and all of these RSUs remain unvested as of
January 31, 2007.
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, 2007, the Company has sold 399,767 shares of com-
mon stock to the ESPP. All shares purchased under the ESPP must
be held for a period of one year.
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 com-
pensation cost that the Company would have recorded on its
equity incentive plans had it used the fair value at grant date for
awards under the plans consistent with the method prescribed by
SFAS No. 123, prior to the adoption of SFAS No. 123R effective
February 1, 2006.
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, 2007 and 2006, the number of shares of Tech
Data common stock held by the Company’s 401(k) Savings Plan
totaled 270,000 and 329,000 shares, respectively.
Aggregate contributions made by the Company to the 401(k)
Savings Plan were $2.2 million, $2.3 million and $1.8 million for
fiscal 2007, fiscal 2006 and fiscal 2005, respectively.
47
Notes to Consolidated Financial Statements
continued
NOTE 12—SHAREHOLDERS’ EQUITY
In fiscal 2006, the Company’s Board of Directors authorized
a share repurchase program of up to $200.0 million of the
Company’s common stock. As of January 31, 2007, the Company’s
share repurchase program authorized in fiscal 2006 is complete.
The Company’s share repurchases were made on the open market
through block trades or otherwise and the number of shares
purchased and the timing of the purchases was 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 general corporate pur-
poses, including issuances under equity incentive and employee
benefit plans. During fiscal 2007, the Company repurchased
2,222,720 shares comprised of 2,220,132 shares purchased in
conjunction with the Company’s share repurchase program and
2,588 shares purchased outside of the stock repurchase program,
at an average of $36.03 per share, for a total cost, including
expenses, of $80.1 million. During fiscal 2006, the Company
repurchased 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 repur-
chase program, at an average of $36.89 per share, for a total cost,
including expenses, of approximately $127.0 million.
NOTE 13—COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases logistics centers, office facilities and certain
equipment under noncancelable operating leases, the majority of
which expire at various dates through 2016. 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
$59.3 million, $59.0 million and $58.6 million in fiscal years 2007,
2006 and 2005, respectively. Future minimum lease payments at
January 31, 2007 under all such leases, including minimum com-
mitments under IT outsourcing agreements, for succeeding fiscal
years are as follows (in thousands):
Fiscal year:
2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,285
55,367
2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,339
2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,459
2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,996
2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66,843
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 283,289
Synthetic Lease Facility
The Company has a Synthetic Lease facility with a group of
financial institutions under which the Company leases certain
logistics centers and office facilities from a third-party lessor. The
Synthetic Lease expires in fiscal year 2009, 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 $118.0 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 Synthetic Lease
at LIBOR plus an agreed-upon margin. The Synthetic Lease contains
covenants that must be complied with, similar to the covenants
described in certain of the credit facilities discussed in Note 8—
Revolving Credit Loans. The amount funded under the Synthetic
Lease (approximately $133.2 million at January 31, 2007) is treated
as debt under the definition of the covenants required under both
the Synthetic Lease and the credit facilities. As of January 31, 2007
the Company was in compliance with all such covenants.
In January 2007, the Company sold approximately 6 acres of
excess land located in Miami, Florida. The sale was executed pur-
suant to the “excess sale” provisions of the Synthetic Lease agree-
ment and resulted in a gain of $3.6 million recorded during the
48
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
quarter ended January 31, 2007. This gain is included within SG&A
in the Company’s Consolidated Statement of Operations.
The sum of future minimum lease payments under the Synthetic
Lease at January 31, 2007 was approximately $13.5 million. Properties
leased under the Synthetic Lease are located in Clearwater and
Miami, Florida; Fort Worth, Texas; Fontana, California; Suwanee,
Georgia; Swedesboro, New Jersey; and South Bend, Indiana.
On March 20, 2007, the Company amended the Synthetic
Lease, the Receivables Securitization Program, the $250.0 million
Multi-currency Revolving Credit Facility. The primary purpose of
these amendments was to obtain more favorable interest rates, lease
rates and facility fees. (For further discussion of the Receivables
Securitization Program and the $250.0 million Multi-currency Revolv-
ing Credit Facility see Note 8—Revolving Credit Loans.)
The Synthetic Lease has been accounted for as an operating
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 subsidiar-
ies 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
customers to purchase products from Tech Data, the Company
has arrangements with certain finance companies that provide
inventory financing facilities to the Company’s customers. In con-
junction with certain of these arrangements, the Company would
be required to purchase certain inventory in the event the inven-
tory is repossessed from the customers by the finance companies.
As the Company does not have access to information regarding
the amount of 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
believes that, based on historical experience, the likelihood of
a material loss pursuant to these inventory repurchase obligations
is remote.
The Company 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,
2007 and January 31, 2006, the aggregate amount of guarantees
under these arrangements totaled $11.5 million and $7.0 million,
respectively, of which $7.0 million and $2.9 million, respectively,
was outstanding. The Company believes that, based on historical
experience, the likelihood of a material loss pursuant to the above
guarantees is remote.
Additionally, in connection with the sale of the Training Business
discussed in Note 3—Discontinued Operations, the Company con-
tinues to negotiate the assignment of several of the related facility
lease obligations with the lessors of such properties. To the extent
the lessors are unwilling to agree to a direct lease arrangement
with the purchaser, the Company will remain liable in the event of
49
Notes to Consolidated Financial Statements
continued
default by the purchaser of the Training Business. The majority of
these lease obligations expire at various dates over the next three
years and would require the Company to make all required pay-
ments under the lease agreements in the event of default by the
purchaser. The maximum potential amount of future payments
(undiscounted) that the Company could be required to make under
the guarantees is approximately $8.2 million as of January 31,
2007. The Company believes that the likelihood of a material loss
pursuant to these 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 14—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 (including the United States,
Canada, Latin America, and export sales to the Caribbean) and
Europe, formerly referred to as EMEA (including Europe, the Middle
East, and export sales to Africa). The Company assesses perfor-
mance 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 opportunities. The
Company does not consider stock-based compensation expense
recognized under SFAS No. 123R in assessing the performance
of its operating segments, and therefore the Company is report-
ing stock-based compensation expense as a separate amount. The
accounting policies of the segments are the same as those
described in Note 1—Business and Summary of Significant
Accounting Policies.
50
Financial information by geographic segment is as follows:
Year ended January 31,
2007
2006
2005
(In thousands)
Net sales to unaffiliated
customers
Americas (a) . . . . . . . . . . . . $ 9,965,074
Europe . . . . . . . . . . . . . . . 11,475,371
$ 9,464,667
11,018,184
$ 8,482,512
11,248,405
Total . . . . . . . . . . . . . . . . . $21,440,445
$ 20,482,851
$ 19,730,917
Operating (loss) income
Americas . . . . . . . . . . . . . . $
Europe (b)(c) . . . . . . . . . . . . .
Stock-based compensation
expense recognized
under SFAS No. 123R . . .
160,720
(156,930)
$
154,839
8,456
$
140,690
90,865
(7,973)
—
—
Total . . . . . . . . . . . . . . . . . $
(4,183) $
163,295
$
231,555
Depreciation and
amortization
Americas . . . . . . . . . . . . . . $
Europe . . . . . . . . . . . . . . .
17,344
35,790
$
16,290
35,506
$
16,885
36,199
Total . . . . . . . . . . . . . . . . . $
53,134
$
51,796
$
53,084
Capital expenditures
Americas . . . . . . . . . . . . . . $
Europe . . . . . . . . . . . . . . .
15,112
28,617
$
24,454
36,298
$
8,511
35,264
Total . . . . . . . . . . . . . . . . . $
43,729
$
60,752
$
43,775
Identifiable assets
Americas (a) . . . . . . . . . . . . $ 1,601,962
Europe . . . . . . . . . . . . . . .
3,101,902
$ 1,436,508
2,968,126
Total . . . . . . . . . . . . . . . . . $ 4,703,864
$ 4,404,634
Goodwill
Americas . . . . . . . . . . . . . . $
Europe . . . . . . . . . . . . . . .
2,966
—
$
2,966
131,361
Total . . . . . . . . . . . . . . . . . $
2,966
$
134,327
(a) For the year ended January 31, 2007, net sales to unaffiliated customers in the
US represented 86% of the total Americas net sales to unaffiliated customers,
and represented 87% and 88%, respectively, of the total Americas net sales for
the years ended January 31, 2006 and 2005. Identifiable assets in the US repre-
sented 89% of the Americas identifiable assets at January 31, 2007 and 79% of
the America’s identifiable assets at January 31, 2006.
(b) For the years ended January 31, 2007 and 2006, the amounts shown above
include $23.8 million and $30.9 million, respectively, of restructuring charges
related to the European restructuring program and $8.6 million and $9.6 million,
respectively, in external consulting costs associated with the restructuring pro-
gram (see also Note 7—Restructuring Program).
(c) For the year ended January 31, 2007, the amount shown above includes a non-
cash charge of $136.1 million for the goodwill impairment in Europe (see also
Note 6—Goodwill and Intangible Assets).
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
NOTE 15—INTERIM FINANCIAL INFORMATION (UNAUDITED)
Interim financial information for fiscal years 2007 and 2006 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 2007
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,944,126
$ 4,943,281
$ 5,431,347
$ 6,121,691
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 237,139
$ 225,610
$ 247,560
$ 296,462
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,945
3,946
$ (155,529)
—
$
9,598
—
$
36,059
—
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
12,891
$ (155,529)
$
9,598
$
36,059
Income (loss) per share—basic:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.16
0.07
(2.81)
—
$
$
0.18
—
Net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.23
$
(2.81)
$
0.18
$
Income (loss) per share—diluted:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.16
0.07
(2.81)
—
$
$
0.18
—
Net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.23
$
(2.81)
$
0.18
$
0.66
—
0.66
0.66
—
0.66
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 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
33,523
$
(59,414)
$
22,964
$
29,513
Income per share—basic:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income per share—diluted:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.56
0.01
0.57
0.55
0.01
0.56
$
$
$
$
$
(1.03)
.01
(1.02)
$
$
(1.03)
.01
(1.02)
$
0.38
0.02
0.40
0.38
0.02
0.40
$
$
$
$
0.50
0.02
0.52
0.50
0.02
0.52
51
Notes to Consolidated Financial Statements
continued
Net income for the quarter ended January 31, 2007 includes
a $3.6 million gain on the sale of land under the Company’s
Synthetic Lease, which increased diluted earnings per share from
continuing operations by $0.04 per share for the quarter ended
January 31, 2007.
Net loss for the quarter ended July 31, 2006 includes a $136.1
million goodwill impairment in Europe and an $8.4 million increase
in the valuation allowance recorded against deferred tax assets
related to specific jurisdictions in Europe, which increased diluted
loss per share from continuing operations by $2.61 per share for
the quarter ended July 31, 2006.`
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 Europe,
primarily Germany, which increased diluted loss per share from
continuing operations by $0.96 per share for the quarter ended
July 31, 2005.
NOTE 16—SUBSEQUENT EVENT
In late March 2007, the Company made the decision to close
its operations in the United Arab Emirates. As a result of this clo-
sure, the Company expects to incur operating losses and other
cash charges in the first half of fiscal 2008 of approximately $5.0
million to $7.0 million. In addition, the Company will also record
approximately $7.0 million to $9.0 million of foreign currency
exchange losses previously recorded in shareholders’ equity as
accumulated other comprehensive (loss) income. The Company’s
accumulated other comprehensive (loss) income is comprised of
foreign currency translation adjustments (“CTA”) relating to the
net assets of the Company’s international subsidiaries (as further
discussed in Note 1—Business and Summary of Significant
Accounting Policies).
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 because these
factors could cause the actual results and conditions 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 state-
ments 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 operat-
ing 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 programs.
52
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
Any of such problems could have an adverse effect on the
Company’s business.
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
products 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 tem-
porarily, 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
governmental 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.
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
53
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.
purchases from another distributor, experiences a significant change
in demand from its own customer base, becomes financially unsta-
ble, 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.
Vendor Terms and Conditions
Customer Credit Exposure
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
customers or cannot develop systems to manage ongoing supplier
programs. In addition, the Company’s standard vendor distribu-
tion 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 increas-
ing direct sales), the merging of significant manufacturers, or
significant changes in terms on their products may adversely effect
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
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
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 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.
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.
54
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
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 technology,
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.
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.
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 impacts the Company as, in some coun-
tries, it remains unclear to what extent and the manner in which
the Company will be 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
business 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.
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.
55
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 to the right presents the quarterly high and low sale
prices for our common stock as reported by the NASDAQ Stock
Market. As of March 1, 2007, there were 368 holders of record.
We believe that there are approximately 44,000 beneficial holders.
Sales Price
High
Low
Fiscal year 2007
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43.74
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40.00
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38.75
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42.65
$ 36.23
$ 32.10
$ 33.99
$ 34.94
High
Low
Fiscal year 2006
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42.10
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39.50
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39.11
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43.56
$ 34.21
$ 33.80
$ 33.04
$ 33.82
Equity Compensation and Stock Purchase Plan Information
The number of shares issuable upon exercise of outstanding share-based equity incentives 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, 2007 are summarized in the following table:
Plan category
Number of shares
to be issued upon
exercise of outstanding
share-based incentives
Weighted average
exercise price
of outstanding
share-based
incentives
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 . . . . . . . . . .
6,124,592
—
101,500
6,226,092
984,533
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,210,625
$35.83
—
$34.93
$35.81
$38.12
$36.13
3,228,502
600,233
—
3,828,735
—
3,828,735
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
In March 2005, our Board of Directors authorized a share
repurchase program of up to $100.0 million of the Company’s
common stock (increased to $200.0 million in November 2005).
As of October 31, 2006, the Company’s share repurchase program
authorized in fiscal 2006 was completed. The share repurchases
were made on the open market, through block trades or otherwise.
The number of shares purchased and the timing of the purchases
were 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 general corporate purposes, including issuances under
equity incentive and benefit plans.
56
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
Stock Performance Chart
Comparison of Five-Year Cumulative Total Return
Assumes Initial Investment of $100 on February 1, 2002 (1)
Tech Data Corporation, NASDAQ Stock Market (U.S.) Index and SIC Code 5045
s
r
a
l
l
o
D
140
120
100
80
60
40
20
0
2002
2003
2004
2005
2006
2007
Tech Data Corporation
NASDAQ Stock Market (U.S.) Index
SIC Code 5045—Computer and Peripheral Equipment and Software
(1) The comparisons are provided in response to Securities and Exchange Commission requirements and are not intended
to forecast or be indicative of Tech Data’s future stock performance.
100
Tech Data Corporation
NASDAQ Stock Market (U.S.) Index
100
SIC Code 5045—Computer and Peripheral Equipment and Software 100
49
69
58
82
108
95
83
108
103
82
122
100
74
131
109
2002
2003
2004
2005
2006
2007
57
GAAP to Non-GAAP Reconciliation (Unaudited)
Year ended January 31,
2007
2006
2005
(In thousands,
except per share amounts)
Operating Income
GAAP operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other costs (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,183)
136,093
23,764
8,596
$ 163,295
—
30,946
9,632
$ 231,555
—
—
—
Non-GAAP operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 164,270
$ 203,873
$ 231,555
Net Income
GAAP (loss) income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (100,927)
Discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,946
$ 22,967
3,619
$ 159,622
2,838
GAAP net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (96,981)
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
136,093
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,764
Other costs (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,596
Tax effect on restructuring charges and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,502)
Reversal of previously accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Deferred tax assets valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,352
$ 26,586
—
30,946
9,632
(1,603)
—
56,039
$ 162,460
—
—
—
—
(11,535)
—
Non-GAAP net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77,322
$ 121,600
$ 150,925
Net Income per Diluted Share
GAAP (loss) income per diluted share from continuing operations (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GAAP net (loss) income per diluted share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other costs (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect on restructuring charges and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reversal of previously accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
(1.83)
.07
(1.76)
2.46
.43
.16
(.04)
—
.15
.39
.06
.45
—
.53
.16
(.03)
—
.96
2.69
.05
2.74
—
—
—
—
(.19)
—
Non-GAAP net income per diluted share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.40
$
2.08
$
2.55
Weighted average common shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,129
55,289
57,749
58,414
58,176
59,193
(1) Other costs represent consulting costs related to the company’s European restructuring program.
(2) Net loss per share for the fiscal year ended January 31, 2007 is calculated using basic weighted average common shares outstanding.
58
Corporate Information
Board of Directors
Officers
Robert M. Dutkowsky
Chief Executive Officer
Jeffery P. Howells
Executive Vice President and
Chief Financial Officer
Néstor Cano
President, Worldwide Operations
Kenneth Lamneck
President, the Americas
Joseph A. Osbourn
Executive Vice President and
Chief Information Officer
Charles V. Dannewitz
Senior Vice President, Tax and Treasurer
William K. Todd, Jr.
Senior Vice President, Logistics and
Integration Services
Joseph B. Trepani
Senior Vice President,
Corporate Controller
David R. Vetter
Senior Vice President, General Counsel
and Secretary
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 5th, 2007 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
Email: ir@techdata.com
Steven A. Raymund
Chairman of the Board of Directors
Tech Data Corporation
Charles E. Adair
Partner,
Cordova Ventures
Maximilian Ardelt
Managing Director,
ConDigit Consult GmbH
Robert M. Dutkowsky
Chief Executive Officer,
Tech Data Corporation
Jeffery P. Howells
Executive Vice President and
Chief Financial Officer,
Tech Data Corporation
Kathy Misunas
Founder and Principal,
Essential Ideas
Thomas I. Morgan
Retired Chief Executive Officer,
Hughes Supply, Inc.
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
Corporate Headquarters
Tech Data Corporation
5350 Tech Data Drive
Clearwater, FL 33760
727-539-7429
www.techdata.com
Independent Registered Certified
Public Accounting Firm
Ernst & Young LLP, Tampa, FL
Ethics Reporting Hotline
866-TD ETHIC—866-833-8442
Stock Listing
The NASDAQ Stock Market, Inc.
Ticker symbol: TECD
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E x e c u t e D i v e r s i f y I n n o v a t e E x e c u t e D i v e r s i f y I n n o v a t e E x e c u t e D i v e r s i f y I n n o v a t e
Tech Data Corporation
5350 Tech Data Drive
Clearwater, Florida 33760
P: 727-539-7429
www.techdata.com
2007 Annual Repor t
Year Ended Januar y 31, 2007