-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PSRw3zDb7FxR1nkHuPSTLcKtNBeWLwNsCbXOj/OLR7GDUf0dOFMETw/UiSXdsj2B awAwyY5iD7LU2LodM23ENw== 0001016843-99-000660.txt : 19990615 0001016843-99-000660.hdr.sgml : 19990615 ACCESSION NUMBER: 0001016843-99-000660 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECH DATA CORP CENTRAL INDEX KEY: 0000790703 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 591578329 STATE OF INCORPORATION: FL FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14625 FILM NUMBER: 99646093 BUSINESS ADDRESS: STREET 1: 5350 TECH DATA DR CITY: CLEARWATER STATE: FL ZIP: 33760 BUSINESS PHONE: 7275397429 MAIL ADDRESS: STREET 1: 5350 TECH DATA DRIVE CITY: CLEARWATER STATE: FL ZIP: 33760 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended APRIL 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 0-14625 -------- TECH DATA CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) FLORIDA NO. 59-1578329 - ---------------------------------- -------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 5350 TECH DATA DRIVE, CLEARWATER, FLORIDA 33760 - ------------------------------------------ --------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (727) 539-7429 --------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at CLASS May 31, 1999 - ---------------------------------------- ------------------- Common stock, par value $.0015 per share 51,233,206 TECH DATA CORPORATION AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED APRIL 30, 1999 ---------------------------------------------- INDEX ----- PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Balance Sheet as of April 30, 1999 (unaudited) and January 31, 1999 3 Consolidated Statement of Income (unaudited) for the three months ended April 30, 1999 and 1998 4 Consolidated Statement of Cash Flows (unaudited) for the three months ended April 30, 1999 and 1998 5 Notes to Consolidated Financial Statements (unaudited) 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-15 Item 3. Quantitiative and Qualitative Disclosures About Market Risk 15 PART II. OTHER INFORMATION Items 1-5 required in Part II have been previously filed, have been included in Part I of this report or are not applicable for the quarter ended April 30, 1999. Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 16 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements TECH DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands, except share amounts)
April 30, January 31, 1999 1999 ----------- ----------- (Unaudited) Current assets: Cash and cash equivalents $ 223 $ 8,615 Accounts receivable, less allowance for doubtful accounts of $58,244 and $60,521 1,676,905 1,796,045 Inventories 1,284,590 1,369,351 Prepaid and other assets 104,707 113,952 ----------- ----------- Total current assets 3,066,425 3,287,963 Property and equipment, net 131,916 126,537 Excess of cost over acquired net assets, net 322,503 345,326 Other assets, net 55,982 85,161 ----------- ----------- $ 3,576,826 $ 3,844,987 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Revolving credit loans $ 784,986 $ 817,870 Accounts payable 1,291,679 1,503,866 Accrued expenses 246,079 241,170 ----------- ----------- Total current liabilities 2,322,744 2,562,906 Long-term debt 308,482 308,521 ----------- ----------- 2,631,226 2,871,427 ----------- ----------- Minority interest 1,657 6,269 ----------- ----------- Commitments and contingencies Shareholders' equity: Preferred stock, par value $.02; 226,500 shares authorized and issued; liquidation preference $.20 per share 5 5 Common stock, par value $.0015; 200,000,000 shares authorized; 51,190,591 and 51,098,442 issued and outstanding 77 77 Additional paid-in capital 507,591 505,385 Retained earnings 456,744 428,720 Cumulative translation adjustment (20,474) 33,104 ----------- ----------- Total shareholders' equity 943,943 967,291 ----------- ----------- $ 3,576,826 $ 3,844,987 =========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements 3 TECH DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In thousands, except per share amounts)
Three months ended April 30, -------------------------- 1999 1998 ---------- ---------- Net sales $3,877,158 $2,184,366 ---------- ---------- Cost and expenses: Cost of products sold 3,651,916 2,044,599 Selling, general and administrative expenses 158,249 94,801 ---------- ---------- 3,810,165 2,139,400 ---------- ---------- Operating profit 66,993 44,966 Interest expense 16,914 7,954 Net foreign currency exchange loss 4,757 -- ---------- ---------- Income before income taxes 45,322 37,012 Provision for income taxes 17,179 13,815 ---------- ---------- Income before minority interest 28,143 23,197 Minority interest 119 92 ---------- ---------- Net income $ 28,024 $ 23,105 ========== ========== Net income per common share: Basic $ .55 $ .48 ========== ========== Diluted $ .53 $ .46 ========== ========== Weighted average common shares outstanding: Basic 51,133 48,285 ========== ========== Diluted 57,421 50,323 ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements 4 TECH DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In thousands)
Three months ended April 30, ----------------------------- 1999 1998 ----------- ----------- Cash flows from operating activities: Cash received from customers $ 3,986,162 $ 2,172,952 Cash paid to suppliers and employees (3,887,109) (1,939,595) Interest paid (23,478) (8,034) Income taxes paid (25,664) (10,940) ----------- ----------- Net cash provided by operating activities 49,911 214,383 ----------- ----------- Cash flows from investing activities: Acquisition of business, net of cash acquired (12,305) (4,068) Capital expenditures (15,264) (16,431) ----------- ----------- Net cash used in investing activities (27,569) (20,499) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock 2,206 9,792 Net repayments under revolving credit loan (32,884) (205,124) Principal payments on long-term debt (56) (52) ----------- ----------- Net cash used in financing activities (30,734) (195,384) ----------- ----------- Net decrease in cash and cash equivalents (8,392) (1,500) Cash and cash equivalents at beginning of period 8,615 2,749 ----------- ----------- Cash and cash equivalents at end of period $ 223 $ 1,249 =========== =========== Reconciliation of net income to net cash provided by operating activities: Net income $ 28,024 $ 23,105 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,840 7,851 Provision for losses on accounts receivable 10,136 6,003 (Increase) decrease in assets: Accounts receivable 109,004 (11,414) Inventories 84,761 58,797 Prepaid and other assets 11,407 7,415 Increase (decrease) in liabilities: Accounts payable (212,187) 98,714 Accrued expenses 4,926 23,912 ----------- ----------- Total adjustments 21,887 191,278 ----------- ----------- Net cash provided by operating activities $ 49,911 $ 214,383 =========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 5 TECH DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION: The consolidated financial statements and related notes included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the financial position of Tech Data Corporation and subsidiaries (the "Company" or "Tech Data") as of April 30, 1999 and 1998, and the results of their operations and cash flows for the three months ended April 30, 1999 and 1998. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended April 30, 1999 are not necessarily indicative of the results that can be expected for the entire fiscal year ending January 31, 2000. NOTE 2 - NET INCOME PER COMMON SHARE: Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding during the reported period. Diluted EPS reflects the potential dilution that could occur assuming the conversion of the convertible subordinated notes and exercise of the stock options using the if-converted and treasury stock methods, respectively. The composition of basic and diluted net income per common share is as follows:
Three months ended April 30, ----------------------------------------------------------------------- 1999 1998 --------------------------------- ---------------------------------- Weighted Per Weighted Per Net Average Share Net Average Share Income Shares Amount Income Shares Amount ---------- --------- -------- ----------- -------- -------- (In thousands, except per share amounts) Net income per common share - basic $28,024 51,133 $.55 $23,105 48,285 $.48 ======== ====== Effect of dilutive securities: Stock options -- 955 -- 2,038 5% convertible subordinated notes 2,363 5,333 -- -- ---------- --------- ----------- -------- Net income per common share - diluted $30,387 57,421 $.53 $23,105 50,323 $.46 ========== ========= ======== =========== ======== ======
At April 30, 1999 and 1998, there were 2,808,000 and 132,000 shares, respectively, excluded from the computation of diluted earnings per share because their effect would have been antidulitve. 6 NOTE 3 - COMPREHENSIVE INCOME: The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and display of comprehensive income and its components in the Company's consolidated financial statements. Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company's balance of other comprehensive income is comprised exclusively of changes in the net cumulative translation adjustment. Comprehensive income (loss) for the three months ended April 30, 1999 and 1998 was $(25.6) million and $23.0 million. NOTE 4 - SEGMENT INFORMATION: The Company has adopted the disclosure requirements of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" which establishes standards for additional disclosure about operating segments for interim and annual financial statements. This standard requires financial and descriptive information be disclosed for segments whose operating results are reviewed by the chief operating officer for decisions on resource allocation. The Company operates predominantly in a single industry segment as a wholesale distributor of computer-based technology products and services. Based on geographic location, the Company has three principal segments. These geographical segments are 1) the United States, 2) Europe (including the Middle East) and 3) Other International areas (Canada, Brazil, Argentina, Chile, Peru, Uruguay, and export sales to Latin America and the Caribbean from the U.S.). The measure of segment profit is income from operations. Financial information by geographic segment is as follows (in thousands):
Other United States Europe International Total ------------- ---------- ------------- ----------- APRIL 30, 1999 Net sales to unaffiliated customers $1,782,255 $1,910,181 $ 184,722 $3,877,158 ========== ========== ========== ========== Operating income $ 31,861 $ 33,224 $ 1,908 $ 66,993 ========== ========== ========== ========== Identifiable assets $1,514,101 $1,899,094 $ 163,631 $3,576,826 ========== ========== ========== ========== APRIL 30,1998 Net sales to unaffiliated customers $1,527,104 $ 524,090 $ 133,172 $2,184,366 ========== ========== ========== ========== Operating income $ 35,386 $ 8,342 $ 1,238 $ 44,966 ========== ========== ========== ========== Identifiable assets $1,533,601 $ 509,520 $ 90,808 $2,133,929 ========== ========== ========== ==========
7 NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENT: In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if so, the type of the hedge transaction. The ineffective portion of all hedge transactions is recognized in current-period earnings. SFAS 133 is effective for fiscal years beginning after June 15, 2000. The future impact of this statement on the Company's results of operations is not expected to be material. 8 ITEM 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations RESULTS OF OPERATIONS THREE MONTHS ENDED APRIL 30, 1999 AND 1998 Net sales increased 77.5% to $3.88 billion in the first quarter of fiscal 2000 compared to $2.18 billion in the first quarter of last year. This increase is attributable to the acquisition of Computer 2000 AG ("Computer 2000"), as well as the addition of new product lines and the expansion of existing product lines. The Company's first quarter U.S., Europe and other international sales grew 16.7%, 264.5% and 38.7%, respectively, compared to the first quarter of last year. The significant growth in the Company's international sales is attributable to the acquisition of Computer 2000. Excluding the effect of acquisitions, sales growth rates were approximately 17%, 18%, 12% and 17% in the U.S., Europe, other international areas and worldwide, respectively. Total international sales in the first quarter of fiscal 2000 represent approximately 54% of consolidated net sales compared with 30% in the prior year. The cost of products sold as a percentage of net sales increased from 93.6% in the first quarter of fiscal 1999 to 94.2% in the current period. The increase is a result of competitive market prices and the Company's strategy of lowering selling prices in order to gain market share and to pass on the benefit of operating efficiencies to its customers. Selling, general and administrative expenses increased 66.9% from $94.8 million in the first quarter of fiscal 1999 to $158.2 million in fiscal 2000, and as a percentage of net sales decreased to 4.08% from 4.34% in the comparable prior year period. The dollar value increase in selling, general and administrative expenses is attributable to the acquisition of Computer 2000, increases in amortization of intangibles as well as other operating expenses needed to support the increased volume of business. As a result of the factors described above, operating profit in the first quarter of fiscal 2000 increased 49.0% to $67.0 million, or 1.73% of net sales, compared to $45.0 million, or 2.06% of net sales in the first quarter of fiscal 1999. Interest expense increased due to an increase in the Company's average outstanding indebtedness related to funding the acquisition and related working capital requirements of Computer 2000 as well as funding for continued growth and capital expenditures. The Company recorded a net foreign currency transaction loss of $4.8 million related to the devaluation of the Brazilian currency and the weakening of currencies in various European countries, including the United Kingdom, Germany, Finland, Poland, Hungary and the Czech Republic. Prior year net foreign currency transaction gains and losses were not significant. The provision for income taxes increased 24.4% to $17.2 million in the first quarter of fiscal 2000 compared to $13.8 million last year. The increase is attributable to an increase in the Company's income before income taxes. The Company's average income tax rate increased from 37.3% in the first quarter of 1999 to 37.9% in the current year due to fluctuations in the amount of federal, state and foreign taxable income reported in each period. 9 As a result of the factors described above, net income increased 21.3% to $28.0 million, or $.53 per diluted share, compared to $23.1 million, or $.46 per diluted share, in the prior year. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities of $49.9 million during the first quarter of fiscal 2000 was primarily attributable to income from operations of $28.0 million and reductions in accounts receivable, inventories and prepaid and other assets, partially offset by a decrease in accounts payable. Net cash used in investing activities of $27.6 million during the first three months of fiscal 2000 was attributable to the continuing investment of $15.3 million related to the expansion of the Company's management information systems, office facilities and distribution centers combined with the payment of $12.3 million related to the acquisition of additional shares of the common stock of Computer 2000. The Company expects to make capital expenditures of approximately $75 - $100 million during fiscal 2000 to further expand its management information systems, office facilities and distribution centers. Net cash used in financing activities of $30.7 million during the first three months of fiscal 2000 reflects the net repayments on the Company's revolving credit loans and long-term debt of $32.9 million offset by the proceeds from stock option exercises (including the related income tax benefit) of $2.2 million. The Company currently maintains domestic and foreign revolving credit agreements which provide maximum short-term borrowings of approximately $1.35 billion (including local country credit lines), of which $785 million was outstanding at April 30, 1999. The Company believes that cash from operations, available and obtainable bank credit lines and trade credit from its vendors will be sufficient to satisfy its working capital and capital expenditure requirements through fiscal 2000. ASSET MANAGEMENT The Company manages its inventories by maintaining sufficient quantities to achieve high order fill rates while attempting to stock only those products in high demand with a rapid turnover rate. Inventory balances fluctuate as the Company adds new product lines and when appropriate, makes large purchases, including cash purchases from manufacturers and publishers when the terms of such purchases are considered advantageous. The Company's contracts with most of its vendors provide price protection and stock rotation privileges to reduce the risk of loss due to manufacturer price reductions and slow moving or obsolete inventory. In the event of a vendor price reduction, the Company generally receives a credit for the impact on products in inventory. In addition, the Company has the right to rotate a certain percentage of purchases, subject to certain limitations. Historically, price protection and stock rotation privileges, as well as the Company's inventory management procedures have helped to reduce the risk of loss of carrying inventory. 10 The Company attempts to control losses on credit sales by closely monitoring customers' creditworthiness through its computer system, which contains detailed information on each customer's payment history and other relevant information. The Company has obtained credit insurance which insures a percentage of the credit extended by the Company to certain of its larger domestic and international customers against possible loss. Customers who qualify for credit terms are typically granted net 30 day payment terms. The Company also sells product on a prepay, credit card, cash on delivery and floor-plan basis. YEAR 2000 Introduction The "Year 2000 Problem" arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of the familiar "19." If not corrected, many computer applications could fail or create erroneous results. The problems created by using abbreviated dates appear in hardware (such as microchips), operating systems and other software programs. The Company's Year 2000 ("Y2K") compliance project is intended to determine the readiness of the Company's business for the Year 2000. The Company defines Y2K "compliance" to mean that the computer code will process all defined future dates properly and give accurate results. Description of Areas of Impact and Risk The Company has identified four areas where the Y2K problem creates risk to the Company. These areas are: a) internal Information Technology ("IT") systems; b) non-IT systems with embedded chip technology; c) system capabilities of third party businesses with relationships with the Company, including product suppliers, customers, service providers (such as telephone, power, logistics, financial services) and other businesses whose failure to be Y2K compliant could have a material adverse effect on the Company's business, financial condition or results of operations; and d) product liability claims arising out of the non-performance of computer products distributed by the Company. Plan to Address Year 2000 Compliance In August 1997, the Company formed a Year 2000 compliance project team and began developing an overall plan to address Y2K readiness issues. This plan includes five phases as follows: Phase I is to create an inventory of the Company's IT systems, non-IT systems and service providers (each of these being referred to as "business components") that need to be analyzed for Y2K compliance. During Phase I, a priority is established so that the Company will first address the most important business components to determine Y2K readiness. Phase II analyzes the identified business components to determine which of the business components in the inventory require additional effort to be Y2K compliant. Phase III is the repair, modification or replacement of business components which the analysis determines are not Y2K compliant ("remediation"). Phase IV consists of various types of testing to confirm that the remediation process has resulted in the business components being Y2K compliant. 11 Phase V is the development of contingency plans to address potential risks that the Y2K compliance project may not fully address. State of Readiness IT Systems - U.S. and Canada- The Company is in Phase III and Phase IV of the Year 2000 project overall. As testing and remediation progress, the inventory and test plans are refined. Approximately 76% of all identified IT system business components in the U.S. have been deemed to be Y2K compliant as of April 15, 1999 with analysis of the remaining 24% continuing. Of the 24% remaining, remediation will be completed by re-writing and upgrading key software application systems to incorporate Y2K compliance. Functional testing of individual components of the Company's business critical applications has been completed. Fully integrated tests of these individual components will continue with completion targeted in September 1999. Completion of full integration testing has moved from July to September in order to provide adequate time to complete all remediation of business critical applications outside the mainframe environment and the technology refresh described in the next paragraph. The expected completion of the testing and remediation of the Company's desktop hardware and software systems is October 1999. The Company is addressing the Y2K compliance of these systems by acceleration of a previously planned desktop technology refresh during which systems that are not Y2K compliant will be replaced. Internal resources have been reallocated and external resources have been secured to address these issues by the planned completion dates. Full integration testing can be completed only after the applications and systems outside the mainframe environment have also been remediated. The on-line portion of the DCS software system (the Company's system performing the primary business functions of sales order entry, billing, purchasing, distribution and inventory control) has been determined to be compliant for the following dates: January 1, February 29, and December 31, 2000. Remaining batch processing portions of the DCS system are still in progress. User acceptance testing for all portions of the DCS system is targeted to begin June 1999. In addition to the Company's internal resources, outside consultants have been secured to focus exclusively on the DCS environment. IT Systems - Outside the U.S. and Canada - The Company's subsidiaries located outside of the U.S. and Canada are currently focusing on Phase III and Phase IV tasks of the Year 2000 project. As of March 29, 1999, approximately 59% of the identified critical business components of all countries have been determined to be Y2K compliant. Each country is separately reporting on its progress, with central coordination and management provided by the Y2K compliance project team. 12 For the subsidiaries of Computer 2000 ("C2000"), country locations are divided into two core areas: those using the SAP R/2 system (the Company's system performing the primary business functions of sales, order entry, billing, purchasing, distribution and inventory control) and those that use other systems to provide these business processes. The majority of the countries use the SAP R/2 system. The version of SAP R/2 in use by C2000, has received certification from TUV, a German governmental independent testing authority, that it is Y2K compliant. C2000 is testing these elements and the custom modifications it has made to the system, with completion of this testing scheduled for September 1999. This testing incorporates related subsystems and key client/server and desktop systems. For those countries using non-SAP R/2 systems, conversion to SAP R/2 or upgrades to a compliant system are being implemented or the system is being determined to be Y2K compliant through certification by the vendor and internal C2000 testing. In France, the Company is consolidating the operations of its Tech Data subsidiary with C2000's subsidiary. As part of this consolidation, SAP R/2 systems will be replaced with currently existing enterprise systems that are not Y2K compliant. For this reason, additional project phases have been identified which will require the conversion of operations in France to a single, Y2K compliant, enterprise system. Conversion of this system is scheduled to begin in July 1999. Non-IT systems - The non-IT systems (devices which store and report date-related information, such as access control systems, elevators, conveyors and other items containing a microprocessor or internal clock) are utilizing the phased plan approach for the IT systems. Phase I inventory and prioritization has been completed for non-IT systems in the U.S. and in connection with the Company's acquisition of Computer 2000, is currently being conducted in the Company's worldwide locations. Phase II analysis is being performed on systems material to the Company's operations with the assistance of the Company's vendors, with completion expected in July 1999. Implementation of Phases III and IV will continue through August 1999. The Company currently plans to complete the Y2K compliance program for all material non-IT systems by the end of October 1999. Material Third Parties - The Company relies on third party suppliers for many systems, products and services. The Company will be adversely affected if these third parties are not Y2K compliant. The Company continues to solicit, receive and review responses to surveys sent to those third parties determined to be material to the operations of the Company to determine their Y2K readiness. For those critical third parties that fail to respond to the Company's survey, the Company is pursuing alternative means of obtaining Y2K readiness information and is conducting reviews of publicly available information published by such third parties. Product Liability - The Company does not make any representations or warranties that the products it distributes are or will be Y2K-ready or compliant. In certain countries where the Company or its subsidiaries distribute products, the Company may have an obligation to accept returns of products which fail because the product is not Y2K ready. In most cases, these returns may be passed on to the manufacturer. In those countries where product return obligations may exist, the Company plans to carefully review manufacturer representations regarding products that are sold in material volumes by the Company or its subsidiaries. 13 Cost of Project The Company has incurred approximately $3.5 million through April 30, 1999 on the Y2K compliance effort, excluding compensation and benefit costs for associates who do not work full-time on the Y2K project and costs of systems upgrades that would have normally been made on a similar timetable. The overall cost of the Y2K compliance effort cannot be accurately estimated until all inventory and analysis phases associated with the recent acquisition of Computer 2000 have been completed, however, the Company believes the costs will be approximately $9.1 million. Contingency Planning and Risks The Company has begun contingency planning for some of its critical applications and will be developing additional contingency plans as testing determines the necessity. While the Company believes that its approach to Y2K readiness is sound, it is possible that some business components are not identified in the inventory, or that the scanning or testing process does not result in analysis and remediation of all source code. The Company will assume a third party is not Y2K ready if no survey response or an inadequate survey response is received. The Company's contingency plan will address alternative providers and processes to deal with business interruptions that may be caused by internal system or third party providers failure to be Y2K ready to the extent it is possible. The failure to correct a material Y2K problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failure could materially and adversely affect the Company's operations and therefore, could materially and adversely affect the Company's results of operations, liquidity and financial condition. In addition, the Company's operating results could be materially adversely affected if it were to be held responsible for the failure of any products sold by the Company to be Y2K ready despite the Company's disclaimer of product warranties and the limitation of liability contained in its sales terms and conditions. EURO CONVERSION On January 1, 1999, eleven of the fifteen member countries of the European Union commenced a conversion from their existing sovereign currencies to a new, single currency called the euro. Fixed conversion rates between the existing currencies, the legacy currencies, and the euro were established and the euro became the common legal currency of the participating countries on this date. The euro now trades on currency exchanges and is available for non-cash transactions. The participants will now issue sovereign debt exclusively in euro and have redenominated all outstanding sovereign debt. Following this introduction period, the participating members legacy currencies will remain legal tender as denominations of euro until January 1, 2002. At that time, countries will issue new euro-denominated bills for use in cash transactions. All legacy currency will be withdrawn prior to July 1, 2002 completing the euro conversion on this date. As of January 1, 1999, the participating countries no longer control their own monetary policies by directing independent interest rates for the legacy currencies; instead, the authority to direct monetary policy, including money supply and official interest rates for the euro, is exercised by the new European Central Bank. 14 The Company has implemented a plan to address the issues raised by the euro conversion. These issues include, but are not limited to; the competitive impact created by cross-border price transparency; the need for the Company and its business partners to adapt IT and non-IT systems to accommodate euro-demoninated transactions; and the need to analyze the legal and contractual implications of the Company's contracts. The Company currently anticipates that the required modifications to its systems, equipment and processes will be made on a timely basis and does not expect that the costs of such modifications will have a material effect on the Company's financial position or results of operations. Since the implementation of the euro on January 1, 1999, the Company has experienced improved efficiencies in its cash management program in Europe and has been able to reduce certain hedging activities as a direct result of the conversion. The Company has not experienced any material adverse effects on its financial position or results of operations in connection with the initial roll-out of the euro currency. COMMENTS ON FORWARD-LOOKING INFORMATION In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company, in Exhibit 99A to its Annual Report on Form 10-K for the year ended January 31, 1999, outlined cautionary statements and identified important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. Such forward-looking statements, as made within this Form 10-Q, should be considered in conjunction with the information included within the aforementioned Exhibit 99A. Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred in the quantitative and qualitative market risk disclosure of the Company as presented in the Company's Annual Report on Form 10-K for the year ended January 31, 1999. 15 PART III - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits NO. DESCRIPTION --- ----------- 27 Financial Data Schedule (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TECH DATA CORPORATION --------------------- (Registrant)
SIGNATURE TITLE DATE - --------- ----- ---- /s/ STEVEN A. RAYMUND Chairman of the Board of June 14, 1999 - ------------------------ Directors and Chief Steven A. Raymund Executive Officer /s/ JEFFERY P. HOWELLS Executive Vice President June 14, 1999 - ------------------------ and Chief Financial Officer Jeffery P. Howells (principal financial officer) /s/ JOSEPH B. TREPANI Senior Vice President and June 14, 1999 - ------------------------ Corporate Controller (principal Joseph B. Trepani accounting officer) /s/ ARTHUR W. SINGLETON Vice President, Treasurer and June 14, 1999 - ----------------------- Secretary Arthur W. Singleton
16 EXHIBIT INDEX ------------- Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TECH DATA CORPORATION QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL 30, 1999 AND ITS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS JAN-31-2000 FEB-01-1999 APR-30-1999 223 0 1,735,149 58,244 1,284,590 3,066,425 131,916 0 3,576,826 2,322,744 308,482 0 5 77 943,861 3,576,826 3,877,158 3,877,158 3,651,916 5,810,165 158,249 0 16,914 45,322 17,179 28,143 0 0 0 28,024 0.55 0.53
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