-----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, HuIKGa0qIGryElpvdQy/K9rQFmG7bukX0RlmCSzP4iYbo7OEIVlgbnXeDR2tXeiH qoLAglwsJheu7aV+fwR1FA== 0001016843-99-001241.txt : 19991216 0001016843-99-001241.hdr.sgml : 19991216 ACCESSION NUMBER: 0001016843-99-001241 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991215 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: 99775433 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 OCTOBER 31, 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 DECEMBER 10, 1999 - ----------------------------------------- ----------------- Common stock, par value $.0015 per share 52,141,585 TECH DATA CORPORATION AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED OCTOBER 31, 1999 INDEX PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Balance Sheet as of October 31, 1999 (unaudited) and January 31, 1999 3 Consolidated Statement of Income (unaudited) for the three and nine months ended October 31, 1999 and 1998 4 Consolidated Statement of Cash Flows (unaudited) for the nine months ended October 31, 1999 and 1998 5 Notes to Consolidated Financial Statements (unaudited) 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-16 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 PART II. OTHER INFORMATION Items 1-5 All items 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 October 31, 1999. 17 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements TECH DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands, except share amounts)
OCTOBER 31, JANUARY 31, 1999 1999 ------------ ---------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 4,210 $ 8,615 Accounts receivable, less allowance for 1,872,185 1,796,045 doubtful accounts of $62,783 and $60,521 Inventories 1,448,283 1,369,351 Prepaid and other assets 163,703 113,952 ----------- ---------- Total current assets 3,488,381 3,287,963 Property and equipment, net 146,053 126,537 Excess of cost over acquired net assets, net 337,195 345,326 Other assets, net 73,967 85,161 ----------- ---------- $ 4,045,596 $3,844,987 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Revolving credit loans $ 731,056 $ 817,870 Accounts payable 1,664,278 1,503,866 Accrued expenses 315,729 241,170 ----------- ---------- Total current liabilities 2,711,063 2,562,906 Long-term debt 308,405 308,521 ----------- ---------- 3,019,468 2,871,427 ----------- ---------- Minority interest 1,065 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; 52,131,890 and 51,098,442 issued and outstanding 78 77 Additional paid-in capital 528,488 505,385 Retained earnings 519,164 428,720 Accumulated other comprehensive income (22,672) 33,104 ----------- ---------- Total shareholders' equity 1,025,063 967,291 ----------- ---------- $ 4,045,596 $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 NINE MONTHS ENDED OCTOBER 31, OCTOBER 31, ---------------------------- -------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Net sales $ 4,310,072 $ 3,278,401 $12,212,195 $ 7,676,028 Cost and expenses: Cost of products sold 4,078,719 3,065,306 11,533,116 7,178,418 Selling, general and administrative expenses 163,040 143,892 481,623 333,314 ----------- ----------- ----------- ----------- 4,241,759 3,209,198 12,014,739 7,511,732 ----------- ----------- ----------- ----------- Operating income 68,313 69,203 197,456 164,296 Interest expense 17,024 14,422 49,564 28,765 Net foreign currency exchange (gain) loss (418) -- 4,745 -- Gain on sale of Macrotron AG -- -- -- 12,500 ----------- ----------- ----------- ----------- Income before income taxes 51,707 54,781 143,147 148,031 Provision for income taxes 18,614 20,088 52,396 54,977 ----------- ----------- ----------- ----------- Income before minority interest 33,093 34,693 90,751 93,054 Minority interest 89 605 307 582 ----------- ----------- ----------- ----------- Net income $ 33,004 $ 34,088 $ 90,444 $ 92,472 =========== =========== =========== =========== Net income per common share: Basic $ .63 $ .67 $ 1.75 $ 1.88 =========== =========== =========== =========== Diluted $ .60 $ .63 $ 1.67 $ 1.79 =========== =========== =========== =========== Weighted average common shares outstanding: Basic 52,048 50,911 51,537 49,276 =========== =========== =========== =========== Diluted 58,977 57,997 58,466 52,927 =========== =========== =========== ===========
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)
NINE MONTHS ENDED OCTOBER 31, ------------------------------- 1999 1998 ------------- -------------- Cash flows from operating activities: Cash received from customers $ 12,151,157 $ 7,528,870 Cash paid to suppliers and employees (11,875,721) (7,070,188) Interest paid (50,073) (22,789) Income taxes paid (42,112) (45,612) ------------ ----------- Net cash provided by operating activities 183,251 390,281 ------------ ----------- Cash flows from investing activities: Sale of Macrotron AG -- 227,843 Acquisition of businesses, net of cash acquired (42,927) (90,430) Capital expenditures (49,894) (43,760) ------------ ----------- Net cash (used in) provided by investing activities (92,821) 93,653 ------------ ----------- Cash flows from financing activities: Proceeds from issuance of common stock 23,104 16,716 Net repayments under revolving credit loan (117,814) (501,865) Principal payments on long-term debt (125) (159) ------------ ----------- Net cash used in financing activities (94,835) (485,308) ------------ ----------- Net decrease in cash and cash equivalents (4,405) (1,374) Cash and cash equivalents at beginning of period 8,615 2,749 ------------ ----------- Cash and cash equivalents at end of period $ 4,210 $ 1,375 ============ =========== Reconciliation of net income to net cash provided by operating activities: Net income $ 90,444 $ 92,472 ------------ ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 42,736 28,491 Provision for losses on accounts receivable 30,898 23,316 Gain on sale of Macrotron AG -- (12,500) (Increase) decrease in assets: Accounts receivable (61,038) (147,158) Inventories (50,932) 255,438 Prepaid and other assets (71,837) 134,926 Increase (decrease) in liabilities: Accounts payable 132,412 153,449 Accrued expenses 70,568 (138,153) ------------ ----------- Total adjustments 92,807 297,809 ------------ ----------- Net cash provided by operating activities $ 183,251 $ 390,281 ============ ===========
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 October 31, 1999 and the results of their operations for the three and nine months ended October 31, 1999 and 1998 and their cash flows for the nine months ended October 31, 1999 and 1998. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the nine months ended October 31, 1999 are not necessarily indicative of the results that can be expected for the entire fiscal year ending January 31, 2000. NOTE 2 - ACQUISITION OF BUSINESSES: ACQUISITION OF GLOBELLE CORPORATION On May 21, 1999, Tech Data Canada, a wholly-owned subsidiary of the Company, through an initial tender offer, acquired approximately 11.6 million common shares, or 80.4% of the outstanding common shares of Globelle Corporation ("Globelle"), a mass storage and components distributor based in Canada. The initial tender offer, at Cdn $2.50 per share (US$1.70 per share), was completed through an exchange of approximately Cdn $29.0 million in cash. Through a subsequent tender offer period ending on June 2, 1999, the Company increased its ownership to 11.8 million common shares, or 81.6%, for a total price of Cdn $29.5 million (US$20.3 million). The remaining Globelle common shareholders, under the terms of the merger agreement, received one redeemable retractable preferred share of Tech Data Canada for each Globelle common share held. The preferred shares were redeemed in full by Tech Data Canada on October 8, 1999, resulting in 100% ownership of Globelle for total cash consideration of approximately Cdn $37.0 million (US$25.0 million). The acquisition of Globelle was accounted for under the purchase method. The preliminary purchase price allocation has resulted in approximately US$13 million in excess cost over the net fair market value of tangible assets acquired as of October 31, 1999, to be amortized over a period of 20 years. Pro forma financial information related to the Globelle acquisition has not been presented since the acquisition was not material to the Company's financial position or results of operations. 6 ACQUISITION OF COMPUTER 2000 AG In July 1998, the Company acquired 80% of the outstanding voting common stock of Computer 2000 AG ("Computer 2000"), Europe's leading electronics distributor. In connection with the acquisition (accounted for under the purchase method), the Company is subject to additional contingent purchase price payments. The Company is presently negotiating the resolution of this contingency and believes the ultimate settlement will not exceed $21 million. Any payments made related to this contingency will increase the purchase price of Computer 2000 and result in the recognition of additional goodwill. During the nine months ended October 31, 1999 the Company has acquired additional shares of Computer 2000 common stock, which, including other cash payments, has resulted in additional consideration of approximately $18 million. As of October 31, 1999, the Company owns 99.6% of the outstanding shares of common stock of Computer 2000. NON-CASH TRANSACTIONS The Company issued $300,000,000 convertible subordinated notes and approximately 2,200,000 shares of common stock in conjunction with its acquisition of Computer 2000 in July 1998. NOTE 3 - NET INCOME PER COMMON SHARE: Basic Earnings per Share ("Basic EPS") excludes from the calculation of earnings per share the potential for dilution of earnings by certain common stock equivalents and is computed by dividing net income by the weighted average number of common shares outstanding during the reported period. Diluted Earnings Per Share ("Diluted EPS") reflects the potential dilution that could occur assuming conversion of certain common stock equivalents such as the Company's convertible subordinated notes, as well as exercise of 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 THREE MONTHS ENDED OCTOBER 31, 1999 OCTOBER 31, 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 $33,004 52,048 $ .63 $34,088 50,911 $ .67 ===== ===== Effect of dilutive securities: Stock options 1,596 1,753 5% convertible subordinated notes 2,363 5,333 2,363 5,333 ------- ------- ------- ------ Net income per common share - diluted $35,367 58,977 $ .60 $36,451 57,997 $ .63 ======= ======= ===== ======= ====== =====
NINE MONTHS ENDED NINE MONTHS ENDED OCTOBER 31, 1999 OCTOBER 31, 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 $90,444 51,537 $1.75 $92,472 49,276 $1.88 ===== ===== Effect of dilutive securities: Stock options 1,596 1,873 5% convertible subordinated notes 7,088 5,333 2,363 1,778 ------- ------ ------- ------ Net income per common share - diluted $97,532 58,466 $1.67 $94,835 52,927 $1.79 ======= ====== ===== ======= ====== =====
7 At October 31, 1999 and 1998, there were 1,737,000 and 134,000 shares, respectively, excluded from the computation of diluted earnings per share because their effect would have been antidilutive. NOTE 4 - 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 displaying 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 for the three months ended October 31, 1999 and 1998 was $52.4 million and $54.5 million, respectively, and $34.7 million and $110.9 million, for the nine months ended October 31, 1999 and 1998, respectively. NOTE 5 - 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 operating income. Financial information by geographic segment is as follows (in thousands):
OTHER UNITED STATES EUROPE INTERNATIONAL TOTAL ------------- ------ ------------- ----- THREE MONTHS ENDED OCTOBER 31, 1999 Net sales to unaffiliated customers $2,317,315 $1,703,179 $ 289,578 $ 4,310,072 ========== ========== =========== =========== Operating income $ 48,709 $ 16,222 $ 3,382 $ 68,313 ========== ========== =========== =========== Identifiable assets $1,926,160 $1,842,100 $ 277,336 $ 4,045,596 ========== =========== =========== =========== THREE MONTHS ENDED OCTOBER 31, 1998 Net sales to unaffiliated customers $1,609,444 $1,488,434 $ 180,523 $ 3,278,401 ========== ========== =========== =========== Operating income (loss) $ 44,597 $ 26,712 $ (2,106) $ 69,203 ========== ========== =========== =========== Identifiable assets $1,462,262 $1,603,933 $ 139,973 $ 3,206,168 ========== ========== =========== ===========
8
OTHER UNITED STATES EUROPE INTERNATIONAL TOTAL ------------- ------ ------------- ----- NINE MONTHS ENDED OCTOBER 31, 1999 Net sales to unaffiliated customers $ 6,146,174 $ 5,331,535 $ 734,486 $12,212,195 ============ ============ =========== =========== Operating income $ 122,144 $ 69,095 $ 6,217 $ 197,456 ============ ============ =========== =========== Identifiable assets $ 1,926,160 $ 1,842,100 $ 277,336 $ 4,045,596 ============ ============ =========== =========== NINE MONTHS ENDED OCTOBER 31, 1998 Net sales to unaffiliated customers $ 4,733,105 $ 2,493,761 $ 449,162 $ 7,676,028 ============ ============ ========== =========== Operating income $ 122,619 $ 39,945 $ 1,732 $ 164,296 ============ ============ =========== =========== Identifiable assets $ 1,462,262 $ 1,603,933 $ 139,973 $ 3,206,168 ============ ============ =========== ===========
NOTE 6 - 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 establishes requirements for accounting and reporting of derivative instruments and hedging activities. SFAS 133 was updated by the issuance of SFAS 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FAS No. 133" and 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. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS Three Months Ended October 31, 1999 and 1998 Net sales increased 31.5% to $4.31 billion in the third quarter of fiscal 2000 compared to $3.28 billion in the third quarter last year. This increase is attributable to growth in the Company's U.S. business through the addition of new customers and gains in market share as well as the addition of new product lines and the expansion of existing product lines in all geographies. The Company's third quarter U.S., Europe and other international sales grew 44.0%, 14.4%, and 60.4%, respectively, compared to the third quarter of last year. Total international sales represented approximately 46% of fiscal 2000 third quarter net sales compared to 51% for the third quarter of fiscal 1999. The cost of products sold as a percentage of net sales was 94.6% in the third quarter of fiscal 2000, compared to 93.5% in the prior year. This increase is a result of competitive market conditions, primarily in the Company's U.S. and European operations, 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. Additionally contributing to this increase is the Company's increased participation in customer outsourcing activities in the U.S. which provide lower gross profit margins, while, because of cost efficiencies in these activities, maintain consistent operating margins. Selling, general and administrative expenses increased 13.3% to $163.0 million in the third quarter of fiscal 2000 compared to $143.9 million last year and as a percentage of net sales decreased to 3.78%, compared to 4.39% in the third quarter last year. The dollar value increase in selling, general and administrative expenses is attributable to increases in headcount and other expenses needed to support the increased volume of business. As a result of the factors described above, operating income decreased to $68.3 million in the third quarter of fiscal 2000, compared to $69.2 million, for the third quarter last year and as a percentage of net sales, decreased to 1.6% from 2.1%, respectively. Interest expense increased in the third quarter of fiscal 2000 due to an increase in the Company's average outstanding indebtedness related to funding for continued growth and capital expenditures. The provision for income taxes decreased 7.3% to $18.6 million in the third quarter of fiscal 2000 compared to $20.1 million in the comparable quarter last year. This decrease is attributable to a decrease in the Company's income before income taxes. The Company's average income tax rate declined to 36.0% in the third quarter this year compared with 36.7% in the prior year due to fluctuations in the amount of federal, state and foreign taxable income reported in each period. 10 As a result of the factors described above, net income decreased 3.2% to $33.0 million, or $.60 per diluted share, in the third quarter of fiscal 2000 compared to $34.1 million, or $.63 per diluted share, in the prior year comparable quarter. NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 Net sales increased 59.1% to $12.2 billion in the first nine months of fiscal 2000 compared to $7.7 billion in the same period last year. Net income for the nine month period this year was $90.4 million, or $1.67 per diluted share, up 6.6% from the $84.8 million, or $1.64 per diluted share, in the same period last year, excluding the $12.5 million pre tax gain on the sale of its former Munich-based subsidiary Macrotron AG. (The underlying reasons for the fluctuations in the results of operations for the nine months ended October 31, 1999 compared with the prior year primarily relate to the inclusion of nine months of operations for Computer 2000 in the current year, whereas the prior year nine month period included six months of operations for Macrotron AG which was sold on July 1, 1998, and included only three months of operations for the larger Computer 2000 operation, which was acquired on July 1, 1998. Excluding the impact of the acquisition of Computer 2000 and the disposition of Macrotron AG, the underlying reasons for the fluctuations in the results of operations are substantially the same as in the comparative quarterly discussion above and, therefore, will not be repeated here). LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities of $183.3 million during the first nine months of fiscal 2000 was primarily attributable to net income of $90.4 million combined with non-cash charges for depreciation, amortization and provisions for losses on accounts receivable. Net cash used in investing activities of $92.8 million during the first nine months of fiscal 2000 was attributable to the Company's continuing investment of $49.9 million related to the expansion of the Company's management information systems, office facilities and its distribution centers combined with the use of $18.0 million related to the acquisition of additional shares of Computer 2000 and approximately $25.0 million in the acquisition of Globelle (see Note 2 of Notes to Consolidated Financial Statements). 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 $94.8 million during the first nine months of fiscal 2000 reflects the net repayments under the Company's revolving credit loans of $117.8 million partially offset by proceeds from stock option exercises (including the related income tax benefit) of $23.1 million. As of October 31, 1999, the Company maintained domestic and foreign revolving credit agreements which provide maximum short-term borrowings of approximately $1.35 billion (subsequently increased to $1.5 billion in November 1999 including local country credit lines), of which $731 million was outstanding at that date. The Company believes that cash from operations, available and obtainable bank credit lines and trade credit from its vendors will be sufficient to satisfy its working capital and capital expenditure needs through fiscal 2001. 11 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 percentage of purchases, subject to certain limitations. Historically, price protection and stock rotation privileges, as well as the Company's inventory management procedures have helped to reduce the risk of loss of carrying inventory. The Company attempts to control losses on credit sales by closely monitoring customers' creditworthiness through its computer system, which contains detailed information on each customer's payment history and other relevant information. The Company has obtained credit insurance which insures a percentage of the credit extended by the Company to certain of its larger domestic and international customers against possible loss. Customers who qualify for credit terms are typically granted net 30 day payment terms. The Company also sells product on a prepay, credit card, cash on delivery and floor-plan basis. YEAR 2000 Introduction The "Year 2000 Problem" generally refers to computer programs that 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 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 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 included 12 five phases as follows: Phase I created an inventory of the Company's IT systems, non-IT systems and service providers (each of these being referred to as "business components") to be analyzed for Y2K compliance. During Phase I, priorities were established so that the Company addressed the most important business components to determine Y2K readiness. In Phase II identified business components were analyzed to determine which components in the inventory required additional effort to be Y2K compliant. Phase III addressed the repair, modification or replacement of business components that were not Y2K compliant ("remediation"). Phase IV consisted of various types of tests to confirm that the remediation process resulted in the business components being Y2K compliant. In Phase V contingency plans were developed to address potential risks that may be experienced due to Y2K related issues. State of Readiness IT Systems - U.S., Canada and Latin America - The Company substantially completed Phase I through Phase V of the Year 2000 compliance project. Approximately 99% of the IT business components are deemed Y2K compliant with work to remediate the remaining 1% continuing. Functional testing of individual components of the Company's business critical applications is complete. Both the on-line and batch portions of the DCS software system (the Company's system performing the primary business functions of sales order entry, billing, purchasing, distribution and inventory control) is determined to be compliant for the following dates: January 1, February 29, December 31, 2000. User acceptance testing for all portions of the DCS system, EDI and other critical application systems is complete. The Company retained the services of external consultants to perform an independent code inspection of the DCS application. This inspection provided further validation of the effectiveness of the automated scanning, visual inspection, corrective action and testing performed by the Company's employees and outside consultants. The Company addressed the Y2K compliance of the Company's desktop hardware and software by accelerating a previously planned desktop technology refresh. Systems that were not Y2K compliant were replaced. The technology refresh is substantially complete with a few remaining non critical desktops to be upgraded prior to end of December. IT Systems - Europe and the Middle East - The Company's subsidiaries located in Europe and the Middle East have substantially completed Phase I through IV of the Year 2000 compliance project. As of October 30th, 1999 approximately 99.1% of all identified business critical components have been determined to be Y2K compliant. Validation plans for December 31st and January 1st have been published and approved. Each country continues to report separately on its progress, with central coordination and management provided by the Y2K compliance project team. For the subsidiaries of Computer 2000 ("C2000"), country locations are divided into two core areas: those using the SAP R/2 system (the Company's system performing the primary business functions of sales, order entry, billing, purchasing, distribution and inventory control) and those that use other systems to provide these business processes. The majority of the countries use the SAP R/2 system. The version of SAP R/2 in use by C2000, has received certification from TUV, a German governmental independent testing authority, that it is Y2K compliant. C2000 has 13 completed testing of these elements and custom modifications it has made to the system. This testing included related subsystems and key client/server and desktop systems. The countries that had been using non-SAP R/2 systems have converted to SAP R/2 or have upgraded to a compliant system. Non-IT systems -- The non-IT systems generally refer to devices which store and report date-related information, such as access control systems, elevators, conveyors and other items containing a microprocessor or internal clock. For non-IT systems, Phase I, II, III and IV are substantially complete and contingency plans are in place to address potential risk areas. The Company will continue to refine the contingency plans through the remainder of the year. 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. Cost of Project The Company has incurred approximately $9.1 million through October 31, 1999 on the Y2K compliance effort, excluding compensation and benefit costs for associates who do not work full-time on the Y2K project and costs of systems upgrades that would have normally been made on a similar timetable. Based on the analyses and modifications completed to date, the Company believes the total cost will be approximately $11.5 million. Contingency Planning and Risks The Company created a Year 2000 Steering Committee to coordinate its overall internal readiness and contingency planning efforts. The Committee, composed of representatives from the major divisions within the Company, completed the contingency plan and will continue to refine that plan through the remainder of the year. The Committee's plan addresses pre-millennium rollover preparation, the detailed millennium rollover plan and post millennium activities for its IT and non-IT components. Specific contingency plans are in place for critical applications and will continue to be refined on an ongoing basis. The European and Middle Eastern operations have completed a plan for validation of the functionality of the operating systems according to predefined criteria. Key staff members will be on-site throughout the millennium rollover weekend to monitor systems and expedite issue resolution should any issues arise. 14 Some of the Company's subsidiaries will close for business on those dates in order to implement specific contingency plans. 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 addresses 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 and 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. 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. 15 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 establishes requirements for accounting and reporting of derivative instruments and hedging activities. SFAS 133 was updated by the issuance of SFAS 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FAS No. 133" and 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. 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. 16 PART II - 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 No reports on Form 8-K were filed by the Company during the quarter ended October 31, 1999. 17 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 December 15, 1999 - ------------------------ Directors and Chief Steven A. Raymund Executive Officer /s/ JEFFERY P. HOWELLS Executive Vice President December 15, 1999 - ------------------------ and Chief Financial Officer; Jeffery P. Howells (principal financial officer); Director /s/ JOSEPH B. TREPANI Senior Vice President and December 15, 1999 - ------------------------ Corporate Controller (principal Joseph B. Trepani accounting officer) /s/ ARTHUR W. SINGLETON Vice President, Treasurer and December 15, 1999 - ------------------------ Secretary Arthur W. Singleton 18 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 OCTOBER 31, 1999 AND ITS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JAN-31-2000 FEB-01-1999 OCT-31-1999 4,210 0 1,934,968 62,783 1,448,283 3,488,381 146,053 0 4,045,596 2,711,063 308,405 0 5 78 1,024,980 4,045,596 12,212,195 12,212,195 11,533,116 12,014,739 481,623 0 49,564 143,147 52,396 90,751 0 0 0 90,444 1.75 1.67
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