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 July 31, 1997
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
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(813) 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 August 31, 1997
- ---------------------------------------- ---------------
Common stock, par value $.0015 per share 44,003,217
TECH DATA CORPORATION AND SUBSIDIARIES
Form 10-Q For The Quarter Ended July 31, 1997
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INDEX
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PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet as of
July 31, 1997 (unaudited) and
January 31, 1997 3
Consolidated Statement of Income
(unaudited) for the three and six
months ended July 31, 1997 and 1996 4
Consolidated Statement of Cash Flows
(unaudited) for the six months
ended July 31, 1997 and 1996 5
Notes to Consolidated Financial Statements
(unaudited) 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II. OTHER INFORMATION 11
Signatures 12
2
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
July 31, January 31,
1997 1997
---------- ----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 2,125 $ 661
Accounts receivable, less allowance for
doubtful accounts of $28,079 and $23,922 700,806 633,579
Inventories 705,636 759,974
Prepaid and other assets 43,828 55,796
---------- ----------
Total current assets 1,452,395 1,450,010
Property and equipment, net 69,999 65,597
Investment in and advances to Macrotron AG 104,567
Excess of cost over acquired net assets, net 5,696 5,922
Other assets, net 22,575 23,765
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$1,655,232 $1,545,294
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans $ 416,428 $ 396,391
Current portion of long-term debt 207 201
Accounts payable 696,297 658,732
Accrued expenses 43,348 42,693
----------- ----------
Total current liabilities 1,156,280 1,098,017
Long-term debt 8,791 8,896
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1,165,071 1,106,913
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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
and 100,000,000 shares authorized; 43,947,402
and 43,291,423 issued and outstanding 66 65
Additional paid-in capital 241,025 226,577
Retained earnings 249,969 210,283
Cumulative translation adjustment (904) 1,451
----------- ----------
Total shareholders' equity 490,161 438,381
----------- ----------
$1,655,232 $1,545,294
=========== ==========
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 Six months ended
July 31, July 31,
------------------------ -----------------------
1997 1996 1997 1996
----------- ---------- ---------- ----------
Net sales $1,551,820 $1,063,228 $2,921,966 $2,048,802
---------- ---------- ---------- ----------
Cost and expenses:
Cost of products sold 1,447,842 988,926 2,722,811 1,905,488
Selling, general and
administrative expenses 63,160 49,324 122,644 95,609
---------- ---------- ---------- ----------
1,511,002 1,038,250 2,845,455 2,001,097
---------- ---------- ---------- ----------
Operating profit 40,818 24,978 76,511 47,705
Interest expense 6,127 5,279 12,653 10,802
---------- ---------- ---------- ----------
Income before income taxes 34,691 19,699 63,858 36,903
Provision for income taxes 13,227 7,683 24,172 14,459
---------- ---------- ---------- ----------
Net income $ 21,464 $ 12,016 $ 39,686 $ 22,444
========== ========== ========== ==========
Net income per common share $ .47 $ .30 $ .88 $ .57
========== ========== ========== ==========
Weighted average common
shares outstanding 45,577 39,865 45,122 39,231
========== ========== ========== ==========
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)
Six months ended
July 31,
------------------------------
1997 1996
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Cash flows from operating activities:
Cash received from customers $2,844,302 $1,975,983
Cash paid to suppliers and employees (2,713,420) (1,983,984)
Interest paid (12,967) (10,788)
Income taxes paid (32,184) (17,064)
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Net cash provided by (used in) operating activities 85,731 (35,853)
---------- ----------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (35,368)
Capital expenditures (14,087) (5,692)
---------- ----------
Net cash used in investing activities (49,455) (5,692)
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Cash flows from financing activities:
Proceeds from issuance of common stock 5,250 88,576
Net borrowings (repayments) under revolver 20,037 (47,129)
Loans to Macrotron AG (60,000)
Principal payments on long-term debt (99) (259)
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Net cash (used in) provided by financing activities (34,812) 41,188
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,464 (357)
Cash and cash equivalents at beginning of period 661 1,154
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Cash and cash equivalents at end of period $ 2,125 $ 797
========== ==========
Reconciliation of net income to net cash provided
by (used in) operating activities:
Net income $ 39,686 $ 22,444
---------- ----------
Adjustments to reconcile net income to net cash
provided by (used in)operating activities:
Depreciation and amortization 11,101 9,515
Provision for losses on accounts receivable 10,437 9,422
(Increase) decrease in assets:
Accounts receivable (77,664) (72,819)
Inventories 54,338 25,032
Prepaid and other assets 9,613 (309)
Increase (decrease) in liabilities:
Accounts payable 37,565 (28,043)
Accrued expenses 655 (1,095)
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Total adjustments 46,045 (58,297)
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Net cash provided by (used in)
operating activities $ 85,731 $ (35,853)
========== ==========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these
financial statements.
5
TECH DATA CORPORATION AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Basis of presentation
- ---------------------
The consolidated financial statements 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") as of July 31, 1997, and the results of their operations and
cash flows for the three and six months ended July 31, 1997 and 1996. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The results of operations for the six months ended July 31, 1997
are not necessarily indicative of the results that can be expected for the
entire fiscal year ending January 31, 1998.
Acquisition
- -----------
On July 1, 1997 the Company acquired approximately 77% of the voting
commo stock and 7% of the non-voting preferred stock of Macrotron AG
("Mactroton"), a leading publicly held distributor of personal computer products
based in Munich, Germany. The initial acquisition was completed through an
exchange ofapproximately $26 million in cash and 406,586 shares of the Company's
common stock, for a combined total value of $35 million. On July 10, 1997,
the Company commenced a tender offer for the remaining shares of Macrotron
common and preferred stock at a price per share of DM730 and DM600,
respectively. As of July 31, 1997, the Company owned or had under option
approximately 94% and 18% of Macrotron's common and preferred stock,
respectively. The tender offer period ended on September 5, 1997. The cash
portion of the initial acquisition and the related tender offer were funded
from the Company's revolving credit loan agreements.
The acquisition of Macrotron will be accounted for under the purchase
method. Consistent with the Company's accounting policy for foreign
subsidiaries, Macrotron's operations will be consolidated into the Company's
consolidated financial statements on a calendar year basis. Consequently, the
Company's fiscal quarter ending October 31, 1997 will include Macrotron's
operations for the three month period beginning July 1, 1997 and ending on
September 30, 1997.
6
The following pro forma unaudited results of operations reflects the
effect on the Company's operations, as if the above described acquisition had
occurred at the beginning of each of the periods presented below:
Six months ended
July 31,
---------------------------
1997 1996
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Net sales $3,489,199 $2,465,276
Net income $ 40,759 $ 22,926
Net income per common share $ .90 $ .58
The unaudited pro forma information is presented for informational purposes
only and is not necessarily indicative of the operating results that would
have occurred had the Macrotron acquisition been consummated as of the
beginning of the periods above, nor are they necessarily indicative of
future operating results.
Net income per common share
- ---------------------------
Net income per share of common stock is based on the weighted average
number of shares of common stock and common stock equivalents outstanding during
each period. Fully diluted and primary earnings per share are the same amounts
for each of the periods presented.
7
TECH DATA CORPORATION AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Results of Operations
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Three Months Ended July 31, 1997 and 1996
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Net sales increased 46.0% to $1.55 billion in the second quarter of
fiscal 1998 compared to $1.06 billion in the second quarter a year ago. This
increase is attributable to the addition of new product lines and the expansion
of existing product lines combined with an increase in the Company's market
share. Second quarter fiscal 1998 U.S. and international sales grew 47.4% and
35.0%, respectively, compared to the prior year second quarter. International
sales represented approximately 11% of fiscal 1998 second quarter net sales
compared to 12% for the second quarter of fiscal 1997.
The cost of products sold as a percentage of net sales increased to
93.3% in the second quarter of fiscal 1998 from 93.0% in the prior year. This
increase is the 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 28.1% to $63.2
million in the second quarter of fiscal 1998 compared to $49.3 million last
year, decreasing as a percentage of net sales from 4.6% in the second quarter of
last year to 4.1% in the current quarter. The decline in selling, general and
administrative expenses as a percentage of net sales in the second quarter of
fiscal 1998 is attributable to greater economies of scale realized by the
Company in addition to improved operating efficiencies. The dollar value
increase in selling, general and administrative expenses is primarily the result
of expanded employment and increases in other administrative expenses needed to
support the increased volume of business.
As a result of the factors described above, operating profit increased
63.4% to $40.8 million, or 2.6% of net sales, in the second quarter of fiscal
1998 compared to $25.0 million, or 2.3% of net sales for the second quarter last
year.
Interest expense increased in the second quarter of fiscal 1998 due to
an increase in the Company's average outstanding indebtedness.
As a result of the factors described above, net income increased 78.6%
to $21.5 million, or $.47 per share, in the second quarter of fiscal 1998
compared to $12.0 million, or $.30 per share, in the prior year comparable
quarter.
8
Six Months Ended July 31, 1997 and 1996
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Net sales increased 42.6% to $2.92 billion in the first six months of
fiscal 1998 compared to $2.05 billion in the same period last year. Net income
increased 76.8% to $39.7 million, or $.88 per share, in the first six months of
fiscal 1998 compared to $22.4 million, or $.57 per share, in the comparable
prior year period.
(The underlying reasons for the fluctuations in the results of
operations for the six months ended July 31, 1997 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 $85.7 million during the
first six months of fiscal 1998 was primarily attributable to income from
operations of $39.7 million combined with a decrease in inventories and an
increase in accounts payable.
Net cash used in investing activities of $49.5 million during the first
six months of fiscal 1998 was attributable to the payment of $35.4 million
related to the acquisition of the common and preferred stock of Macrotron
combined with the Company's continuing investment of $14.1 million in its
management information systems, office facilities and its distribution center
facilities. The Company expects to make capital expenditures of approximately
$50 million during fiscal 1998 to further expand its management information
systems capability, office facilities and distribution centers.
Net cash used in financing activities of $34.8 million during the first
six months of fiscal 1998 reflects a loan of $60.0 million to Macrotron, net of
borrowings under revolving credit loans of $20.0 million and proceeds from
the issuance of common stock of $5.3 million.
In July 1997, the Company increased its accounts receivable
securitization program from $325 million to $400 million and in August 1997
entered into a new $550 million three-year multi-currency revolving
credit loan agreement with twenty banks. The Company currently maintains
domestic and foreign revolving credit agreements which provide maximum
short-term borrowings of approximately $980 million (including local
country credit lines), of which $416 million was outstanding at July 31,
1997. 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 1998.
9
Asset Management
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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 ofloss 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 customer payment history and other relevant
information. In addition, the Company participates in a national credit
association which exchanges credit information on mutual customers. The Company
has 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 or
cash on delivery basis.
Recent Accounting Pronouncement
- -------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings per Share" ("SFAS
128") which is effective for financial statements issued for periods ending
after December 15, 1997. SFAS 128 simplifies the previous standards for
computing earnings per share and requires the disclosure of basic and diluted
earnings per share. For the year ended January 31, 1997 and for the
subsequent interim periods reported, the amount reported as net income per
common share is not materially different than that which would have been
reported for basic and diluted earnings per share in accordance with SFAS 128.
Comments on Forward-Looking Information
- ---------------------------------------
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company filed a Form 8-K with the
Securities Exchange Commission (the "Commission") on March 26, 1996 outlining
cautionary statements and identifying 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 Form 8-K.
10
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
At the 1997 Annual Meeting of Shareholders held June 10, 1997, the
shareholders approved the following items:
1. The election of two directors, Daniel M. Doyle and Steven A.
Raymund to serve three-year terms expiring in 2000. Daniel M. Doyle
received 39,968,223 votes cast in favor and 222,198 votes withheld. Steven
A. Raymund received 39,958,849 votes cast in favor and 231,572 votes
withheld.
2. A proposal to amend the Company's Amended and Restated Articles of
Incorporation to increase the Company's authorized common stock from
100,000,000 to 200,000,000 shares.
The vote upon such proposal was 26,543,937 in favor, 9,274,890 against
and 50,435 abstentions.
3. A proposal to amend the Company's 1990 Incentive and Non-Statutory
Stock Option Plan to increase the number of shares which may be issued
thereunder from 5,000,000 to 10,000,000 shares of common stock.
The vote upon such proposal was 20,835,223 in favor, 14,416,619
against, and 84,568 abstentions.
4. A proposal to approve the Tech Data Corporation Executive
Compensation and Incentive Bonus Plan.
The vote upon such proposal was 38,942,873 in favor, 672,250 against
and 120,634 abstentions.
5. A proposal to ratify the appointment of Price Waterhouse LLP as
independent auditors for the fiscal year ending January 31, 1998.
The vote upon such proposal was 40,121,036 in favor, 43,105 against
and 51,440 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during
the quarter ended July 31, 1997.
11
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
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(Registrant)
Signature Title Date
- --------- ----- ----
/s/ Steven A. Raymund Chairman of the Board of September 12, 1997
- --------------------- Directors and Chief
Steven A. Raymund Executive Officer
/s/ Jeffery P. Howells Executive Vice President of September 12, 1997
- ---------------------- Finance and Chief Financial Officer
Jeffery P. Howells (principal financial officer)
/s/ Joseph B. Trepani Vice President and Worldwide September 12, 1997
- ---------------------- Controller (principal accounting
Joseph B. Trepani officer)
12