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, 1998
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
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(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 May 29, 1998
- ---------------------------------------- --------------
Common stock, par value $.0015 per share 48,614,969
TECH DATA CORPORATION AND SUBSIDIARIES
Form 10-Q For The Quarter Ended April 30, 1998
INDEX
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Balance Sheet as of
April 30, 1998 (unaudited) and
January 31, 1998 3
Consolidated Statement of Income
(unaudited) for the three months
ended April 30, 1998 and 1997 4
Consolidated Statement of Cash Flows
(unaudited) for the three months
ended April 30, 1998 and 1997 5
Notes to Consolidated Financial Statements
(unaudited) 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
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 April 30, 1998.
SIGNATURES 12
2
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
April 30, January 31,
1998 1998
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents ...................... $ 1,249 $ 2,749
Accounts receivable, less allowance for
doubtful accounts of $30,508 and $29,731 ..... 914,837 909,426
Inventories .................................... 969,570 1,028,367
Prepaid and other assets ....................... 57,399 65,843
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Total current assets ......................... 1,943,055 2,006,385
Property and equipment, net ...................... 110,792 100,562
Excess of cost over acquired net assets, net ..... 57,088 55,460
Other assets, net ................................ 22,994 22,976
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$ 2,133,929 $ 2,185,383
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans ......................... $ 335,053 $ 540,177
Accounts payable ............................... 949,580 850,866
Accrued expenses ............................... 101,877 77,961
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Total current liabilities
1,386,510 1,469,004
Long-term debt ................................... 8,627 8,683
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Total liabilities ............................ 1,395,137 1,477,687
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Minority interest ................................ 3,431 5,108
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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 $.0015; 200,000,000
shares authorized; 48,609,120 and
48,250,349 issued and outstanding ............ 73 72
Additional paid-in capital ..................... 413,671 403,880
Retained earnings .............................. 322,873 299,768
Cumulative translation adjustment .............. (1,261) (1,137)
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Total shareholders' equity ................... 735,361 702,588
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$ 2,133,929 $ 2,185,383
=========== ===========
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,
-------------------------
1998 1997
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Net sales ........................................ $ 2,184,366 $ 1,370,146
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Cost and expenses:
Cost of products sold .......................... 2,044,599 1,274,969
Selling, general and administrative expenses ... 94,801 59,484
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2,139,400 1,334,453
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Operating profit ................................. 44,966 35,693
Interest expense ................................. 7,954 6,526
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Income before income taxes ....................... 37,012 29,167
Provision for income taxes ....................... 13,815 10,945
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Income before minority interest .................. 23,197 18,222
Minority interest ................................ 92 --
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Net income ....................................... $ 23,105 $ 18,222
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Net income per common share:
Basic .......................................... $ .48 $ .42
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Diluted ........................................ $ .46 $ 41
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Weighted average common shares outstanding:
Basic .......................................... 48,285 43,341
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Diluted ........................................ 50,323 44,663
=========== ===========
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,
----------- -----------
1998 1997
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Cash flows from operating activities:
Cash received from customers ................... $ 2,172,952 $ 1,372,286
Cash paid to suppliers and employees ........... (1,939,595) (1,288,899)
Interest paid .................................. (8,034) (6,889)
Income taxes paid .............................. (10,940) (2,352)
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Net cash provided by operating activities .... 214,383 74,146
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Cash flows from investing activities:
Acquisition of Macrotron AG stock .............. (4,068)
Capital expenditures ........................... (16,431) (5,469)
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Net cash used in investing activities ....... (20,499) (5,469)
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Cash flows from financing activities:
Proceeds from issuance of common stock ......... 9,792 2,826
Net repayments under revolving credit loan ..... (205,124) (70,734)
Principal payments on long-term debt ........... (52) (49)
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Net cash used in financing activities ........ (195,384) (67,957)
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Net (decrease) increase in cash and cash equivalents (1,500) 720
Cash and cash equivalents at beginning of period . 2,749 661
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Cash and cash equivalents at end of period ....... $ 1,249 $ 1,381
=========== ===========
Reconciliation of net income to net cash provided by
(used in) operating activities:
Net income ....................................... $ 23,105 $ 18,222
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Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ................ 7,851 5,607
Provision for losses on accounts receivable .. 6,003 4,915
(Increase) decrease in assets:
Accounts receivable ........................ (11,414) 2,140
Inventories ................................ 58,797 88,891
Prepaid and other assets ................... 7,415 9,041
Increase (decrease) in liabilities:
Accounts payable ........................... 98,714 (63,489)
Accrued expenses ........................... 23,912 8,819
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Total adjustments ........................ 191,278 55,924
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Net cash provided by operating activities ....... $ 214,383 $ 74,146
=========== ===========
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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NOTE 1 - 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" or "Tech Data") as of April 30, 1998, and the results of their
operations and cash flows for the three months ended April 30, 1998 and 1997.
All significant intercompany accounts and transactions have been eliminated in
consolidation. The results of operations for the three months ended April 30,
1998 are not necessarily indicative of the results that can be expected for the
entire fiscal year ending January 31, 1999.
NOTE 2 - PROPOSED ACQUISITION:
In April 1998, the Company entered into an agreement to acquire
approximately 80% of the outstanding voting common stock of Munich-based
Computer 2000 AG ("Computer 2000") held by its parent company, Duisburg-based
Klockner & Co. AG. Klockner & Co. is a subsidiary of Munich-based VIAG AG.
Computer 2000 is Europe's leading distributor of technology products with over
40 subsidiaries in more than 30 countries. Consideration issued by Tech Data
will be $300 million of convertible subordinated notes (coupon rate of 5.0%,
five year term and convertible into shares of common stock at $56.25 per share)
and 2.2 million shares of Tech Data common stock. The closing of the transaction
is subject to the completion of due diligence and other terms and conditions and
is expected to be completed on or about June 30, 1998. In Computer 2000's most
recent fiscal year ended September 30, 1997, the company reported sales and
operating profits of DM 8.2 billion ($4.9 billion) and DM 110.1 million ($65.9
million), respectively.
NOTE 3 - ACQUISITION:
On July 1, 1997 the Company acquired approximately 77% of the voting common
stock and 7% of the non-voting preferred stock of Macrotron AG ("Macrotron"), a
distributor of technology products based in Munich, Germany. The initial
acquisition was completed through an exchange of approximately $26 million in
cash and 406,586 shares of the Company's common stock, for a combined total
value of $35 million. As of April 30, 1998, the Company owned approximately 99%
and 91% of Macrotron's common and preferred stock, respectively. The cash
portion of the initial acquisition and the subsequent purchases of Macrotron's
common and preferred stock were funded from the Company's revolving credit loan
agreements.
6
The acquisition of Macrotron is accounted for under the purchase method.
The preliminary purchase price allocation has resulted in approximately $53.4
million in excess cost over the net fair market value of tangible assets
acquired as of April 30, 1998. The Company is currently implementing its
acquisition strategy which may result in an adjustment to the net assets
acquired. Consistent with the Company's accounting policy for foreign
subsidiaries, Macrotron's operations are consolidated into the Company's
consolidated financial statements on a calendar year basis. Consequently, the
Company's fiscal quarter ended April 30, 1998 includes Macrotron's operations
for the three month period beginning January 1, 1998 and ended March 31, 1998.
The following pro forma unaudited results of operations reflect the effect
on the Company's operations, as if the above described acquisition had occurred
at the beginning of the period presented below:
Three months ended
April 30,
1997
------------------
(In thousands,
except per share
amounts)
Net sales .................................................... $1,659,760
Net income ................................................... $ 19,081
Net income per common share:
Basic ..................................................... $ .44
Diluted ................................................... $ .42
The unaudited pro forma information is presented for informational purposes
only and includes certain pro forma adjustments. Such pro forma information is
not necessarily indicative of the operating results that would have occurred had
the Macrotron acquisition been consummated as of the beginning of the period
above, nor are they necessarily indicative of future operating results.
NOTE 4 - NET INCOME PER COMMON SHARE:
Effective for the fiscal year ended January 31, 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" ("SFAS 128") and related interpretations. SFAS 128 requires dual
presentation of Basic Earnings per Share ("Basic EPS") and Diluted Earnings per
Share ("Diluted EPS"). 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 if stock options
were exercised using the treasury stock method. Earnings per share for all prior
periods have been restated to reflect the adoption of SFAS 128. The composition
of basic and diluted net income per common share is as follows:
7
Three months ended
April 30,
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1998 1997
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(In thousands, except per
share amounts)
Net income ....................................... $ 23,105 $ 18,222
Weighted average shares .......................... 48,285 43,341
Net income per common share - basic .............. $ .48 $ .42
Weighted average shares including the dilutive
effect of stock options (2,038 and 1,322 for
1998 and 1997, respectively) .................. 50,323 44,663
Net income per common share - diluted ............ $ .46 $ .41
NOTE 5 - COMPREHENSIVE INCOME:
Effective in the first quarter ended April 30, 1998 the Company adopted
SFAS 130, "Reporting Comprehensive Income". 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 in
SFAS 130 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. Total comprehensive income was $23.0 million and $17.2 million for the
three months ended April 30, 1998 and 1997, respectively. The difference between
net income as reported and total comprehensive income is the tax effected change
in the cumulative translation adjustment.
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENT:
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
131, "Disclosures about Segments of an Enterprise and Related Information". SFAS
131 requires that companies disclose segment data based on how management makes
decisions about allocating resources to segments and measuring their
performance. The statement is effective for fiscal years beginning after
December 15, 1997 but does not require compliance with interim reporting
requirements until the second year of implementation. The standard addresses
disclosure issues and therefore will not affect the Company's financial position
or results of operations.
8
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
- ---------------------
Three Months Ended April 30, 1998 and 1997
- ------------------------------------------
Net sales increased 59.4% to $2.18 billion in the first quarter of fiscal
1999 compared to $1.37 billion in the first quarter last year. This increase is
attributable to the acquisition of Macrotron AG, the addition of new product
lines and the expansion of existing product lines combined with an increase in
the Company's market share. The Company's domestic sales increased 32% while
international sales advanced 243% in the first quarter of fiscal 1999 compared
to the prior year first quarter. The significant growth in the Company's
international sales is attributable to the acquisition of Macrotron AG, in which
the Company acquired a controlling interest on July 1, 1997. International
business represented approximately 28% of fiscal 1999 first quarter net sales
compared to 13% for the first quarter of fiscal 1998.
The cost of products sold as a percentage of net sales increased from 93.1%
in the first quarter of fiscal 1998, compared to 93.6% in the current period.
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 59.4% to $94.8
million in the first quarter of fiscal 1999 compared to $59.5 million in the
prior year and as a percentage of net sales was 4.34% in each period. The dollar
value increase is attributable to the acquisition of Macrotron AG and increases
in other operating expenses needed to support the increased volume of business.
As a result of the factors described above, operating profit increased
26.0% to $45.0 million, or 2.1% of net sales, in the first quarter of fiscal
1999, compared to $35.7 million, or 2.6% of net sales for the first quarter last
year.
Interest expense increased in the first quarter of fiscal 1999 due to an
increase in the average outstanding indebtedness related to funding continued
growth and the acquisition of Macrotron AG.
The provision for income taxes increased 26.2% to $13.8 million in the
first quarter of fiscal 1999 compared to $10.9 million last year. This increase
is attributable to an increase in the Company's income before income taxes. The
Company's average
9
income tax rate declined to 37.3% in the first quarter this year compared with
37.5% in the prior year due to fluctuations in the amount of federal, state and
foreign taxable income reported in each period.
As a result of the factors described above, net income increased 26.8% to
$23.1 million, or $.46 per diluted share, in the first quarter of fiscal 1999
compared to $18.2 million, or $.41 per diluted share, in the prior year
comparable quarter.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities of $214.4 million during the
first quarter of fiscal 1999 was primarily attributable to income from
operations of $23.1 million as well as increases in accounts payable and accrued
expenses combined with a decrease in inventories, partially offset by an
increase in accounts receivable.
Net cash used in investing activities of $20.5 million during the first
three months of fiscal 1999 was attributable to the continuing investment of
$16.4 million related to the expansion of the Company's management information
systems, office facilities and distribution centers combined with the payment of
$4.1 million related to the acquisition of additional shares of the common and
preferred stock of Macrotron AG. The Company expects to make capital
expenditures of approximately $75 - $100 million during fiscal 1999 to further
expand its management information systems, office facilities and distribution
centers.
Net cash used in financing activities of $195.4 million during the first
three months of fiscal 1999 reflects the net repayments on the Company's
revolving credit loans and long-term debt of $205.2 million offset by the
proceeds from stock option exercises (including the related income tax benefit)
of $9.8 million.
The Company currently maintains domestic and foreign revolving credit
agreements which provide maximum short-term borrowings of approximately $907
million (including local country credit lines), of which $335 million was
outstanding at April 30, 1998. The Company believes that cash from operations,
available and obtainable bank credit lines, trade credit from its vendors and
periodic offerings of the Company's common stock and equity securities (both in
public offerings and in connection with business combinations) will be
sufficient to satisfy its working capital and capital expenditure needs through
fiscal 1999.
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
10
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.
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. 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, cash on delivery and floor-plan basis.
Recent Accounting Pronouncement
- -------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
131, "Disclosures about Segments of an Enterprise and Related Information". SFAS
131 requires that companies disclose segment data based on how management makes
decisions about allocating resources to segments and measuring their
performance. The statement is effective for fiscal years beginning after
December 15, 1997 but does not require compliance with interim reporting
requirements until the second year of implementation. The standard addresses
disclosure issues and therefore will not affect the Company's financial position
or results of operations.
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, 1998, 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.
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 June 9, 1998
- --------------------- Directors and Chief
Steven A. Raymund Executive Officer
/s/ Jeffery P. Howells Executive Vice President June 9, 1998
- ---------------------- and Chief Financial Officer
Jeffery P. Howells (principal financial officer)
/s/ Joseph B. Trepani Vice President and Corporate June 9, 1998
- --------------------- Controller (principal accounting
Joseph B. Trepani officer)
/s/ Arthur W. Singleton Vice President, Treasurer and June 9, 1998
- ----------------------- Secretary
Arthur W. Singleton