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, 2000
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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
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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
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(727) 539-7429
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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 SEPTEMBER 7, 2000
- ----------------------------------------------- -----------------
Common stock, par value $.0015 per share 53,674,718
TECH DATA CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED JULY 31, 2000
---------------------------------------------
INDEX
PART I. FINANCIAL INFORMATION PAGE(S)
-------
Item 1. Financial Statements
Consolidated Balance Sheet as of
July 31, 2000 (Unaudited) and
January 31, 2000 3
Consolidated Statement of Income
(Unaudited) for the three and six
months ended July 31, 2000 and 1999 4
Consolidated Statement of Cash Flows
(Unaudited) for the six months
ended July 31, 2000 and 1999 5
Notes to Consolidated Financial Statements
(Unaudited) 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II. OTHER INFORMATION
Items 1-3 and 5 required in Part II have been previously
filed, have been included in Part I of this
report, or are not applicable for the quarter
ended July 31, 2000.
Item 4. Submission of Matters to a Vote of Security 16
Holders
Item 6. Exhibits and Reports on Form 8-K 16-17
SIGNATURES 17
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
JULY 31, JANUARY 31,
2000 2000
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 82,260 $ 31,786
Accounts receivable, less allowance for
doubtful accounts of $64,693 and $61,617 1,914,748 1,906,315
Inventories 1,557,285 1,540,030
Prepaid and other assets 93,640 109,674
----------- -----------
Total current assets 3,647,933 3,587,805
Property and equipment, net 151,766 154,008
Excess of cost over acquired net assets, net 301,445 302,531
Other assets, net 102,944 79,474
----------- -----------
$ 4,204,088 $ 4,123,818
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans $ 1,086,780 $ 1,006,809
Accounts payable 1,388,110 1,524,330
Accrued expenses 311,884 261,077
----------- -----------
Total current liabilities 2,786,774 2,792,216
Long-term debt 321,704 316,840
----------- -----------
Total liabilities 3,108,478 3,109,056
----------- -----------
Minority interest 1,229 1,067
----------- -----------
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; 53,621,185
and 52,231,581 issued and outstanding 80 78
Additional paid-in capital 569,264 530,238
Retained earnings 634,249 556,248
Accumulated other comprehensive income (109,217) (72,874)
----------- -----------
Total shareholders' equity 1,094,381 1,013,695
----------- -----------
$ 4,204,088 $ 4,123,818
=========== ===========
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,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net sales $ 4,996,973 $ 4,024,965 $ 9,921,489 $ 7,902,123
----------- ----------- ----------- -----------
Cost and expenses:
Cost of products sold 4,731,740 3,802,481 9,398,397 7,454,397
Selling, general and
administrative expenses 180,788 160,334 363,266 318,583
----------- ----------- ----------- -----------
4,912,528 3,962,815 9,761,663 7,772,980
----------- ----------- ----------- -----------
Operating profit 84,445 62,150 159,826 129,143
Interest expense 21,768 15,626 40,519 32,540
Net foreign currency exchange
(gain) loss (243) 406 (1,038) 5,163
----------- ----------- ----------- -----------
Income before income taxes 62,920 46,118 120,345 91,440
Provision for income taxes 22,031 16,603 42,129 33,782
----------- ----------- ----------- -----------
Income before minority interest 40,889 29,515 78,216 57,658
Minority interest 107 99 215 218
----------- ----------- ----------- -----------
Net income $ 40,782 $ 29,416 $ 78,001 $ 57,440
=========== =========== =========== ===========
Net income per common share:
Basic $ .77 $ .57 $ 1.48 $ 1.12
=========== =========== =========== ===========
Diluted $ .72 $ .54 $ 1.40 $ 1.07
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic 53,162 51,425 52,747 51,280
=========== =========== =========== ===========
Diluted 60,036 58,991 59,258 58,207
=========== =========== =========== ===========
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,
-----------------------------
2000 1999
----------- -----------
Cash flows from operating activities:
Cash received from customers $ 9,842,566 $ 7,932,359
Cash paid to suppliers and employees (9,810,691) (7,876,353)
Interest paid (44,961) (36,746)
Income taxes paid (39,943) (32,130)
----------- -----------
Net cash used in operating activities (53,029) (12,870)
----------- -----------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (17,407) (32,609)
Capital expenditures (24,882) (29,944)
----------- -----------
Net cash used in investing activities (42,289) (62,553)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 39,028 20,867
Net borrowings under revolving credit loan 109,856 51,422
Repayments on long-term debt (84) (78)
----------- -----------
Net cash provided by financing activities 148,800 72,211
----------- -----------
Effect of exchange rate changes on cash (3,008) --
----------- -----------
Net increase (decrease) in cash and cash equivalents 50,474 (3,212)
Cash and cash equivalents at beginning of period 31,786 8,615
----------- -----------
Cash and cash equivalents at end of period $ 82,260 $ 5,403
=========== ===========
Reconciliation of net income to net cash
used in operating activities:
Net income $ 78,001 $ 57,440
----------- -----------
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 31,123 27,841
Provision for losses on accounts receivable 21,884 19,766
Foreign currency transaction (gain) loss (1,038) 5,163
(Increase) decrease in assets:
Accounts receivable (78,927) 30,236
Inventories (46,461) 91,816
Prepaid and other assets (10,995) (47,271)
(Decrease) increase in liabilities:
Accounts payable (107,795) (228,622)
Accrued expenses 61,179 30,761
----------- -----------
Total adjustments (131,030) (70,310)
----------- -----------
Net cash used in operating activities $ (53,029) $ (12,870)
=========== ===========
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 Tech Data Corporation (the "Company" or "Tech Data"),
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 as of July 31, 2000 and the results of
their operations for the three and six months ended July 31, 2000 and 1999 and
their cash flows for the six months ended July 31, 2000 and 1999. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The results of operations for the six months ended July 31, 2000
are not necessarily indicative of the results that can be expected for the
entire fiscal year ending January 31, 2001.
NOTE 2- 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 JULY 31,
------------------------------------------------------------------------
2000 1999
--------------------------------- --------------------------------
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 $40,782 53,162 $ .77 $29,416 51,425 $ .57
======= =======
Effect of dilutive securities:
Stock options -- 1,541 -- 2,233
5% convertible subordinated notes 2,438 5,333 2,363 5,333
------- ------- ------- ------
Net income per common
share - diluted $43,220 60,036 $ .72 $31,779 58,991 $ .54
======= ======= ======= ======= ====== =======
6
NOTE 2- NET INCOME PER COMMON SHARE (continued):
SIX MONTHS ENDED JULY 31,
------------------------------------------------------------------------
2000 1999
--------------------------------- --------------------------------
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 $78,001 52,747 $ 1.48 $57,440 51,280 $ 1.12
======= =======
Effect of dilutive securities:
Stock options -- 1,178 -- 1,594
5% convertible subordinated notes 4,875 5,333 4,725 5,333
------- ------- ------- ------
Net income per common
share - diluted $82,876 59,258 $ 1.40 $62,165 58,207 $ 1.07
======= ======= ======= ======= ====== =======
The Company has excluded 175,300 shares from its calculation of
earnings per share for the three and six months ended July 31, 2000 and has
excluded 1,607,131 shares from its calculation of diluted earnings per share for
the three and six months ended July 31, 1999 because their effect would have
been anti-dilutive.
NOTE 3 - COMPREHENSIVE INCOME:
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 the foreign currency
translation adjustment. The Company's comprehensive income/(loss) for the three
months ended July 31, 2000 and 1999 was $42.7 million and $7.8 million,
respectively, and $41.7 million and $(17.7) million, for the six months ended
July 31, 2000 and 1999, respectively.
NOTE 4 - SEGMENT INFORMATION:
The Company operates predominantly in a single industry segment as a
wholesale distributor of computer-based technology products and logistics
services. Financial and descriptive information is disclosed for segments whose
operating results are reviewed by the chief operating officer for decisions on
resource allocation. Based on geographic location, the Company has three
principal segments. These geographical segments are 1) the United States, 2)
Europe (including the Middle East) and 3) Other International areas (Canada,
Brazil, Argentina, Chile, Peru, Uruguay, and export sales to Latin America and
the Caribbean from the U.S.). The measure of segment profit is income from
operations.
7
NOTE 4 - SEGMENT INFORMATION (continued):
Financial information by geographic segment is as follows (in
thousands):
OTHER
UNITED STATES EUROPE INTERNATIONAL TOTAL
---------- ---------- ---------- ----------
THREE MONTHS ENDED JULY 31, 2000
Net sales to unaffiliated customers $2,917,715 $1,759,278 $ 319,980 $4,996,973
========== ========== ========== ==========
Operating income $ 62,996 $ 18,158 $ 3,291 $ 84,445
========== ========== ========== ==========
Identifiable assets $2,012,952 $1,888,896 $ 302,240 $4,204,088
========== ========== ========== ==========
THREE MONTHS ENDED JULY 31, 1999
Net sales to unaffiliated customers $2,046,604 $1,718,175 $ 260,186 $4,024,965
========== ========== ========== ==========
Operating income $ 41,574 $ 19,649 $ 927 $ 62,150
========== ========== ========== ==========
Identifiable assets $1,713,592 $1,806,861 $ 241,822 $3,762,275
========== ========== ========== ==========
OTHER
UNITED STATES EUROPE INTERNATIONAL TOTAL
---------- ---------- ---------- ----------
SIX MONTHS ENDED JULY 31, 2000
Net sales to unaffiliated customers $5,553,420 $3,711,191 $ 656,878 $9,921,489
========== ========== ========== ==========
Operating income $ 112,687 $ 40,182 $ 6,957 $ 159,826
========== ========== ========== ==========
Identifiable assets $2,012,952 $1,888,896 $ 302,240 $4,204,088
========== ========== ========== ==========
SIX MONTHS ENDED JULY 31, 1999
Net sales to unaffiliated customers $3,828,859 $3,628,356 $ 444,908 $7,902,123
========== ========== ========== ==========
Operating income $ 73,435 $ 53,143 $ 2,565 $ 129,143
========== ========== ========== ==========
Identifiable assets $1,713,592 $1,806,861 $ 241,822 $3,762,275
========== ========== ========== ==========
NOTE 5 - REVOLVING CREDIT LOANS:
The Company maintains a $445 million Revolving Credit Facility with a
syndicate of banks which expires in May 2003. The Company pays interest under
this Revolving Credit Facility at the applicable Eurocurrency rate plus a margin
based on the Company's credit rating. Additionally, the Company maintains a $700
million Receivables Securitization Program with a syndicate of banks which
expires in May 2001. The Company pays interest on the Receivables Securitization
Program at designated commercial paper rates plus an agreed-upon margin. In
addition to these credit facilities, the Company maintains additional lines of
credit and overdraft facilities totaling approximately $500 million. The
aforementioned credit facilities include covenants which must be complied with
on a continuous basis, including the maintenance of certain financial ratios and
restrictions on payment of dividends. The Company is in compliance with all such
covenants.
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION:
The Company entered into non-cash transactions representing capital
lease obligations of approximately $5.4 million during the first six months of
fiscal 2001. The effect of exchange rate changes on cash in the prior year
period was not material.
8
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS:
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 No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FAS No. 133" and SFAS No.
138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB statement 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.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". This was followed by Staff Accounting Bulletin No.
101A,"Implementation Issues Related to SAB 101", in March 2000 and by Staff
Accounting Bulletin No. 101B, "Second Amendment: Revenue Recognition in
Financial Statements" ("SAB 101B"), in June 2000. These bulletins summarize
certain of the SEC's views about applying generally accepted accounting
principles to revenue recognition in financial statements. The impact of SAB
101B on the Company was to delay the implementation date of SAB 101 until the
fourth quarter of fiscal year 2001. The SEC is providing this guidance due, in
part, to the large number of revenue recognition issues that registrants
encounter. The future impact of these bulletins 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
- ---------------------
Certain statements within this Quarterly Report on Form 10-Q are
"forward-looking statements" as described in the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. These statements involve a
number of risks and uncertainties and actual results could differ materially
from those projected. Please refer to the cautionary statements and important
factors discussed in Exhibit 99A to the Company's Annual Report on Form 10-K for
the year ended January 31, 2000 for further information.
The following table sets forth the percentage of cost and expenses to
net sales derived from the Company's Consolidated Statement of Income for the
three and six months ended July 31, 2000 and 1999 as follows:
PERCENTAGE OF
NET SALES
------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net sales 100.00% 100.00% 100.00% 100.00%
-------- -------- -------- --------
Cost and expenses:
Cost of products sold 94.69 94.48 94.73 94.33
Selling, general and administrative expenses 3.62 3.98 3.66 4.03
-------- -------- -------- --------
98.31 98.46 98.39 98.36
-------- -------- -------- --------
Operating income 1.69 1.54 1.61 1.64
Interest expense .44 .39 .41 .41
Net foreign currency exchange (gain)/loss (.01) .01 (.01) .07
-------- -------- -------- --------
Income before income taxes 1.26 1.14 1.21 1.16
Provision for income taxes .44 .41 .42 .43
-------- -------- -------- --------
Income before minority interest .82 .73 .79 .73
Minority interest -- -- -- --
-------- -------- -------- --------
Net income .82% .73% .79% .73%
======== ======== ======== ========
THREE MONTHS ENDED JULY 31, 2000 AND 1999
- -----------------------------------------
Net sales increased 24.2% to $5.0 billion in the second quarter of
fiscal 2001 compared to $4.0 billion in the second quarter of last year. This
increase is primarily attributable to growth in the Company's U.S. and other
international 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 second quarter U.S.,
Europe and other international sales grew 43%, 2% and 23%, respectively,
compared to the second quarter of last year. European sales grew 16% during the
second quarter on a local currency basis over the prior year period. Total
international sales in the second quarter of fiscal 2001 represented
approximately 42% of consolidated net sales compared with 49% in the prior year.
10
THREE MONTHS ENDED JULY 31, 2000 AND 1999 - CONTINUED
- -----------------------------------------------------
The cost of products sold as a percentage of net sales was 94.7% in the
current period compared to 94.5% in the second quarter of fiscal 2000. The
increase is a result of competitive market conditions, the increase in the
Company's sales mix of lower margin computer systems as a percentage of total
sales and the Company's increased participation in customer outsourcing
activities, which, while maintaining reasonable pre-tax operating margins
through cost and working capital efficiencies, provide for lower gross profit
margins.
Selling, general and administrative expenses increased 12.8% from
$160.3 million in the second quarter of fiscal 2000 to $180.8 million in fiscal
2001, and as a percentage of net sales decreased to 3.6% from 4.0% in the
comparable prior year period. The decline in selling, general and administrative
expenses as a percentage of net sales is attributable to the realization of
greater economies of scale as well as improved operating efficiencies. The
dollar value increase in selling, general and administrative expenses is
attributable to increases in operating expenses needed to support the increased
volume of business.
As a result of the factors described above, operating income in the
second quarter of fiscal 2001 increased 35.9% to $84.5 million, or 1.7% of net
sales, compared to $62.2 million, or 1.5% of net sales in the second quarter of
fiscal 2000.
Interest expense increased from $15.6 million in the second quarter of
fiscal 2000 to $21.8 million in the current quarter due to an increase in the
Company's average outstanding indebtedness related to funding for continued
growth and capital expenditures combined with an increase in short-term interest
rates on the Company's floating rate indebtedness.
The Company reported a net foreign currency exchange gain of $.2
million in the second quarter of fiscal 2001, as compared to a net foreign
currency exchange loss of $.4 million in the comparable quarter last year. This
change is related to fluctuations in the foreign currencies of the various
European countries in which the Company operates.
The provision for income taxes increased 32.7% to $22.0 million in the
second quarter of fiscal 2001 compared to $16.6 million last year. The increase
is attributable to an increase in the Company's income before income taxes. The
Company's estimated effective tax rate decreased from 36.0% in the second
quarter of fiscal 2000 to 35.0% in the current year due to fluctuations in the
amount of federal, state and foreign taxable income reported in each period. The
Company's effective tax rate for fiscal year 2000 was 36.3%.
As a result of the factors described above, net income increased 38.6%
to $40.8 million, or $.72 per diluted share, compared to $29.4 million, or $.54
per diluted share, in the prior year comparable period.
11
SIX MONTHS ENDED JULY 31, 2000 AND 1999
- ---------------------------------------
Net sales increased 25.6% to $9.9 billion in the first six months of
fiscal 2001 compared to $7.9 billion in the same period last year. Net income
increased 35.8% to $78.0 million, or $1.40 per diluted share, in the first six
months of fiscal 2001, compared to $57.4 million or $1.07 per diluted share.
(The underlying reasons for the fluctuations in the results of
operations for the six months ended July 31, 2000 are substantially the same as
in the comparative quarterly discussion above and therefore, will not be
repeated here.)
QUARTERLY DATA - SEASONALITY
- ----------------------------
The Company's quarterly operating results have fluctuated significantly
in the past and will likely continue to do so in the future as a result of
seasonal variations in the demand for the products and services offered by the
Company. The Company's narrow operating margins may magnify the impact of these
factors on the Company's operating results. Specific historical seasonal
variations in the Company's operating results have included a reduction of
demand in Europe during the summer months, increased Canadian government
purchasing in the first quarter, and worldwide pre-holiday stocking in the
retail channel during the September-to-November period. In addition, the product
cycle of major products may materially impact the Company's business, financial
condition, or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash used in operating activities of $53.0 million during the first
six months of fiscal 2001 was primarily attributable to income from operations
of $78.0 million, partially offset by changes in accounts receivable,
inventories, prepaid and other assets, accounts payable and accrued expenses.
Net cash used in investing activities of $42.3 million during the first
six months of fiscal 2001 was attributable to the continuing investment of $24.9
million related to the expansion of the Company's management information
systems, office facilities and equipment for its distribution centers combined
with the payment of $15.9 million related to the resolution of additional
contingent purchase price payments associated with the purchase of Computer 2000
in the first quarter of fiscal 2001 and $1.5 million related to other
miscellaneous acquisitions. The Company expects to make capital expenditures of
$100-$125 million during fiscal 2001 to further expand its management
information systems, office facilities and purchase equipment for distribution
centers.
Net cash provided by financing activities of $148.8 million during the
first six months of fiscal 2001 reflects the net borrowings on the Company's
revolving credit loans of $109.8 million and the proceeds from stock option
exercises (including the related income tax benefit) of $39.0 million.
12
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
- -------------------------------------------
The Company maintains a $445 million Revolving Credit Facility with a
syndicate of banks which expires in May 2003. The Company pays interest under
this Revolving Credit Facility at the applicable Eurocurrency rate plus a margin
based on the Company's credit rating. Additionally, the Company maintains a $700
million Receivables Securitization Program with a syndicate of banks expiring in
May 2001. The Company pays interest on the Receivables Securitization Program at
designated commercial paper rates plus an agreed-upon margin. In addition to
these credit facilities, the Company maintains additional lines of credit and
overdraft facilities totaling approximately $500 million. The aforementioned
credit facilities include covenants which must be complied with on a continuous
basis, including the maintenance of certain financial ratios and restrictions on
payment of dividends. The Company is in compliance with all such covenants. The
Company believes that cash from operations, available and obtainable bank credit
lines, and trade credit from its vendors will be sufficient to satisfy its
working capital and capital expenditure requirements through fiscal 2001.
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.
13
YEAR 2000
- ---------
The Company's Year 2000 ("Y2K") compliance project determined the
readiness of the Company's business for the Year 2000. The Company defined Y2K
"compliance" to mean that the computer code will process all defined future
dates properly and give accurate results. The Company has experienced no
problems with its computer systems since the beginning of 2000 but will continue
to monitor the systems to assess whether any problems develop. In addition,
during fiscal 2000 the Company incurred approximately $11.2 million in expenses
related to assessing and remedying any Y2K problems and upgrading computer
systems, but does not expect to incur any additional material expenses related
to Y2K issues going forward.
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 and the
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, and 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 plans 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-denominated 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
rollout of the Euro.
14
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FAS No. 133" and SFAS No. 138 "Accounting For Certain
Derivative Instruments and Certain Hedging Activites - an amendment of FASB
Statement 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.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". This was followed by Staff Accounting Bulletin No.
101A,"Implementation Issues Related to SAB 101", in March 2000 and by Staff
Accounting Bulletin No. 101B, "Second Amendment: Revenue Recognition in
Financial Statements" ("SAB 101B"), in June 2000. These bulletins summarize
certain of the SEC's views about applying generally accepted accounting
principles to revenue recognition in financial statements. The impact of SAB
101B on the Company was to delay the implementation date of SAB 101 until the
fourth quarter of fiscal year 2001. The SEC is providing this guidance due, in
part, to the large number of revenue recognition issues that registrants
encounter. The future impact of these bulletins 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, 2000, 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, 2000.
15
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
At the 2000 Annual Meeting of Shareholders held June 20, 2000, the
shareholders approved the following items:
1. A proposal to approve the election of one director, James M.
Cracchiolo, term to expire in 2002 and the election of three directors,
Daniel M. Doyle, Kathy Misunas and Steven A. Raymund, terms to expire
in 2003. Director's Maximilian Ardelt, Jeffery P. Howells, David M.
Upton, Charles E. Adair, Edward C. Raymund and John Y. Williams will
continue in office for their respective terms.
The vote upon such proposal was 47,407,746 in favor, 593,725 against
and as follows for each individual director:
FOR AGAINST ABSTENTIONS
---------------------------------------------------------------
J. Cracchiolo 47,235,143 172,603 593,725
D. Doyle 47,384,659 23,087 593,725
K. Misunas 47,402,939 4,807 593,725
S. Raymund 47,401,183 6,563 593,725
2. A proposal to approve the Company's 2000 Equity Incentive Plan.
The vote upon such proposal was 28,464,153 in favor, 11,078,060
against, and 903,369 abstentions.
3. A proposal to approve an amendment to the Non-Employee Directors' 1995
Non-Statutory Stock Option Plan.
The vote upon such proposal was 34,168,759 in favor, 5,341,769 against,
and 911,455 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
NO. DESCRIPTION
--- -----------
3-H - By-Laws of the Company as adopted on March 25, 1997.
3-I - Amendment to By-Laws of the Company as adopted on
March 30, 1999.
3-J - Amendment to By-Laws of the Company as adopted on
April 5, 2000.
10-AAa - Transfer and Administration Agreement dated May 19,
2000.
10-AAb - Credit Agreement dated as of May 8, 2000.
10-AAc - Amended and Restated Participation Agreement dated as
of May 8, 2000.
10-AAd - Amended and Restated Lease Agreement dated as of May
8, 2000.
10-AAe - Amended and Restated Agency Agreement dated as of May
8, 2000.
27 - Financial Data Schedule (for SEC use only)
16
(b) Reports on Form 8-K
1. On June 28, 2000, a report on Form 8-K dated June 21, 2000
was filed under Item 4 to report a change in the Company's
certifying accountant.
2. On July 13, 2000, Amendment 1 to Form 8-K dated June 21,
2000 was filed under Item 4 to incorporate additional
documentation regarding the change in the Company's
certifying accountant.
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 September 14, 2000
- --------------------- Directors and Chief
Steven A. Raymund Executive Officer
/s/ JEFFERY P. HOWELLS Executive Vice President September 14, 2000
- ---------------------- and Chief Financial Officer
Jeffery P. Howells (principal financial officer);
Director
/s/ JOSEPH B. TREPANI Senior Vice President and September 14, 2000
- --------------------- Corporate Controller (principal
Joseph B. Trepani accounting officer)
/s/ ARTHUR W. SINGLETON Corporate Vice President, September 14, 2000
- ----------------------- Treasurer and Secretary
Arthur W. Singleton
17
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3-H By-Laws of the Company as adopted on March 25, 1997.
3-I Amendment to By-Laws of the Company as adopted on March 30, 1999.
3-J Amendment to By-Laws of the Company as adopted on April 5, 2000.
10-AAa Transfer and Administration Agreement dated May 19, 2000.
10-AAb Credit Agreement dated as of May 8, 2000.
10-AAc Amended and Restated Participation Agreement dated as of May 8,
2000.
10-AAd Amended and Restated Lease Agreement dated as of May 8, 2000.
10-AAe Amended and Restated Agency Agreement dated as of May 8, 2000.
27 Financial Data Schedule (for SEC use only)