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, 2001
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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
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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
- ----------------------------------------- ----------
(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___
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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 June 7, 2001
- ---------------------------------------- ------------
Common stock, par value $.0015 per share 54,127,717
TECH DATA CORPORATION AND SUBSIDIARIES
Form 10-Q for the Three Months Ended April 30, 2001
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INDEX
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PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Balance Sheet as of
April 30, 2001 (unaudited) and
January 31, 2001 3
Consolidated Statement of Income
(unaudited) for the three months
ended April 30, 2001 and 2000 4
Consolidated Statement of Cash Flows
(unaudited) for the three months
ended April 30, 2001 and 2000 5
Notes to Consolidated Financial Statements
(unaudited) 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II. OTHER INFORMATION
Items 1-5 required in Part II have been previously
filed, have been included in Part I of this report or
are not applicable for the three months ended
April 30, 2001.
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)
April 30, January 31,
2001 2001
--------------- ---------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 128,408 $ 138,925
Accounts receivable, less allowance for
doubtful accounts of $60,952 and $64,465 1,818,574 2,142,792
Inventories 1,443,929 1,669,574
Prepaid and other assets 107,360 114,977
--------------- ---------------
Total current assets 3,498,271 4,066,268
Property and equipment, net 146,024 153,196
Excess of cost over fair value of acquired net assets, net 283,654 299,692
Other assets, net 97,064 96,389
--------------- ---------------
$ 4,025,013 $ 4,615,545
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans $ 1,196,058 $ 1,249,576
Accounts payable 1,042,411 1,519,167
Accrued expenses 277,903 330,242
--------------- ---------------
Total current liabilities 2,516,372 3,098,985
Long-term debt 319,939 320,757
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Total liabilities 2,836,311 3,419,742
--------------- ---------------
Minority interest 466 489
--------------- ---------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.02; 226,500 shares authorized;
none and 226,500 issued and outstanding; liquidation
preference $.20 per share (see Note 6) - 5
Common stock, par value $.0015; 200,000,000 shares
authorized; 53,829,018 and 53,796,432 issued and
outstanding 81 81
Additional paid-in capital 578,136 575,223
Retained earnings 766,030 734,231
Accumulated other comprehensive loss (156,011) (114,226)
--------------- ---------------
Total shareholders' equity 1,188,236 1,195,314
--------------- ---------------
$ 4,025,013 $ 4,615,545
=============== ===============
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,
-----------------------------------
2001 2000
----------- -----------
Net sales $ 4,679,992 $ 4,924,516
Cost of products sold 4,428,799 4,666,657
----------- -----------
Gross profit 251,193 257,859
Selling, general and administrative expenses 179,862 182,478
----------- -----------
Operating income 71,331 75,381
Interest expense, net 22,779 18,751
Net foreign currency exchange loss (gain) 372 (795)
----------- -----------
Income before income taxes 48,180 57,425
Provision for income taxes 16,381 20,098
----------- -----------
Income before minority interest 31,799 37,327
Minority interest - 108
----------- -----------
Net income $ 31,799 $ 37,219
=========== ===========
Net income per common share:
Basic $ .59 $ .71
=========== ===========
Diluted $ .57 $ .68
=========== ===========
Weighted average common shares outstanding:
Basic 53,829 52,322
=========== ===========
Diluted 60,076 58,470
=========== ===========
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,
---------------------------------------
2001 2000
---------------- ----------------
Cash flows from operating activities:
Cash received from customers $ 4,939,467 $ 4,742,913
Cash paid to suppliers and employees (4,882,744) (4,753,804)
Interest paid (18,070) (20,343)
Income taxes paid (20,508) (24,745)
---------------- ----------------
Net cash provided by (used in) operating activities 18,145 (55,979)
---------------- ----------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired - (17,040)
Capital expenditures (8,712) (10,724)
---------------- ----------------
Net cash used in investing activities (8,712) (27,764)
---------------- ----------------
Cash flows from financing activities:
Proceeds from the issuance of common stock 2,908 18,101
Net (repayments) borrowings under revolving credit loans (17,132) 83,024
Principal payments on long-term debt (146) (134)
---------------- ----------------
Net cash (used in) provided by financing activities (14,370) 100,991
---------------- ----------------
Effect of currency exchange rate changes on cash (5,580) (3,576)
---------------- ----------------
Net (decrease) increase in cash and cash equivalents (10,517) 13,672
Cash and cash equivalents at beginning of period 138,925 31,786
---------------- ----------------
Cash and cash equivalents at end of period $ 128,408 $ 45,458
================ ================
Reconciliation of net income to net cash provided by (used in)
operating activities:
Net income $ 31,799 $ 37,219
---------------- ----------------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 15,842 15,707
Provision for losses on accounts receivable 10,928 11,047
Foreign currency transaction loss (gain) 372 (795)
(Increase) decrease in assets:
Accounts receivable 259,474 (181,606)
Inventories 189,227 43,067
Prepaid and other assets (13,538) 5,868
Increase (decrease) in liabilities:
Accounts payable (443,024) (41,398)
Accrued expenses (32,935) 54,912
---------------- ----------------
Total adjustments (13,654) (93,198)
---------------- ----------------
Net cash provided by (used in) operating activities $ 18,145 $ (55,979)
================ ================
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
------------------------------------------
NOTE 1 - BASIS OF PRESENTATION:
The consolidated financial statements and related notes included herein have
been prepared by 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 April 30, 2001 and the results
of their operations and cash flows for the three months ended April 30, 2001 and
2000. All significant intercompany accounts and transactions have been
eliminated in consolidation. The results of operations for the three months
ended April 30, 2001 are not necessarily indicative of the results that can be
expected for the entire fiscal year ending January 31, 2002.
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 the conversion of certain common stock equivalents, such as the
Company's convertible subordinated notes, as well as the 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 April 30,
---------------------------------------------------------------------------------------
2001 2000
---------------------------------------- -----------------------------------------
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 $31,799 53,829 $ .59 $37,219 52,322 $ .71
========= =========
Effect of dilutive securities:
Stock options - 914 - 815
5% convertible subordinated notes 2,475 5,333 2,438 5,333
----------- ---------- ------------ ----------
Net income per common
share - diluted $34,274 60,076 $ .57 $39,657 58,470 $ .68
=========== ========== ========= ============ ========== =========
At April 30, 2001 and 2000, there were 1,506,000 and 2,439,000 shares,
respectively, excluded from the computation of diluted earnings per share
because their effect would have been anti-dilutive.
6
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 ("OCI") is comprised exclusively of changes in the
Company's foreign currency translation adjustment ("CTA") account. Changes in
foreign currency loan balances hedging net investments in foreign operations
recorded in the CTA account for the three months ended April 30, 2001 and 2000
were net gains of $8.6 million and $12.7 million, respectively (net of related
income taxes). In total, the Company's comprehensive loss for the three months
ended April 30, 2001 and 2000 was $10.0 million and $1.1 million, respectively.
NOTE 4 - SEGMENT INFORMATION:
The Company operates predominantly in a single industry segment as a wholesale
distributor of computer-based technology products and related logistics and
other value-added services. Based on geographic location, the Company has three
segments. These geographical segments are 1) the United States, 2) Europe
(including the Middle East) and 3) Other International areas (Canada, Argentina,
Brazil, 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 April 30, 2001
- ---------------------------------
Net sales to unaffiliated customers $2,438,876 $1,894,132 $346,984 $4,679,992
============= ============= ============= =============
Operating income $ 43,400 $ 21,740 $ 6,191 $ 71,331
============= ============= ============= =============
Identifiable assets $1,687,507 $2,005,174 $332,332 $4,025,013
============= ============= ============= =============
Three months ended April 30, 2000
- ---------------------------------
Net sales to unaffiliated customers $2,635,705 $1,951,913 $336,898 $4,924,516
============= ============= ============= =============
Operating income $ 49,691 $ 22,024 $ 3,666 $ 75,381
============= ============= ============= =============
Identifiable assets $1,925,321 $1,927,594 $302,292 $4,155,207
============= ============= ============= =============
NOTE 5 - REVOLVING CREDIT LOANS:
The Company has an agreement (the "Receivables Securitization Program") with six
financial institutions that allows the Company to transfer an undivided interest
in a designated pool of U.S. accounts receivable on an ongoing basis to provide
borrowings up to a maximum of $700 million (as amended on May 17, 2001, which
extended the maturity date to May 16, 2002). Under this program, the Company
legally isolated certain U.S. trade receivables into a wholly-owned bankruptcy
remote special purpose entity (balances included in accounts receivable were
$772 million and $860 million as of April 30, 2001 and January 31, 2001
respectively). As collections reduce accounts receivable balances included in
the pool, the Company may transfer interests in new receivables to bring the
amount available to be borrowed up to the maximum. The Company pays interest on
advances under the Receivables Securitization Program at a designated commercial
paper rate plus an agreed-upon margin.
7
Under the terms of the Company's Multi-currency Revolving Credit Facility with a
syndicate of banks, the Company is able to borrow funds in major foreign
currencies up to a maximum of $495 million on an unsecured basis. The Company
pays interest on advances under this facility at the applicable eurocurrency
rate plus a margin based on certain financial ratios. The Company can fix the
interest rate for periods of 30 to 180 days under various interest rate options.
In addition to the facilities described above, the Company has additional lines
of credit and overdraft facilities totaling approximately $605 million at April
30, 2001 to support its worldwide operations. Most of these facilities are
provided on an unsecured, short-term basis and are reviewed periodically for
renewal.
The Company's credit agreements contain warranties and covenants that must be
complied with on a continuing basis, including the maintenance of certain
financial ratios and restrictions on payment of dividends. At April 30, 2001,
the Company was in compliance with all such covenants.
NOTE 6 - CAPITAL STOCK:
During the three months ended April 30, 2001, the Company exchanged 192,525
shares of its common stock for all of the issued and outstanding shares of
preferred stock.
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION:
The Company entered into capital leases for a distribution center in Germany
which totaled $5.4 million during the three months ended April 30, 2000.
NOTE 8 - 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 SFAS No. 133" and SFAS No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - amendment of FASB Statement No.
133." As amended, SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities.
Tech Data adopted the provisions of SFAS 133, as amended by SFAS 137 and SFAS
138, on February 1, 2001, which require that all derivative instruments be
recorded on the balance sheet at fair value. The estimated fair value of
derivative financial instruments represents the amount required to enter into
similar offsetting contracts with similar remaining maturities based on quoted
market prices.
8
On the date that derivative contracts are entered into, the Company designates
derivatives as (1) a fair value hedge, (2) a cash-flow hedge, (3) a hedge of a
net investment in a foreign operation, or (4) an "economic foreign currency
hedge", which does not receive formal hedge accounting treatment. Changes in the
fair value of these derivatives are recorded each period in current earnings or
OCI, depending on whether a derivative receives formal hedge accounting
treatment, and, if it does, depending on the type of hedge transaction.
Fair Value Hedge:
For fair value hedge transactions, changes in the fair value of the derivative
instrument are generally offset in the income statement by changes in the fair
value of the item being hedged.
Cash-Flow Hedge:
For cash-flow hedge transactions, changes in the fair value of the derivative
instrument are recorded as a component of OCI, and reclassified into earnings in
the same period or periods during which earnings are affected by the variability
of the cash flows of the hedged item. Any ineffective portion of a derivative
instrument's change in fair value is immediately recognized in earnings.
Hedge of a Net Investment:
Changes in the fair value of derivatives (and certain nonderivative foreign
currency loans) that hedge net investments in foreign operations are recorded as
a component of OCI, net of tax, in the Company's CTA account.
Economic Foreign Currency Hedge:
While the Company does not use derivative financial instruments for trading or
speculative purposes, derivatives in this category do not qualify for hedge
accounting under the provisions of SFAS 133, because they relate to existing
assets and liabilities denominated in a foreign currency for which foreign
currency transaction gains or losses are recognized in earnings. The gains and
losses on both the derivative and the foreign-currency-denominated underlying
exposure being hedged are reflected in earnings in the period of change.
The impact of adoption of this statement on the Company's financial position and
results of operations was not material.
Tech Data primarily uses derivative instruments (and certain non-derivative
foreign currency loans) to reduce its exposure to adverse movements in foreign
currency exchange rates. When entering into contracts intended by the Company to
receive hedge accounting treatment, the Company formally designates and
documents the financial instrument as a hedge of a specific underlying exposure,
as well as the risk management objectives and strategies for undertaking the
hedge transaction.
The Company's primary exposure relates to transactions in which the currency
collected from customers is different from the currency used to purchase the
product sold. In addition, the Company has foreign currency risk related to debt
that is denominated in currencies other than the U.S. dollar.
9
The Company's foreign currency risk management objective is to protect its
earnings and cash flows from the adverse impact of exchange rate movements. In
addition, the Company has hedged a portion of its net investments in operations
in Europe with offsetting foreign currency denominated debt. Foreign exchange
risk is managed by using forward, option and swap contracts to hedge
intercompany loans, trade receivables and payables, with the majority of the
derivative instruments having terms of 90 days or less. Hedged transactions are
denominated primarily in the following currencies: Canadian dollar, Danish
krone, euro, Norwegian krone, Swedish krona, Swiss franc, British pound,
Brazilian real, Argentine peso and Chilean peso.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities - a replacement
of FASB Statement No. 125" ("SFAS 140"). SFAS 140 revises the standards of
accounting for securitizations and other transfers of financial assets and
collateral. The accounting standards of SFAS 140 are effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. The impact of adoption of this statement on the Company's
financial position and results of operations was not material.
10
ITEM 2. Management's Discussion and Analysis of Financial Condition and 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, 2001 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 months
ended April 30, 2001 and 2000 as follows:
Percentage of
net sales
----------------------------
Three months ended
April 30,
----------------------------
2001 2000
----------- -----------
Net sales 100.00% 100.00%
Cost of products sold 94.63 94.76
----------- -----------
Gross profit 5.37 5.24
Selling, general and administrative expenses 3.84 3.71
----------- -----------
Operating income 1.53 1.53
Interest expense, net .49 .38
Net foreign currency exchange loss(gain) .01 (.02)
----------- -----------
Income before income taxes 1.03 1.17
Provision for income taxes .35 .41
----------- -----------
Income before minority interest .68 .76
Minority interest - -
----------- -----------
Net income .68% .76%
=========== ===========
Results of Operations
- ---------------------
Three Months Ended April 30, 2001 and 2000
- ------------------------------------------
Net sales decreased 5.0% to $4.7 billion in the first quarter of fiscal 2002
compared to $4.9 billion in the first quarter of last year. This decrease is
primarily attributable to lower overall demand for products in the technology
market. The Company's first quarter U.S. and European sales fell 7.5% and 3.0%,
respectively, and other international sales grew 3.0% compared to the first
quarter of last year. European sales grew 3.2% during the first quarter of the
current year on a local currency basis. Total international sales in the first
quarter of fiscal 2002 represent approximately 48% of consolidated net sales
compared with 46% in the prior year.
11
Gross profit decreased $6.7 million from $257.9 million in the first quarter of
fiscal 2001 to $251.2 million in fiscal 2002. Gross margins, however, increased
13 basis points to 5.37% in the first quarter of fiscal 2002 compared to 5.24%
in the first quarter of fiscal 2001. This increase in gross margin is
attributable to the positive effects of the Company's internal focus on margin
improvement programs, as well as an increase in the mix of higher gross margin
international sales relative to worldwide sales.
Selling, general and administrative expenses decreased 1.4% from $182.5 million
in the first quarter of fiscal 2001 to $179.9 million in fiscal 2002, and as a
percentage of net sales increased from 3.71% in the comparable prior year period
to 3.84% in the current year. The dollar value decrease in selling, general and
administrative expenses is attributable to cost reduction efforts initiated by
the Company in light of the reduced sales volumes. The increase in selling,
general and administrative expenses as a percentage of net sales is primarily
attributable to an increase in the mix of international business. While this
business delivers higher gross margins, it also demands higher SG&A costs as a
percentage of net sales.
As a result of the factors described above, operating profit in the first
quarter of fiscal 2002 decreased 5.4% to $71.3 million, or 1.53% of net sales,
compared to $75.4 million, or 1.53% of net sales in the first quarter of fiscal
2001. The main factor contributing to the decrease in the Company's operating
profit was the decrease in the Company's revenues due to the decline in overall
demand for products in the technology market, offset in part, by the Company's
ability to achieve higher gross margins on those sales.
Interest expense increased from $18.8 million in the first quarter of fiscal
2001 to $22.8 million in the current quarter due to an increase in the Company's
average outstanding indebtedness combined with higher short-term interest rates
on the Company's floating rate indebtedness.
The Company reported a net foreign currency exchange loss of $0.4 million in the
first quarter of fiscal 2002, as compared to a net foreign currency exchange
gain of $0.8 million in the comparable quarter last year. The fluctuation from
the prior year was not significant for any of the Company's reportable segments.
The provision for income taxes decreased 18.5% to $16.4 million in the first
quarter of fiscal 2002 compared to $20.1 million last year. The decrease is
attributable to a decrease in the Company's income before income taxes and a
reduction in the Company's effective tax rate. The Company's estimated
effective tax rate decreased from 35.0% in the first quarter of 2001 to 34.0% 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 2001 was 35.0%.
As a result of the factors described above, net income decreased 14.6% to $31.8
million, or $.57 per diluted share, compared to $37.2 million, or $.68 per
diluted share, in the prior year.
12
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 provided by operating activities of $18.1 million during the first
quarter of fiscal 2002 was primarily attributable to income from operations of
$31.8 million combined with a decrease in accounts receivable and inventories,
offset by a reduction in accounts payable and accrued expenses.
Net cash used in investing activities of $8.7 million during the first three
months of fiscal 2002 was attributable to the continuing investment related to
the expansion of the Company's management information systems, office facilities
and equipment for its distribution centers. The Company expects to make capital
expenditures of approximately $80 million during fiscal 2002 to further expand
its management information systems, office facilities and equipment for
distribution centers.
Net cash used in financing activities of $14.4 million during the first three
months of fiscal 2002 reflects the net repayments on the Company's revolving
credit loans of $17.1 million and principal payments on long-term debt of $0.2
million, offset by the proceeds from stock option exercises (including the
related income tax benefit) of $2.9 million.
The Company currently maintains a $495 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 currently
maintains a $700 million Receivables Securitization Program with a syndicate of
banks expiring in May 2002. 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 $605
million.
The aforementioned credit facilities total approximately $1.8 billion, of which
$1.2 billion was outstanding at April 30, 2001. These credit facilities contain
covenants that 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.
13
In August 2000, the Company filed a universal shelf registration statement with
the Securities and Exchange Commission for $500 million of debt and equity
securities. The net proceeds from any issuance are expected to be used for
general corporate purposes, including capital expenditures, the repayment or
refinancing of debt and to meet working capital needs. As of April 30, 2001,
the Company had not issued any debt or equity securities, nor can any assurances
be given that the Company will issue any debt or equity securities under this
registration statement in the future.
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 2002.
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 vendor 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, subject to certain
limitations. 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 information technology systems, which
contain 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 products on a prepay, credit card, cash on delivery and floor
plan basis.
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. The legacy
currencies will remain legal
14
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 roll-
out of the euro.
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 SFAS No. 133" and SFAS No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - amendment of FASB Statement No.
133." As amended, SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities.
Tech Data adopted the provisions of SFAS 133, as amended by SFAS 137 and SFAS
138, on February 1, 2001, which require that all derivative instruments be
recorded on the balance sheet at fair value. The estimated fair value of
derivative financial instruments represents the amount required to enter into
similar offsetting contracts with similar remaining maturities based on quoted
market prices.
On the date that derivative contracts are entered into, the Company designates
derivatives as (1) a fair value hedge, (2) a cash-flow hedge, (3) a hedge of a
net investment in a foreign operation, or (4) an "economic foreign currency
hedge", which does not receive formal hedge accounting treatment. Changes in
the fair value of these
15
derivatives are recorded each period in current earnings or OCI, depending on
whether a derivative receives formal hedge accounting treatment, and, if it
does, depending on the type of hedge transaction.
Fair Value Hedge:
For fair value hedge transactions, changes in the fair value of the derivative
instrument are generally offset in the income statement by changes in the fair
value of the item being hedged.
Cash-Flow Hedge:
For cash-flow hedge transactions, changes in the fair value of the derivative
instrument are recorded as a component of OCI, and reclassified into earnings in
the same period or periods during which earnings are affected by the variability
of the cash flows of the hedged item. Any ineffective portion of a derivative
instrument's change in fair value is immediately recognized in earnings.
Hedge of a Net Investment:
Changes in the fair value of derivatives (and certain nonderivative foreign
currency loans) that hedge net investments in foreign operations are recorded as
a component of OCI, net of tax, in the Company's CTA account.
Economic Foreign Currency Hedge:
While the Company does not use derivative financial instruments for trading or
speculative purposes, derivatives in this category do not qualify for hedge
accounting under the provisions of SFAS 133, because they relate to existing
assets and liabilities denominated in a foreign currency for which foreign
currency transaction gains or losses are recognized in earnings. The gains and
losses on both the derivative and the foreign-currency-denominated underlying
exposure being hedged are reflected in earnings in the period of change.
The impact of adoption of this statement on the Company's financial position and
results of operations was not material.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities - a replacement
of FASB Statement No. 125" ("SFAS 140"). SFAS 140 revises the standards of
accounting for securitizations and other transfers of financial assets and
collateral. The accounting standards of SFAS 140 are effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. The impact of adoption of this statement on the Company's
financial position and results of operations was not 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, 2001, 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.
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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, 2001.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECH DATA CORPORATION
---------------------
(Registrant)
Signature Title Date
- --------- ----- ----
/s/ Steven A. Raymund Chairman of the Board of June 13, 2001
- --------------------- Directors; Chief Executive Officer
Steven A. Raymund
/s/ Jeffery P. Howells Executive Vice President and June 13, 2001
- ---------------------- Chief Financial Officer; Director
Jeffery P. Howells (principal financial officer)
/s/ Joseph B. Trepani Senior Vice President and June 13, 2001
- --------------------- Corporate Controller (principal
Joseph B. Trepani accounting officer)
/s/ Arthur W. Singleton Corporate Vice President, June 13, 2001
- ----------------------- Treasurer and Secretary
Arthur W. Singleton
18