ITEM 1. Business
Overview
Tech Data Corporation ("Tech Data" or the "Company") is a leading provider of information technology ("IT") products, logistics management and other value- added services, and based on sales, is the world's second largest distributor. The Company distributes microcomputer hardware and software products to value- added resellers, direct marketers, retailers, corporate resellers, and Internet resellers. The Company and its subsidiaries distribute to more than 80 countries and serve over 100,000 resellers in the United States, Canada, the Caribbean, Latin America, Europe and the Middle East. The Company's broad assortment of vendors and products meets the customers' need for a cost effective link to those products through a single source.
The Company provides its customers with leading products in a variety of IT segments, including peripherals, systems, networking and software, which accounted for 46%, 24%, 15% and 15%, respectively, of sales in fiscal 2002. The Company offers products from manufacturers and publishers such as Adobe, Apple, Cisco, Compaq, Computer Associates, Creative Labs, Epson, Hewlett-Packard, IBM, Intel, Iomega, Lexmark, Microsoft, Nortel Networks, NEC, Palm, Seagate, Sony, Symantec, 3Com, Toshiba, Viewsonic, and Western Digital. The Company generally ships products the same day the orders are received from regionally located logistics centers. Customers are provided with a high level of service through the Company's pre- and post-sale technical support, electronic commerce tools (including on-line order entry, product integration services and electronic data interchange ("EDI") services), customized shipping documents and flexible financing programs.
Tech Data was incorporated in 1974 to market data processing supplies such as tape, disk packs, and custom and stock tab forms for mini and mainframe computers directly to end users. With the advent of microcomputer dealers, Tech Data made the transition to a wholesale distributor in 1984 by broadening its product line to include hardware products and withdrawing entirely from end-user sales.
In May 1989, the Company entered the Canadian market through the acquisition of a privately-held distributor subsequently named Tech Data Canada Inc. ("Tech Data Canada"). Tech Data Canada serves customers in all Canadian provinces.
In March 1994, the Company entered the European market through the acquisition of a privately-held distributor subsequently named Tech Data France, SA ("Tech Data France").
To complement its Miami-based Latin American export business, the Company opened a sales office and logistics center near Sao Paulo, Brazil in February 1997.
In July 1998, Tech Data completed the acquisition of 83% of the voting common stock of Computer 2000 AG ("Computer 2000"), Europe's leading technology products distributor (see Note 2 of Notes to Consolidated Financial Statements). With a presence in significant geographic markets in Europe, the Middle East and Latin America, the purchase of Computer 2000 expanded Tech Data's presence into its current level of 29 countries worldwide. In April 1999, all of the shares of Computer 2000 were integrated into Tech Data Germany AG ("Tech Data Germany"). The Company currently owns approximately 99.9% of the outstanding stock of Tech Data Germany and 100% of Computer 2000's stock. The Company has changed the names of most of Computer 2000's subsidiaries to match the Tech Data brand.
In May 1999, the Company acquired Globelle Corporation, a leading publicly-held Canadian distributor, which nearly doubled the Company's Canadian business, adding additional critical mass and a complementary product and geographic focus (see Note 2 of Notes to Consolidated Financial Statements).
Industry
The wholesale distribution model, like that provided by the Company, has proven to be well-suited for both manufacturers and publishers of IT products ("vendors") and resellers of those products. The large number and diversity of resellers make it cost efficient for vendors to rely on wholesale distributors to serve this customer base. Similarly, due to the large number of vendors and products, resellers often cannot or choose not to establish direct purchasing relationships with vendors. Instead, they rely on wholesale distributors, such as Tech Data, which can leverage purchasing costs across multiple vendors to satisfy a significant portion of their product procurement, delivery, financing, marketing and technical support needs.
Through collaborative supply chain management initiatives, distributors, like Tech Data, continue to advance the efficiency of this business model. By leveraging Tech Data's infrastructure and logistics expertise, IT manufacturers and publishers benefit by a cost-effective alternative to selling directly to resellers or end users. The Company's ability to provide a "virtual warehouse" of products for resellers means that they no longer need to hold inventory, which reduces costs and risks associated with handling the product. In addition to enabling fast reseller access to a comprehensive hardware and software offering, the Company frequently ships products to end users on behalf of its customers, thereby reducing the resellers' costs of storing, maintaining, and shipping the products themselves. Tech Data facilitates this approach by personalizing shipping labels and packing documents with its resellers' brand identities (e.g. logos), marketing messages and other specialized content.
The increasing utilization of electronic ordering and information delivery systems, including the ability to transact business over the Web, continues to have a significant impact on the cost efficiency of the wholesale distribution model. For example, distributors are now working to establish a more seamless supply chain in which end-user orders flow immediately from reseller Web sites direct to distributor logistics centers in closest proximity to the order destination. Advances like these are possible due to the financial and technical resources available to large-scale distributors such as Tech Data, enabling a reduction in both their customers' and their own transaction costs through more efficient purchasing and lower selling and delivery costs.
In summary, the IT logistics industry continues to address a broad spectrum of reseller and vendor requirements. The economies of scale and global reach of large industry leaders are expected to continue to be significant competitive advantages in this marketplace.
Tech Data's fiscal 2002 results, like other companies in the technology industry, were negatively affected by the U.S. economic downturn. This downturn eventually spread to other regions throughout the world, albeit to a lesser extent. While it appears there has been a "bottoming out" of the global recession, there can be no assurance that further weakening will not occur. To the extent that this continues, the IT industry, in general, and worldwide demand for the products we sell, are likely to be negatively affected.
Vendor Relations
The Company's strong financial and industry positions have enabled it to obtain contracts with most leading manufacturers and publishers. The Company purchases products directly from manufacturers and publishers, generally on a non- exclusive basis. The Company's vendor agreements are believed to be in the form customarily used by each manufacturer and typically contain provisions which allow termination by either party upon 30 days notice. Generally, the Company's supplier agreements do not require it to sell a specified quantity of products or restrict the Company from selling similar products manufactured by competitors. Consequently, the Company has the flexibility to terminate or curtail sales of one product line in favor of another product line as a result of technological change, pricing considerations, product availability, customer demand or vendor distribution policies.
Such agreements generally contain stock rotation and price protection provisions which, along with the Company's inventory management policies and practices, reduce the Company's risk of loss due to slow-moving inventory, vendor price reductions, product updates or obsolescence. Under the terms of many distribution agreements, suppliers, subject to certain limitations, will credit the distributor for declines in inventory value resulting from the supplier's price reductions. In addition, under many such agreements, the distributor has the right, subject to certain limitations, to return for credit or exchange for other products a portion of those inventory items purchased. A supplier who elects to terminate a distribution agreement generally will repurchase from the distributor the supplier's products carried in the distributor's inventory. While the industry practices discussed above are sometimes not embodied in agreements and do not protect the Company in all cases from declines in inventory value, management believes that these practices provide a
significant level of protection from such declines. No assurance can be given, however, that such practices will continue or that they will adequately protect the Company against declines in inventory value. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations -- Asset Management.
In addition to providing manufacturers and publishers with one of the largest bases of resellers in the United States, Canada, the Caribbean, Latin America, Europe and the Middle East, Tech Data also offers manufacturers and publishers the opportunity to participate in a number of special promotions, training programs and marketing services targeted to the needs of its resellers.
With the exception of Hewlett-Packard Company ("HP") and Compaq Computer Corporation ("Compaq"), no single vendor accounted for more than 10% of Tech Data's net sales during fiscal 2002, 2001, or 2000. Sales of HP products accounted for 20%, 19%, and 19% of net sales in fiscal 2002, 2001, and 2000, respectively, and sales of Compaq products accounted for 18%, 20%, and 16% of net sales in fiscal 2002, 2001, and 2000, respectively.
On March 19 and 20, 2002, HP's and Compaq's shareholders, respectively, voted to approve a merger of the two entities. A member of HP's board of directors is contesting the vote. Based on the limited information currently available, the impact of this merger, should it occur, cannot at this time be estimated by Tech Data's management. Tech Data's business could be adversely impacted should the merged company decide to bypass the distribution channel and increase the level of business it transacts directly with end-users.
Customers, Products and Services
The Company sells more than 75,000 microcomputer products including peripherals, systems, networking and software purchased directly from manufacturers and publishers in large quantities for sale to an active reseller base of more than 100,000 value-added resellers (VARs), corporate resellers, direct marketers, retailers and Internet resellers.
The market for VARs, which constituted approximately 58% of Tech Data's net sales in fiscal 2002, is attractive because VARs generally rely on distributors as their principal source of computer products and financing. This reliance is due to VARs typically not having the resources to establish a large number of direct purchasing relationships or stock significant product inventories. Direct marketers, retailers and corporate resellers may establish direct relationships with manufacturers and publishers for their more popular products, but utilize distributors as the primary source for other product requirements and the alternative source for products acquired directly. Tech Data also has developed special programs to meet the unique needs of direct marketers, retailers and Internet resellers, which constituted approximately 24% of the Company's net sales in fiscal 2002. Corporate resellers constituted approximately 18% of the Company's net sales in fiscal 2002. No single customer accounted for more than 5% of the Company's net sales during fiscal 2002, 2001, or 2000.
The Company pursues a strategy of continually strengthening its product line to offer its customers a broad assortment of the latest technology products. From time to time, the demand for certain products sold by the Company exceeds the supply available from the manufacturer or publisher. In such cases, the Company generally receives an allocation of the available products. Management believes that the Company's ability to compete is not adversely affected by these periodic shortages and the resulting allocations.
Tech Data provides resellers a high level of service through the Company's pre- and post-sale technical support, suite of electronic commerce tools (including web order entry and EDI services), customized shipping documents, product configuration/integration services and flexible financing programs.
The Company delivers products throughout the United States, Canada, the Caribbean, Latin America, Europe and the Middle East from its 33 regionally located logistics centers. Locating logistics centers near its customers enables the Company to deliver products on a timely basis, thereby reducing the customers' need to invest in inventory. See Item 2
ITEM 2. Properties
Tech Data's worldwide executive offices are located in Clearwater, Florida. As of January 31, 2002, the Company operated a total of 33 logistics centers to provide its customers timely delivery of products. These logistics centers are located in the following principal markets: U.S. - 6, Canada - 2, Latin America - - 5, Europe - 18 and the Middle East - 2. The Company also operates training centers in 10 cities in the United States.
The facilities of the Company are well maintained and are adequate to conduct the Company's current business. The Company does have some excess capacity in its physical infrastructure given the decline in sales volume over the past year.
ITEM 3.
ITEM 3. Legal Proceedings
There are no material legal proceedings pending against the Company.
ITEM 4.
ITEM 4. Submission of Matters to a Vote of Security Holders
There have been no matters submitted to a vote of security holders during the last quarter of the fiscal year ended January 31, 2002.
PART II
ITEM 5.
ITEM 5. Market for the Registrant's Common Stock and Related Shareholder Matters
The Company's common stock is traded on the Nasdaq Stock Market under the symbol "TECD". The Company has not paid cash dividends since fiscal 1983 and the Board of Directors does not intend to institute a cash dividend payment policy in the foreseeable future. The table below presents the quarterly high and low sale prices for the Company's common stock as reported by the Nasdaq Stock Market. The approximate number of shareholders as of April 1, 2002 was 35,000.
ITEM 6.
ITEM 6. Selected Consolidated Financial Data
The following table sets forth certain selected consolidated financial data and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and notes thereto appearing elsewhere in this annual report.
FIVE YEAR FINANCIAL SUMMARY (In thousands, except per share data)
_____________________ (1) Results for the fiscal year ended January 31, 1999 include six months of results for Computer 2000 (acquired effective July 1, 1998) and six months of results for Macrotron (sold effective July 1, 1998).
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Foreword
Certain statements within this Item and throughout this Annual Report on Form 10-K and the documents incorporated herein are "forward-looking statements" as described in the "safe harbor" provision 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 99-A for further information.
Results of Operations
The following table sets forth the percentage of cost and expenses to net sales derived from the Company's Consolidated Statement of Income for each of the three most recent fiscal years.
Fiscal Years Ended January 31, 2002 and 2001
Consolidated net sales decreased 15.8% to $17.2 billion in fiscal 2002 compared to $20.4 billion in the prior year. This decrease was primarily due to lower demand for technology-related products and services throughout the world and a weakening of the euro. Net sales from U.S. operations fell 22.3% to $8.8 billion due primarily to economic weakness in the region. On a local currency basis, European net sales decreased 4.9% during the current year, and fell 7.4% in U.S. dollar terms due to a weakening of several European currencies against the U.S. dollar. Other international sales fell 10.5% in fiscal 2002 compared to the prior year due mostly to lower demand and a weaker currency in Canada and Latin America. Total international sales in fiscal 2002 represented approximately 49% of consolidated net sales compared with 45% in the prior year.
Gross profit decreased $168.0 million from the prior year to $928.0 million in fiscal 2002 compared to $1.1 billion in fiscal 2001. Gross margins increased 3 basis points to 5.40% in fiscal 2002 compared to 5.37% in fiscal 2001. This increase is attributable to the positive effects of the Company's margin improvement programs and the aforementioned increase in the mix of international sales in fiscal 2002, on which the Company typically realizes higher gross margins.
Selling, general and administrative expenses ("SG&A") decreased 7.6% or $55.4 million to $677.9 million in fiscal 2002 from $733.3 million in fiscal 2001. This reduction in SG&A is attributable to the Company's highly variable cost structure and aggressive cost cutting measures taken to counter the effects of the economic downturn. The Company significantly reduced its payroll-related costs as it managed its employee base down from approximately 10,500 employees at the end of fiscal 2001 to approximately 8,600 at the end of fiscal 2002. Likewise, the Company cut back dramatically on discretionary expenses such as travel related costs, consulting and supplies. While these cost cutting measures were significant, they could not entirely offset the effect of the year-over- year sales decline and as a result SG&A, as a percentage of net sales, increased 35 basis points to 3.94% from 3.59% in the prior year. The greater mix of international sales in fiscal 2002 also contributed to the higher SG&A as a percentage of net sales, as the international model typically results in greater costs along with a higher gross margin (as previously discussed above).
Special charges of $27.0 million were recognized in fiscal 2002. These special charges related to the Company recording: a) the write-off of previously capitalized software costs ($20.1 million); b) the impairment of certain Internet-related investments ($5.4 million) and; c) the write-off of development costs associated with a new German logistics center ($1.5 million), the construction of which has been indefinitely deferred. The remaining Internet- related investment has a carrying value of approximately $2.4 million at January 31, 2002. Investments in these types of technologies are inherently risky and the Company could lose the remainder of its investment.
In addition to those items mentioned above, operating income was negatively affected by operating losses in Latin America of approximately $7.4 million during the fourth quarter; these operating losses were primarily related to currency devaluation and asset realization issues in Argentina and Brazil.
As a result of the factors described above, operating income in fiscal 2002 decreased 38.5% to $223.1 million (1.30% of net sales) from $362.8 million (1.78% of net sales) in fiscal 2001.
Interest expense decreased 39.9% to $55.4 million in fiscal 2002 from $92.3 million in fiscal 2001. This decrease is the result of a significant decrease in the Company's average outstanding indebtedness and a decrease in rates. The Company was able to reduce its outstanding debt net of cash by over $990.4 million during the past year due to dramatic improvements in its inventory management and the cash generated from other operating activities.
The Company realized a net foreign currency exchange gain of $0.1 million in fiscal 2002 compared to a gain of $3.9 million in fiscal 2001. It continues to be the Company's goal to minimize foreign currency exchange gains and losses through effective hedging techniques. The Company's foreign exchange policy prohibits speculative hedges.
The provision for income taxes decreased 40.6% to $57.1 million in fiscal 2002 from $96.0 million in fiscal 2001. This decrease is attributable to the decrease in taxable income during the year combined with a decrease in the Company's effective tax rate to 34% in fiscal 2002 from 35% in fiscal 2001. The decrease in the effective rate is primarily due to fluctuations and changes in the mix of taxable income within the Company's various geographies and tax jurisdictions reported in each period.
As a result of the factors described above, net income in fiscal 2002 decreased 37.8% to $110.8 million ($1.98 per diluted share) compared to $178.0 million ($3.14 per diluted share) in fiscal 2001. Excluding special charges, net income decreased 27.8% to $128.6 million, or $2.27 per diluted share in fiscal 2002.
Fiscal Years Ended January 31, 2001 and 2000
Net sales increased 20.2% to $20.4 billion in fiscal 2001 compared to $17.0 billion in the prior year. This increase is attributable to market share gains as well as the addition of new product lines and the expansion of existing product lines in all geographies. U.S. operations were especially strong, growing 34% over the prior year as customers shifted business to the Company due to our high level of execution and extensive service offerings. Worldwide sales growth would have been even greater in fiscal 2001 had the euro not devalued against the dollar. On a local currency basis, Europe actually grew 20% (19% if adjusted for the change in fiscal year - see Note 3 of Notes to Consolidated Financial Statements), however, when translated into U.S. dollars, the region had 4% growth. In addition to the U.S. and European growth, other international sales grew approximately 28% over fiscal 2000. Total international sales in fiscal 2001 represented approximately 45% of consolidated net sales compared with 51% in the prior year.
Gross profit increased $162.4 million over the prior year to $1.1 billion in fiscal 2001 compared to $933.7 million in fiscal 2000. Gross margins decreased 12 basis points to 5.37% in fiscal 2001 compared to 5.49% in fiscal 2000. This decrease is attributable to the aforementioned decrease in the mix of higher gross margin international sales relative to worldwide sales (in large part due to the devaluation of the euro), competitive pressures, the Company's higher mix of systems sales to total product sales and increased participation in customer outsourcing activities. Both of these latter businesses typically involve lower gross margins but provide acceptable operating and pre-tax margins, because of cost and working capital efficiencies.
Selling, general and administrative expenses ("SG&A") increased 10.8% or $71.5 million to $733.3 million in fiscal 2001 from $661.8 million in fiscal 2000. However, as a percentage of net sales, SG&A actually decreased 30 basis points to 3.59% from 3.89% in the prior year. While the dollar value of SG&A increased due to additional expenses required to support the increase in business, the decrease in SG&A as a percentage of sales is attributable to the benefits realized by the Company's ongoing focus on improving operating efficiencies as well as the significant economies of scale achieved during the past year, as the Company effectively leveraged its investment in infrastructure and resources.
As a result of the factors described above, operating income in fiscal 2001 increased 33.4% to $362.8 million (1.78% of net sales) from $271.9 million (1.60% of net sales) in fiscal 2000.
Interest expense increased 39.9% to $92.3 million in fiscal 2001 from $66.0 million in fiscal 2000. This increase is the result of an increase in the Company's average outstanding indebtedness related to funding for continued growth and capital expenditures and an increase in average short-term interest rates.
The Company realized a net foreign currency exchange gain of $3.9 million in fiscal 2001 compared to a loss of $5.2 million in fiscal 2000. This gain is largely due to the Company realizing benefits from the strengthening euro during the fourth quarter of fiscal 2001.
The provision for income taxes increased 31.8% to $96.0 million in fiscal 2001 from $72.8 million in fiscal 2000. This increase is attributable to the increase in taxable income during the year offset by a decrease in the Company's effective tax rate to 35.0% in fiscal 2001 from 36.3% in fiscal 2000. The decrease in the effective rate is primarily due to fluctuations and changes in the mix of taxable income within the Company's various geographies and tax jurisdictions reported in each period.
As a result of the factors described above, net income in fiscal 2001 increased 39.6% or $50.5 million to $178.0 million ($3.14 per diluted share) compared to $127.5 million ($2.34 per diluted share) in fiscal 2000.
Critical Accounting Policies and Estimates
Management's discussion and analysis of its financial condition and results of operations are based upon Tech Data's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Tech Data to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. On an on- going basis, Tech Data evaluates these estimates, including those related to bad debts, inventories, vendor incentives, investments, fixed assets, intangible assets, income taxes and contingencies. Our estimates and judgments are based on currently available information, historical results and other assumptions we believe are reasonable. Actual results could differ materially from these estimates. Tech Data believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of its consolidated financial statements.
Accounts Receivable Tech Data maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. In estimating the required allowance, Tech Data takes into consideration the overall quality and aging of the receivable portfolio, the existence of credit insurance and specifically-identified customer risks. If actual customer performance were to deteriorate to an extent not expected by Tech Data, additional allowances may be required which could have an adverse effect on the Company's financial results.
Inventory Tech Data values its inventory at the lower of its cost or market value. The Company writes down its inventory for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value based upon an aging analysis of the inventory on hand, specifically known inventory- related risks, foreign currency fluctuations for foreign sourced product and assumptions about future demand and market conditions. These write-downs are reflected in the Company's cost of sales. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required which could have an adverse effect on the Company's financial results.
Vendor Incentives The Company receives incentives from vendors related to cooperative advertising allowances, volume rebates and other miscellaneous agreements. These incentives are generally under quarterly, semi-annual or annual agreements with the vendors, however, some of these incentives are negotiated on an ad hoc basis to support specific programs mutually developed by the Company and the vendor. Cooperative advertising allowances are generally required by the vendor to be used by Tech Data exclusively for advertising or other marketing programs. These restricted cooperative advertising allowances are recognized as a reduction to selling, general and administrative expenses as the related marketing expenses are incurred. The Company records unrestricted volume rebates received as a reduction of inventory and recognizes the incentives as a reduction to cost of sales when the related inventory is sold. Amounts received or receivable from vendors that are not yet earned are deferred in the consolidated balance sheet.
In addition, the Company receives early payment discounts from certain of its vendors. The Company records early payment discounts received as a reduction of inventory and recognizes the discount as a reduction to cost of sales when the related inventory is sold.
Intangible Assets The Company examines the carrying value of its excess of cost over fair value of acquired net assets (goodwill) and other intangible assets as current events and circumstances warrant to determine whether there are any impairment losses. If indicators of impairment were present in intangible assets used in operations and future cash flows were not expected to be sufficient to recover the assets' carrying amount, an impairment loss would be charged to expense in the period identified. No event has been identified that would indicate an impairment of the value of goodwill recorded in the consolidated financial statements. However, during fiscal 2002, the Company recorded a special charge of approximately $20.1 million for certain of its software investments.
Income Taxes Tech Data records valuation allowances to reduce its deferred tax assets to the amount expected to be realized. In assessing the adequacy of recorded valuation allowances, Tech Data considers future taxable income and ongoing prudent and feasible tax planning strategies. In the event the Company determines it would be able to use a deferred tax asset in the future in excess of its net carrying value, an adjustment to the deferred tax asset would reduce income tax expense, thereby increasing net income in the period such determination was made. Likewise, should Tech Data determine that it is unable to use all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income tax expense, thereby reducing net income in the period such determination was made.
Contingencies The Company accrues for contingent obligations, including estimated legal costs, when it is probable and the amount is reasonably estimable. As facts concerning contingencies become known, we reassess our position and make appropriate adjustments to the financial statements. Estimates that are particularly sensitive to future changes include tax, legal and other regulatory matters such as imports and exports which are subject to change as events evolve and as additional information becomes available during the administrative and litigation process.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 revises the standards of business combinations by eliminating the use of the pooling-of-interests method and requiring that all business combinations be accounted for using the purchase method of accounting. SFAS 141 also changes the criteria to recognize intangible assets apart from goodwill. The provisions of SFAS 141 are effective for all business combinations initiated after June 30, 2001. The impact of adoption of this statement on the Company's financial position and results of operations was not material.
In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 revises the standards of accounting for goodwill and indefinite-lived intangible assets by replacing the regular amortization of these assets with the requirement that they are reviewed annually for possible impairment, or more frequently if impairment indicators arise. Separable intangible assets that have finite lives will continue to be amortized over their estimated useful lives. The accounting standards of SFAS 142 are effective for fiscal years beginning after December 15, 2001. Application of the non-amortization provisions of the statement is expected to result in an increase in net income of approximately $8.6 million ($.14 per diluted share) per year. During the first quarter for the fiscal year ending January 31, 2003, the Company finalized the required transitional impairment tests of goodwill and indefinite-lived intangible assets under the requirements of SFAS 142. Based on the results of the transitional impairment tests, Tech Data will not need to record any impairment for the adoption of this statement.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which is effective for fiscal periods beginning after December 15, 2001 and interim periods within those fiscal years. This statement supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. Under the provisions of APB 30, a segment of a business to be disposed of was measured at the lower of its carrying amount or net realizable value, adjusted for expected future operating losses, whereas SFAS 121 used fair value less cost to sell and excludes future operating losses from the measurement. SFAS 144 establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. The Company is currently evaluating the potential impact, if any, the adoption of SFAS 144 will have on the Company's financial position and results of operations.
Impact of Inflation
The Company has not been adversely affected by inflation as technological advances and competition within the microcomputer industry has generally caused prices of the products sold by the Company to decline. Management believes that most price increases could be passed on to its customers, as prices charged by the Company are not set by long-term contracts; however, as a result of competitive pressure, there can be no assurance that the full effect of any such price increases could be passed on to its customers.
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. See Note 12 of Notes to Consolidated Financial Statements for further information regarding the Company's quarterly results.
Liquidity and Capital Resources
Net cash provided by operating activities of $976.6 million in fiscal 2002 was primarily attributable to decreases in inventories and accounts receivable, in addition to net income adjusted for non-cash items. The Company continues to focus on improving asset turnover, as evidenced by its days of supply of inventory which declined to 21.0 days at the end of fiscal 2002 from 30.2 days at the end of fiscal 2001.
Net cash used in investing activities of $49.4 million during fiscal 2002 was primarily attributable to the expansion or upgrade of the Company's management information systems, office facilities and equipment for its logistics centers. Depending upon economic conditions, the Company expects to make capital expenditures of approximately $75 million during fiscal 2003 to further expand or upgrade its IT systems, logistics centers and office facilities. Tech Data continues to make significant investments to implement new IT systems and upgrade its existing IT infrastructure in order to meet its changing business requirements. These implementations and upgrades occur at various levels throughout the Company and include, but are not limited to, new operating and enterprise systems, financial systems, web technologies, customer relationship management systems and telecommunications. While the Company believes it will realize increased operating efficiencies as a result of these investments, unforeseen circumstances or complexities could have an adverse impact on the Company's business.
Net cash used in financing activities of $798.2 million during fiscal 2002 reflects the repayments of revolving credit loans, a portion of which was refinanced through the issuance of $290.0 million of convertible subordinated debentures ($284.2 million, net of expenses). In addition, the Company received $36.4 million from stock option exercises (which does not include the related income tax benefit of $7.0 million), benefit plans and purchases made through the Company's Employee Stock Purchase Plan.
The Company currently maintains a $520.0 million revolving credit facility with a syndicate of banks that 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 ratings. Additionally, the Company currently maintains a $700.0 million Receivables Securitization Program with a syndicate of banks expiring in May 2002, which the Company intends to reduce to $500.0 million and renew for another year. 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 $620.0 million.
The aforementioned credit facilities total approximately $1.8 billion, of which $86.0 million was outstanding at January 31, 2002. These credit facilities contain covenants that must be complied with on a continuous basis, including the maintenance of certain financial ratios, restrictions on payment of dividends and restrictions on the amount of common stock that may be repurchased annually. The Company was in compliance with all such covenants as of January 31, 2002. For a more detailed discussion of the Company's credit facilities, see Note 5 of Notes to Consolidated Financial Statements.
In December 2001, the Company issued $290.0 million of convertible subordinated debentures due 2021. The debentures bear interest at 2% per year and are convertible into the Company's common stock at any time, if the market price of the common stock exceeds a specified percentage, beginning at 120% and declining 1/2% each year until it reaches 110% at maturity, of the conversion price per share of common stock, or in other specified instances. Holders may convert debentures into 16.7997 shares per $1,000 principal amount of debentures, equivalent to a conversion price of approximately $59.53 per share. The debentures are convertible into 4,871,913 shares of the Company's common stock. Holders have the option to require the Company to repurchase the debentures on any of the fourth, eighth, twelfth or sixteenth anniversary dates from the issue date at 100% of the principal amount plus accrued interest to the repurchase date. The Company has the option to satisfy any debentures submitted for repurchase in either cash and/or the Company's common stock, provided that shares of common stock at the first purchase date will be valued at 95% of fair market value (as defined in the indenture) and at 97.5% of fair market value for all subsequent purchase dates. The debentures are redeemable in whole or in part for cash, at the option of the Company at any time on or after December 20, 2005. The Company will pay contingent interest on the debentures during specified six-month periods beginning on December 15, 2005, if the market price of the debentures exceeds specified levels. In addition, the dilutive impact of the $290.0 million of convertible subordinated debentures, due 2021, is excluded from the diluted earnings per share calculations due to the contingent conversion feature.
In August 2000, the Company filed a universal shelf registration statement with the Securities and Exchange Commission for $500.0 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 January 31, 2002, the Company had not issued any debt or equity securities under this registration statement, 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 2003.
Principal maturities of long-term debt and amounts due under future minimum lease payments are as follows:
The Company leases certain of its logistics centers and office facilities under a five-year synthetic lease facility provided by a group of financial institutions which expires in May 2005. The sum of future minimum lease payments under this lease facility at January 31, 2002 was approximately $9.4 million, which is included in the schedule above. In accordance with the terms of the synthetic lease facility and the Internal Revenue Code, Tech Data claims tax deductions for interest and depreciation on the leased assets. The maximum funding of the Company's leasing activities available under the synthetic lease facility is $135.0 million (of which the Company had utilized $115.0 million at January 31, 2002). The synthetic lease facility has an initial term of five years, with rent obligations commencing on the date construction of a discrete project is complete. At any time during the term of the lease, the Company may, at its option, purchase the property at approximately the amount expended by the lessor to purchase the land and construct the building ("purchase value"). If the Company elects not to purchase the property at the end of the lease, Tech Data has guaranteed a percentage of the purchase value. This guaranty approximated $100.1 million at January 31, 2002. See Note 10 of Notes to Consolidated Financial Statements for additional disclosure.
The Company has also entered into other agreements to lease certain office space, logistics centers and equipment for varying periods. Management expects that in the normal course of business, these leases will be renewed or replaced by other leases.
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 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 inventory value.
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 that 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
The Company conducts business in multiple currencies, including the currencies of various European countries in the European Union which began participating in the single European currency by adopting the euro as their common currency as of January 1, 1999. During the transition period that ended December 31, 2001, the existing currencies of the member countries remained legal tender and customers and vendors of the Company continued to use these currencies when conducting business. Currency rates during this period, however, were not computed from one legacy currency to another but instead were first converted into the euro. On January 1, 2002, euro denominated bills and coins were issued and began circulating. Most participating countries planned to withdraw legacy currencies from circulation by February 28, 2002. No material costs were incurred nor were there any material adverse effects on the Company's financial position or results of operations as a result of the conversion to the euro.
Item 7a
Item 7a - Qualitative and Quantitative Disclosures About Market Risk
The Company, as a large international organization, faces exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material impact on the Company's financial results in the future. In the normal course of business, the Company employs established policies and procedures to manage its exposure to fluctuations in the value of foreign currencies using a variety of financial instruments. It is the Company's policy to utilize financial instruments to reduce risks where internal netting cannot be effectively employed and to not enter into foreign currency derivative instruments for speculative or trading purposes. 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 Europe, Canada and Latin America. In addition, the Company has foreign currency risk related to debt that is denominated in currencies other than the U.S. dollar. The Company's foreign currency risk management objective is to protect its earnings and cash flows from the adverse impact of exchange rate movements. Foreign exchange risk is managed by using forward, option and swap contracts to hedge intercompany loans, trade receivables and payables. Hedged transactions are denominated primarily in the following currencies: Canadian dollar, Danish krone, euros, Norwegian krone, Swedish krona, Swiss franc, British pound and Chilean peso.
The following table provides information about the Company's foreign currency derivative financial instruments outstanding as of January 31, 2002 and 2001. The information is provided in United States dollar equivalents. For the foreign currency contracts, the table presents the notional amount (at contractual exchange rates) and the weighted-average contractual foreign currency exchange rates. These contracts are generally for durations of 90 days or less.
Foreign Currency Contracts Notional Amounts by Expected Maturity Average Forward Foreign Currency Exchange Rate (Dollar amounts in millions, except weighted average contract rates)
Foreign Currency Contracts Notional Amounts by Expected Maturity Average Forward Foreign Currency Exchange Rate (Dollar amounts in millions, except weighted average contract rates)
The Company is exposed to changes in interest rates primarily as a result of its short- and long-term debt used to maintain liquidity and to finance working capital, capital expenditures and business expansion. Interest rate risk is also present in the forward foreign currency contracts hedging intercompany and third party loans. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve its objective, the Company uses a combination of fixed and variable rate debt. The nature and amount of the Company's long-term and short-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. As of January 31, 2002 and January 31, 2001, approximately 88% and 19%, respectively, of the outstanding debt had fixed interest rates (through the terms of such debt or through interest rate swap agreements). The Company finances working capital needs through bank loans, convertible subordinated debt and its accounts receivable securitization program. Interest rate swaps are used to hedge the interest rate risks of the underlying debt obligations.
The following table provides information about the Company's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates. Fair value for these instruments was determined based on third party valuations. All amounts are stated in United States dollar equivalents.
Debt and Interest Rate Contracts as of January 31, 2002 Principal Notional Amount by Expected Maturity (Dollar amounts in millions)
Debt and Interest Rate Contracts as of January 31, 2002 Principal Notional Amount by Expected Maturity (Dollar amounts in millions)
Debt and Interest Rate Contracts as of January 31, 2001 Principal Notional Amount by Expected Maturity (Dollar amounts in millions)
Debt and Interest Rate Contracts as of January 31, 2001 Principal Notional Amount by Expected Maturity (Dollar amounts in millions)
Prior to January 31, 2002 the Company presented market risk exposures using value at risk (VaR). In an effort to provide more information regarding derivative financial instruments and market risk, the Company has decided to disclose this information in the tabular format.
Comments on Forward-Looking Information
In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company has filed an Exhibit 99-A which outlines cautionary statements and identifies 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-K, should be considered in conjunction with Exhibit 99-A.
ITEM 8.
ITEM 8. Financial Statements and Supplementary Data
All schedules and exhibits not included are not applicable, not required or would contain information which is shown in the financial statements or notes thereto.
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders of Tech Data Corporation:
We have audited the accompanying consolidated balance sheets of Tech Data Corporation and subsidiaries as of January 31, 2002 and 2001, and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the Index at Item 14a. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tech Data Corporation and subsidiaries at January 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP Ernst & Young LLP Tampa, Florida March 13, 2002
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Tech Data Corporation
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the results of operations and cash flows for the year ended January 31, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein for the year ended January 31, 2000 when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP Tampa, Florida March 28, 2000
REPORT OF MANAGEMENT
To Our Shareholders:
The management of Tech Data Corporation is responsible for the preparation, integrity and objectivity of the consolidated financial statements and related financial information contained in this Annual Report. The financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States and, in the judgment of management, present fairly and consistently the Company's financial position and results of operations. The financial statements and other financial information in this report include amounts that are based on management's best estimates and judgments and give due consideration to materiality.
The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. The design, monitoring and revisions of the system of internal accounting controls involves, among other things, management's judgment with respect to the relative cost and expected benefits of specific control measures.
The Audit Committee of the Board of Directors is responsible for recommending to the Board the independent certified public accounting firm to be retained each year. The Audit Committee meets periodically with the independent accountants and management to review their performance and confirm that they are properly discharging their responsibilities. The independent accountants have direct access to the Audit Committee to discuss the scope and results of their work, the adequacy of internal accounting controls and the quality of financial reporting.
/s/ STEVEN A. RAYMUND /s/ JEFFERY P. HOWELLS Steven A. Raymund Jeffery P. Howells Chairman of the Board of Directors Executive Vice President and Chief Executive Officer and Chief Financial Officer
March 13, 2002
TECH DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands, except share amounts)
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
TECH DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share amounts)
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
TECH DATA CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands)
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
TECH DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands)
The accompanying Notes to Consolidated Financial Statements are an integral part of the these financial statements.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Tech Data is a leading provider of IT products, logistics management and other value-added services, and based on sales is the world's second largest distributor. The Company distributes microcomputer hardware and software products to value-added resellers, corporate resellers, retailers, direct marketers and Internet resellers. The Company and its subsidiaries distribute to more than 80 countries and serve over 100,000 resellers in the United States, Canada, the Caribbean, Latin America, Europe and the Middle East.
Principles of Consolidation
The consolidated financial statements include the accounts of Tech Data Corporation and its subsidiaries ("Tech Data" or the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. For further discussion, see Note 3 - Change in Year End of Certain Subsidiaries.
Method of Accounting
The Company prepares its financial statements in conformity with generally accepted accounting principles. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Sales are recorded upon shipment. The Company allows its customers to return product for exchange or credit subject to certain limitations. Provision for estimated losses on such returns are recorded at the time of sale. Funds received from vendors for marketing programs and product rebates are accounted for as a reduction of selling, general and administrative expenses or product cost according to the nature of the program. Shipping costs are included in the cost of products sold.
Inventories
Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed over the estimated economic lives (or lease period if shorter) using the following methods:
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Expenditures for renewals and improvements that significantly add to productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to operations when incurred. When assets are sold or retired, the cost of the asset and the related accumulated depreciation are eliminated from the accounts and any gain or loss is recognized at such time.
Long-Lived Assets
Long-lived assets are reviewed for potential impairment at such time when events or changes in circumstances indicate that recovery of the asset is unlikely. Any impairment loss would be recognized when the sum of the expected, undiscounted future net cash flows is less than the carrying amount of the asset.
Excess of Cost Over Fair Value of Acquired Net Assets
The excess of cost over fair value of acquired net assets ("goodwill") has been amortized on a straight-line basis over 15 to 40 years. Amortization expense was $8,640,000, $8,690,000, and $8,836,000 in 2002, 2001 and 2000, respectively. The accumulated amortization of goodwill is $30,308,000 and $23,187,000 at January 31, 2002 and 2001, respectively. With the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", effective as of February 1, 2002, goodwill will no longer be amortized and will be reviewed annually for possible impairment.
Intangibles
Included within other assets at January 31, 2002 are certain intangible assets including capitalized software costs and the allocation of a portion of the purchase price of Computer 2000 AG ("Computer 2000") to software used within the Computer 2000 entities and the value of the customer base acquired (see Note 2 - Acquisition and Disposition of Subsidiaries). Such capitalized costs are being amortized over three to ten years resulting in amortization expense of $11,605,000, $10,096,000, and $9,297,000 in 2002, 2001, and 2000, respectively. The accumulated amortization of such costs was $57,750,000 and $48,442,000 at January 31, 2002 and 2001, respectively. The remaining unamortized balance of such costs was $39,781,000 and $57,019,000 at January 31, 2002 and 2001, respectively.
Product Warranty
The Company's vendors generally warrant the products distributed by the Company and allow the Company to return defective products, including those that have been returned to the Company by its customers. The Company does not independently warrant the products it distributes; however, the Company does warrant services with regard to products integrated for its customers. A provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience. Warranty expense was not material to the Company's Consolidated Statement of Income.
Income Taxes
Income taxes are accounted for under the liability method. Deferred taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts. Deferred taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries or the cumulative translation adjustment related to those investments since such amounts are expected to be reinvested indefinitely.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Concentration of Credit Risk
The Company sells its products to a large base of value-added resellers, direct marketers, retailers, corporate resellers, and Internet resellers throughout the United States, Canada, the Caribbean, Latin America, Europe, and the Middle East. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company has obtained credit insurance which insures a percentage of credit extended by the Company to certain of its larger domestic and international customers against possible loss. The Company makes provisions for estimated credit losses at the time of sale.
No single customer accounted for more than 5% of the Company's net sales during fiscal 2002, 2001, or 2000. Also, with the exception of HP and Compaq, no single vendor accounted for more than 10% of Tech Data's net sales during fiscal 2002, 2001, or 2000. Sales of HP products accounted for 20%, 19%, and 19% of net sales in fiscal 2002, 2001, and 2000, respectively, and sales of Compaq products accounted for 18%, 20%, and 16% of net sales in fiscal 2002, 2001, and 2000, respectively.
Foreign Currency Translation
Assets and liabilities of foreign operations that operate in a local currency environment are translated to U.S. dollars at the exchange rates in effect at the balance sheet date, with the related translation gains or losses reported as a separate component of shareholders' equity (in the cumulative foreign currency translation adjustment account or "CTA"). Income and expense accounts of foreign operations are translated at the weighted average exchange rates during the year.
Derivative Financial Instruments
The Company operates internationally with logistics facilities in various locations around the world. The Company reduces its exposure to fluctuations in interest rates and foreign exchange rates by creating offsetting positions through the use of derivative financial instruments. The market risk related to the foreign exchange agreements is offset by changes in the valuation of the underlying items being hedged. The majority of the Company's derivative financial instruments have terms of 90 days or less. The Company currently does not use derivative financial instruments for trading or speculative purposes, nor is the Company a party to leveraged derivatives.
Derivative financial instruments are accounted for on an accrual basis with gains and losses on these contracts recorded in income in the period in which their value changes. Gains and losses resulting from effective accounting hedges of existing assets, liabilities or firm commitments are deferred and recognized when the offsetting gains and losses are recognized on the related hedged items.
The notional amount of forward exchange contracts and options is the amount of foreign currency to be bought or sold at maturity. The notional amount of interest rate swaps is the underlying principal used in determining the interest payments exchanged over the life of the swap. Notional amounts are indicative of the extent of the Company's involvement in the various types and uses of derivative financial instruments and are not a measure of the Company's exposure to credit or market risks through its use of derivatives. 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.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
The Company's derivative financial instruments outstanding at January 31, 2002 and 2001 are as follows:
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these items. The carrying amount of debt outstanding pursuant to bank credit agreements approximates fair value as interest rates on these instruments approximate current market rates. The estimated fair value of the convertible subordinated notes is approximately $607,108,000 and $270,000,000 at January 31, 2002 and 2001, respectively, based upon available market information.
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 changes in the Company's CTA account. For the years ended January 31, 2002, 2001 and 2000, the Company recorded deferred income taxes in the CTA account of $23,018,000, $20,101,000, and $12,942,000, respectively.
Stock-Based Compensation
The Company measures compensation costs in accordance with the Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance with the requirements of the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation", the appropriate pro forma disclosures relating to net income and earnings per share are provided. For further discussion see Note 8 -- Employee Benefit Plans.
Net Income Per Common Share
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 assuming the conversion of the convertible subordinated notes and exercise of the 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:
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
At January 31, 2002, 2001 and 2000, there were 83,045, 1,502,990, and 2,580,000 shares, respectively, excluded from the computation of diluted earnings per share because their effect would have been antidilutive.
In addition, the dilutive impact of the $290.0 million of convertible subordinated debentures, due 2021, is excluded from the diluted earnings per share calculations due to the contingent conversion feature which requires the market price of the common stock to exceed a specified percentage, beginning at 120% and declining 1/2% each year until it reaches 110% at maturity, of the conversion price per share of common stock. Holders may convert debentures into 16.7997 shares per $1,000 principal amount of debentures, equivalent to a conversion price of approximately $59.53 per share.
Cash Management System
Under the Company's cash management system, disbursements cleared by the bank are reimbursed on a daily basis from the revolving credit loans. As a result, checks issued but not yet presented to the bank are not considered reductions of cash or accounts payable. Included in accounts payable are $95,300,000, and $101,400,000 at January 31, 2002 and 2001, respectively, for which checks are outstanding.
Statement of Cash Flows
Short-term investments which have an original maturity of ninety days or less are considered cash equivalents in the statement of cash flows. During the year ended January 31, 2000, the effect of changes in foreign exchange rates on cash balances was not material.
Non-Cash Transactions
The Company entered into capital leases for a logistics center in Germany which totaled $3,848,000, $5,418,000 and $8,476,000 at January 31, 2002, 2001 and 2000, respectively.
Fiscal Year
The Company operates on a fiscal year that ends on January 31. For the period prior to fiscal 2000, the Company consolidated its European and Latin American subsidiaries on a fiscal year that ended on December 31. Effective for the year ended January 31, 2000, the Company changed the fiscal year end of the European subsidiaries from December 31 to January 31. For further discussion, see Note 3 - Change in Year End of Certain Subsidiaries.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 revises the standards of accounting for business combinations by eliminating the use of the pooling-of-interests method and requiring that all business combinations be accounted for using the purchase method of accounting. SFAS 141 also changes the criteria to recognize intangible assets apart from goodwill. The provisions of SFAS 141 are effective for all business combinations initiated after June 30, 2001. Impact of adoption of this statement on the Company's financial position and results of operations was not material.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 revises the standards of accounting for goodwill and indefinite-lived intangible assets by replacing the regular amortization of these assets with the requirement that they are reviewed annually for possible impairment, or more frequently if impairment indicators arise. Separable intangible assets that have finite lives will continue to be amortized over their estimated useful lives. The accounting standards of SFAS 142 are effective for fiscal years beginning after December 15, 2001. Application of the non- amortization provisions of the statement is expected to result in an increase in net income after tax of approximately $8.6 million ($.14 per diluted share) per year. During the first quarter for the fiscal year ending January 31, 2003, the Company finalized the required transitional impairment tests of goodwill and indefinite-lived intangible assets under the requirements of SFAS 142. Based on the results of the transitional impairment tests, Tech Data will not need to record any impairment for the adoption of this statement.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which is effective for fiscal periods beginning after December 15, 2001 and interim periods within those fiscal years. This statement supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. Under the provisions of APB 30, a segment of a business to be disposed of was measured at the lower of its carrying amount or net realizable value, adjusted for expected future operating losses, whereas SFAS 121 used fair value less cost to sell and excluded future operating losses from the measurement. SFAS 144 establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. The Company is currently evaluating the potential impact, if any, the adoption of SFAS 144 will have on the Company's financial position and results of operations.
Reclassifications
Certain prior year balances have been reclassified to conform with the current year presentation.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 2. ACQUISITION AND DISPOSITION OF SUBSIDIARIES
Acquisition of Computer 2000 AG
On July 1, 1998, Tech Data completed the acquisition of approximately 83% of the voting common stock of Computer 2000 AG ("Computer 2000"), a European distributor of technology products. The Company acquired 80% of the outstanding voting stock of Computer 2000 from its parent company, Klockner & Co. AG., a subsidiary of Munich-based VIAG AG, and an additional stake of approximately 3% of Computer 2000's shares from an institutional investor. The initial acquisition was completed through an exchange of approximately 2.2 million shares of Tech Data common stock and $300,000,000 of 5% convertible subordinated notes, due July 2003 (coupon rate of 5.0%, five year term and convertible into shares of common stock at $56.25 per share). The Company commenced a tender offer for the remaining Computer 2000 shares and on April 13, 1999 Computer 2000 adopted a resolution to integrate with Tech Data Germany AG ("Tech Data Germany"). As a result of this integration, Tech Data Germany acquired 100% of the shares of Computer 2000 in exchange for cash and a small amount of shares of Tech Data Germany. Computer 2000 remains as a wholly-owned subsidiary of Tech Data Germany. The tender offer, open market purchases and private purchase transactions were funded through the Company's revolving credit loan agreements.
The acquisition of Computer 2000 was accounted for under the purchase method. During the years ended January 31, 2001 and January 31, 2000, the Company acquired additional shares of Computer 2000 common stock, which, including other cash payments, has resulted in additional consideration of $18,200,000, and $18,300,000 respectively. The aggregate purchase price of approximately $536,500,000 was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition.
The excess of the purchase price over the fair value of net assets acquired of approximately $347,200,000 ($280,479,000 at the January 31, 2002 exchange rate) will no longer be amortized effective February 1, 2002 with the adoption of SFAS 142.
Acquisition of Globelle Corporation
On May 21, 1999, the Company acquired majority control of Globelle Corporation ("Globelle"), a mass storage and components distributor based in Canada. By October 8, 1999, the Company had acquired 100% of the outstanding stock of Globelle for total cash consideration of approximately $24,600,000. The acquisition of Globelle was accounted for under the purchase method. The purchase price allocation resulted in approximately $12,921,000 ($11,773,000 at the January 31, 2002 exchange rate) in excess purchase price over the net fair market value of tangible assets acquired as of January 31, 2000, which will no longer be amortized effective February 1, 2002 with the adoption of SFAS 142. Pro forma financial information related to the Globelle acquisition has not been presented since the acquisition was not material to the Company's financial position or results of operations. The year ended January 31, 2001 includes twelve months of results, while January 31, 2000 includes only seven months of results for Globelle.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3. CHANGE IN YEAR END OF CERTAIN SUBSIDIARIES
In fiscal 2000, the Company's Board of Directors approved a change in the fiscal year end of its European subsidiaries to January 31 to conform with the Company's year end. Tech Data's consolidated financial statements for the year ended January 31, 2000 include the operating results of these subsidiaries for the twelve months ended December 31, 1999 with the operating results for the month of January 2000 reflected in retained earnings as a result of the change. This change did not have a significant effect on the accompanying financial statements. Summarized financial information associated with the month of January 2000 for those foreign subsidiaries affected by this change is as follows:
Month ended January 31, 2000 ------------------ (In thousands)
Net sales.................................................. $617,284 Net income................................................. 27 Cash (used in)/provided by Operating activities.................................... (34,270) Investing activities.................................... (596) Financing activities.................................... 58,492
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment includes approximately $14,800,000 and $13,000,000 of assets under capital leases at January 31, 2002 and 2001, respectively. See Note 6 - Long-Term Debt.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $700,000,000. 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 $664,000,000 and $860,000,000 at January 31, 2002 and 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 designated commercial paper rates plus an agreed-upon margin. The Company intends to reduce the Receivables Securitization Program to $500,000,000 and renew it for another year prior to its expiration in May 2002.
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 $520,000,000. Under this facility, the Company has provided either a pledge of stock or a guarantee of certain of its significant subsidiaries. The Company pays interest on advances under this facility at the applicable eurocurrency rate plus a margin based on the Company's credit ratings. 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 $620,000,000 at January 31, 2002 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, restrictions on payment of dividends and restrictions on the amount of common stock that may be repurchased annually. At January 31, 2002, the Company was in compliance with all such covenants.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6. LONG-TERM DEBT
On July 1, 1998, the Company issued $300,000,000 of convertible subordinated debentures due July 1, 2003. The debentures bear interest at 5% per year and are convertible any time prior to maturity into shares of common stock at a conversion rate of 17.777 shares per $1,000 principal amount of debentures, equivalent to a conversion price of approximately $56.25 per share. The debentures are convertible into 5,333,100 shares of the Company's common stock. The debentures are redeemable in whole or in part for cash, in certain circumstances, at the option of the Company at any time on or after July 1, 2001.
In December 2001, the Company issued $290.0 million of convertible subordinated debentures due 2021. The debentures bear interest at 2% per year and are convertible into the Company's common stock at any time, if the market price of the common stock exceeds a specified percentage, beginning at 120% and declining 1/2% each year until it reaches 110% at maturity, of the conversion price per share of common stock, or in other specified instances. Holders may convert debentures into 16.7997 shares per $1,000 principal amount of debentures, equivalent to a conversion price of approximately $59.53 per share. The debentures are convertible into 4,871,913 shares of the Company's common stock. Holders have the option to require the Company to repurchase the debentures on any of the fourth, eighth, twelfth or sixteenth anniversary dates from the issue date at 100% of the principal amount plus accrued interest to the repurchase date. The Company has the option to satisfy any debentures submitted for repurchase in either cash and/or the Company's common stock, provided that shares of common stock at the first purchase date will be valued at 95% of fair market value (as defined in the indenture) and at 97.5% of fair market value for all subsequent purchase dates. The debentures are redeemable in whole or in part for cash, at the option of the Company at any time on or after December 20, 2005. The Company will pay contingent interest on the debentures during specified six-month periods beginning on December 15, 2005, if the market price of the debentures exceeds specified levels. In addition, the dilutive impact of the $290.0 million of convertible subordinated debentures, due 2021, is excluded from the diluted earnings per share calculations due to the contingent conversion feature.
The aforementioned debentures are subordinated in right of payment to all senior indebtedness of the Company and are effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6. LONG-TERM DEBT--(Continued)
Principal maturities of long-term debt at January 31, 2002 for succeeding fiscal years are as follows:
In August 2000, the Company filed a universal shelf registration statement with the Securities and Exchange Commission for $500,000,000 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 January 31, 2002, the Company had not issued any debt or equity securities under this registration statement, nor can any assurances be given that the Company will issue any debt or equity securities under this registration statement in the future.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
The net change in the valuation allowance for deferred tax assets was a decrease of $629,000 at January 31, 2002 and an increase of $1,019,000, and $1,187,000 at January 31, 2001 and 2000, respectively.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 7. INCOME TAXES--(Continued)
Significant components of the provision for income taxes are as follows:
The reconciliation of income tax attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax expense is as follows:
The components of pretax earnings are as follows:
The Company's foreign subsidiaries had deferred tax assets relating to net operating loss carryforwards of $149,000,000. The majority of the net operating losses have an indefinite carryforward period with the remaining portion expiring in years 2003 through 2012. A valuation allowance of $17,614,000 has been recognized to offset the deferred tax assets relating to the net operating loss carryforwards.
The cumulative amount of undistributed earnings of international subsidiaries for which U.S. income taxes have not been provided was approximately $288,000,000 at January 31, 2002. It is not practical to estimate the amount of unrecognized deferred U.S. taxes on these undistributed earnings.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8. EMPLOYEE BENEFIT PLANS
Stock Compensation Plans
At January 31, 2002, the Company had four stock-based compensation plans. Under the Company's various stock-based compensation plans, which cover 16,100,000 shares, the Company is authorized to award officers, employees, and non-employee members of the Board of Directors grants of restricted stock, options to purchase common stock, stock appreciation rights ("SARs"), limited stock appreciation rights ("Limited SARs"), and performance awards that are dependent upon achievement of specified performance goals. Stock options granted have a maximum term of 10 years, unless a shorter period is specified by the stock option committee of the Board of Directors. Awards under the plans are priced as determined by the stock option committee with the exception of stock option awards that are priced at the fair market value on the date of grant. Awards generally vest between one and five years from the date of grant. The Company applies APB Opinion 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for these plans.
A summary of the status of the Company's stock option plans is as follows:
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8. EMPLOYEE BENEFIT PLANS --(Continued)
Employee Stock Purchase Plan
Under the 1995 Employee Stock Purchase Plan approved in June 1995, the Company is authorized to issue up to 1,000,000 shares of common stock to eligible employees in the Company's U.S. and Canadian subsidiaries. Under the terms of the plan, employees can choose to have a fixed dollar amount or percentage deducted from their biweekly compensation to purchase the Company's common stock and/or elect to purchase shares once per calendar quarter. The purchase price of the stock is 85% of the market value on the exercise date and employees are limited to a maximum purchase of $25,000 in fair market value each calendar year. Since plan inception, the Company has sold 316,512 shares as of January 31, 2002. All shares purchased under this plan must be retained for a period of one year.
Pro Forma Effect of Stock Compensation Plans
Had the compensation cost for the Company's stock option plans and employee stock purchase plan been determined based on the fair value at the grant dates for awards under the plans consistent with the method prescribed by SFAS 123, "Accounting for Stock-Based Compensation", the Company's net income and net income per common share on a pro forma basis would have been (in thousands, except per share data):
The preceding pro forma results were calculated with the use of the Black- Scholes option-pricing model. The weighted-average fair value of options granted during fiscal 2002, 2001 and 2000 was $16.63, $18.24, and $9.20, respectively. The following assumptions were used for the years ended January 31, 2002, 2001 and 2000, respectively:
Results may vary depending on the assumptions applied within the model.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8. EMPLOYEE BENEFIT PLANS--(Continued)
Stock Ownership and Retirement Savings Plans
In 1984, the Company established an employee stock ownership plan (the "ESOP") covering substantially all U.S. employees. Contributions, in the form of company stock, were made to employees' accounts on an annual basis upon approval by the Board of Directors. The ESOP provided for distribution of vested percentages of the Company's common stock to participants. Such benefit became fully vested after seven years of qualified service. The Company also offered its U.S. employees a retirement savings plan pursuant to section 401(k) of the Internal Revenue Code ("401(k) Plan"). The Company's 401(k) Plan provided the ability for the Company to match deferrals in an amount determined annually by the Company's Board of Directors.
Effective January 1, 2000, the Company merged the assets of the ESOP and 401(k) Plan to form the Tech Data Corporation 401(k) Savings Plan ("the 401(k) Savings Plan"). At the Company's discretion, participant deferrals are matched monthly, in the form of company stock, in an amount equal to 50% of the first 6% of participant deferrals, with no maximum, and participants are fully vested following four years of qualified service.
At January 31, 2002 and 2001, the number of shares of Tech Data common stock held by the Company's 401(k) Savings Plan amounted to 652,000 shares and 796,000 shares, respectively. Aggregate contributions made by the Company to the 401(k) Savings Plan and the ESOP were $2,140,000, $2,686,000, and $2,740,000 for 2002, 2001 and 2000, respectively.
NOTE 9. CAPITAL STOCK
Each outstanding share of preferred stock is entitled to one vote on all matters submitted to a vote of shareholders, except for matters involving mergers, the sale of all Company assets, amendments to the Company's charter and exchanges of Company stock for stock of another company which require approval by a majority of each class of capital stock. In such matters, the preferred and common shareholders will each vote as a separate class.
During the fiscal year ended January 31, 2002, the Company completed a transaction wherein it exchanged 192,525 shares of its common stock for all of the issued and outstanding shares of preferred stock.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 10. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases logistics centers, office facilities and certain equipment under noncancelable operating leases that expire at various dates through 2015. Rental expense for all operating leases amounted to $48,056,000, $46,786,000, and $39,394,000 in 2002, 2001 and 2000, respectively. Future minimum lease payments under all such leases for succeeding fiscal years are as follows (in thousands):
Fiscal year:
2003.................................................. $ 37,730 2004.................................................. 30,333 2005.................................................. 23,135 2006.................................................. 18,006 2007.................................................. 13,500 Thereafter............................................ 133,413 -------------- Total payments........................................ $ 256,117 ==============
The Company leases certain of its logistics centers and office facilities under a five-year synthetic lease facility provided by a group of financial institutions which expires in May 2005. The sum of future minimum lease payments under this lease facility at January 31, 2002 was approximately $9.4 million, which is included in the schedule above. In accordance with the terms of the synthetic lease facility and the Internal Revenue Code, Tech Data claims tax deductions for interest and depreciation on the leased assets. The maximum funding of the Company's leasing activities available under the synthetic lease facility is $135.0 million (of which the Company had utilized $115.0 million at January 31, 2002). The synthetic lease facility has an initial term of five years, with rent obligations commencing on the date construction of a discrete project is complete. At any time during the term of the lease, the Company may, at its option, purchase the property at approximately the amount expended by the lessor to purchase the land and construct the building ("purchase value"). If the Company elects not to purchase the property at the end of the lease, Tech Data has guaranteed a percentage of the purchase value. This guaranty approximated $100.1 million at January 31, 2002.
Properties leased under the synthetic lease facility, both completed and under construction, total 2.1 million square feet of space, with land totaling 194 acres located in Clearwater and Miami, Florida; Fort Worth, Texas; Fontana, California; Atlanta, Georgia and Swedesboro, New Jersey.
Contingencies
The Company has guaranteed the repayment of indebtedness of certain customers to unrelated third parties. The total amount of indebtedness covered by these guarantees was approximately $16,200,000 at January 31, 2002.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11. 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 income from operations. The accounting policies of the segments are the same as those described in Note 1 -- Summary of Significant Accounting Policies.
Financial information by geographic segments is as follows (in thousands):
{a} The amounts shown above include special charges in the amount of $27.0 million recorded for the fiscal year ended January 31, 2002. Of this amount, $25.5 million related to U.S. operations and $1.5 million related to European operations. See Note 13 - Special Charges.
TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 12. UNAUDITED INTERIM FINANCIAL INFORMATION
NOTE 13. SPECIAL CHARGES
In fiscal 2002, the Company recorded special charges totaling $27.0 million before taxes. Of the $27.0 million in special charges, the Company recognized $20.1 million for the write-off of previously capitalized software. The Company made the decision to write off the software because the Company achieved most of the anticipated benefits originally planned when it purchased or began development of the software through alternative systems and processes. Thus, the Company no longer saw the benefit of incurring significant additional development costs necessary to implement the software.
The Company also recognized special charges of $5.4 million during the fiscal year ended January 31, 2002 for the impairment of the Company's investments in the equity securities of certain privately-held, Internet-related companies. Recognition of an impairment charge was the result of the companies in which the investments were held experiencing a series of operating losses which appear to be other than temporary, and raised substantial doubts about Tech Data's ability to recoup its full investment.
Finally, the Company wrote off $1.5 million of costs during the fiscal year ended January 31, 2002 associated with the development of a new logistics center in Germany. The construction of this facility has been indefinitely deferred as a result of the economic downturn.
The total of these special charges are presented separately as a component of income from operations in the Consolidated Statement of Income, and other than the $1.5 million for the German logistics center, relates entirely to the Company's U.S. operations.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
TECH DATA CORPORATION AND SUBSIDIARIES
PART III
ITEMS 10, 11, 12 and 13.
The information required by Item 10
ITEM 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) See index to financial statements and schedules included in Item 8.
(b) The Company filed a Current Report on Form 8-K on December 10, 2001 and on December 26, 2001 in connection with the issuance of its press releases, for the announcement, offering and sale of the $290 million 2% convertible subordinated debentures.
(c) The exhibit numbers on the following list correspond to the numbers in the exhibit table required pursuant to Item 601 of Regulation S-K.
Exhibit Number Description ------- ----------- 3-A/(1)/ - Articles of Incorporation of the Company as amended to April 23, 1986. 3-B/(2)/ - Articles of Amendment to Articles of Incorporation of the Company filed on August 27, 1987. 3-C/(13)/ - By-Laws of the Company as amended to November 28, 1995. 3-F/(9)/ - Articles of Amendment to Articles of Incorporation of the Company filed on July 15, 1993. 3-G/(15)/ - Articles of Amendment to Articles of Incorporation of the Company filed on June 25, 1997. 3-H/(20)/ - By-Laws of the Company as adopted on March 25, 1997. 3-I/(20)/ - Amendment to By-Laws of the Company as adopted on March 30, 1999. 3-J/(20)/ - Amendment to By-Laws of the Company as adopted on April 5, 2000. 3-K/(21)/ - Amendment to By-Laws of the Company as adopted on June 23, 1998. 3-L/(21)/ - Articles of Amendment to Amended and Restated Articles of Incorporation of the Company as of June 24, 1998. 4-A/(26)/ - Indenture between the Company and Bank One Trust Company, N.A., dated as of December 10, 2001. 4-B/(26)/ - Registration Agreement dated as of December 10, 2001 between the Company and Salomon Smith Barney Inc., as representative of the initial purchasers. 10-F/(4)/ - Incentive Stock Option Plan, as amended, and form of option agreement. 10-G/(10)/ - Employee Stock Ownership Plan as amended December 16, 1994.
Exhibit Number Description - ------- -----------
10-V/(5)/ - Employment Agreement between the Company and Edward C. Raymund dated as of January 31, 1991. 10-W/(5)/ - Irrevocable Proxy and Escrow Agreement dated April 5, 1991. 10-X/(6)/ - First Amendment to the Employment Agreement between the Company and Edward C. Raymund dated November 13, 1992. 10-Y/(6)/ - First Amendment in the nature of a Complete Substitution to the Irrevocable Proxy and Escrow Agreement dated November 13, 1992. 10-Z/(6) / - 1990 Incentive and Non-Statutory Stock Option Plan as amended. 10-AA/(7)/ - Non-Statutory Stock Option Grant Form. 10-BB/(7)/ - Incentive Stock Option Grant Form. 10-CC/(8)/ - Employment Agreement between the Company and Steven A. Raymund dated February 1, 1992. 10-EE/(10)/ - Retirement Savings Plan as amended January 26, 1994. 10-FF/(9)/ - Revolving Credit and Reimbursement Agreement dated December 22, 1993. 10-GG/(9)/ - Transfer and Administration Agreement dated December 22, 1993. 10-HH/(10)/ - Amendments (Nos. 1-4) to the Transfer and Administration Agreement. 10-II/(10)/ - Amended and Restated Revolving Credit and Reimbursement Agreement dated July 28, 1994, as amended. 10-JJ/(10)/ - Revolving Foreign Currency Agreement dated August 4, 1994, as amended. 10-KK/(13)/ - Amendments (Nos. 5,6) to the Transfer and Administration Agreement. 10-LL/(13)/ - Amendments (Nos. 3-5) to the Amended and Restated Revolving Credit and Reimbursement Agreement dated July 28, 1994, as amended. 10-MM/(13)/ - Amendments (Nos. 3-5) to the Revolving Foreign Currency Agreement dated August 4, 1994, as amended. 10-NN/(12)/ - Non-Employee Directors' 1995 Non-Statutory Stock Option Plan. 10-OO/(12)/ - 1995 Employee Stock Purchase Plan. 10-PP/(12)/ - Employment Agreement between the Company and A. Timothy Godwin dated as of December 5, 1995. 10-QQ/(14)/ - Amended and Restated Transfer and Administration Agreement dated January 21, 1997. 10-RR/(14)/ - Amendment Number 1 to the Amended and Restated Transfer and Administration Agreement dated January 21, 1997, as amended. 10-SS/(14)/ - Revolving Credit and Reimbursement Agreement dated May 23, 1996. 10-TT/(15)/ - Amendment Number 2 to the Amended and Restated Transfer and Administration Agreement dated January 21, 1997, as amended. 10-UU/(15)/ - Revolving Credit and Reimbursement Agreement dated August 28, 1997. 10-VV/(16)/ - Amendment Number 3 to the Amended and Restated Transfer and Administration Agreement dated January 21, 1997, as amended. 10-WW/(17)/ - Amendments (Nos. 1-2) to the Revolving Credit and Reimbursement Agreement dated August 28, 1997, as amended. 10-XX/(17)/ - Amendments (Nos. 4-6) to the Amended and Restated Transfer and Administration Agreement dated January 21, 1997, as amended. 10-YY/(18)/ - Second Amended and Restated Transfer and Administration Agreement dated February 10, 1999. 10-ZZ/(19)/ - Amendments (Nos. 1,2) to Second Amended and Restated Transfer and Administration Agreement. 10-AAa/(20)/ - Transfer and Administration Agreement dated May 19, 2000. 10-AAb/(20)/ - Credit Agreement dated as of May 8, 2000. 10-AAc/(20)/ - Amended and Restated Participation Agreement dated as of May 8, 2000. 10-AAd/(20)/ - Amended and Restated Lease Agreement dated as of May 8, 2000. 10-AAe/(20)/ - Amended and Restated Agency Agreement dated as of May 8, 2000. 10-AAf/(22)/ - Retirement Savings Plan as amended July 14, 1999. 10-AAg/(23)/ - Tech Data Corporation 401(K) Savings Plan dated January 1, 2000.
Exhibit Number Description - ------- ----------- 10-AAh/(27)/ - Amendment Number 1 to the Transfer and Administration Agreement dated November 2, 2000. 10-AAi/(24)/ - 2000 Non-Qualified Stock Option Plan of Tech Data Corporation. 10-AAj/(24)/ - 2000 Equity Incentive Plan of Tech Data Corporation. 10-AAk/(25)/ - Amendment Number 2 to the Transfer and Administration Agreement dated May 17, 2001. 21-A/(3)/ - Subsidiaries of Registrant. 23-A/(3)/ - Consent of Ernst & Young LLP. 23-B/(3)/ - Consent of PricewaterhouseCoopers LLP. 99-A/(3)/ - Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995.
_____________
(1) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-1, File No. 33-4135. (2) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-1, File No. 33-21997. (3) Filed herewith. (4) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-8, File No. 33-21879. (5) Incorporated by reference to the Exhibits included in the Company's Form 10-Q for the quarter ended July 31, 1991, File No. 0-14625. (6) Incorporated by reference to the Exhibits included in the Company's Form 10-Q for the quarter ended October 31, 1992, File No. 0-14625. (7) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-8, File No. 33-41074. (8) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1993, File No. 0-14625. (9) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1994, File No. 0-14625. (10) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1995, File No. 0-14625. (11) Incorporated by reference to the Exhibits included in the Company's Form 8-K filed on March 26, 1996, File No. 0-14625. (12) Incorporated by reference to the Exhibits included in the Company's Definitive Proxy Statement for the 1995 Annual Meeting of Shareholders, File No. 0-14625. (13) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1996, File No. 0-14625. (14) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1997, File No. 0-14625. (15) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-3, File No. 333-36999. (16) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1998, File No. 0-14625. (17) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1999, File No. 0-14625. (18) Incorporated by reference to the Exhibits included in the Company's Form 10-Q for the quarter ended July 31, 1999, File No. 0-14625. (19) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 2000, File No. 0-14625. (20) Incorporated by reference to the Exhibits included in the Company's Form 10-Q for the quarter ended July 31, 2000, File No. 0-14625. (21) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-3, File No. 333-44848. (22) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-8, File No. 333-85509.
(23) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-8, File No. 333-93801. (24) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-8, File No. 333-59198. (25) Incorporated by reference to the Exhibits included in the Company's Form 10-Q for the quarter ended July 31, 2001, File No. 0-14625. (26) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-3, File No. 333-76858. (27) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 2001, File No. 0-14625.
SCHEDULE II
TECH DATA CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (In thousands)
_______________
/(1)/ "Other" includes recoveries, acquisitions, dispositions, the effect of fluctuations in foreign currency and the effect of the change in year end of certain subsidiaries (see Note 3 to Notes to Consolidated Financial Statements).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on April 24, 2002.
TECH DATA CORPORATION
By /s/ STEVEN A. RAYMUND ---------------------- Steven A. Raymund, Chairman of the Board of Directors; Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature to this Annual Report on Form 10-K appears below hereby appoints Jeffery P. Howells and Arthur W. Singleton, or either of them, as his attorney-in-fact to sign on his behalf individually and in the capacity stated below and to file all amendments and post-effective amendments to this Annual Report on Form 10-K, and any and all instruments or documents filed as a part of or in connection with this Annual Report on Form 10-K or the amendments thereto, and the attorney-in-fact, or either of them, may make such changes and additions to this Annual Report on Form 10-K as the attorney-in-fact, or either of them, may deem necessary or appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
Exhibit Number Description ------- ----------- 3-A/(1)/ - Articles of Incorporation of the Company as amended to April 23, 1986. 3-B/(2)/ - Articles of Amendment to Articles of Incorporation of the Company filed on August 27, 1987. 3-C/(13)/ - By-Laws of the Company as amended to November 28, 1995. 3-F/(9)/ - Articles of Amendment to Articles of Incorporation of the Company filed on July 15, 1993. 3-G/(15)/ - Articles of Amendment to Articles of Incorporation of the Company filed on June 25, 1997. 3-H/(20)/ - By-Laws of the Company as adopted on March 25, 1997. 3-I/(20)/ - Amendment to By-Laws of the Company as adopted on March 30, 1999. 3-J/(20)/ - Amendment to By-Laws of the Company as adopted on April 5, 2000. 3-K/(21)/ - Amendment to By-Laws of the Company as adopted on June 23, 1998. 3-L/(21)/ - Articles of Amendment to Amended and Restated Articles of Incorporation of the Company as of June 24, 1998. 4-A/(26)/ - Indenture between the Company and Bank One Trust Company, N.A., dated as of December 10, 2001. 4-B/(26)/ - Registration Agreement dated as of December 10, 2001 between the Company and Salomon Smith Barney Inc., as representative of the initial purchasers. 10-F/(4)/ - Incentive Stock Option Plan, as amended, and form of option agreement. 10-G/(10)/ - Employee Stock Ownership Plan as amended December 16, 1994.
Exhibit Number Description - ------- -----------
10-V/(5)/ - Employment Agreement between the Company and Edward C. Raymund dated as of January 31, 1991. 10-W/(5)/ - Irrevocable Proxy and Escrow Agreement dated April 5, 1991. 10-X/(6)/ - First Amendment to the Employment Agreement between the Company and Edward C. Raymund dated November 13, 1992. 10-Y/(6)/ - First Amendment in the nature of a Complete Substitution to the Irrevocable Proxy and Escrow Agreement dated November 13, 1992. 10-Z/(6) / - 1990 Incentive and Non-Statutory Stock Option Plan as amended. 10-AA/(7)/ - Non-Statutory Stock Option Grant Form. 10-BB/(7)/ - Incentive Stock Option Grant Form. 10-CC/(8)/ - Employment Agreement between the Company and Steven A. Raymund dated February 1, 1992. 10-EE/(10)/ - Retirement Savings Plan as amended January 26, 1994. 10-FF/(9)/ - Revolving Credit and Reimbursement Agreement dated December 22, 1993. 10-GG/(9)/ - Transfer and Administration Agreement dated December 22, 1993. 10-HH/(10)/ - Amendments (Nos. 1-4) to the Transfer and Administration Agreement. 10-II/(10)/ - Amended and Restated Revolving Credit and Reimbursement Agreement dated July 28, 1994, as amended. 10-JJ/(10)/ - Revolving Foreign Currency Agreement dated August 4, 1994, as amended. 10-KK/(13)/ - Amendments (Nos. 5,6) to the Transfer and Administration Agreement. 10-LL/(13)/ - Amendments (Nos. 3-5) to the Amended and Restated Revolving Credit and Reimbursement Agreement dated July 28, 1994, as amended. 10-MM/(13)/ - Amendments (Nos. 3-5) to the Revolving Foreign Currency Agreement dated August 4, 1994, as amended. 10-NN/(12)/ - Non-Employee Directors' 1995 Non-Statutory Stock Option Plan. 10-OO/(12)/ - 1995 Employee Stock Purchase Plan. 10-PP/(12)/ - Employment Agreement between the Company and A. Timothy Godwin dated as of December 5, 1995. 10-QQ/(14)/ - Amended and Restated Transfer and Administration Agreement dated January 21, 1997. 10-RR/(14)/ - Amendment Number 1 to the Amended and Restated Transfer and Administration Agreement dated January 21, 1997, as amended. 10-SS/(14)/ - Revolving Credit and Reimbursement Agreement dated May 23, 1996. 10-TT/(15)/ - Amendment Number 2 to the Amended and Restated Transfer and Administration Agreement dated January 21, 1997, as amended. 10-UU/(15)/ - Revolving Credit and Reimbursement Agreement dated August 28, 1997. 10-VV/(16)/ - Amendment Number 3 to the Amended and Restated Transfer and Administration Agreement dated January 21, 1997, as amended. 10-WW/(17)/ - Amendments (Nos. 1-2) to the Revolving Credit and Reimbursement Agreement dated August 28, 1997, as amended. 10-XX/(17)/ - Amendments (Nos. 4-6) to the Amended and Restated Transfer and Administration Agreement dated January 21, 1997, as amended. 10-YY/(18)/ - Second Amended and Restated Transfer and Administration Agreement dated February 10, 1999. 10-ZZ/(19)/ - Amendments (Nos. 1,2) to Second Amended and Restated Transfer and Administration Agreement. 10-AAa/(20)/ - Transfer and Administration Agreement dated May 19, 2000. 10-AAb/(20)/ - Credit Agreement dated as of May 8, 2000. 10-AAc/(20)/ - Amended and Restated Participation Agreement dated as of May 8, 2000. 10-AAd/(20)/ - Amended and Restated Lease Agreement dated as of May 8, 2000. 10-AAe/(20)/ - Amended and Restated Agency Agreement dated as of May 8, 2000. 10-AAf/(22)/ - Retirement Savings Plan as amended July 14, 1999. 10-AAg/(23)/ - Tech Data Corporation 401(K) Savings Plan dated January 1, 2000.
Exhibit Number Description - ------- ----------- 10-AAh/(27)/ - Amendment Number 1 to the Transfer and Administration Agreement dated November 2, 2000. 10-AAi/(24)/ - 2000 Non-Qualified Stock Option Plan of Tech Data Corporation. 10-AAj/(24)/ - 2000 Equity Incentive Plan of Tech Data Corporation. 10-AAk/(25)/ - Amendment Number 2 to the Transfer and Administration Agreement dated May 17, 2001. 21-A/(3)/ - Subsidiaries of Registrant. 23-A/(3)/ - Consent of Ernst & Young LLP. 23-B/(3)/ - Consent of PricewaterhouseCoopers LLP. 99-A/(3)/ - Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995.
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(1) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-1, File No. 33-4135. (2) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-1, File No. 33-21997. (3) Filed herewith. (4) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-8, File No. 33-21879. (5) Incorporated by reference to the Exhibits included in the Company's Form 10-Q for the quarter ended July 31, 1991, File No. 0-14625. (6) Incorporated by reference to the Exhibits included in the Company's Form 10-Q for the quarter ended October 31, 1992, File No. 0-14625. (7) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-8, File No. 33-41074. (8) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1993, File No. 0-14625. (9) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1994, File No. 0-14625. (10) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1995, File No. 0-14625. (11) Incorporated by reference to the Exhibits included in the Company's Form 8-K filed on March 26, 1996, File No. 0-14625. (12) Incorporated by reference to the Exhibits included in the Company's Definitive Proxy Statement for the 1995 Annual Meeting of Shareholders, File No. 0-14625. (13) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1996, File No. 0-14625. (14) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1997, File No. 0-14625. (15) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-3, File No. 333-36999. (16) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1998, File No. 0-14625. (17) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 1999, File No. 0-14625. (18) Incorporated by reference to the Exhibits included in the Company's Form 10-Q for the quarter ended July 31, 1999, File No. 0-14625. (19) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 2000, File No. 0-14625. (20) Incorporated by reference to the Exhibits included in the Company's Form 10-Q for the quarter ended July 31, 2000, File No. 0-14625. (21) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-3, File No. 333-44848. (22) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-8, File No. 333-85509.
(23) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-8, File No. 333-93801. (24) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-8, File No. 333-59198. (25) Incorporated by reference to the Exhibits included in the Company's Form 10-Q for the quarter ended July 31, 2001, File No. 0-14625. (26) Incorporated by reference to the Exhibits included in the Company's Registration Statement on Form S-3, File No. 333-76858. (27) Incorporated by reference to the Exhibits included in the Company's Form 10-K for the year ended January 31, 2001, File No. 0-14625.