NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Tech Data Corporation (“Tech Data” or the “Company”) is one of the world’s largest IT distribution and solutions companies. Tech Data serves a critical role in the center of the IT ecosystem, bringing products from the world’s leading technology vendors to market, as well as helping customers create solutions best suited to maximize business outcomes for their end-user customers. Tech Data’s customers include value-added resellers, direct marketers, retailers, corporate resellers and managed service providers who support the diverse technology needs of end users. The Company manages its operations in three geographic segments: the Americas, Europe and Asia-Pacific.
On November 12, 2019, the Company entered into an Agreement and Plan of Merger, as subsequently amended on November 27, 2019 (the ''Merger Agreement''), with the affiliates of certain funds (the “Apollo Funds”), managed by affiliates of Apollo Global Management, LLC (“Apollo”), a leading global alternative investment manager. Pursuant to the Merger Agreement, the affiliates of the Apollo Funds will acquire all the outstanding shares of the Company’s common stock (other than shares held by the Company as treasury stock or held by certain affiliates of the Apollo Funds) for $145 per share in cash (the “Merger”). The completion of the Merger is subject to certain foreign regulatory approvals and other customary closing conditions. All applications for foreign regulatory approvals have been filed, and some have been granted while others are still pending.
Principles of Consolidation
The consolidated financial statements include the accounts of Tech Data and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company operates on a fiscal year that ends on January 31.
Basis of Presentation
The consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the United States ("U.S.") Securities and Exchange Commission (“SEC”). The Company prepares its financial statements in conformity with generally accepted accounting principles in the U.S. (“GAAP”). 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
The Company’s revenues primarily result from the sale of various technology products and services. The Company recognizes revenue as control of products is transferred to customers, which generally happens at the point of shipment. Products sold by the Company are delivered via shipment from the Company’s facilities, dropshipment directly from the vendor, or by electronic delivery of keys for software products. In relation to product support, supply chain management and other services performed by the Company, revenue is recognized over time as the services are performed. Service revenues and related contract liabilities were not material for the periods presented.
The Company has contracts with certain customers where the Company’s performance obligation is to arrange for the products or services to be provided by another party. In these arrangements, as the Company assumes an agency relationship in the transaction, revenue is recognized in the amount of the net fee associated with serving as an agent. These arrangements primarily relate to certain fulfillment contracts, as well as sales of software services and extended warranty services.
The Company allows its customers to return product for exchange or credit subject to certain limitations. A liability is recorded at the time of sale for estimated product returns based upon historical experience and an asset is recognized for the amount expected to be recorded in inventory upon product return. The Company also provides volume rebates and other discounts to certain customers which are considered variable consideration. A provision for customer rebates and other discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience.
The Company considers shipping & handling activities as costs to fulfill the sales of products. Shipping revenue is included in net sales when control of the product is transferred to the customer, and the related shipping and handling costs are included in cost of products sold. Taxes imposed by governmental authorities on the Company’s revenue producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales.
The Company disaggregates its operating segment revenue by geography, which the Company believes provides a meaningful depiction of the nature of its revenue. Net sales shown in Note 16 – Segment Information includes service revenues, which are not a significant component of total revenue, and are aggregated within the respective geographies.
The following table provides a comparison of sales generated from products purchased from vendors that exceeded 10% of the Company's consolidated net sales for fiscal 2020, 2019 and 2018 (as a percent of consolidated net sales):
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2020
|
2019
|
2018
|
Apple, Inc.
|
16%
|
16%
|
17%
|
Cisco Systems, Inc.
|
10%
|
11%
|
11%
|
HP Inc.
|
10%
|
11%
|
11%
|
Cash and Cash Equivalents
Short-term investments which are highly liquid and have an original maturity of 90 days or less are considered cash equivalents.
Investments
The Company invests in life insurance policies to fund the Company’s nonqualified deferred compensation plan. The life insurance asset recorded by the Company is the amount that would be realized upon the assumed surrender of the policy. This amount is based on the underlying fair value of the invested assets contained within the life insurance policies. The gains and losses are recorded in the Company’s Consolidated Statement of Income within "other expense (income), net."
Accounts Receivable
The Company maintains an allowance for doubtful accounts receivable for estimated losses resulting from the inability or unwillingness of its customers to make required payments. In estimating the required allowance, the Company takes into consideration the overall quality and aging of the receivable portfolio, the large number of customers and their dispersion across wide geographic areas, the existence of credit insurance where applicable, specifically identified customer risks, historical write-off experience and the current economic environment.
The Company has uncommitted accounts receivable purchase agreements under which certain accounts receivable may be sold, without recourse, to third-party financial institutions. Under these programs, the Company may sell certain accounts receivable in exchange for cash less a discount, as defined in the agreements. Available capacity under these programs, which the Company uses as a source of working capital funding, is dependent on the level of accounts receivable eligible to be sold into these programs and the financial institutions' willingness to purchase such receivables. In addition, certain of these agreements also require that the Company continue to service, administer and collect the sold accounts receivable. At January 31, 2020 and 2019, the Company had a total of $739.2 million and $1.1 billion, respectively, of accounts receivable sold to and held by financial institutions under these agreements. Discount fees recorded under these facilities, which are included as a component of "other expense (income), net" in the Company's Consolidated Statement of Income, were $15.9 million, $14.9 million and $9.0 million during the fiscal years ended January 31, 2020, 2019 and 2018, respectively.
Inventories
Inventories, consisting entirely of finished goods, are stated at the lower of cost or net realizable value, cost being determined on a moving average cost basis. Inventory is written down for estimated obsolescence equal to the difference between the cost of inventory and the net realizable value, based upon an aging analysis of the inventory on hand, specifically known inventory-related risks (such as technological obsolescence and the nature of vendor terms surrounding price protection and product returns), foreign currency fluctuations for foreign-sourced products and assumptions about future demand.
Vendor Programs
The Company participates in various vendor programs under which the vendor may provide certain incentives such as cooperative advertising allowances, infrastructure funding, more favorable payment terms, early pay discounts and rebate arrangements. These programs are generally under quarterly, semi-annual or annual agreements with the vendors; however, some of these programs are negotiated on an ad-hoc basis mutually developed with the vendor. Volume rebates and early payment discounts received from vendors are recorded when they are earned as a reduction of inventory and as a reduction of cost of products sold as the related inventory is sold. Vendor incentives for specifically identified cooperative advertising programs and infrastructure funding are recorded when earned as adjustments to cost of products sold or selling, general and administrative expenses, depending on the nature of the program. Reserves for receivables on vendor programs are recorded for estimated losses resulting from vendors’ inability to pay or rejections of claims by vendors.
Property and Equipment
Property and equipment are stated at cost. Depreciation expense includes depreciation of purchased property and equipment. Depreciation expense is computed over the shorter of the estimated economic lives or lease periods using the straight-line method, generally as follows:
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Years
|
Buildings and improvements
|
|
|
|
|
|
15
|
-
|
39
|
Leasehold improvements
|
|
|
|
|
|
3
|
-
|
10
|
Furniture, fixtures and equipment
|
|
|
|
|
|
3
|
-
|
10
|
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 and any gain or loss is recognized at such time.
Intangible Assets, net
Included within "intangible assets, net," at both January 31, 2020 and 2019 are capitalized software and development costs, as well as customer and vendor relationships, trade names and other intangible assets acquired in connection with various business acquisitions. Such capitalized costs and intangible assets are being amortized over a period of three years to fifteen years.
The Company’s capitalized software has been obtained or developed for internal use only. Development and acquisition costs are capitalized for computer software only when management authorizes and commits to funding a computer software project through the approval of a capital expenditure requisition, and the software project is either for the development of new software, to increase the life of existing software or to add significantly to the functionality of existing software. Once these requirements have been met, capitalization would begin at the point that conceptual formulation, evaluation, design and testing of possible software project alternatives have been completed. Capitalization ceases when the software project is substantially complete and ready for its intended use. The Company’s accounting policy is to amortize capitalized software costs on a straight-line basis over periods ranging from three years to ten years, depending upon the nature of the software, the stability of the hardware platform on which the software is installed, its fit in the Company’s overall strategy and the Company's experience with similar software.
Prepaid maintenance fees associated with a software application are accounted for separately from the related software and amortized over the life of the maintenance agreement. General, administrative, overhead, training, non-development data conversion processes, and maintenance costs, as well as the costs associated with the preliminary project and post-implementation stages are expensed as incurred.
Impairment of Long-Lived Assets
Long-lived assets, including property and equipment and intangible assets, are reviewed for potential impairment at such time when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss is evaluated when the sum of the expected, undiscounted future net cash flows is less than the carrying amount of the asset. Any impairment loss is measured by comparing the fair value of the asset to its carrying value.
Goodwill
The Company performs an annual review for the potential impairment of the carrying value of goodwill, or more frequently if current events and circumstances indicate a possible impairment. For purposes of its goodwill analysis, the Company has three reporting units, which are also the Company’s operating segments. The Company evaluates the appropriateness of performing a qualitative assessment, on a reporting unit level, based on current circumstances. If the results of the qualitative assessment indicate that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, the quantitative impairment test will not be performed. The factors that are considered in the qualitative analysis include macroeconomic conditions, industry and market considerations, cost factors such as increases in product cost, labor, or other costs that would have a negative effect on earnings and cash flows and other relevant entity-specific events and information.
If the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative impairment test is performed. The quantitative impairment test compares the fair values of the Company's reporting units with their carrying amounts, including goodwill. The fair values of the reporting units are estimated using market and discounted cash flow approaches. The assumptions used in the market approach are based on the value of a business through an analysis of multiples of guideline companies and recent sales or offerings of a comparable entity. The assumptions used in the discounted cash flow approach are based on historical and forecasted revenue, operating costs, working capital requirements, economic conditions and other relevant factors. If the carrying amount of a reporting unit exceeds its fair value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, only to the extent of the carrying value of goodwill allocated to that reporting unit (see Note 4 – Goodwill and Intangible Assets for further discussion).
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 typically does not independently warrant the products it distributes; however, in several countries where the Company operates, the Company is responsible for defective product as a matter of law. The time period required by law in certain countries exceeds the warranty period provided by the manufacturer. The Company is obligated to provide warranty protection for sales of certain IT products within the European Union (“EU”) for up to two years as required under the EU directive where vendors have not affirmatively agreed to provide pass-through protection. To date, the Company has not incurred any significant costs for defective products under these legal requirements. 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. To date, the Company has not incurred any significant service warranty costs.
Income Taxes
The Company’s calculation of income taxes is based on current enacted tax laws and tax rates of each tax jurisdiction. Due to the Company’s global structure, the estimation and calculation of income taxes involves the interpretation and application of complex statutes, regulations, and case law in multiple jurisdictions, including the income tax impact of the legal entity ownership structure, and which are subject to legal and factual interpretation and judgment.
Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the book basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the fiscal period that includes the enactment date.
The Company considers all positive and negative evidence available in determining the potential realization of deferred tax assets, including the scheduled reversal of temporary differences, recent cumulative losses, recent and projected future taxable income and prudent and feasible tax planning strategies. In making this determination, the Company places greater emphasis on recent cumulative losses and recent taxable income due to the inherent lack of subjectivity associated with these factors. In addition, the Company is subject to the periodic examination of its income tax returns by the Internal Revenue Service and other tax authorities. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes.
Concentration of Credit Risk
The Company’s financial instruments which are subject to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and foreign currency exchange contracts. The Company’s cash and cash equivalents are deposited and/or invested with various financial institutions globally that are monitored on a regular basis by the Company for credit quality.
The Company sells its products to a large base of value-added resellers, direct marketers, retailers, corporate resellers and managed service providers. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company has obtained credit insurance, primarily in Europe, which insures a percentage of credit extended by the Company to certain of its customers against possible loss. The Company maintains provisions for estimated credit losses. No single customer accounted for more than 10% of the Company’s net sales during fiscal years 2020, 2019 and 2018.
The Company also enters into foreign currency exchange contracts. In the event of a failure to honor one of these contracts by one of the banks with which the Company has contracted, the Company believes any loss would be limited in most circumstances to the exchange rate differential from the time the contract was executed until the time the contract was settled. The Company’s foreign currency exchange contracts are executed with various financial institutions globally and are monitored on a regular basis by the Company for credit quality.
Foreign Currency Translation and Remeasurement
The assets and liabilities of the Company's foreign subsidiaries for which the local currency is the functional currency are translated into U.S. dollars using the exchange rate in effect at each balance sheet date and income and expense accounts are translated using weighted average exchange rates for each period during the year. Translation gains and losses are reported as components of "accumulated other comprehensive income", included within shareholders’ equity in the Company's Consolidated Balance Sheet. Gains and losses from foreign currency transactions are included in the Company's Consolidated Statement of Income.
Derivative Financial Instruments
The Company faces exposure to changes in foreign currency exchange rates. The Company reduces its exposure by creating offsetting positions through the use of derivative financial instruments, in the form of foreign currency forward contracts and a cross-currency swap, in situations where there are not offsetting balances that create an economic hedge. It is the Company’s policy to utilize financial instruments to reduce risk where appropriate and prohibit entering into derivative financial instruments for speculative or trading purposes.
Foreign currency forward contracts that are designated as net investment hedges are used to hedge a portion of the Company's net investment in foreign-currency denominated operations. Gains and losses on net investment hedges are recorded in other
comprehensive income (loss) until the sale or substantially complete liquidation of the underlying assets of the Company's investment. The initial fair value of hedge components excluded from the assessment of effectiveness is recognized in the Consolidated Statement of Income under a systematic and rational method over the life of the hedging instrument. The excluded component is recognized in interest expense, net on the Consolidated Statement of Income. The Company classifies cash flows related to the settlement of its net investment hedges as investing activities in the Consolidated Statement of Cash Flows.
The Company also has a cross-currency swap that is designated as a cash flow hedge. The Company uses this cross-currency swap to hedge its cash flows related to certain foreign-currency denominated debt. The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is initially reported as a component of other comprehensive income (loss). These gains and losses are subsequently reclassified into earnings in the same period during which the hedged transaction affects earnings and are presented in the same income statement line item as the earnings effect of the hedged item. The Company classifies cash flows related to the settlement of its cash flow hedges as financing activities in the Consolidated Statement of Cash Flows.
The Company additionally utilizes forward contracts that are not designated as hedging instruments to reduce exposure to foreign currency risk. The derivative instruments are marked-to-market each period with gains and losses on these contracts recorded in the Company’s Consolidated Statement of Income within “cost of products sold” for derivative instruments used to manage the Company’s exposure to foreign denominated accounts receivable and accounts payable and within “other expense (income), net,” for derivative instruments used to manage the Company’s exposure to foreign denominated financing transactions. Such mark-to-market gains and losses are recorded in the period in which their value changes, with the offsetting entry for unsettled positions being recorded to either "prepaid expenses and other assets" or "accrued expenses and other liabilities" in the Company's Consolidated Balance Sheet. The Company classifies cash flows related to the settlement of forward contracts that are not designated as hedging instruments as operating activities in the Consolidated Statement of Cash Flows.
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, and is comprised of “net income” and “other comprehensive (loss) income.” The Company’s "accumulated other comprehensive income" is comprised of changes in the Company’s currency translation adjustment account and the effective portion of changes in the fair value of its cash flow hedges.
Stock-Based Compensation
The Company records all equity-based incentive grants to employees and non-employee members of the Company’s Board of Directors in “selling, general and administrative expenses” in the Company’s Consolidated Statement of Income based on their fair values determined on the date of grant. The Company recognizes stock-based compensation expense for awards other than its performance based restricted stock units on a straight-line basis over the requisite service period of the award. The Company recognizes stock-based compensation cost associated with its performance based restricted stock units over the requisite service period if it is probable that the performance conditions will be satisfied. Stock-based compensation expense includes an estimate for forfeitures based on the Company’s historical experience.
Treasury Stock
Treasury stock is accounted for at cost. Shares repurchased by the Company are held in treasury for general corporate purposes, including issuances under equity incentive and benefit plans. The reissuance of shares from treasury stock is based on the weighted average purchase price of the shares.
Contingencies
The Company accrues for contingent obligations, including estimated legal costs, when the obligation is probable and the amount is reasonably estimable. As facts concerning contingencies become known, the Company reassesses its position and makes appropriate adjustments to the financial statements. Estimates that are particularly sensitive to future changes include those related to tax, legal and other regulatory matters such as imports and exports, the imposition of international governmental controls, changes in the interpretation and enforcement of international laws (particularly related to items such as duty and taxation), and the impact of local economic conditions and practices, which are all subject to change as events evolve and as additional information becomes available during the administrative and litigation process.
Legal settlements and other, net
The Company has been a claimant in proceedings seeking damages from certain manufacturers of LCD flat panel and cathode ray tube displays as well as reimbursement from insurance providers of certain costs incurred by the Company associated with the restatement of certain of the Company’s consolidated financial statements and other financial information from fiscal 2009 to 2013. The Company reached settlement agreements during the periods presented and has recorded these amounts, net of attorney fees and expenses, in "legal settlements and other, net," in the Consolidated Statement of Income.
Recently Adopted Accounting Standards
In February 2016, the FASB issued an accounting standard which requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and the disclosure of additional information about leasing arrangements. Under the new guidance, for all leases, interest expense and amortization of the right-of-use asset are recorded for leases determined to be finance leases and
straight-line lease expense is recorded for leases determined to be operating leases. Lessees are required to initially recognize assets for the right to use the leased assets and liabilities for the obligations created by those leases. In July 2018, the FASB issued additional updates to the new accounting standard which provided entities with a transition option to initially account for the impact of the adoption with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the standard and elected this transition option during the quarter ended April 30, 2019. The Company also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical accounting relating to lease identification and classification for existing leases at the time of adoption. The adoption of this standard resulted in the Company recognizing initial right-of-use assets of $206.8 million and corresponding lease liabilities of $205.8 million as of April 30, 2019. The adoption of this standard had no impact on the Company's Consolidated Statements of Income and Cash Flows. See Note 14 – Leases for additional information.
In August 2017, the FASB issued a new accounting standard that amends and simplifies guidance related to hedge accounting to more accurately portray the economics of an entity’s risk management activities in its financial statements. The Company adopted this standard during the quarter ending April 30, 2019. The adoption of this standard had no material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued a new accounting standard which aligns the capitalization requirements for implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the existing capitalization requirements for implementation costs incurred to develop or obtain internal-use software. The Company early adopted this standard during the quarter ending April 30, 2019. The adoption of this standard had no material impact on the Company's consolidated financial statements.
Recently Issued Accounting Standards
In June 2016, the FASB issued an accounting standard which revises the methodology for measuring credit losses on financial instruments and the timing of the recognition of those losses. Under the new standard, financial assets measured at an amortized cost basis are to be presented net of the amount not expected to be collected via an allowance for credit losses. Estimated credit losses are to be based on historical information adjusted for management's expectation that current conditions and supportable forecasts differ from historical experience. The accounting standard is effective for the Company beginning with the quarter ending April 30, 2020, with early adoption permitted. The Company is currently evaluating the impact of this new standard but does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
In December 2019, the FASB issued an accounting standard which simplifies and clarifies various aspects of the income tax accounting guidance. The accounting standard is effective for the Company beginning with the quarter ending April 30, 2021, with early adoption permitted. Certain amendments should be applied prospectively, while other amendments should be applied retrospectively to all periods presents. The Company is currently evaluating the impact of this new standard.
Reclassifications
Certain reclassifications have been made to the prior period amounts to conform to the current period presentation. These reclassifications did not have a material impact on previously reported amounts.
NOTE 2 — EARNINGS PER SHARE ("EPS")
The Company presents the composition of EPS on a basic and diluted basis. Basic EPS is computed by dividing net income by the weighted average number of shares outstanding during the reported period. Diluted EPS reflects the potential dilution related to equity-based incentives (see Note 10 – Employee Benefit Plans for further discussion) using the treasury stock method. The composition of basic and diluted EPS (in thousands, except per share data) is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31:
|
|
2020
|
|
2019
|
|
2018
|
Net income
|
|
$
|
374,500
|
|
|
$
|
340,580
|
|
|
$
|
116,641
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic
|
|
36,186
|
|
|
38,094
|
|
|
37,957
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Equity-based awards
|
|
274
|
|
|
223
|
|
|
259
|
|
Weighted average common shares - diluted
|
|
36,460
|
|
|
38,317
|
|
|
38,216
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
Basic
|
|
$
|
10.35
|
|
|
$
|
8.94
|
|
|
$
|
3.07
|
|
Diluted
|
|
$
|
10.27
|
|
|
$
|
8.89
|
|
|
$
|
3.05
|
|
For the fiscal year ended January 31, 2020, there were no shares excluded from the computation of diluted earnings per share because their effect would have been antidilutive. For the fiscal years ended January 31, 2019 and 2018 there were 21,008 and 3,017 shares, respectively, excluded from the computation of diluted earnings per share because their effect would have been antidilutive.
NOTE 3 — PROPERTY AND EQUIPMENT, NET
The Company's property and equipment (in thousands) consists of the following:
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|
|
|
|
|
|
|
|
As of January 31:
|
|
|
2020
|
|
2019
|
Land
|
|
|
$
|
43,627
|
|
|
$
|
43,775
|
|
Buildings and leasehold improvements
|
|
|
236,258
|
|
|
220,253
|
|
Furniture, fixtures and equipment
|
|
|
339,491
|
|
|
328,209
|
|
Property and equipment
|
|
|
619,376
|
|
|
592,237
|
|
Less: accumulated depreciation
|
|
|
(332,226
|
)
|
|
(317,320
|
)
|
Property and equipment, net
|
|
|
$
|
287,150
|
|
|
$
|
274,917
|
|
Depreciation expense for the fiscal years ended January 31, 2020, 2019 and 2018 totaled $35.7 million, $34.4 million and $28.9 million, respectively.
NOTE 4 — GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill, by segment, for the fiscal year ended January 31, 2020, are as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
Europe
|
|
Asia-Pacific
|
|
Total
|
Balance as of January 31, 2019
|
$
|
488,508
|
|
|
$
|
381,271
|
|
|
$
|
23,211
|
|
|
$
|
892,990
|
|
Acquisitions
|
82,889
|
|
|
—
|
|
|
—
|
|
|
82,889
|
|
Foreign currency translation and other
|
3,137
|
|
|
(5,630
|
)
|
|
(129
|
)
|
|
(2,622
|
)
|
Balance as of January 31, 2020
|
$
|
574,534
|
|
|
$
|
375,641
|
|
|
$
|
23,082
|
|
|
$
|
973,257
|
|
The Company performed its annual goodwill impairment test for fiscal 2020 as of November 1, 2019 which did not result in an impairment.
The Company performed its annual goodwill impairment test for fiscal 2019 as of November 1, 2018 which indicated that the carrying value of the Company’s Asia-Pacific reporting unit exceeded its estimated fair value. In estimating the fair value of the Asia-Pacific reporting unit, a discounted cash flow approach and market approach were utilized. The assumptions used in the discounted cash flow approach were based on historical and forecasted revenue, operating costs, working capital requirements, economic conditions and other relevant factors. The assumptions used in the market approach were based on the value of a business through an analysis of multiples of guideline companies and recent sales or offerings of a comparable entity. The estimated fair value developed under the discounted cash flow and market approaches decreased in comparison to the Company’s prior estimates primarily due to lower operating results and increased investments in the region as compared to expectations. As a result, goodwill impairment expense of $47.4 million was recorded during the year ended January 31, 2019, representing the amount by which the carrying value of the Asia-Pacific reporting unit exceeded its fair value. The goodwill recorded in the Company’s Asia-Pacific reporting unit relates entirely to the acquisition of Avnet, Inc.’s (“Avnet”) Technology Solutions (“TS”) business as the Company did not have operations in the region prior to the acquisition of TS.
The Company's intangible assets consist of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020
|
|
January 31, 2019
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net book
value
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net book
value
|
Capitalized software and
development costs
|
$
|
482,399
|
|
|
$
|
(349,033
|
)
|
|
$
|
133,366
|
|
|
$
|
460,254
|
|
|
$
|
(336,034
|
)
|
|
$
|
124,220
|
|
Customer and vendor relationships
|
1,252,393
|
|
|
(328,878
|
)
|
|
923,515
|
|
|
1,063,471
|
|
|
(265,593
|
)
|
|
797,878
|
|
Other intangible assets
|
101,743
|
|
|
(63,948
|
)
|
|
37,795
|
|
|
87,906
|
|
|
(59,146
|
)
|
|
28,760
|
|
Total
|
$
|
1,836,535
|
|
|
$
|
(741,859
|
)
|
|
$
|
1,094,676
|
|
|
$
|
1,611,631
|
|
|
$
|
(660,773
|
)
|
|
$
|
950,858
|
|
Other intangible assets is primarily comprised of trade names from previous acquisitions. The Company capitalized intangible assets of approximately $262.9 million, $21.6 million and $1.0 billion for the fiscal years ended January 31, 2020, 2019 and 2018, respectively. For fiscal 2020, these capitalized assets primarily relate to $226.4 million of intangible assets recorded in conjunction with the acquisition of DLT Solutions ("DLT"), including $208.0 million of customer and vendor relationships and $18.4 million of trade names. For fiscal 2019, these capitalized assets primarily relate to software and software development expenditures to be used in the Company's operations. For fiscal 2018, these capitalized assets primarily relate to approximately $1.0 billion of intangible assets recorded in conjunction with the acquisition of TS, including $875 million related to customer relationships, $75 million of capitalized software and development costs and $44 million related to trade names (see Note 5 – Acquisitions for further discussion).
Capitalized software and development costs amortization expense for the fiscal years ended January 31, 2020, 2019 and 2018 totaled $30.5 million, $33.4 million and $32.0 million, respectively. Other intangible assets amortization expense for the fiscal years ended January 31, 2020, 2019 and 2018 totaled $86.9 million, $91.2 million and $89.1 million, respectively.
Estimated amortization expense of existing capitalized software and development costs and other intangible assets (which includes customer and vendor relationships and other intangible assets) is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year:
|
Capitalized software and development costs
|
|
Other intangible assets
|
|
Total
|
2021
|
$
|
31,043
|
|
|
$
|
97,899
|
|
|
$
|
128,942
|
|
2022
|
26,598
|
|
|
97,582
|
|
|
124,180
|
|
2023
|
14,780
|
|
|
87,875
|
|
|
102,655
|
|
2024
|
12,006
|
|
|
80,574
|
|
|
92,580
|
|
2025
|
8,876
|
|
|
79,874
|
|
|
88,750
|
|
NOTE 5 — ACQUISITIONS
DLT Acquisition
On November 25, 2019, the Company completed the acquisition of DLT, a premier software and cloud solutions aggregator focused on the U.S. public sector. The Company acquired all of the outstanding shares of DLT for a preliminary purchase price of approximately $210 million in cash, subject to certain working capital and other adjustments. The DLT acquisition enables Tech Data to proactively develop opportunities, accelerate growth and simplify complexity for its channel partners that are serving the U.S. public sector space.
The Company has accounted for the DLT acquisition as a business combination and allocated the preliminary estimated purchase price to the estimated fair values of assets acquired and liabilities assumed. The Company has not yet completed its evaluation and determination of certain assets acquired and liabilities assumed, primarily (i) the final valuation of intangible assets related to customer and vendor relationships and trade names, (ii) the final assessment and valuation of certain other assets acquired and liabilities assumed, including accounts receivable, accrued expenses and other liabilities and (iii) the final assessment and valuation of certain tax amounts. Therefore, the final fair values of the assets acquired and liabilities assumed may vary from the Company's preliminary estimates.
The preliminary allocation of the estimated purchase price to assets acquired and liabilities assumed is as follows:
|
|
|
|
|
(in thousands)
|
|
Cash
|
$
|
545
|
|
Accounts receivable
|
218,978
|
|
Prepaid expenses and other current assets
|
22,977
|
|
Property and equipment, net
|
4,207
|
|
Goodwill
|
82,889
|
|
Intangible assets
|
226,390
|
|
Other assets, net
|
52,539
|
|
Total assets
|
608,525
|
|
|
|
Accounts payable, accrued expenses and other current liabilities
|
297,811
|
|
Revolving credit loans and other long-term debt
|
91,026
|
|
Other long-term liabilities
|
9,220
|
|
Total liabilities
|
398,057
|
|
|
|
Estimated purchase price
|
$
|
210,468
|
|
The allocation of the preliminary value of identifiable intangible assets is comprised of approximately $208.0 million of customer and vendor relationships with an amortization period of 15 years and $18.4 million of trade names with an amortization period of 10 years. The significant estimation uncertainty was primarily due to the sensitivity of the fair value determined using a discounted cash flow model to underlying assumptions including forecasted revenue growth rates, forecasted profit margin, customer and vendor attrition rates and the discount rate. These significant assumptions are forward looking and could be affected by future economic and market conditions. Goodwill is the excess of the consideration transferred over the net assets recognized and primarily represents the expected cost synergies of the combined company and assembled workforce and is expected to be deductible for tax purposes. Pro forma information has not been provided as the acquisition was not material to the Company's consolidated financial position or results of operations.
TS Acquisition
On February 27, 2017, Tech Data acquired all of the outstanding shares of TS for an aggregate purchase price of approximately $2.8 billion, comprised of approximately $2.5 billion in cash and 2,785,402 shares of the Company's common stock, valued at approximately $247 million based on the closing price of the Company's common stock on February 27, 2017. TS delivered data center hardware and software solutions and services and the TS acquisition strengthened the Company's end-to-end solutions portfolio and deepened its value added capabilities in the data center and next-generation technologies. The total cash consideration payable to Avnet was subject to certain working capital and other adjustments, as determined through the process established in the interest purchase agreement. In August 2018, the Company executed a settlement agreement with Avnet, resulting in a final working capital adjustment of $120 million which was paid to Avnet during the third quarter of fiscal 2019. As the measurement period had concluded, a gain of $9.6 million was recorded in “acquisition, integration and restructuring expenses” in the Consolidated Statement of Income for the year ended January 31, 2019, representing the difference between the final working capital adjustment and the Company’s prior estimate. Additionally, as part of the settlement agreement, the Company and Avnet reached agreement on the final geographic allocation of the purchase price for tax reporting purposes which resulted in the recognition of a deferred tax asset in the U.S. for future tax deductions related to the
amortization of goodwill for tax purposes. The recognition of the deferred tax asset in the U.S. resulted in an income tax benefit of $13.0 million during fiscal 2019.
The Company has accounted for the TS acquisition as a business combination and allocated the purchase price to the fair values of assets acquired and liabilities assumed.
The allocation of the purchase price to assets acquired and liabilities assumed is as follows:
|
|
|
|
|
|
|
(in millions)
|
|
Cash
|
$
|
176
|
|
Accounts receivable
|
1,830
|
|
Inventories
|
239
|
|
Prepaid expenses and other current assets
|
100
|
|
Property and equipment, net
|
62
|
|
Goodwill
|
727
|
|
Intangible assets
|
919
|
|
Other assets, net
|
151
|
|
Total assets
|
4,204
|
|
|
|
Other current liabilities
|
1,169
|
|
Revolving credit loans and long-term debt
|
134
|
|
Other long-term liabilities
|
99
|
|
Total liabilities
|
1,402
|
|
|
|
Purchase price
|
$
|
2,802
|
|
Identifiable intangible assets are comprised of approximately $875 million of customer relationships with a weighted-average amortization period of 14 years and $44 million of trade names with an amortization period of 5 years. Goodwill is the excess of the consideration transferred over the net assets recognized and primarily represents the expected revenue and cost synergies of the combined company and assembled workforce. Approximately $1.2 billion of the goodwill and identifiable intangible assets are expected to be deductible for tax purposes. The Company has recorded certain indemnification assets for expected amounts to be received from Avnet related to liabilities recorded for unrecognized tax benefits and other items (See Note 9 – Income Taxes for further discussion).
Included within the Company’s Consolidated Statement of Income are estimated net sales for the year ended January 31, 2018, of approximately $7.6 billion from TS subsequent to the acquisition date of February 27, 2017. As the Company began integrating certain sales and other functions after the closing of the acquisition, these amounts represent an estimate of the TS net sales for the fiscal year ended January 31, 2018. It is not necessarily indicative of how the TS operations would have performed on a stand-alone basis. As a result of certain integration activities subsequent to the date of acquisition, it is impracticable to disclose earnings from TS in fiscal 2018 for the period subsequent to the acquisition date.
The following table presents unaudited supplemental pro forma information as if the TS acquisition had occurred at the beginning of fiscal 2017. The pro forma results presented are based on combining the stand-alone operating results of the Company and TS for the periods prior to the acquisition date after giving effect to certain adjustments related to the transaction. The pro forma results exclude any benefits that may result from potential cost synergies of the combined company and certain non-recurring costs. As a result, the pro forma information below does not purport to present what actual results would have been had the acquisition actually been consummated on the date indicated and it is not necessarily indicative of the results of operations that may result in the future.
|
|
|
|
|
Year ended January 31:
|
2018
|
(in millions)
|
(unaudited)
|
Pro forma net sales
|
$
|
34,268
|
|
Pro forma net income
|
$
|
129
|
|
Adjustments reflected in the pro forma results include the following:
|
|
•
|
Amortization of acquired intangible assets
|
|
|
•
|
Interest costs associated with the transaction
|
|
|
•
|
Removal of certain non-recurring transaction costs of $20 million in fiscal 2018
|
|
|
•
|
Tax effects of adjustments based on an estimated statutory tax rate
|
|
|
•
|
Impact of adoption of Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)"
|
NOTE 6 — ACQUISITION, INTEGRATION AND RESTRUCTURING EXPENSES
Acquisition, integration and restructuring expenses are primarily comprised of costs related to the fiscal 2018 acquisition of TS, the Global Business Optimization Program which was initiated in fiscal 2019, the pending Merger with the affiliates of Apollo Funds and the fiscal 2020 acquisition of DLT.
Acquisition of TS
Acquisition, integration and restructuring expenses related to the acquisition of TS are primarily comprised of restructuring costs, IT related costs, professional services, transaction related costs and other costs. Restructuring costs are comprised of severance and facility exit costs. IT related costs consist primarily of data center and non-ERP application migration and integration costs, as well as, IT related professional services. Professional services are primarily comprised of integration related activities, including professional fees for project management, accounting, tax and other consulting services. Transaction related costs primarily consist of investment banking fees, legal expenses and due diligence costs incurred in connection with the completion of the transaction. Other costs includes payroll related costs including retention, stock compensation, relocation and travel expenses incurred as part of the integration of TS. For the fiscal year ended January 31, 2019, other costs are partially offset by the gain recorded related to the settlement agreement with Avnet (see Note 5 – Acquisitions for further discussion).
The Company incurred no acquisition, integration and restructuring expenses related to the acquisition of TS during the year ended January 31, 2020 and does not expect to incur any additional costs in future periods. Acquisition, integration and restructuring expenses for the years ended January 31, 2019 and 2018 related to the acquisition of TS are comprised of the following:
|
|
|
|
|
|
|
|
|
Year ended January 31:
|
2019
|
|
2018
|
(in thousands)
|
|
|
|
Restructuring costs
|
$
|
19,846
|
|
|
$
|
35,070
|
|
IT related costs
|
13,222
|
|
|
18,260
|
|
Professional services
|
5,967
|
|
|
42,588
|
|
Transaction related costs
|
1,728
|
|
|
20,167
|
|
Other costs
|
4,616
|
|
|
20,187
|
|
Total
|
$
|
45,379
|
|
|
$
|
136,272
|
|
During the years ended January 31, 2019 and 2018, the Company recorded restructuring costs in the Americas of $3.9 million and $16.1 million, respectively. During the years ended January 31, 2019 and 2018, the Company recorded restructuring costs in Europe of $15.9 million and $19.0 million, respectively.
Restructuring activity during the years ended January 31, 2020, 2019 and 2018 related to the acquisition of TS is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
Facility Exit Costs
|
|
Total
|
(in thousands)
|
|
|
|
|
|
|
Fiscal 2018 restructuring expenses
|
|
$
|
29,717
|
|
|
$
|
5,353
|
|
|
$
|
35,070
|
|
Cash payments
|
|
(16,830
|
)
|
|
(3,928
|
)
|
|
(20,758
|
)
|
Foreign currency translation
|
|
479
|
|
|
205
|
|
|
684
|
|
Balance at January 31, 2018
|
|
13,366
|
|
|
1,630
|
|
|
14,996
|
|
Fiscal 2019 restructuring expenses
|
|
15,453
|
|
|
4,393
|
|
|
19,846
|
|
Cash payments
|
|
(22,622
|
)
|
|
(2,008
|
)
|
|
(24,630
|
)
|
Foreign currency translation
|
|
(952
|
)
|
|
(201
|
)
|
|
(1,153
|
)
|
Balance at January 31, 2019
|
|
5,245
|
|
|
3,814
|
|
|
9,059
|
|
Cash payments
|
|
(5,169
|
)
|
|
(3,713
|
)
|
|
(8,882
|
)
|
Foreign currency translation
|
|
(76
|
)
|
|
(101
|
)
|
|
(177
|
)
|
Balance at January 31, 2020
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Pending Merger and DLT Acquisition
Additionally, the Company incurred $8.6 million of professional services and other transaction related costs during the year ended January 31, 2020 related to the proposed Merger and the acquisition of DLT.
Global Business Optimization Program
In fiscal 2019, the Company's Board of Directors approved the Global Business Optimization Program (the "GBO Program") to increase investment in the Company’s strategic priorities and implement operational initiatives to drive productivity and enhance profitability.
Under the GBO Program, the Company expects to incur cumulative cash charges through fiscal 2021 of approximately $70 million to $80 million, primarily comprised of $40 million to $45 million of charges in Europe and $30 million to $35 million of charges in the Americas. The charges primarily consist of severance costs, and also include professional services and facility exit costs.
Restructuring costs for the years ended January 31, 2020 and 2019 related to the GBO Program are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Cumulative Amounts Incurred to Date
|
(in thousands)
|
|
|
|
|
|
Severance costs
|
$
|
11,967
|
|
|
$
|
26,427
|
|
|
$
|
38,394
|
|
Professional services and other costs
|
5,404
|
|
|
16,114
|
|
|
21,518
|
|
Total
|
$
|
17,371
|
|
|
$
|
42,541
|
|
|
$
|
59,912
|
|
Restructuring costs related to the GBO Program by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Cumulative Amounts Incurred to Date
|
(in thousands)
|
|
|
|
|
|
Americas
|
$
|
7,882
|
|
|
$
|
12,095
|
|
|
$
|
19,977
|
|
Europe
|
8,424
|
|
|
28,992
|
|
|
37,416
|
|
Asia-Pacific
|
1,065
|
|
|
1,454
|
|
|
2,519
|
|
Total
|
$
|
17,371
|
|
|
$
|
42,541
|
|
|
$
|
59,912
|
|
Restructuring activity during the years ended January 31, 2020 and 2019, related to the GBO Program is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
Professional services and other costs
|
|
Total
|
(in thousands)
|
|
|
|
|
|
|
Fiscal 2019 restructuring expenses
|
|
$
|
26,427
|
|
|
$
|
16,114
|
|
|
$
|
42,541
|
|
Cash payments
|
|
(11,095
|
)
|
|
(15,357
|
)
|
|
(26,452
|
)
|
Foreign currency translation
|
|
(534
|
)
|
|
(126
|
)
|
|
(660
|
)
|
Balance at January 31, 2019
|
|
14,798
|
|
|
631
|
|
|
15,429
|
|
Fiscal 2020 restructuring expenses
|
|
11,967
|
|
|
5,404
|
|
|
17,371
|
|
Cash payments
|
|
(17,717
|
)
|
|
(5,997
|
)
|
|
(23,714
|
)
|
Foreign currency translation
|
|
(330
|
)
|
|
(21
|
)
|
|
(351
|
)
|
Balance at January 31, 2020
|
|
$
|
8,718
|
|
|
$
|
17
|
|
|
$
|
8,735
|
|
NOTE 7 — GAIN ON DISPOSAL OF SUBSIDIARY
During fiscal 2019, the Company executed an agreement to sell certain of its operations in Ireland for a total sales price of approximately $15.3 million. The Company recorded a gain on sale of $6.7 million during the fiscal year ended January 31, 2019, which includes the reclassification of $5.1 million from accumulated other comprehensive income for cumulative translation adjustments associated with the Company’s investment in this foreign entity. The Company recorded an additional gain on the sale of this entity of $1.4 million during the fiscal year ended January 31, 2020. The operating results of this entity during fiscal 2019 and 2018 were insignificant relative to the Company's consolidated financial results.
NOTE 8 — DEBT
The carrying value of the Company's outstanding debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
As of January 31:
|
2020
|
|
2019
|
Senior Notes, interest at 3.70% payable semi-annually, due February 15, 2022
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Senior Notes, interest at 4.95% payable semi-annually, due February 15, 2027
|
500,000
|
|
|
500,000
|
|
Term Loans, interest rate of 2.70% and 3.99% at January 31, 2020 and January 31, 2019, respectively
|
300,000
|
|
|
300,000
|
|
Other committed and uncommitted revolving credit facilities, average interest rate of 6.79% and 8.05% at January 31, 2020 and January 31, 2019, respectively
|
108,449
|
|
|
102,271
|
|
Other long-term debt
|
48,547
|
|
|
15,817
|
|
Less—unamortized debt discount and debt issuance costs
|
(5,978
|
)
|
|
(7,166
|
)
|
|
1,451,018
|
|
|
1,410,922
|
|
Less—current maturities (included as “revolving credit loans and current maturities of long-term debt, net”)
|
(112,882
|
)
|
|
(110,368
|
)
|
Total long-term debt
|
$
|
1,338,136
|
|
|
$
|
1,300,554
|
|
Senior Notes
In January 2017, the Company issued $500.0 million aggregate principal amount of 3.70% Senior Notes due February 15, 2022 (the "3.70% Senior Notes") and $500.0 million aggregate principal amount of 4.95% Senior Notes due February 15, 2027 (the "4.95% Senior Notes") (collectively the "2017 Senior Notes"). The Company pays interest on the 2017 Senior Notes semi-annually in arrears on February 15 and August 15 of each year. The interest rate payable on the 2017 Senior Notes will be subject to adjustment from time to time if the credit rating assigned to such series of notes changes. At no point will the interest rate be reduced below the interest rate payable on the notes on the date of the initial issuance or increase more than 2.00% above the interest rate payable on the notes of the series on the date of their initial issuance. The 2017 Senior Notes are senior unsecured obligations of the Company and will rank equally with all other unsecured and unsubordinated indebtedness from time to time outstanding.
The Company, at its option, may redeem the 3.70% Senior Notes at any time prior to January 15, 2022 and the 4.95% Senior Notes at any time prior to November 15, 2026, in each case in whole or in part, at a redemption price equal to the greater of (i) 100% of the principal amount of the 2017 Senior Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the 2017 Senior Notes to be redeemed, discounted to the date of redemption on a semi-annual basis at a rate equal to the sum of the applicable Treasury Rate plus 30 basis points for the 3.70% Senior Notes and 40 basis points for the 4.95% Senior Notes, plus the accrued and unpaid interest on the principal amount being redeemed up to the date of redemption. The Company may also redeem the 2017 Senior Notes, at any time in whole or from time to time in part, on or after January 15, 2022 for the 3.70% Senior Notes and November 15, 2026 for the 4.95% Senior Notes, in each case, at a redemption price equal to 100% of the principal amount of the 2017 Senior Notes to be redeemed.
On March 10, 2020, Tiger Merger Sub Co., an affiliate of certain investment funds managed by affiliates of Apollo, launched an offer to purchase for cash any and all of the Company’s outstanding 3.70% Senior Notes and any and all of the Company’s outstanding 4.95% Senior Notes and a consent solicitation to amend the indenture and global securities establishing the 3.70% Senior Notes and the 4.95% Senior Notes to (i) eliminate the requirement to make a “change of control” offer in connection with the proposed merger of Tiger Merger Sub Co. into the Company pursuant to the Merger Agreement and (ii) make certain other customary changes for a privately-held company to the “change of control” provisions (the “Proposed Amendments”). Concurrently with, but separate from, the aforementioned offer to purchase and consent solicitation, Tiger Merger Sub. Co. launched a consent solicitation for the Proposed Amendments for holders of the 4.95% Senior Notes. On March 24, 2020, Tiger Merger Sub Co. announced that the requisite more than 50% of consents were received to adopt the Proposed Amendments. On March 24, 2020, the Company entered into a Supplemental Indenture with respect to the Indenture and Global Security for the 3.70% Senior Notes and a Supplemental Indenture with respect to the Indenture and Global Security for the 4.95% Senior Notes effecting the Proposed Amendments.
Other Credit Facilities
The Company has a $1.5 billion revolving credit facility with a syndicate of banks (the “Credit Agreement”) which, among other things, provides for (i) a maturity date of May 15, 2024, (ii) an interest rate on borrowings, facility fees and letter of credit fees based on the Company’s debt rating, (iii) the ability to increase the facility to a maximum of $1.75 billion, subject to certain conditions and (iv) certain subsidiaries of the Company to be designated as borrowers. The applicable borrower will pay interest on advances under the Credit Agreement based on LIBOR (or similar interbank offered rates depending on currency draw) plus a predetermined margin that is based on the Company’s debt rating. There were no amounts outstanding under the Credit Agreement at January 31, 2020 and 2019.
The Company entered into a term loan credit agreement in November 2016 with a syndicate of banks (the "2016 Term Loan Credit Agreement") which provided for the borrowing of senior unsecured term loans in an original aggregate principal amount of up to $1.0 billion. The Company paid interest on advances under the 2016 Term Loan Credit Agreement at a variable rate based on LIBOR plus a predetermined margin based on the Company's debt rating. The Company had $300 million outstanding under the 2016 Term Loan Credit Agreement at January 31, 2019. On August 2, 2019, the Company entered into a new term loan credit agreement (the "2019 Term Loan Credit Agreement"), the proceeds of which were used to repay in full the amounts outstanding under the 2016 Term Loan Credit Agreement. The 2019 Term Loan Credit Agreement, among other things, (i) provides for a $300 million term loan credit facility with a maturity date of August 2, 2021, (ii) provides for an interest rate on the outstanding principal amount of the loan that is based on LIBOR plus a predetermined margin and (iii) may be increased up to a total of $500 million, subject to certain conditions. The Company had $300.0 million outstanding under the 2019 Term Loan Credit Agreement at January 31, 2020.
The Company also has an agreement with a syndicate of banks (the “Receivables Securitization Program”) that allows the Company to transfer an undivided interest in a designated pool of U.S. accounts receivable, on an ongoing basis, to provide collateral for borrowings up to a maximum of $1.0 billion. The scheduled termination date of the agreement is April 16, 2021. Under this program, the Company transfers certain U.S. trade receivables into a wholly-owned bankruptcy remote special purpose entity. Such receivables, which are recorded in the Consolidated Balance Sheet, totaled approximately $1.6 billion and $1.7 billion at January 31, 2020 and 2019, respectively. As collections reduce accounts receivable balances included in the collateral pool, the Company may transfer interests in new receivables to bring the amount available to be borrowed up to the maximum. Interest is to be paid on advances under the Receivables Securitization Program at the applicable commercial paper or LIBOR rate plus an agreed-upon margin. There were no amounts outstanding under the Receivables Securitization Program at January 31, 2020 and 2019.
In addition to the facilities described above, the Company has various other committed and uncommitted lines of credit, short-term loans and overdraft facilities totaling approximately $374.8 million at January 31, 2020 to support its operations. Most of these facilities are provided on an unsecured, short-term basis and are reviewed periodically for renewal. There was $108.4 million outstanding on these facilities at January 31, 2020, at a weighted average interest rate of 6.79%, and there was $102.3 million outstanding at January 31, 2019, at a weighted average interest rate of 8.05%.
At January 31, 2020, the Company had also issued standby letters of credit of $38.2 million. These letters of credit typically act as a guarantee of payment to certain third parties in accordance with specified terms and conditions. The issuance of these letters of credit reduces the Company's borrowing availability under certain of the above-mentioned credit facilities.
Certain of the Company’s credit facilities contain limitations on the amounts of annual dividends and repurchases of common stock and require compliance with other obligations, warranties and covenants. The financial ratio covenants under these credit facilities include a maximum total leverage ratio and a minimum interest coverage ratio. At January 31, 2020, the Company was in compliance with all such financial covenants.
Future payments of debt at January 31, 2020 and for succeeding fiscal years are as follows (in millions):
|
|
|
|
|
Fiscal Year:
|
|
2021
|
$
|
112.9
|
|
2022
|
330.8
|
|
2023
|
512.7
|
|
2024
|
0.6
|
|
2025
|
—
|
|
Thereafter
|
500.0
|
|
Total principal payments
|
$
|
1,457.0
|
|
NOTE 9 — INCOME TAXES
Significant components of the provision for income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31:
|
2020
|
|
2019
|
|
2018
|
Current tax expense (benefit):
|
|
|
|
|
|
Federal
|
$
|
18,366
|
|
|
$
|
(9,564
|
)
|
|
$
|
131,107
|
|
State
|
10,171
|
|
|
5,846
|
|
|
6,515
|
|
Foreign
|
62,314
|
|
|
48,905
|
|
|
49,082
|
|
Total current tax expense
|
90,851
|
|
|
45,187
|
|
|
186,704
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
Federal
|
19,617
|
|
|
(3,272
|
)
|
|
(1,129
|
)
|
State
|
(451
|
)
|
|
64
|
|
|
363
|
|
Foreign
|
21
|
|
|
(9,274
|
)
|
|
(3,495
|
)
|
Total deferred tax expense (benefit)
|
19,187
|
|
|
(12,482
|
)
|
|
(4,261
|
)
|
|
$
|
110,038
|
|
|
$
|
32,705
|
|
|
$
|
182,443
|
|
The reconciliation of the U.S. federal statutory tax rate to the effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
Year ended January 31:
|
2020
|
|
2019
|
|
2018
|
U.S. statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
33.8
|
%
|
State income taxes, net of federal benefit
|
1.7
|
|
|
2.2
|
|
|
1.1
|
|
Net changes in deferred tax valuation allowances
|
1.4
|
|
|
(0.9
|
)
|
|
1.2
|
|
Tax on foreign earnings different than U.S. rate
|
1.2
|
|
|
(0.6
|
)
|
|
(5.8
|
)
|
Impact of Avnet settlement agreement (see Note 5)
|
—
|
|
|
(4.0
|
)
|
|
—
|
|
Nondeductible indemnities
|
0.1
|
|
|
0.8
|
|
|
0.4
|
|
Nondeductible goodwill
|
—
|
|
|
2.9
|
|
|
—
|
|
Reversal of previously accrued income tax reserves
|
(0.9
|
)
|
|
(2.0
|
)
|
|
(0.7
|
)
|
Interest not subject to tax, net
|
(0.9
|
)
|
|
(0.6
|
)
|
|
(1.3
|
)
|
Effect of company-owned life insurance
|
(0.3
|
)
|
|
0.1
|
|
|
(1.0
|
)
|
Global Intangible Low-Taxed Income
|
0.1
|
|
|
1.0
|
|
|
—
|
|
U.S. Tax Reform transition tax
|
—
|
|
|
(13.2
|
)
|
|
33.8
|
|
U.S. Tax Reform impact of rate change on deferred taxes
|
—
|
|
|
—
|
|
|
(1.9
|
)
|
Other, net
|
(0.7
|
)
|
|
2.1
|
|
|
1.4
|
|
|
22.7
|
%
|
|
8.8
|
%
|
|
61.0
|
%
|
U.S. Tax Reform
On December 22, 2017, the U.S. federal government enacted the U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”) which significantly revised U.S. corporate income tax law by, among other things, reducing the U.S. federal corporate income tax rate from 35% to 21% and implementing a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. Due to the complexities involved in accounting for U.S. Tax Reform, the SEC issued Staff Accounting Bulletin ("SAB") 118 which requires that the Company include in its financial statements the reasonable estimate of the impact of U.S. Tax Reform on earnings to the extent such reasonable estimate has been determined. SAB 118 allowed the Company to report provisional amounts within a measurement period up to one year due to the complexities inherent in adopting the changes. Accordingly, in fiscal 2018, the Company recorded income tax expenses of $95.4 million, which represented the Company’s reasonable estimate of the impact of the enactment of U.S. Tax Reform. The amounts recorded include income tax expenses of $101.1 million for the transition tax and a net income tax benefit of $5.7 million related to the remeasurement of net deferred tax liabilities as a result of the change in the U.S. federal corporate income tax rate. During fiscal 2019, the Company finalized its analysis of the impact of the enactment of U.S. Tax Reform and decreased its estimate of the one-time transition tax by $49.2 million, primarily due to further analysis of earnings and profits of the Company’s foreign subsidiaries and the utilization of foreign tax credits.
Additionally, U.S. Tax Reform subjects a U.S. shareholder to tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The Company has made the accounting policy election to treat taxes due on the GILTI as a current period expense.
The components of pretax income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31:
|
2020
|
|
2019
|
|
2018
|
U.S.
|
$
|
198,908
|
|
|
$
|
208,643
|
|
|
$
|
115,041
|
|
Foreign
|
285,630
|
|
|
164,642
|
|
|
184,043
|
|
|
$
|
484,538
|
|
|
$
|
373,285
|
|
|
$
|
299,084
|
|
The significant components of the Company’s deferred tax liabilities and assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
As of January 31:
|
2020
|
|
2019
|
Deferred tax liabilities:
|
|
|
|
Depreciation and amortization
|
$
|
102,825
|
|
|
$
|
96,739
|
|
Capitalized marketing program costs
|
7,564
|
|
|
7,101
|
|
Goodwill
|
34,233
|
|
|
24,867
|
|
Deferred costs currently deductible
|
7,099
|
|
|
7,212
|
|
Lease right-of-use assets
|
49,205
|
|
|
—
|
|
Other, net
|
16,204
|
|
|
12,059
|
|
Total deferred tax liabilities
|
217,130
|
|
|
147,978
|
|
Deferred tax assets:
|
|
|
|
Accrued liabilities
|
56,234
|
|
|
59,549
|
|
Foreign tax credit carryforwards
|
51,140
|
|
|
50,434
|
|
Loss carryforwards
|
111,078
|
|
|
112,962
|
|
Amortizable goodwill
|
11,092
|
|
|
12,118
|
|
Depreciation and amortization
|
11,700
|
|
|
11,873
|
|
Lease liabilities
|
49,205
|
|
|
—
|
|
Disallowed interest expense
|
15,755
|
|
|
13,676
|
|
Acquisition and transaction related costs
|
4,026
|
|
|
3,570
|
|
Other, net
|
17,786
|
|
|
13,478
|
|
|
328,016
|
|
|
277,660
|
|
Less: valuation allowances
|
(123,709
|
)
|
|
(118,536
|
)
|
Total deferred tax assets
|
204,307
|
|
|
159,124
|
|
Net deferred tax (liability) asset
|
$
|
(12,823
|
)
|
|
$
|
11,146
|
|
At January 31, 2020 there were $223.3 million of consolidated cumulative undistributed earnings of foreign subsidiaries. Deferred tax liabilities have not been provided on these undistributed earnings; however, the Company does not expect that the amount would be material to the consolidated financial statements.
In fiscal 2020, the Company adopted an accounting standard which requires the recognition of assets and liabilities arising from lease transactions (see Note 1 - Business and Summary of Significant Accounting Policies for further discussion). Under the new guidance, the Company recorded a deferred tax asset for lease liabilities and an offsetting deferred tax liability for lease right-of-use assets; these deferred tax items had no net effect on the Company’s Consolidated Balance Sheet.
In fiscal 2020 and 2019, the Company recorded an income tax (expense)/benefit of ($6.7) million and $6.0 million, respectively, related to changes in deferred tax valuation allowances. The net change in the deferred tax valuation allowances in fiscal 2020 was an increase of $5.2 million primarily resulting from an increase in certain foreign jurisdictions. The net change in the deferred tax valuation allowances in fiscal 2019 was an increase of $37.8 million primarily resulting from an increase in the United States for foreign tax credits as a result of U.S. Tax Reform, partially offset by the release of valuation allowances in certain foreign jurisidictions.
The valuation allowances at both January 31, 2020 and 2019 primarily relate to carryforwards for foreign net operating losses and foreign tax credits in the United States. The Company’s net operating loss carryforwards totaled $489.4 million and $504.2 million at January 31, 2020 and 2019, respectively. The majority of the net operating losses have an indefinite carryforward period with the remaining portion expiring in fiscal years 2021 through 2036. The Company's foreign tax credit carryforwards in the U.S. totaled $51.1 million and $50.4 million at January 31, 2020 and 2019, respectively. The foreign tax credits have a ten year carryforward period, and the majority are set to expire in fiscal year 2028. The Company considers all positive and negative evidence available in determining the potential of realizing deferred tax assets. To the extent that the Company generates consistent taxable income within those operations with valuation allowances, the Company may reduce the valuation allowances, thereby reducing income tax expense and increasing net income in the period the determination is made.
The estimates and assumptions used by the Company in computing the income taxes reflected in the Company’s consolidated financial statements could differ from the actual results reflected in the income tax returns filed during the subsequent year. Adjustments are recorded based on filed returns when such returns are finalized or the related adjustments are identified.
A reconciliation of the beginning and ending balances of the total amount of gross unrecognized tax benefits, excluding accrued interest and penalties, for the years ended January 31, 2020, 2019 and 2018 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended January 31:
|
2020
|
|
2019
|
|
2018
|
Gross unrecognized tax benefits at beginning of period
|
$
|
25,837
|
|
|
$
|
72,252
|
|
|
$
|
18,305
|
|
Increases in tax positions for prior years
|
766
|
|
|
4,671
|
|
|
66,180
|
|
Decreases in tax positions for prior years
|
(3,237
|
)
|
|
(13,787
|
)
|
|
(3,727
|
)
|
Increases in tax positions for current year
|
55
|
|
|
—
|
|
|
164
|
|
Expiration of statutes of limitation
|
(1,432
|
)
|
|
(25,840
|
)
|
|
(6,924
|
)
|
Settlements
|
(849
|
)
|
|
(5,355
|
)
|
|
(3,515
|
)
|
Changes due to translation of foreign currencies
|
(259
|
)
|
|
(6,104
|
)
|
|
1,769
|
|
Gross unrecognized tax benefits at end of period
|
$
|
20,881
|
|
|
$
|
25,837
|
|
|
$
|
72,252
|
|
At January 31, 2020, 2019 and 2018, the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $18.3 million, $23.1 million and $38.1 million, respectively. In connection with the acquisition of TS, pursuant to the interest purchase agreement, the Company and Avnet agreed to indemnify each other in relation to certain tax matters. As a result, the Company has recorded certain indemnification assets for expected amounts to be received from Avnet related to liabilities recorded for unrecognized tax benefits. The Company has also recorded certain indemnification liabilities for expected amounts to be paid to Avnet. During the years ended January 31, 2020, 2019 and 2018, due to the resolution of certain pre-acquisition tax matters and the expiration of certain statutes of limitation, the Company recorded benefits in income tax expense of $1.2 million, $9.6 million and $6.5 million, respectively. As a result, the Company recorded expenses of $1.2 million, $9.6 million and $6.5 million, during the years ended January 31, 2020, 2019 and 2018, respectively, which are included in “selling, general and administrative expenses” in the Consolidated Statement of Income, related to changes in the corresponding indemnification assets and liabilities recorded. The net impact of these items had no impact on the Company's net income.
Unrecognized tax benefits that have a reasonable possibility of significantly decreasing within the 12 months following January 31, 2020 totaled $5.0 million, all of which would impact the effective tax rate if recognized, primarily related to the foreign taxation of certain transactions. Consistent with prior periods, the Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company’s accrued interest at January 31, 2020, would not have a material impact on the effective tax rate if reversed. The provision for income taxes for each of the fiscal years ended January 31, 2020, 2019 and 2018 includes interest expense on unrecognized income tax benefits for current and prior years which is not significant to the Company’s Consolidated Statement of Income. The change in the balance of accrued interest for fiscal 2020, 2019 and 2018, includes the current year end accrual, an interest benefit resulting from the expiration of statutes of limitation, and the translation adjustments on foreign currencies.
The Company conducts business primarily in the Americas, Europe and Asia-Pacific, and as a result, one or more of its subsidiaries files income tax returns in the U.S. federal, various state, local and foreign tax jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities. The Company is no longer subject to examinations by the Internal Revenue Service for years before fiscal 2017. Income tax returns of various foreign jurisdictions for fiscal 2006 and forward are currently under taxing authority examination or remain subject to audit.
NOTE 10 — EMPLOYEE BENEFIT PLANS
Overview of Equity Incentive Plans
The 2018 Equity Incentive Plan was approved by the Company’s shareholders in June 2018 and includes 2.0 million shares available for grant, of which approximately 1.7 million shares remain available for future grant at January 31, 2020. The Company is authorized to award officers, employees and non-employee members of the Board of Directors restricted stock, options to purchase common stock, stock appreciation rights and performance awards that are dependent upon achievement of specified performance goals. Equity-based compensation awards are used by the Company to attract talent and as a retention mechanism for the award recipients and have a maximum term of ten years, unless a shorter period was specified by the Compensation Committee of the Company’s Board of Directors (“Compensation Committee”) or is required under local law. Awards under the plan are priced as determined by the Compensation Committee and are required to be priced at, or above, the fair market value of the Company’s common stock on the date of grant. Awards generally vest between one year and three years from the date of grant. The Company’s policy is to utilize shares of its treasury stock, to the extent available, to satisfy its obligation to issue shares upon the exercise of awards.
For the fiscal years ended January 31, 2020, 2019 and 2018, the Company recorded $32.2 million, $31.5 million and $29.4 million, respectively, of stock-based compensation expense, and related income tax benefits of $7.6 million, $7.4 million and $9.6 million, respectively. The actual benefit received from the tax deduction from the exercise of equity-based incentives was $7.0 million, $5.4 million and $5.9 million for the fiscal years ended January 31, 2020, 2019 and 2018, respectively.
Restricted Stock
The Company’s restricted stock awards are primarily in the form of restricted stock units (“RSUs”) and typically vest in annual installments lasting between one year and three years from the date of grant, unless a different vesting schedule is mandated by country law. All of the RSUs have a fair market value equal to the closing price of the Company’s common stock on the date of grant. Stock-based compensation expense includes $23.4 million, $25.4 million and $25.8 million related to RSUs during fiscal 2020, 2019 and 2018, respectively.
A summary of the Company’s RSU activity for the fiscal year ended January 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-average grant date fair value
|
Nonvested at January 31, 2019
|
649,122
|
|
|
$
|
85.71
|
|
Granted
|
228,528
|
|
|
102.43
|
|
Vested
|
(266,405
|
)
|
|
85.89
|
|
Canceled
|
(36,265
|
)
|
|
92.70
|
|
Nonvested at January 31, 2020
|
574,980
|
|
|
91.84
|
|
The total fair value of RSUs which vested during the fiscal years ended January 31, 2020, 2019 and 2018 is $22.9 million, $21.1 million and $12.7 million, respectively. The weighted-average fair value of the 280,352 RSUs granted during the fiscal year ended January 31, 2019 was $85.50 per share. The weighted-average fair value of the 454,480 RSUs granted during the fiscal year ended January 31, 2018 was $92.08 per share. As of January 31, 2020, the unrecognized stock-based compensation expense related to non-vested RSUs was $19.6 million, which the Company expects to be recognized over a remaining weighted average period of 1.6 years.
Pursuant to the terms of the Merger Agreement with the affiliates of Apollo Funds, upon closing of the Merger all nonvested RSU’s will vest and be cancelled and converted into the right to receive an amount of $145 per share in cash.
Performance based restricted stock units
The Company's performance based restricted stock unit awards ("PRSUs") are subject to vesting conditions, including meeting specified cumulative performance objectives over a period of 3 years. Each performance based award recipient could vest in 0% to 150% of the target shares granted contingent on the achievement of the Company's financial performance metrics. Stock-based compensation expense includes $8.5 million, $5.8 million and $3.3 million related to PRSUs during fiscal 2020, 2019 and 2018, respectively.
A summary of the Company’s PRSU activity, assuming maximum achievement for nonvested awards, for the year ended January 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-average grant date fair value
|
Nonvested at January 31, 2019
|
293,216
|
|
|
$
|
85.84
|
|
Granted
|
108,771
|
|
|
103.15
|
|
Vested
|
(16,996
|
)
|
|
78.42
|
|
Canceled
|
(21,428
|
)
|
|
89.68
|
|
Nonvested at January 31, 2020
|
363,563
|
|
|
91.14
|
|
As of January 31, 2020, the unrecognized stock-based compensation expense related to non-vested PRSUs, based on estimated achievement, was $9.4 million, which the Company expects to be recognized over a remaining weighted average period of 1.6 years. The total fair value of PRSUs which vested during the fiscal year ended January 31, 2020 is $1.3 million. No PRSUs vested during the fiscal years ended January 31, 2019 or 2018. The weighted-average fair value of the 153,719 PRSUs granted during the fiscal year ended January 31, 2019 was $82.13 per share. The weighted-average fair value of the 159,148 PRSUs granted during the fiscal year ended January 31, 2018 was $90.95 per share.
Pursuant to the terms of the Merger Agreement with the affiliates of Apollo Funds, upon closing of the Merger nonvested PRSU’s will be cancelled and converted into the right to receive an amount of $145 per share in cash determined as follows: (i) for PRSU’s granted during fiscal 2018 and 2020, the number of shares shall equal 110% of the target shares granted and (ii) for PRSU’s granted during fiscal 2019, the number of shares shall equal 130% of the target shares granted.
Employee Stock Purchase Plan
Under the 1995 Employee Stock Purchase Plan (the “ESPP”), the Company was authorized to issue up to 1.0 million shares of common stock to eligible employees in the Company’s U.S. and Canadian subsidiaries. Under the terms of the ESPP, employees could choose to have a fixed dollar amount or percentage deducted from their bi-weekly compensation to purchase the Company’s common stock and/or elect to purchase shares once per calendar quarter. The purchase price of the stock was 85% of the market value on the purchase date and employees were limited to a maximum purchase of $25,000 in fair market value each calendar year. Subject to the Merger Agreement, the ESPP was suspended in November 2019. From the inception through suspension of the program, the Company issued 575,174 shares of common stock to the ESPP. Stock-based compensation expense related to the ESPP was insignificant during fiscal 2020, 2019 and 2018.
Retirement Savings Plan
The Company sponsors the Tech Data Corporation 401(k) Savings Plan (the “401(k) Savings Plan”) for its U.S. employees. At the Company’s discretion, participant deferrals are matched in cash, in an amount equal to 50% of the first 6% of participant deferrals and participants are fully vested following four years of qualified service. Aggregate contributions made by the Company to the 401(k) Savings Plan were $7.1 million, $6.7 million and $6.4 million for fiscal 2020, 2019 and 2018, respectively.
NOTE 11 — FAIR VALUE MEASUREMENTS
The Company’s assets and liabilities carried or disclosed at fair value are classified in one of the following three categories: Level 1 – quoted market prices in active markets for identical assets and liabilities; Level 2 – inputs other than quoted market prices included in Level 1 above that are observable for the asset or liability, either directly or indirectly; and, Level 3 – unobservable inputs for the asset or liability. The classification of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The following table summarizes the valuation of the Company's assets and liabilities that are measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020
|
|
January 31, 2019
|
|
|
|
|
Fair value measurement category
|
|
Fair value measurement category
|
|
|
Balance sheet location
|
|
Level 1
|
Level 2
|
Level 3
|
|
Level 1
|
Level 2
|
Level 3
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Prepaid expenses and other assets
|
|
|
$
|
812
|
|
|
|
|
$
|
—
|
|
|
Foreign currency forward contracts
|
|
Other assets, net
|
|
|
24,933
|
|
|
|
|
—
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
Prepaid expenses and other assets
|
|
|
124
|
|
|
|
|
—
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Prepaid expenses and other assets
|
|
|
3,675
|
|
|
|
|
3,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
Accrued expenses and other liabilities
|
|
|
$
|
492
|
|
|
|
|
$
|
—
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Accrued expenses and other liabilities
|
|
|
5,916
|
|
|
|
|
6,641
|
|
|
The Company’s derivative instruments are measured on a recurring basis based on foreign currency spot rates and forward rates quoted by banks or foreign currency dealers (Level 2 criteria) and are marked-to-market each period (see Note 12 – Derivative Instruments for further discussion).
The Company utilizes life insurance policies to fund the Company’s nonqualified deferred compensation plan. The life insurance asset, which is recorded in the Company's Consolidated Balance Sheet in "other assets, net", is the amount that would be realized upon the assumed surrender of the policy. This amount is based on the underlying fair value of the invested assets contained within the life insurance policies. The gains and losses are recorded in the Company’s Consolidated Statement of Income within "other expense (income), net." The related deferred compensation liability, which is recorded in the Company's Consolidated Balance Sheet in "accrued expenses and other liabilities," is marked-to-market each period based upon the returns of the various investments selected by the plan participants and the gains and losses are recorded in the Company’s Consolidated Statement of Income within "selling, general and administrative expenses." The net realizable value of the Company's life insurance investments and related deferred compensation liability was $41.1 million and $41.0 million, respectively, at January 31, 2020 and $39.2 million and $39.1 million, respectively, at January 31, 2019.
The carrying value of the 2017 Senior Notes discussed in Note 8 – Debt represents cost less unamortized debt discount and debt issuance costs. The estimated fair value of the 2017 Senior Notes is based upon quoted market information (Level 1). The estimated fair value of the 2017 Senior Notes was $1.04 billion and $988 million, respectively, at January 31, 2020 and 2019 and the carrying value was $994.3 million and $992.8 million, respectively, at January 31, 2020 and 2019. The carrying amounts of accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these items. The carrying amounts of debt outstanding pursuant to revolving credit facilities and term loan credit agreements approximated fair value as the majority of these instruments have variable interest rates which approximate current market rates (Level 2 criteria).
NOTE 12 — DERIVATIVE INSTRUMENTS
In the ordinary course of business, the Company is exposed to movements in foreign currency exchange rates. The Company’s foreign currency risk management objective is to protect earnings and cash flows from the impact of exchange rate changes primarily through the use of foreign currency forward contracts and a cross-currency swap.
Net Investment Hedges
The Company has entered into foreign currency forward contracts to hedge a portion of its net investment in euro denominated foreign operations which are designated as net investment hedges. The Company entered into the net investment hedges to offset the risk of change in the U.S. dollar value of the Company's investment in a euro functional subsidiary due to fluctuating foreign exchange rates. The aggregate notional values of the Company's outstanding net investment hedge contracts by year of maturity as of January 31, 2020 are as follows:
|
|
|
|
|
|
Fiscal Year:
|
|
Notional Value
|
(in millions)
|
|
|
2021
|
|
$
|
21.6
|
|
2022
|
|
21.6
|
|
2023
|
|
267.0
|
|
2024
|
|
12.4
|
|
2025
|
|
12.4
|
|
Thereafter
|
|
281.0
|
|
Total
|
|
$
|
616.0
|
|
The following table presents the effects of the Company's net investment hedges on accumulated other comprehensive income ("AOCI") and earnings for the year ended January 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31, 2020
|
|
|
Derivatives designated as net investment hedges:
|
|
Amount of gain (loss) recognized in other comprehensive income (loss)
|
|
Amount of gain (loss) reclassified from AOCI into income
|
|
Amount of gain (loss) recognized in income (amount excluded from effectiveness testing)
|
|
Location of gain (loss) recognized in income (amount excluded from effectiveness testing)
|
(in thousands)
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
15,508
|
|
|
—
|
|
|
10,237
|
|
|
Interest expense
|
The Company had no net investment hedges outstanding during the years ended January 31, 2019 and 2018.
Cash Flow Hedges
The Company entered into a cross-currency swap to hedge its cash flows related to certain foreign-currency denominated debt which is designated as a cash flow hedge. The notional value of this swap was $4.5 million at January 31, 2020 and the swap matured in February 2020.
The following table presents the effects of the Company's cash flow hedges on AOCI and earnings for the year ended January 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31, 2020
|
|
|
Derivatives designated as cash flow hedges:
|
|
Amount of gain (loss) recognized in other comprehensive income (loss)
|
|
Amount of gain (loss) reclassified from AOCI into income
|
|
Location of gain (loss) reclassified from AOCI into income
|
(in thousands)
|
|
|
|
|
|
|
Cross-currency swap
|
|
$
|
126
|
|
|
$
|
618
|
|
|
Interest expense
|
|
|
|
|
(507
|
)
|
|
Other expense (income), net
|
Total
|
|
$
|
126
|
|
|
$
|
111
|
|
|
|
The Company had no cash flow hedges outstanding during the years ended January 31, 2019 and 2018.
Derivatives Not Designated as Hedges
The Company additionally utilizes forward contracts that are not designated as hedging instruments to hedge intercompany loans, accounts receivable and accounts payable. The Company’s foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase the product. The Company’s transactions in its foreign operations are denominated primarily in the following currencies: Australian dollar, British pound, Canadian dollar, Czech koruna, Danish krone, euro, Indian rupee, Indonesian rupiah, Mexican peso, Norwegian krone, Polish zloty, Singapore dollar, Swedish krona, Swiss franc and U.S. dollar.
The Company considers inventory as an economic hedge against foreign currency exposure in accounts payable in certain circumstances. This practice offsets such inventory against corresponding accounts payable denominated in currencies other than the functional currency of the subsidiary buying the inventory, when determining the net exposure to be hedged using traditional forward contracts. Under this strategy, the Company would expect to increase or decrease selling prices for products purchased in foreign currencies based on fluctuations in foreign currency exchange rates affecting the underlying accounts payable. To the extent the Company incurs a foreign currency exchange loss (gain) on the underlying accounts payable denominated in the foreign currency, a corresponding increase (decrease) in gross profit would be expected as the related inventory is sold. This strategy can result in a certain degree of quarterly earnings volatility as the underlying accounts payable is remeasured using the foreign currency exchange rate prevailing at the end of each period, or settlement date if earlier, whereas the corresponding increase (decrease) in gross profit is not realized until the related inventory is sold.
The total amount of gains (losses) recognized in earnings on the Company's derivatives not designated as hedges for the years ended January 31, 2020, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) recognized in earnings
|
|
|
|
|
Year ended January 31,
|
Derivatives not designated as hedges
|
|
Income statement location
|
|
2020
|
|
2019
|
|
2018
|
(in millions)
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Cost of products sold
|
|
$
|
(3.0
|
)
|
|
$
|
17.7
|
|
|
$
|
(24.3
|
)
|
Foreign currency forward contracts
|
|
Other expense (income), net
|
|
(5.3
|
)
|
|
(44.8
|
)
|
|
(8.4
|
)
|
Total
|
|
|
|
$
|
(8.3
|
)
|
|
$
|
(27.1
|
)
|
|
$
|
(32.7
|
)
|
The gains and losses on the Company's foreign currency forward contracts are largely offset by the change in the fair value of the underlying hedged assets or liabilities. The Company’s average notional amounts of derivatives not designated as hedges outstanding during the fiscal years ended January 31, 2020, 2019 and 2018 were approximately $1.3 billion, $1.5 billion and $1.0 billion, respectively, with average maturities of 25 days, 25 days and 31 days, respectively. Under the Company’s hedging policies, gains and losses on the derivative financial instruments would be expected to continue to be largely offset by the gains and losses on the underlying assets or liabilities being hedged.
The Company’s derivatives are also discussed in Note 11 – Fair Value Measurements.
NOTE 13 — SHAREHOLDERS' EQUITY
In October 2018, the Company's Board of Directors authorized a share repurchase program for up to $200.0 million of the Company's common stock. In February 2019, the Board of Directors approved a $100.0 million increase to the program. In August 2019, the Company's Board of Directors authorized the repurchase of up to an additional $200.0 million of the Company's common stock, resulting in a total share repurchase authorization of $500.0 million. In conjunction with the Company’s share repurchase program, a 10b5-1 plan was executed that instructs the broker selected by the Company to repurchase shares on behalf of the Company. The amount of common stock repurchased in accordance with the 10b5-1 plan on any given trading day is determined by a formula in the plan, which is based on the market price of the Company’s common stock. Shares repurchased by the Company are held in treasury for general corporate purposes, including issuances under equity incentive and benefit plans. The reissuance of shares from treasury stock is based on the weighted average purchase price of the shares.
The Company’s common share repurchase and issuance activity for fiscal 2020 and 2019 is summarized as follows:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted- average
price per share
|
Treasury stock balance at January 31, 2018
|
21,083,972
|
|
|
$
|
44.59
|
|
Shares of common stock repurchased under share repurchase program
|
1,429,154
|
|
|
74.89
|
|
Shares of treasury stock reissued for equity incentive plans
|
(207,662
|
)
|
|
|
Treasury stock balance at January 31, 2019
|
22,305,464
|
|
|
46.53
|
|
Shares of common stock repurchased under share repurchase program
|
1,723,081
|
|
|
98.77
|
|
Shares of treasury stock reissued for equity incentive plans
|
(209,315
|
)
|
|
|
Treasury stock balance at January 31, 2020
|
23,819,230
|
|
|
$
|
50.30
|
|
During the years ended January 31, 2020 and 2019, the Company repurchased $170.2 million and $107.0 million of its common stock. Pursuant to the terms of the Merger Agreement with the affiliates of Apollo Funds, the Company suspended its share repurchase program as of November 13, 2019.
Accumulated Other Comprehensive Income
The following table summarizes the change in the components of AOCI for the years ended January 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes
|
|
Unrealized gains (losses) on cash flow hedges, net of taxes
|
|
Total
|
(in thousands)
|
|
|
|
|
|
|
Balance at January 31, 2017
|
|
$
|
(74,542
|
)
|
|
$
|
—
|
|
|
$
|
(74,542
|
)
|
Other comprehensive income (loss) before reclassification
|
|
362,834
|
|
|
—
|
|
|
362,834
|
|
Reclassification of (gain) loss from AOCI into income
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at January 31, 2018
|
|
288,292
|
|
|
—
|
|
|
288,292
|
|
Other comprehensive income (loss) before reclassification
|
|
(239,433
|
)
|
|
—
|
|
|
(239,433
|
)
|
Reclassification of (gain) loss from AOCI into income
|
|
(5,073
|
)
|
|
—
|
|
|
(5,073
|
)
|
Balance at January 31, 2019
|
|
43,786
|
|
|
—
|
|
|
43,786
|
|
Other comprehensive income (loss) before reclassification
|
|
(42,337
|
)
|
|
126
|
|
|
(42,211
|
)
|
Reclassification of (gain) loss from AOCI into income
|
|
—
|
|
|
(111
|
)
|
|
(111
|
)
|
Balance at January 31, 2020
|
|
$
|
1,449
|
|
|
$
|
15
|
|
|
$
|
1,464
|
|
NOTE 14 — LEASES
At contract inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. The Company has operating leases for certain logistics centers, office facilities, vehicles and equipment. The Company’s finance leases are not material. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the balance sheet. Certain of the Company’s operating leases contain options to extend the lease, which are included in the lease term when it is reasonably certain that the option will be exercised. Certain of the Company's operating leases contain options to terminate the lease; periods after the date of the termination option are included in the lease term when it is reasonably certain that the Company will not exercise the option to terminate the lease. The Company has elected to not separately recognize the lease and non-lease components of a contract for all operating leases.
Operating leases are included in “other assets, net”, “accrued expenses and other liabilities” (for the current portion of lease liabilities) and “other long-term liabilities” on the Consolidated Balance Sheet. These assets and liabilities are recognized at the lease commencement date based on the present value of remaining lease payments over the lease term using the Company's incremental borrowing rate. Lease expense for operating leases is recognized on a straight-line basis over the lease term and is recognized in “selling, general and administrative expenses” on the Consolidated Statement of Income. Variable lease costs are recognized as incurred.
The following table presents the contractual maturities of the Company's operating lease liabilities as of January 31, 2020:
|
|
|
|
|
|
Fiscal year:
|
|
|
(in thousands)
|
|
|
2021
|
|
$
|
70,322
|
|
2022
|
|
51,843
|
|
2023
|
|
42,382
|
|
2024
|
|
32,723
|
|
2025
|
|
21,660
|
|
Thereafter
|
|
56,651
|
|
Total payments
|
|
$
|
275,581
|
|
Less amount of lease payments representing interest
|
|
(34,168
|
)
|
Total present value of lease payments
|
|
$
|
241,413
|
|
Rental expense for all operating leases totaled $86.0 million during the year ended January 31, 2020. These costs primarily relate to fixed costs for long-term operating leases, but also include immaterial amounts for variable lease costs and short-term operating leases.
The following amounts were recorded in the Company's Consolidated Balance Sheet as of January 31, 2020:
|
|
|
|
|
|
|
|
Operating leases
|
|
Balance sheet location
|
|
January 31, 2020
|
(in thousands)
|
|
|
|
|
Operating lease right-of-use assets
|
|
Other assets, net
|
|
$
|
242,336
|
|
Current operating lease liabilities
|
|
Accrued expenses and other liabilities
|
|
69,202
|
|
Non-current operating lease liabilities
|
|
Other long-term liabilities
|
|
172,211
|
|
Supplemental cash flow information related to the Company's operating leases is as follows:
|
|
|
|
|
|
Cash flow information
|
|
Year ended January 31, 2020
|
(in thousands)
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
$
|
70,625
|
|
Non-cash right-of-use assets obtained in exchange for lease liabilities:
|
|
79,642
|
|
The weighted-average remaining lease term and discount rate were as follows as of January 31, 2020:
|
|
|
|
|
Operating lease term and discount rate
|
|
Operating Leases
|
Weighted-average remaining lease term
|
|
5.3 years
|
|
Weighted-average discount rate
|
|
4.8
|
%
|
Operating Leases Disclosure Related to Periods Prior to the Adoption of the New Lease Standard
Rental expense for all operating leases totaled $87.2 million and $83.6 million in fiscal years 2019 and 2018, respectively. Future minimum lease payments at January 31, 2019, under all such leases for succeeding fiscal years and thereafter were as follows (in thousands):
|
|
|
|
|
Fiscal year:
|
|
(in thousands)
|
|
2020
|
$
|
66,469
|
|
2021
|
58,435
|
|
2022
|
38,808
|
|
2023
|
28,587
|
|
2024
|
21,962
|
|
Thereafter
|
37,400
|
|
Total payments
|
$
|
251,661
|
|
NOTE 15 — COMMITMENTS AND CONTINGENCIES
Contingencies
In December 2010, in a non-unanimous decision, a Brazilian appellate court overturned a 2003 trial court which had previously ruled in favor of the Company’s Brazilian subsidiary related to the imposition of certain taxes on payments abroad related to the licensing of commercial software products, commonly referred to as “CIDE tax.” The Company estimates the total exposure related to CIDE tax, including interest, was approximately $18.2 million at January 31, 2020. The Brazilian subsidiary has appealed the unfavorable ruling to the Supreme Court and Superior Court, Brazil's two highest appellate courts. Based on the legal opinion of outside counsel, the Company believes that the chances of success on appeal of this matter are favorable and the Brazilian subsidiary intends to vigorously defend its position that the CIDE tax is not due. Accordingly, the Company has not recorded an accrual for the total estimated CIDE tax exposure. However, due to the lack of predictability of the Brazilian court system, the Company has concluded that it is reasonably possible that the Brazilian subsidiary may incur a loss up to the total exposure described above. The Company believes the resolution of this litigation will not be material to the Company’s consolidated net assets or liquidity.
The French Autorité de la Concurrence (“Competition Authority”) began in 2013 an investigation into the French market for certain products of Apple, Inc., for which the Company is a distributor. In March 2020, the Competition Authority imposed fines on the Company, on another distributor, and on Apple, finding that the Company entered into an anticompetitive agreement with Apple regarding volume allocations of Apple products. The fine imposed on the Company was €76 million. The Company has vigorously contested the arguments of the Competition Authority, and the Company intends to appeal its determination to the French courts, seeking to set aside or reduce the fine. The Company believes it has strong arguments on appeal, but the Company is unable to predict the outcome, among other reasons because of the novelty of the case and the unprecedented size of the fines imposed, or how long it will take to achieve a final resolution. Under French law, however, the pendency of the Company’s appeal does not suspend the obligation to pay the fine, and the Company expects that it will be required to pay the full fine assessed by the Competition Authority before the Company’s appeal is finally determined. At this time, the Company cannot reasonably estimate the amount of loss in these proceedings and therefore has not accrued for any loss.
As disclosed in the Company's definitive proxy statement related to the Merger dated January 10, 2020 (the "Merger Proxy Statement"), as supplemented by the Company’s Current Report on Form 8-K dated February 4, 2020 (the “Supplemental Disclosure 8-K”), five lawsuits related to the Merger were filed between December 19, 2019 and January 27, 2020 comprised of one purported class action complaint brought on behalf of a putative class of the Company’s shareholders and four individual shareholder complaints (collectively, the “Merger Litigations”). The Merger Litigations alleged, among other things, that the Company’s disclosures set forth in the Merger Proxy Statement contained material omissions. As described in the Supplemental Disclosure 8-K, while the Company believes that the Merger Litigations are without merit and no supplemental disclosure was required under applicable law, in order to moot the plaintiffs’ unmeritorious disclosure claims in the Merger Litigations, to avoid the risk of the Merger Litigations delaying or adversely affecting the Merger, and to minimize the costs, risks and uncertainties inherent in litigation, without admitting any liability or wrongdoing, the Company determined to voluntarily supplement the Merger Proxy Statement as described in the Supplemental Disclosure 8-K. Following the filing of the Supplemental Disclosure 8-K, the plaintiffs in all of the Merger Litigations voluntarily dismissed their individual claims with prejudice.
The Company is subject to various other legal proceedings and claims arising in the ordinary course of business. The Company’s management does not expect that the outcome in any of these other legal proceedings, individually or collectively, will have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
Guarantees
As is customary in the technology industry, to encourage certain customers to purchase products from Tech Data, the Company has arrangements with certain finance companies that provide inventory financing facilities to the Company’s customers. In conjunction with certain of these arrangements, the Company would be required to purchase certain inventory in the event the inventory is repossessed from the customers by the finance companies. As the Company does not have access to information regarding the amount of inventory purchased from the Company still on hand with the customer at any point in time, the Company’s repurchase obligations relating to inventory cannot be reasonably estimated. Repurchases of inventory by the Company under these arrangements have been insignificant to date. The Company believes that, based on historical experience, the likelihood of a material loss pursuant to these inventory repurchase obligations is remote.
NOTE 16 — SEGMENT INFORMATION
Tech Data operates predominately in a single industry segment as a distributor of technology products, logistics management, and other value-added services. While the Company operates primarily in one industry, it is managed based on geographic segments. The Company manages its operations in three geographic segments: the Americas, Europe and Asia-Pacific.
The Company does not consider stock-based compensation expense in assessing the performance of its operating segments, and therefore the Company excludes stock-based compensation expense from segment information. The accounting policies of the segments are the same as those described in Note 1 – Business and Summary of Significant Accounting Policies.
Financial information by geographic segment is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31:
|
2020
|
|
2019
|
|
2018
|
Net sales:
|
|
|
|
|
|
Americas (1)
|
$
|
16,600,023
|
|
|
$
|
16,041,103
|
|
|
$
|
14,419,221
|
|
Europe
|
19,132,040
|
|
|
20,026,057
|
|
|
18,147,917
|
|
Asia-Pacific
|
1,266,358
|
|
|
1,171,790
|
|
|
1,030,703
|
|
Total
|
$
|
36,998,421
|
|
|
$
|
37,238,950
|
|
|
$
|
33,597,841
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
Americas (2) (3)
|
$
|
333,233
|
|
|
$
|
366,637
|
|
|
$
|
248,350
|
|
Europe (4)
|
272,498
|
|
|
195,375
|
|
|
173,611
|
|
Asia-Pacific (5)
|
8,785
|
|
|
(36,697
|
)
|
|
17,499
|
|
Stock-based compensation expense
|
(32,187
|
)
|
|
(31,513
|
)
|
|
(29,381
|
)
|
Total
|
$
|
582,329
|
|
|
$
|
493,802
|
|
|
$
|
410,079
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
Americas
|
$
|
98,151
|
|
|
$
|
93,612
|
|
|
$
|
84,265
|
|
Europe
|
47,217
|
|
|
56,533
|
|
|
57,794
|
|
Asia-Pacific
|
7,731
|
|
|
8,852
|
|
|
7,987
|
|
Total
|
$
|
153,099
|
|
|
$
|
158,997
|
|
|
$
|
150,046
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
Americas
|
$
|
50,953
|
|
|
$
|
37,141
|
|
|
$
|
207,399
|
|
Europe
|
30,895
|
|
|
20,818
|
|
|
21,471
|
|
Asia-Pacific
|
2,974
|
|
|
3,455
|
|
|
3,067
|
|
Total
|
$
|
84,822
|
|
|
$
|
61,414
|
|
|
$
|
231,937
|
|
|
|
|
|
|
|
|
|
|
As of January 31:
|
2020
|
|
2019
|
Identifiable assets:
|
|
|
|
Americas
|
$
|
6,147,771
|
|
|
$
|
5,402,316
|
|
Europe
|
6,518,761
|
|
|
6,970,822
|
|
Asia-Pacific
|
602,077
|
|
|
613,414
|
|
Total
|
$
|
13,268,609
|
|
|
$
|
12,986,552
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
Americas (1)
|
$
|
231,401
|
|
|
$
|
217,863
|
|
Europe
|
51,331
|
|
|
52,162
|
|
Asia-Pacific
|
4,418
|
|
|
4,892
|
|
Total
|
$
|
287,150
|
|
|
$
|
274,917
|
|
|
|
|
|
Goodwill & acquisition-related intangible assets, net:
|
|
|
|
Americas
|
$
|
1,339,375
|
|
|
$
|
1,083,699
|
|
Europe
|
541,102
|
|
|
575,776
|
|
Asia-Pacific
|
54,090
|
|
|
60,154
|
|
Total
|
$
|
1,934,567
|
|
|
$
|
1,719,629
|
|
|
|
(1)
|
Net sales in the U.S. represented 90%, 90% and 89% of the total Americas' net sales for the fiscal years ended January 31, 2020, 2019 and 2018, respectively. Total long-lived assets in the U.S. represented 96% of the Americas' total long-lived assets at both January 31, 2020 and 2019, respectively.
|
|
|
(2)
|
Operating income in the Americas for the fiscal years ended January 31, 2020, 2019 and 2018 includes acquisition, integration and restructuring expenses of $16.1 million, $25.2 million and $75.5 million, respectively (see Note 6 – Acquisition, Integration and Restructuring Expenses for further discussion). Operating income in the Americas for the fiscal year ended January 31, 2019 includes a benefit of approximately $25 million related to the collection of an accounts receivable balance previously considered uncollectible.
|
|
|
(3)
|
Operating income in the Americas for the fiscal years ended January 31, 2020, 2019 and 2018 includes a gain recorded in legal settlements and other, net, of $0.6 million, $15.4 million and $42.6 million, respectively (see Note 1 – Business and Summary of Significant Accounting Policies for further discussion).
|
|
|
(4)
|
Operating income in Europe for the fiscal years ended January 31, 2020, 2019 and 2018 includes acquisition, integration and restructuring expenses of $8.4 million, $57.7 million and $56.2 million, respectively.
|
|
|
(5)
|
Operating income in Asia-Pacific for the fiscal year ended January 31, 2019 includes goodwill impairment expense of $47.4 million (see Note 4 – Goodwill and Intangible Assets for further discussion).
|
NOTE 17 — INTERIM FINANCIAL INFORMATION (UNAUDITED)
Interim financial information for fiscal years 2020 and 2019 is as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2020:
|
|
|
|
|
|
|
|
Quarter ended:
|
April 30 (1)
|
|
July 31 (1)
|
|
October 31 (1)
|
|
January 31 (1)
|
Net sales
|
$
|
8,406,424
|
|
|
$
|
9,092,244
|
|
|
$
|
9,118,944
|
|
|
$
|
10,380,809
|
|
Gross profit
|
509,379
|
|
|
561,650
|
|
|
560,387
|
|
|
666,231
|
|
Operating income
|
97,624
|
|
|
124,747
|
|
|
141,888
|
|
|
218,070
|
|
Net income
|
$
|
55,400
|
|
|
$
|
79,250
|
|
|
$
|
90,770
|
|
|
$
|
149,080
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
1.50
|
|
|
$
|
2.17
|
|
|
$
|
2.54
|
|
|
$
|
4.19
|
|
Diluted
|
$
|
1.49
|
|
|
$
|
2.16
|
|
|
$
|
2.52
|
|
|
$
|
4.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2019:
|
|
|
|
|
|
|
|
Quarter ended:
|
April 30 (2)(3)
|
|
July 31 (2)(3)
|
|
October 31 (2)(3)(4)(5)
|
|
January 31 (3)(4)(6)
|
Net sales
|
$
|
8,548,319
|
|
|
$
|
8,886,101
|
|
|
$
|
9,340,029
|
|
|
$
|
10,464,501
|
|
Gross profit
|
523,117
|
|
|
527,030
|
|
|
556,604
|
|
|
649,148
|
|
Operating income
|
70,496
|
|
|
110,365
|
|
|
146,888
|
|
|
166,053
|
|
Net income
|
$
|
33,699
|
|
|
$
|
75,866
|
|
|
$
|
114,216
|
|
|
$
|
116,799
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.88
|
|
|
$
|
1.97
|
|
|
$
|
2.98
|
|
|
$
|
3.13
|
|
Diluted
|
$
|
0.87
|
|
|
$
|
1.97
|
|
|
$
|
2.96
|
|
|
$
|
3.11
|
|
|
|
(1)
|
During the first, second, third and fourth quarters of fiscal 2020, the Company recorded $6.2 million, $5.2 million, $4.6 million and $10.0 million of acquisition, integration and restructuring expenses, respectively (see Note 6 – Acquisition, Integration and Restructuring Expenses for further discussion).
|
|
|
(2)
|
During the first, second and third quarters of fiscal 2019, the Company recorded a gain of $3.0 million, $5.2 million and $7.2 million, respectively, in legal settlements and other, net.
|
|
|
(3)
|
During the first, second, third and fourth quarters of fiscal 2019, the Company recorded $33.2 million, $13.3 million, $20.3 million and $21.1 million of acquisition, integration and restructuring expenses, respectively.
|
|
|
(4)
|
The Company decreased its estimate of the one-time transition tax related to the enactment of U.S. Tax Reform by $24.0 million and $25.2 million, respectively, in the third and fourth quarters of fiscal 2019 (see Note 9 – Income Taxes for further discussion).
|
|
|
(5)
|
During the third quarter of fiscal 2019, the Company included a $25 million benefit in operating income related to the collection of an accounts receivable balance previously considered uncollectible.
|
|
|
(6)
|
During the fourth quarter of fiscal 2019, the Company recorded goodwill impairment expense of $47.4 million (see Note 4 – Goodwill and Intangible Assets for further discussion).
|