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Table of Contents

            
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             .
Commission File Number 0-14625  

td_logoa08.jpg
TECH DATA CORPORATION
(Exact name of Registrant as specified in its charter)
 

Florida
(State or other jurisdiction of
incorporation or organization)
5350 Tech Data Drive Clearwater, Florida
(Address of principal executive offices)

 

No. 59-1578329
(I.R.S. Employer
Identification Number)
33760
(Zip Code)
(Registrant’s Telephone Number, including Area Code): (727539-7429
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Name of each exchange which registered
Common stock, par value $.0015 per share
 
TECD
 
NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No    
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):  
Large Accelerated Filer
Accelerated Filer
 
 
 
 
Non-accelerated Filer
 
Smaller Reporting Company Filer
 
 
 
 
 
 
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes    No 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class
Outstanding at November 26, 2019
Common stock, par value $.0015 per share
35,422,796
 

1

Table of Contents

TECH DATA CORPORATION AND SUBSIDIARIES
Form 10-Q for the Three and Nine Months Ended October 31, 2019
INDEX

 
 
PAGE
PART I.
 
ITEM 1.
 
 
 
 
 
 
ITEM 2.
ITEM 3.
ITEM 4.
PART II.
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
 

2

Table of Contents


PART I. FINANCIAL INFORMATION

ITEM 1.
Financial Statements

TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except par value and share amounts)
 
 
October 31, 2019
 
January 31, 2019
ASSETS
(Unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
964,146

 
$
799,123

Accounts receivable, net
5,768,940

 
6,241,740

Inventories
3,145,381

 
3,297,385

Prepaid expenses and other assets
341,075

 
354,601

Total current assets
10,219,542

 
10,692,849

Property and equipment, net
275,013

 
274,917

Goodwill
888,165

 
892,990

Intangible assets, net
884,560

 
950,858

Other assets, net
427,456

 
174,938

Total assets
$
12,694,736

 
$
12,986,552

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
6,963,941

 
$
7,496,466

Accrued expenses and other liabilities
1,030,457

 
1,000,126

Revolving credit loans and current maturities of long-term debt, net
123,271

 
110,368

Total current liabilities
8,117,669

 
8,606,960

Long-term debt, less current maturities
1,294,186

 
1,300,554

Other long-term liabilities
314,596

 
142,315

Total liabilities
9,726,451

 
10,049,829

Commitments and contingencies (Note 12)

 

Shareholders’ equity:
 
 
 
Common stock, par value $.0015; 200,000,000 shares authorized; 59,245,585 shares issued at October 31, 2019 and January 31, 2019
89

 
89

Additional paid-in capital
846,636

 
844,206

Treasury stock, at cost (23,798,037 and 22,305,464 shares at October 31, 2019 and January 31, 2019)
(1,195,148
)
 
(1,037,872
)
Retained earnings
3,311,934

 
3,086,514

Accumulated other comprehensive income
4,774

 
43,786

Total shareholders' equity
2,968,285

 
2,936,723

Total liabilities and shareholders' equity
$
12,694,736

 
$
12,986,552

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

3

Table of Contents

TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
Three months ended October 31,
 
Nine months ended October 31,
 
2019
 
2018
 
2019
 
2018
Net sales
$
9,118,944

 
$
9,340,029

 
$
26,617,612

 
$
26,774,449

Cost of products sold
8,558,557

 
8,783,425

 
24,986,196

 
25,167,698

Gross profit
560,387

 
556,604

 
1,631,416

 
1,606,751

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative expenses
415,242

 
396,675

 
1,252,752

 
1,234,355

Acquisition, integration and restructuring expenses
4,647

 
20,277

 
16,077

 
66,799

Legal settlements and other, net

 
(7,207
)
 
(282
)
 
(15,406
)
Gain on disposal of subsidiary
(1,390
)
 
(29
)
 
(1,390
)
 
(6,746
)
 
418,499

 
409,716

 
1,267,157

 
1,279,002

Operating income
141,888

 
146,888

 
364,259

 
327,749

Interest expense
21,033

 
25,405

 
68,276

 
79,380

Other expense, net
4,348

 
4,961

 
6,551

 
7,779

Income before income taxes
116,507

 
116,522

 
289,432

 
240,590

Provision for income taxes
25,737

 
2,306

 
64,012

 
16,809

Net income
$
90,770

 
$
114,216

 
$
225,420

 
$
223,781

Earnings per share:
 
 
 
 
 
 
 
Basic
$
2.54

 
$
2.98

 
$
6.19

 
$
5.83

Diluted
$
2.52

 
$
2.96

 
$
6.15

 
$
5.80

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
35,720

 
38,358

 
36,395

 
38,357

Diluted
35,968

 
38,526

 
36,630

 
38,559


The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
 

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TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
 
Three months ended October 31,
 
Nine months ended October 31,
 
2019
 
2018
 
2019
 
2018
Net income
$
90,770

 
$
114,216

 
$
225,420

 
$
223,781

Other comprehensive income (loss):
 
 
 
 
 
 
 
          Foreign currency translation adjustment, net of tax
33,255

 
(91,430
)
 
(39,090
)
 
(281,737
)
Unrealized gain on cash flow hedges, net of tax
20

 

 
78

 

Other comprehensive income (loss)
33,275

 
(91,430
)
 
(39,012
)
 
(281,737
)
Total comprehensive income (loss)
$
124,045

 
$
22,786

 
$
186,408

 
$
(57,956
)

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
 

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TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
 
Common Stock
 
Additional
paid-in
capital
 
Treasury
stock
 
Retained
earnings
 
Accumulated other comprehensive income (loss)
 
Total
shareholders' equity
 
Shares  
 
Amount  
 
Balance at January 31, 2019
59,246

 
$
89

 
$
844,206

 
$
(1,037,872
)
 
$
3,086,514

 
$
43,786

 
$
2,936,723

Repurchases of common stock

 

 

 
(35,681
)
 

 

 
(35,681
)
Issuance of treasury stock for benefit plan and equity-based awards exercised

 

 
(16,003
)
 
7,896

 

 

 
(8,107
)
Stock-based compensation expense

 

 
8,305

 

 

 

 
8,305

Total other comprehensive loss

 

 

 

 

 
(40,734
)
 
(40,734
)
Net income

 

 

 

 
55,400

 

 
55,400

Balance at April 30, 2019
59,246

 
89

 
836,508

 
(1,065,657
)
 
3,141,914

 
3,052

 
2,915,906

Repurchases of common stock

 

 

 
(82,011
)
 

 

 
(82,011
)
Issuance of treasury stock for benefit plan and equity-based awards exercised

 

 
(1,404
)
 
1,379

 

 

 
(25
)
Stock-based compensation expense

 

 
8,055

 

 

 

 
8,055

Total other comprehensive loss

 

 

 

 

 
(31,553
)
 
(31,553
)
Net income

 

 

 

 
79,250

 

 
79,250

Balance at July 31, 2019
59,246

 
89

 
843,159

 
(1,146,289
)
 
3,221,164

 
(28,501
)
 
2,889,622

Repurchases of common stock

 

 

 
(49,300
)
 

 

 
(49,300
)
Issuance of treasury stock for benefit plan and equity-based awards exercised

 

 
(196
)
 
441

 

 

 
245

Stock-based compensation expense

 

 
7,347

 

 

 

 
7,347

Purchase of noncontrolling interest

 

 
(3,674
)
 

 

 

 
(3,674
)
Total other comprehensive income

 

 

 

 

 
33,275

 
33,275

Net income

 

 

 

 
90,770

 

 
90,770

Balance at October 31, 2019
59,246

 
$
89

 
$
846,636

 
$
(1,195,148
)
 
$
3,311,934

 
$
4,774

 
$
2,968,285

 
Common Stock
 
Additional
paid-in
capital
 
Treasury
stock
 
Retained
earnings
 
Accumulated other comprehensive income
 
Total
shareholders' equity
 
Shares  
 
Amount  
 
Balance at January 31, 2018
59,246

 
$
89

 
$
827,301

 
$
(940,124
)
 
$
2,745,934

 
$
288,292

 
$
2,921,492

Issuance of treasury stock for benefit plan and equity-based awards exercised

 

 
(12,771
)
 
6,957

 

 

 
(5,814
)
Stock-based compensation expense

 

 
7,587

 

 

 

 
7,587

Total other comprehensive loss

 

 

 

 

 
(88,252
)
 
(88,252
)
Net income

 

 

 

 
33,699

 

 
33,699

Balance at April 30, 2018
59,246

 
89

 
822,117

 
(933,167
)
 
2,779,633

 
200,040

 
2,868,712

Issuance of treasury stock for benefit plan and equity-based awards exercised

 

 
(1,083
)
 
1,303

 

 

 
220

Stock-based compensation expense

 

 
7,968

 

 

 

 
7,968

Total other comprehensive loss

 

 

 

 

 
(102,055
)
 
(102,055
)
Net income

 

 

 

 
75,866

 

 
75,866

Balance at July 31, 2018
59,246

 
89

 
829,002

 
(931,864
)
 
2,855,499

 
97,985

 
2,850,711

Repurchases of common stock

 

 

 
(43,798
)
 

 

 
(43,798
)
Issuance of treasury stock for benefit plan and equity-based awards exercised

 

 
(621
)
 
572

 

 

 
(49
)
Stock-based compensation expense

 

 
8,139

 

 

 

 
8,139

Total other comprehensive loss

 

 

 

 

 
(91,430
)
 
(91,430
)
Net income

 

 

 

 
114,216

 

 
114,216

Balance at October 31, 2018
59,246

 
$
89

 
$
836,520

 
$
(975,090
)
 
$
2,969,715

 
$
6,555

 
$
2,837,789

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

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TECH DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine months ended October 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Cash received from customers
$
35,335,867

 
$
34,190,821

Cash paid to vendors and employees
(34,774,608
)
 
(33,891,567
)
Interest paid, net
(79,482
)
 
(82,829
)
Income taxes paid
(69,174
)
 
(67,107
)
Net cash provided by operating activities
412,603

 
149,318

Cash flows from investing activities:

 
 
Proceeds from sale of business, net of cash divested

 
8,985

Acquisition of businesses, net of cash acquired

 
(124,223
)
Expenditures for property and equipment
(30,503
)
 
(24,830
)
Software and software development costs
(21,147
)
 
(15,323
)
Other
315

 
1,105

Net cash used in investing activities
(51,335
)
 
(154,286
)
Cash flows from financing activities:
 
 
 
Borrowings on long-term debt
300,000

 

Principal payments on long-term debt
(311,925
)
 
(207,854
)
Cash paid for debt issuance costs
(4,341
)
 

Net borrowings (repayments) on revolving credit loans
15,035

 
(9,274
)
Payments for employee tax withholdings on equity awards
(9,337
)
 
(6,988
)
Proceeds from the reissuance of treasury stock
1,450

 
1,322

Acquisition of noncontrolling interest
(7,553
)
 

Repurchases of common stock
(166,992
)
 
(43,798
)
Other
529

 

Net cash used in financing activities
(183,134
)
 
(266,592
)
Effect of exchange rate changes on cash and cash equivalents
(13,111
)
 
(37,589
)
Net increase (decrease) in cash and cash equivalents
165,023

 
(309,149
)
Cash and cash equivalents at beginning of year
799,123

 
955,628

Cash and cash equivalents at end of period
$
964,146

 
$
646,479

Reconciliation of net income to net cash provided by operating activities:
 
 
 
Net income
$
225,420

 
$
223,781

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Gain on disposal of subsidiary
(1,390
)
 
(6,746
)
Depreciation and amortization
112,726

 
119,641

Provision for losses on accounts receivable
19,176

 
11,545

Stock-based compensation expense
23,707

 
23,694

Accretion of debt discount and debt issuance costs
3,195

 
2,983

Deferred income taxes
4,577

 
(11,567
)
Changes in operating assets and liabilities, net of acquisitions and disposition:
 
 
 
Accounts receivable
372,594

 
(309,390
)
Inventories
113,168

 
(397,692
)
Prepaid expenses and other assets
38,991

 
(3,720
)
Accounts payable
(443,413
)
 
474,214

Accrued expenses and other liabilities
(56,148
)
 
22,575

Total adjustments
187,183

 
(74,463
)
Net cash provided by operating activities
$
412,603

 
$
149,318

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

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TECH DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 Apollo Funds will acquire all the outstanding shares of the Company’s common stock for $145 per share in cash (the “Merger”). The completion of the Merger is subject to customary closing conditions, including the adoption of the Merger Agreement by a majority of the holders of the outstanding shares of the Company’s common stock, the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, certain foreign regulatory approvals and other customary closing conditions.
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, without audit, 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. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company as of October 31, 2019, its consolidated statements of income, comprehensive income (loss), and shareholders' equity for the three and nine months ended October 31, 2019 and 2018, and its consolidated cash flows for the nine months ended October 31, 2019 and 2018.
Seasonality
The Company’s quarterly operating results have fluctuated significantly in the past and will likely continue to do so in the future as a result of currency fluctuations and seasonal variations in the demand for the products and services we sell. Narrow operating margins may magnify the impact of these factors on the Company's quarterly operating results. Historical seasonal variations have included an increase in European demand during the Company’s fiscal fourth quarter and decreased demand in other fiscal quarters. The seasonal trend in Europe typically results in greater operating leverage, and therefore, lower selling, general and administrative expenses as a percentage of net sales in the region and on a consolidated basis during the second half of the Company's fiscal year, particularly in the Company's fourth quarter. Therefore, the results of operations for the three and nine months ended October 31, 2019 and 2018 are not necessarily indicative of the results that can be expected for the entire fiscal year ended January 31, 2020.
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,

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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 13 – 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 the three and nine months ended October 31, 2019 and 2018 (as a percent of consolidated net sales):
 
Three months ended October 31,
 
Nine months ended October 31,
 
2019
 
2018
 
2019
 
2018
Apple, Inc.
17%
 
17%
 
15%
 
15%
Cisco Systems, Inc.
11%
 
10%
 
11%
 
11%
HP Inc.
10%
 
11%
 
11%
 
11%

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.
Accounts Receivable Purchase Agreements
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 October 31, 2019 and January 31, 2019, the Company had a total of $921 million and $1.1 billion, respectively, of accounts receivable sold to and held by financial institutions under these agreements. During both the three months ended October 31, 2019 and 2018, discount fees recorded under these facilities were $4.1 million. During the nine months ended October 31, 2019 and 2018, discount fees recorded under these facilities were $11.8 million and $10.5 million, respectively. These discount fees are included as a component of "other expense, 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 ending 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

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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 11 – 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 ended 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 on a prospective basis during the quarter ended 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 does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
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.

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NOTE 2 — EARNINGS PER SHARE ("EPS")
The Company presents the computation of earnings per share 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 7 – Stock-Based Compensation for further discussion) using the treasury stock method. The composition of basic and diluted EPS is as follows:
 
Three months ended October 31,
 
Nine months ended October 31,
 
2019
 
2018
 
2019
 
2018
(in thousands, except per share data)
 
 
 
 
 
 
 
Net income
$
90,770

 
$
114,216

 
$
225,420

 
$
223,781

 
 
 
 
 
 
 
 
Weighted average common shares - basic
35,720

 
38,358

 
36,395

 
38,357

Effect of dilutive securities:
 
 
 
 
 
 
 
Equity based awards
248

 
168

 
235

 
202

Weighted average common shares - diluted
35,968

 
38,526

 
36,630

 
38,559

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
2.54

 
$
2.98

 
$
6.19

 
$
5.83

Diluted
$
2.52

 
$
2.96

 
$
6.15

 
$
5.80


For the three months ended October 31, 2019 and 2018, there were 485 and 45,072 shares, respectively, excluded from the computation of diluted earnings per share because their effect would have been antidilutive. For the nine months ended October 31, 2019 and 2018, there were 485 and 43,783 shares, respectively, excluded from the computation of diluted earnings per share because their effect would have been antidilutive.

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NOTE 3 — ACQUISITION, INTEGRATION AND RESTRUCTURING EXPENSES
Acquisition, integration and restructuring expenses are primarily comprised of costs related to the fiscal 2018 acquisition of Avnet, Inc.'s ("Avnet") Technology Solutions business ("TS") and restructuring costs related to the Global Business Optimization Program which was initiated in fiscal 2019.
Acquisitions
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. 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 nine months ended October 31, 2018, other costs are partially offset by a gain of $9.6 million related to the final working capital adjustment for the acquisition of TS as part of a settlement agreement with Avnet.
The Company incurred no acquisition, integration and restructuring expenses related to the acquisition of TS during the three and nine months ended October 31, 2019 and does not expect to incur any additional costs in future periods. Acquisition, integration and restructuring expenses for the three and nine months ended October 31, 2018 related to the acquisition of TS are comprised of the following:
 
Three months ended October 31,
 
Nine months ended October 31,
 
2018
 
2018
(in thousands)
 
 
 
Restructuring costs
$
1,618

 
$
16,267

IT related costs
2,120

 
10,606

Professional services
807

 
5,213

Transaction related costs
268

 
1,461

Other costs
2,340

 
1,785

Total
$
7,153

 
$
35,332


During the three months ended October 31, 2018, the Company recorded restructuring costs related to the acquisition of TS of $1.6 million in Europe. During the nine months ended October 31, 2018, the Company recorded restructuring costs related to the acquisition of TS of $3.6 million in the Americas and $12.7 million in Europe.
Additionally, the Company incurred $1.8 million of transaction related costs during the three and nine months ended October 31, 2019 related to the proposed Merger with the affiliates of Apollo Funds and the acquisition of DLT Solutions (see Note 14 - Subsequent Events for further discussion).

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 cash charges 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 cash charges primarily consist of severance costs, and also include professional services and other costs.

Restructuring expenses related to the GBO Program are comprised of the following:
 
Three months ended October 31,
 
Nine months ended October 31,
 
Cumulative Amounts Incurred to Date
 
2019
 
2018
 
2019
 
2018
 
(in thousands)
 
 
 
 
 
 
 
 
 
Severance costs
$
1,851

 
$
8,741

 
$
9,185

 
$
17,615

 
$
35,612

Professional services and other costs
1,030

 
4,383

 
5,126

 
13,852

 
21,240

Total
$
2,881


$
13,124


$
14,311


$
31,467

 
$
56,852



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Restructuring costs related to the GBO Program by segment are as follows:
 
Three months ended October 31,
 
Nine months ended October 31,
 
2019
 
2018
 
2019
 
2018
(in thousands)
 
 
 
 
 
 
 
Americas
$
1,902

 
$
2,502

 
$
6,154

 
$
9,838

Europe
975

 
10,099

 
7,228

 
20,981

Asia-Pacific
4

 
523

 
929

 
648

Total
$
2,881

 
$
13,124

 
$
14,311

 
$
31,467


Restructuring activity during the nine months ended October 31, 2019 related to the GBO Program is as follows:
 
 
Nine months ended October 31, 2019
 
 
Severance
 
Professional services and other costs
 
Total
(in thousands)
 
 
 
 
 
 
Balance at January 31, 2019
 
$
14,798

 
$
631

 
$
15,429

Fiscal 2020 restructuring expenses
 
9,185

 
5,126

 
14,311

Cash payments
 
(14,858
)
 
(5,721
)
 
(20,579
)
Foreign currency translation
 
(293
)
 
(23
)
 
(316
)
Balance at October 31, 2019
 
$
8,832

 
$
13

 
$
8,845


NOTE 4 — GAIN ON DISPOSAL OF SUBSIDIARY
During the second quarter of 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 nine months ended October 31, 2018, 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 three and nine months ended October 31, 2019. The operating results of this entity during the nine months ended October 31, 2018 were insignificant relative to the Company's consolidated financial results.

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NOTE 5 — DEBT
The carrying value of the Company's outstanding debt consists of the following (in thousands):
As of:
October 31, 2019
 
January 31, 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 2.84% and 3.99% at October 31, 2019 and January 31, 2019, respectively
300,000

 
300,000

Other committed and uncommitted revolving credit facilities, average interest rate of 7.26% and 8.05% at October 31, 2019 and January 31, 2019, respectively
116,895

 
102,271

Other long-term debt
6,973

 
15,817

Less—unamortized debt discount and debt issuance costs
(6,411
)
 
(7,166
)
 
1,417,457

 
1,410,922

Less—current maturities (included as “revolving credit loans and current maturities of long-term debt, net”)
(123,271
)
 
(110,368
)
Total long-term debt
$
1,294,186

 
$
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.
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 October 31, 2019 and January 31, 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 October 31, 2019.
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

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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 $1.7 billion at both October 31, 2019 and January 31, 2019. 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 October 31, 2019 and January 31, 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 $394.9 million at October 31, 2019 to support its operations. Most of these facilities are provided on an unsecured, short-term basis and are reviewed periodically for renewal. There was $116.9 million outstanding on these facilities at October 31, 2019, at a weighted average interest rate of 7.26%, and there was $102.3 million outstanding at January 31, 2019, at a weighted average interest rate of 8.05%.
At October 31, 2019, the Company had also issued standby letters of credit of $32.0 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 certain 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 October 31, 2019, the Company was in compliance with all such financial covenants.

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NOTE 6 — INCOME TAXES
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 included 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 required 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 had 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. During the three and nine months ended October 31, 2018, the Company decreased its provisional estimate of the one-time transition tax by $24.0 million upon further analysis of earnings and profits of the Company's foreign subsidiaries and utilization of foreign tax credits.
Tax Indemnifications
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. The Company recorded a benefit in income tax expense of $5.5 million during the three months ended October 31, 2018 and a benefit in income tax expense of $0.6 million and $6.1 million during the nine months ended October 31, 2019 and 2018, respectively, due to the resolution of certain pre-acquisition tax matters.
Effective Tax Rate
The Company's effective tax rate was 22.1% and 2.0% for the three months ended October 31, 2019 and 2018, respectively, and 22.1% and 7.0% for the nine months ended October 31, 2019 and 2018, respectively. On an absolute dollar basis, the provision for income taxes increased to $25.7 million for the third quarter of fiscal 2020 compared to $2.3 million for the third quarter of fiscal 2019 and increased to $64.0 million for the nine months ended October 31, 2019 compared to $16.8 million for the nine months ended October 31, 2018.
The increase in both the effective tax rate and the provision for income taxes for the three and nine months ended October 31, 2019, as compared to the prior year is primarily due to the prior year decrease in the provisional estimate of the one-time transition tax related to U.S. Tax Reform and the impact of the resolution of certain pre-acquisition tax matters related to TS. The increase in both the effective tax rate and the provision for income taxes for the nine months ended October 31, 2019, as compared to the prior year, is also impacted by a $13.0 million income tax benefit recognized during the nine months ended October 31, 2018. The income tax benefit was due to the Company's finalization of the geographic allocation of the purchase price for the acquisition of TS for tax reporting purposes as part of a settlement agreement with Avnet, 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. Additionally, the increase in the absolute dollar value of the provision for income taxes for the nine months ended October 31, 2019 as compared to the prior year is due to an increase in taxable earnings.

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NOTE 7 — STOCK-BASED COMPENSATION
The Company recorded $23.7 million of stock-based compensation expense for both the nine months ended October 31, 2019 and 2018.
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 October 31, 2019. 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 have a maximum term of 10 years, unless a shorter period is specified by the Compensation Committee of the 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.
Restricted stock units
A summary of the Company’s restricted stock activity for the nine months ended October 31, 2019 is as follows:
 
Shares  
Nonvested at January 31, 2019
649,122

Granted
228,528

Vested
(263,334
)
Canceled
(29,851
)
Nonvested at October 31, 2019
584,465


Performance based restricted stock units
The Company's performance based restricted stock unit awards are subject to vesting conditions, including meeting specified cumulative performance objectives over a period of three 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. A summary of the Company’s performance based restricted stock activity, assuming maximum achievement for nonvested awards, for the nine months ended October 31, 2019 is as follows:
 
Shares  
Nonvested at January 31, 2019
293,216

Granted
108,771

Vested
(16,996
)
Canceled
(18,648
)
Nonvested at October 31, 2019
366,343



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NOTE 8 — 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:
 
 
 
 
October 31, 2019
 
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
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net investment hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
Prepaid expenses and other assets
 
 
 
$
527

 
 
 
 
 
$

 
 
Foreign currency forward contracts
 
Other assets, net
 
 
 
16,307

 
 
 
 
 

 
 
Cash flow hedges: