Tech Data 2013 Annual Report Download - page 24

Table of Contents
In addition to superior execution, our strategy includes continuing diversification and realignment of our customer and product portfolios to
improve long-term profitability throughout our operations. Our broadline distribution business, characterized as high volume, more commoditized
offerings, and comprised primarily of personal computer systems, peripherals, supplies and other similar products, remains a core part of our
business and represents a significant percentage of our revenue. However, as technology advances, we have continued to evolve our business
model, product mix, and value-added offerings in order to provide our vendors with the most efficient distribution channel for their products, and
our customers with a broad array of innovative solutions to sell. We have responded to a changing IT landscape with investments in higher growth
specialty areas, including the data center, software, mobility and consumer electronics, which collectively now comprise more than 50% of our
consolidated net sales.
Our European mobility business continues to be one of our strongest operations, posting double digit sales growth during both fiscal 2013 and
2012. During the third quarter of fiscal 2013, we completed the acquisition of Brightstar Corp.’s ("Brightstar") fifty percent ownership interest in
Brightstar Europe Limited ("BEL"), which was a consolidated joint venture between Tech Data and Brightstar. The terms of the acquisition
agreement included a payment of $165.9 million in cash for Brightstar's equity in BEL and the repayment of all loans advanced by Brightstar to
BEL. We funded the acquisition, repayment of the loans advanced by Brightstar and transaction costs with our available cash.
On November 1, 2012, we completed the acquisition of several distribution companies of Specialist Distribution Group, the distribution arm of
Specialist Computer Holdings PLC (“SCH”), a privately-
held IT services company headquartered in the United Kingdom, for a final purchase price
of approximately $358 million . We used the proceeds from the $350 million of Senior Notes issued in September 2012 and available cash to fund
the acquisition. The acquired distribution companies are Specialist Distribution Group (SDG) Limited; ETC Metrologie SARL; Best’Ware France
SA; ETC Africa SAS and SDG BV (collectively “SDG”).
SDG is a leading distributor of value and broadline IT products in the UK, France and the
Netherlands. We believe the acquisition of SDG supports our diversification strategy by strengthening our European value and broadline offerings
in key markets and expanding our vendor and customer portfolios, while leveraging our existing pan-European infrastructure. Simultaneously with
the acquisition of SDG, the Company entered into a preferred supplier agreement whereby SCH, through its IT reseller business, will have annual
purchase commitments through Tech Data for a period of five years, which we estimated would add incremental annual sales of approximately
$500 million. In November 2013, the preferred supplier agreement was amended to extend the term of the agreement from five years to six years,
expiring in January 2019. In connection with this amendment, while we expect the total sales during the extended term to be higher than originally
forecast, we expect the incremental sales to be approximately $450 million to $475 million annually over six years versus the original forecast of
$500 million annually over five years. Included within the Company’s Consolidated Statement of Income are net sales of $617.4 million of SDG
from the acquisition date of November 1, 2012 through the Company’s fiscal year ended January 31, 2013. The operating income of SDG for the
same period was immaterial to the Company's operating results for the fiscal year ended January 31, 2013.
Another strategic area of investment is our integrated supply chain services designed to provide innovative third party logistics and other offerings
to our business partners. We have seen these offerings grow not only within our European mobility business but also within our consumer
electronics and other businesses in both geographies. Our evolving mix of products, services, customers and geographies are important factors in
achieving our strategic financial goals. As we execute our diversification strategy we continuously monitor the extension of credit and other terms
and conditions offered to our customers to prudently balance risk, profitability and return on invested capital.
The final tenet of our strategy is innovation. Our IT systems and e-business tools and programs have provided our business with the flexibility to
effectively navigate fluctuations in market conditions, structural changes in the technology industry, as well as changes created by the products we
sell. An example of our investment in innovation and one that we believe is providing us with the flexibility to meet the demands of the ever-
evolving technology market, is our continued deployment of internal IT systems across both our Americas and European regions. We believe our
global IT systems provide us with a competitive advantage allowing us to drive efficiencies throughout our business while delivering innovative
solutions for our business partners. In the past, we have implemented several components of our European IT systems into our North American IT
infrastructure, including standardizing our North American financial systems and logistics network on SAP. During the second quarter of fiscal
2013, we implemented the sales, inventory and credit management modules of SAP within our U.S. operations, which substantially completed the
implementation of the enterprise resource planning (“ERP”) systems used in our European operations. As a result of our extensive experience
installing essentially the same ERP systems in Europe, systemically the conversion and implementation went well. However, the changes to
processes and the flow of information within Tech Data and with certain customers negatively impacted our service levels with a subset of our
customers as well as our internal productivity during fiscal year 2013.
We believe our strategy of execution, diversification and innovation has differentiated us in the markets we serve and has delivered solid operating
results and returns on invested capital in both the Americas and Europe for several years. While we experienced some performance degradation
during fiscal 2013, we continue to believe that in the long-term our U.S. implementation of SAP
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