Tech Data 2013 Annual Report Download - page 25

Table of Contents
will provide us with a competitive advantage, giving us greater flexibility to meet the demands of our customers and vendors, and the ability to
expand our reach into new markets and services.
In addition, we diligently monitor the factors that we can control, including our management of costs, working capital and capital spending. We also
continually evaluate the current and potential profitability and return on our investments in all geographies and consider changes in current and
future investments based on risks, opportunities and current and anticipated market conditions. In connection with these evaluations, we may incur
additional costs to the extent we decide to increase or decrease our investments in certain geographies. We will also continue to evaluate targeted
strategic investments across our operations and new business opportunities and to invest in those markets and product segments we believe provide
us with the greatest opportunities for profitable growth. Finally, from a balance sheet perspective, we require working capital primarily to finance
accounts receivable and inventory. We have historically relied upon debt, trade credit from our vendors, and accounts receivable financing
programs for our working capital needs. At January 31, 2013, we had a debt to total capital ratio (calculated as total debt divided by the aggregate
of total debt and total equity) of 21% .
Critical Accounting Policies and Estimates
The information included within MD&A is based upon our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. On an ongoing basis, we evaluate
these estimates, including those related to bad debts, inventory, vendor incentives, goodwill and intangible assets, deferred taxes, and contingencies.
Our estimates and judgments are based on currently available information, historical results, and other assumptions we believe are reasonable.
Actual results could differ materially from these estimates. We believe the critical accounting policies discussed below affect the more significant
judgments and estimates used in the preparation of our consolidated financial statements.
Accounts Receivable
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. In
estimating the required allowance, we take into consideration the overall quality and aging of the receivable portfolio, the existence of credit
insurance and specifically identified customer risks. Also influencing our estimates are the following: (1) the large number of customers and their
dispersion across wide geographic areas; (2) the fact that no single customer accounts for more than 10% of our net sales; (3) the value and
adequacy of collateral received from customers, if any; (4) our historical loss experience; and (5) the current economic environment. If actual
customer performance were to deteriorate to an extent not expected by us, additional allowances may be required which could have an adverse
effect on our consolidated financial results. Conversely, if actual customer performance were to improve to an extent not expected by us, a
reduction in allowances may be required which could have a favorable effect on our consolidated financial results.
Inventory
We value our inventory at the lower of its cost or market value, cost being determined on a moving average cost basis, which approximates the
first-in, first-out method. We write down our inventory for estimated obsolescence equal to the difference between the cost of inventory and the
estimated market value based upon an aging analysis of the inventory on hand, specifically known inventory-related risks (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. Market conditions or changes in terms and conditions by our vendors that are less favorable than
those projected by management may require additional inventory write-downs, which could have an adverse effect on our consolidated financial
results.
Vendor Incentives
We receive incentives from vendors related to cooperative advertising allowances, infrastructure funding, volume rebates and other incentive
agreements. These incentives are generally under quarterly, semi-annual or annual agreements with the vendors; however, some of these incentives
are negotiated on an ad-hoc basis to support specific programs mutually developed with the vendor. Unrestricted 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 product costs or selling, general and administrative expenses, depending on the nature of the programs.
We also provide reserves for receivables on vendor programs for estimated losses resulting from vendors’ inability to pay or rejections by vendors
of claims. Should amounts recorded as outstanding receivables from vendors be deemed uncollectible, additional allowances may be required which
could have an adverse effect on our consolidated financial results. Conversely, if
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