Tech Data 2014 Annual Report Download - page 21

Table of Contents
Notes issued in September 2012 and available cash to fund the acquisition. 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 (as subsequently amended)
whereby SCH, through its IT reseller business, will have annual purchase commitments through Tech Data for a period of six years, which we
estimate will add incremental sales of approximately $450 million to $475 million annually.
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.
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 initially experienced some
performance degradation, we continue to believe that in the long-term our U.S. implementation of SAP 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. A positive indicator supporting this belief is a partial recovery of market share in the Americas beginning in the second quarter of
fiscal 2014 that was lost after the Company's implementation of the final modules of SAP within its U.S. operations during the second quarter of
fiscal 2013. We believe we have opportunities for further gains in market share as our customer satisfaction ratings continue to improve. In
addition, we have continued to gain traction on leveraging the new SAP capabilities we have in the United States, as we have added new
customers to our integrated supply chain services. These services have an extensive sales and implementation cycle and while their return on
investment is not immediate, we remain optimistic about our ability to profitably grow this business.
In Europe, we have seen a decline in net sales within many of our countries, although this decline was mitigated by our acquisition of SDG, as
discussed above. Our decline in the region can be attributed to a decline in overall demand due to weak economic conditions in certain countries,
as well as a loss of market share in several countries resulting from competitive pressures and our desire to exit or not participate in certain
business opportunities due to a lack of profitability or return on capital. We have refrained from taking corresponding cost reduction or other
actions in the region due to the uncertainty of the economic situation in the various countries in which we operate, as well as our desire to remain
focused on completing the integration of SDG and our mobility and consumer electronics businesses in Belgium and the Netherlands. In the first
quarter of fiscal 2015, we completed the integration of SDG. We are monitoring our performance in the region and are continuing to evaluate our
ability to regain the proper level of profitable market share as well as the need for cost reductions or other actions.
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 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, 2014, we had a debt to total capital ratio (calculated as total debt
divided by the aggregate of total debt and total equity) of 16% .
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